Long Beach Mem'l Med. Ctr. v. Kaiser Found. Health Plan, Inc.

• Decision Date: 04 November 2021
• Docket Number: B304183, consolidated with B306322
• Citation: 71 Cal.App.5th 323,286 Cal.Rptr.3d 419
• Parties: LONG BEACH MEMORIAL MEDICAL CENTER et al., Plaintiffs and Appellants, v. KAISER FOUNDATION HEALTH PLAN, INC., et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

71 Cal.App.5th 323

286 Cal.Rptr.3d 419

LONG BEACH MEMORIAL MEDICAL CENTER et al., Plaintiffs and Appellants,

v.KAISER FOUNDATION HEALTH PLAN, INC., et al., Defendants and Appellants.

B304183, consolidated with B306322

Court of Appeal, Second District, Division 2, California.

Filed November 4, 2021

As Modified November 24, 2021

Certified for Partial Publication.^*

Jones Day, Erica L. Reilley, David J. Feder, Kevin L. Kenney, Los Angeles; Payne & Fears, C. Darryl Cordero, El Segundo, Robert C. Leventhal, Damon Rubin, Los Angeles, and Randy R. Haj, El Segundo, for Plaintiffs and Appellants.

King & Spalding, Marcia Augsburger, Daron Tooch, Anne Voigts, and Amanda Hayes-Kibreab for California Hospital Association, Sharp Healthcare, Natividad Medical Center, Pomona Valley Hospital Medical Center, and Kaweah Delta Health Care District as Amici Curiae on behalf of Plaintiffs and Appellants.

Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum, John T. Fogarty, Marina Shvarts, Los Angeles; Kellog, Hansen, Todd, Figel & Frederick, David C. Frederick, Daniel G. Bird, Joseph L. Wenner, and Jayme L. Weber for Defendants and Appellants.

HOFFSTADT, J.

Under federal and state law, a hospital is required to provide "necessary stabilizing treatment" for any person in an "emergency medical condition." ( 42 U.S.C. § 1395dd, subd. (b) ; Health & Saf. Code, § 1317, subd. (a).)¹ If that person is covered by a health care service plan, California's Knox-Keene Health Care Service Plan Act of 1975 (the Knox-Keene Act) (§ 1340 et seq.) requires the plan to reimburse the hospital for providing such "emergency services and care." ( § 1371.4, subd. (b).) The amount of reimbursement depends upon whether the hospital and plan already have a contract in place: If they do, the plan must pay the "agreed upon" contractual rate ( Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(A) ); if they do not, the plan must pay the "reasonable and customary value for the [emergency] health care services rendered" (id. , subd. (a)(3)(B)). If a plan without a contract pays reimbursement that the hospital believes is below the "reasonable and customary value," the hospital may sue the plan in quantum meruit for the shortfall. ( Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 505, 87 Cal.Rptr.3d 299, 198 P.3d 86 ( Prospect Medical ).)

This appeal raises three issues of first impression regarding the scope of a hospital's lawsuit to collect reimbursement from a plan with which it has no contract, as well as the law applicable in that lawsuit. First, in addition to quantum meruit, may a hospital sue for the tort of intentionally paying an amount that is less than what a jury might later determine is the "reasonable and customary value" of the emergency medical services, and thereby obtain punitive damages? Second, in addition to quantum meruit, may the hospital sue for injunctive relief under California's unfair competition law ( Bus. & Prof. Code, § 17200 ) to enjoin the plan from paying too little reimbursement for possible future claims not covered by a contract? Lastly, in the quantum meruit claim itself, does a trial court err in instructing the jury that the "reasonable value" of emergency medical services is defined as "the price that a hypothetical willing buyer would pay a hypothetical willing seller for the services, [when] neither [is] under compulsion to buy or sell, and both hav[e] full knowledge of all pertinent facts"?

For the reasons described more fully below, we hold that the answer to all three question is "no." Because we also reject challenges to several of the trial court's evidentiary rulings in the unpublished portion of this opinion, we affirm the jury's verdict in this case finding that the plan had paid the suing hospital the reasonable and customary value of its emergency medical services. However, also in the unpublished portion, we reverse the trial court's order categorically denying the plan its costs and remand the matter for the trial court to examine the specific challenges the hospital has raised to the plan's cost bill.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

A. The parties

1. The hospitals

The Long Beach Memorial Medical Center and the Orange Coast Memorial Medical Center (individually, Long Beach Memorial and Orange Coast Memorial; collectively, the hospitals) operate three hospitals in the region encompassing the southern portion of Los Angeles County as well as the northern portion of Orange County.

