Olszewski v. Scripps Health, No. S098409.

• Court: United States State Supreme Court (California)
• Writing for the Court: BROWN, J.
• Citation: 135 Cal.Rptr.2d 1,30 Cal.4th 798,69 P.3d 927
• Parties: Cimmaron OLSZEWSKI, a Minor, etc., Plaintiff and Appellant, v. SCRIPPS HEALTH, Defendant and Respondent.
• Decision Date: 02 June 2003
• Docket Number: No. S098409.

135 Cal.Rptr.2d 1
30 Cal.4th 798
69 P.3d 927

Cimmaron OLSZEWSKI, a Minor, etc., Plaintiff and Appellant,
v.
SCRIPPS HEALTH, Defendant and Respondent

No. S098409.

Supreme Court of California.

June 2, 2003.

135 Cal.Rptr.2d 6

Chavez & Gertler, Mark A. Chavez, Mill Valley, Kim E. Card, San Francisco; Blumenthal Ostroff & Markham, Law Offices of Sheldon A. Ostroff, Sheldon A. Ostroff, David R. Markham, San Diego; Law Offices of Thomas J. Brandi, and Thomas J. Brandi, San Francisco, for Plaintiff and Appellant

Manjusha P. Kulkarni; Kimberly Lewis; Rebecca S. Gudeman; and Marilyn Holle, Los Angeles, for National Health Law Program, Western Center on Law & Poverty, National Center for Youth Law and Protection & Advocacy, Inc., as Amici Curiae on behalf of Plaintiff and Appellant.

The Sturdevant Law Firm, James C. Sturdevant, San Francisco, Mark T. Johnson; Hinton & Alfert and Scott H.Z. Sumner, Walnut Creek, for Consumer Attorneys of California as Amici Curiae on behalf of Plaintiff and Appellant.

Friestad & Giles, Deborah Giles, San Diego, and Leticia O. Trujillo, Escondido, for Defendant and Respondent

Manatt, Phelps & Phillips, Barry S. Landsberg, Harvey L. Rochman, Los Angeles, and Wendy M. Conole for Catholic Healthcare West and The Regents of the University of California as Amici Curiae on behalf of Defendant and Respondent.

Catherine I. Hanson and Astrid G. Meghrigian, San Francisco, for the California Medical Association as Amicus Curiae on behalf of Defendant and Respondent.

Lois Richardson, Los Angeles, for California Healthcare Association as Amicus Curiae on behalf of Defendant and Respondent.

Stream & Stream, Theodore K. Stream, Riverside, Jamie E. Wrage, Los Angeles, and Tera Harden for Loma Linda University Medical Center, Inc., as Amicus Curiae on behalf of Defendants and Respondents.

135 Cal.Rptr.2d 7

BROWN, J

As a participant in the federal Medicaid program, the State of California has agreed to abide by certain requirements imposed by federal law in return for federal financial assistance in furnishing medical care to the needy. (See Harris v. McRae (1980) 448 U.S. 297, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784.) The California Medical Assistance Program, Medi-Cal (Welf. & Inst. Code, §§ 14000-14198),¹ "represents California's implementation of the federal Medicaid program ..." (Robert F. Kennedy Medical Center v. Belshé (1996) 13 Cal.4th 748, 751, 55 Cal.Rptr.2d 107, 919 P.2d 721.) In implementing Medi-Cal, our Legislature has enacted statutes authorizing a health care provider to assert and collect on a lien for the full cost of its services against "any judgment, award, or settlement obtained by" a Medicaid beneficiary. (§ 14124.791; see also § 14124.74.)

The Legislature enacted these statutes to alleviate the fiscal difficulties faced by health care providers who, due to Medi-Cal payment limits, did not receive full compensation for services rendered to Medicaid beneficiaries (see Legis. Counsel's Dig., Assem. Bill No. 812 (1985-1986 Reg. Sess.) 4 Stats.1985, Summary Dig., p. 241), and to give these providers an incentive "to seek out third-party liability sources" (Assem. Health Com., Rep. on Assem. Bill No. 812 (1985-1986 Reg. Sess.) Apr. 30, 1985, p. 2). As originally enacted in 1985, section 14124.791 allowed a provider to first bill Medi-Cal and, after receiving payment from Medi-Cal, "to file a lien for the amount of unpaid charges against any judgment, award, or settlement obtained by the beneficiary—" (Stats.1985, ch. 776, § 5, p. 2515.) Recognizing that this balance billing² provision might conflict with federal law, however, the Legislature provided that "[t]he provisions for which appropriate federal waivers cannot be obtained [such as section 14124.791] shall not be implemented." (Stats.1985, ch. 776, § 6, p. 2515.)

Because no federal waivers were obtained, the 1985 version of section 14124.791 was never implemented. (See Assem. Ways & Means Com., Republican analysis of Sen. Bill. No. 1719 (1991-1992 Reg. Sess.) Aug. 31, 1992, p. 1.) In 1992, the Legislature sought to rectify this problem by revising section 14124.791. Under the 1992 version, a provider could recover on a lien "against any judgment, award, or settlement obtained by the [Medicaid] beneficiary" for the full cost of its services only after refunding the Medi-Cal payment. (§ 14124.791.) Thus, the 1992 version permitted substitute billing—where the provider substitutes recovery from a judgment or settlement obtained by the beneficiary for recovery from Medi-Cal— and not balance billing. Unlike in 1985, the Legislature did not condition implementation of the 1992 version on the receipt of appropriate federal waivers.

Today we consider the constitutionality of the 1992 version of the provider lien statute in the context of a lawsuit filed by a Medi-Cal beneficiary against her medical provider. In this case, the health care provider filed a lien pursuant to section 14124.791 against the Medi-Cal beneficiary. Challenging the legality of the provider's practice of filing such liens, the beneficiary filed a class action lawsuit against the provider, alleging unfair competition

135 Cal.Rptr.2d 8

and various tort claims. As the basis for her claims, the beneficiary contended federal law preempted section 14124.791 and rendered invalid any liens filed pursuant to that section. The trial court dismissed the action, holding that federal Medicaid law did not preempt section 14124.791. We now conclude that the trial court erred in part because federal law does preempt California's provider lien statutes. Nonetheless, we affirm the judgment of the trial court dismissing the class action with prejudice because the claims either fall within the safe harbor described in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182, 83 Cal.Rptr.2d 548, 973 P.2d 527 (Cel-Tech), or are barred by the litigation privilege contained in Civil Code section 47, subdivision (b)

Facts

Because we review this case after the trial court sustained a general demurrer, we accept as true all material allegations of the complaint. (See Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 807, 102 Cal.Rptr.2d 562, 14 P.3d 234.) The complaint alleges the following facts:

Cimarron Olszewski (plaintiff) is a minor and a Medi-Cal beneficiary who received emergency medical care from Scripps Health (defendant), a medical care provider that participates in the Medi-Cal program. Defendant received and accepted Medi-Cal payments for the medical care it provided to plaintiff. Defendant, either directly or through its collection agent, Medical Liabilities Recoveries, Inc. (MLR) (collectively defendants),³ also asserted a lien against "the personal injury claims, judgments or settlements of plaintiff pursuant to Welfare and Institutions Code section 14124.791 and Civil Code section 3045.1.

In response, plaintiff filed this class action, alleging that defendants had no legal right to assert and collect on such liens, in light of federal Medicaid law governing provider reimbursement and third party liability. Plaintiff asserted causes of action for (1) violations Of the unfair competition law (hereafter UCL; Bus. & Prof. Code, § 17200 et seq.), (2) trespass to chattels, (3) negligent misrepresentation, and,(4) fraud. In addition to restitution and damages, plaintiff sought an order declaring that the liens asserted by defendants against her and the other class members were "unlawful, unenforceable, and uncollectible" because federal law preempted the California statutes authorizing these liens. Plaintiff also sought to enjoin defendants from asserting these liens in the future.

Defendants demurred, and the trial court sustained the demurrers without leave to amend. The court concluded that defendants had a statutory right to assert the liens under section 14124.791 and that federal law did not preempt this statutory right. The court also held that plaintiffs tort claims were barred because the filing of the liens was "a privileged communication protected by Civil Code [section] 47[, subdivision] (b)(2)."

The Court of Appeal disagreed with the trial court on the preemption issue and concluded that federal Medicaid law preempted section 14124.791. The court, however, agreed that plaintiffs claims were barred because (1) section 14124.791 provided a safe harbor from plaintiffs UCL claim Under Cel-Tech, supra, 20 Cal.4th at page 182, 83 Cal.Rptr.2d 548, 973 P.2d 527; and (2) defendants' assertion

135 Cal.Rptr.2d 9

of the liens was protected by the litigation privilege. In determining the proper disposition, the court concluded that the trial court had found an "imbedded claim for declaratory relief as to the validity of section 14124.791" and had "declared section 14124.791 was not preempted by federal law" and defendants' lien against plaintiff was valid. The Court of Appeal then modified the declaratory relief portion of the trial court's judgment to reflect its findings that federal law preempted section 14124.791 and defendants' lien was invalid and unenforceable and affirmed the judgment "as so modified."

Both plaintiff and defendants petitioned this court and we granted review.

Discussion

I

A

As an initial matter, we find that the Court of Appeal acted properly in modifying the judgment to include a declaration that defendants' lien against plaintiff was invalid, but erred in adding a declaration that federal law preempted section 14124.791. In her complaint, plaintiff adequately pled a claim for declaratory relief under Code of Civil Procedure section 1060 even though she did not separately identify such a cause of action. (Bank of America etc. Assn. v. Gillett (1940) 36 Cal.App.2d 453, 455, 97 P.2d 875 [affirming a judgment awarding declaratory relief even though the plaintiff failed to "designate[ ] his complaint one for `Declaratory Relief"]; see also 5 Witkin, Cal....