The hospitals price their medical services using two rates—namely, (1) the full-price rate they bill , which operates like the "sticker price," and (2) the discounted rate they agree to accept. The hospitals collect their full, billed rate only one to 10 percent of the time. Usually, the hospitals agree to accept a lesser amount, which is typically expressed as a percentage of the full, billed rate. That amount varies, depending on whether the payor is a government program (such as Medicare or Medi-Cal), a health plan or health insurance company that has negotiated a contract with the hospitals (a so-called "managed care agreement"), a member of a so-called "rental network" which negotiates rates with hospitals on behalf of network members, or an individual paying cash.

For instance, between 2015 and 2017, the hospitals agreed to accept the following rates from the following groups:

Payor	Percentage of full, billed rates
Medi-Cal	10%
Medicare	15%
Health plans with contractual "managed care agreements"	Typically, between 40% and 65%, with between 44% and 52% paid for trauma and emergency services
Member of a "rental network"	Typically, between 60% and 85%
Individuals paying cash	22%

Between 2015 and 2017, the average rate which the hospitals agreed to accept for emergency medical services—across all of these categories—was 27 percent of the hospitals’ full, billed rates.

2. The Kaiser entities

Kaiser Foundation Health Plan, Inc. (Kaiser) is an "insurance company" that provides medical insurance to its enrollees. Kaiser Foundation Hospitals is a related entity, and operates hospitals throughout California, although none in the communities served by the hospitals.

B. Prior contracts between the hospitals and Kaiser

In the past, Kaiser had entered into managed care agreements with the hospitals; Kaiser let its agreement with Orange Coast Memorial expire in 2008 and let its agreement with Long Beach Memorial expire in June 2015. Under the most recent iteration of these agreements,² the hospitals agreed to accept from Kaiser the following rates for the following medical services:

Service	Percentage of full, billed rates
General medical services	47%
Emergency room services	56%
Outpatient trauma services	73.4%
Inpatient trauma services	76%

C. Postcontractual payments

Although Kaiser allowed its managed care agreements with the hospitals to expire, Kaiser's enrollees would still sometimes seek emergency medical care from the hospitals, and under the Knox-Keene Act, the hospitals were obligated to provide emergency medical care to those enrollees.

Between July 2015 and October 2015, Kaiser joined several different rental networks and, pursuant to those networks’ agreements with the hospitals, ended up paying the hospitals between 75 and 85 percent of the hospitals’ full, billed rates for the emergency medical services provided to their enrollees.

In October 2015, Kaiser used an internal methodology for calculating the reasonable value of medical services. Between October 2015 and October 2017, the hospitals provided prestabilization emergency medical services to 3,609 Kaiser enrollees, and billed Kaiser for those services at their full-billed rate for a total of $31,007,982. Using its internal methodology, Kaiser reimbursed the hospitals $16,524,537—or 53.2 percent of the full, billed charges.

II. Procedural Background

A. Pleadings

1. The hospitals’ complaint(s)

In August 2017, the hospitals sued Kaiser, Kaiser Foundation Hospitals, Kaiser Permanente Insurance Company, and The Permanente Medical Group, Inc.

In the operative, second amended complaint filed in May 2018, the hospitals sued Kaiser, Kaiser Foundation Hospitals, and Kaiser Permanente Insurance Company³ for (1) breach of contract (namely, breaching the rental network contracts), (2) breach of an implied contract and recovery of services rendered—that is, quantum meruit—under the Knox-Keene Act, (3) the tort of intentionally violating the "statutory duty under the Knox-Keene Act to provide and pay for the reasonable and customary value of" emergency medical services by "implement[ing] a provider reimbursement structure that systematically fails to pay [and] underpays" the hospitals,⁴ and (4) violating the unfair competition law by "systematically failing to pay [and] underpaying" the reimbursement required by the Knox-Keene Act. The hospitals sought reimbursement for underpayments made between October 2015 and October 2017 allegedly totaling $26,750,000, punitive damages for the intentional tort, and an injunction "enjoining Kaiser" from violating the Knox-Keene Act by underpaying charges in the future.

2. Kaiser's cross-complaint

Kaiser filed a cross-complaint to recapture any payments it may have made to the hospitals in excess of the reasonable value of the emergency medical services provided.

B. Summary adjudication of intentional tort and unfair competition claims

Kaiser moved for summary adjudication of the hospitals’ intentional tort and unfair competition claims. Following briefing and a hearing, the trial court granted the motion and dismissed those two claims. The court ruled that recognizing an intentional tort for underpayment of reimbursement costs would "undermine the carefully balanced and comprehensive managed health care scheme established by the Knox-Keene Act" and would be "full of pitfalls that [the court] can't begin to comprehend." The court ruled that recognizing an unfair competition claim for underpayment made no sense because enjoining...