Olszewski v. Scrippshealth

Decision Date09 May 2001
Docket NumberNo. D034197.,D034197.
PartiesCimmaron OLSZEWSKI, A Minor, etc., Plaintiff and Appellant, v. SCRIPPSHEALTH et al., Defendants and Respondents.
CourtCalifornia Court of Appeals Court of Appeals

Gary M. Orlansky, for Defendant and Respondent Medical Liability Recoveries, Inc.

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

Manatt, Phelps & Phillips, Barry S. Landsberg, Harvey L. Rochman and Wendy M. Conole, Los Angeles, for Catholic Healthcare West as Amicus Curiae on behalf of Defendants and Respondents.


When a person eligible for Medi-Cal benefits (the patient) is injured by a third party, receives treatment by a health care provider (the provider) under the Medi-Cal program, and thereafter sues the third party for damages, Welfare and Institutions Code section 14124.7911 permits the provider to impose a lien on the patient's recovery from the third party to recoup the actual value of its services. Defendants ScrippsHealth and Medical Liability Recoveries, Inc. (together respondents) invoked the section 14124.791 procedure and placed a lien on plaintiff Cimmaron Olszewski's claim against a third party tortfeasor who had contributed to the injuries suffered by Olszewski and treated by ScrippsHealth; respondents sought to recover the actual value of the services provided by ScrippsHealth. Olszewski responded by filing the present action contending that section 14124.791 was invalid and that by filing the lien respondents were liable for unfair competition, fraud, negligent misrepresentation and trespass to chattels. The trial court concluded section 14124.791 was valid and that respondents' conduct was privileged; it therefore sustained respondents' demurrer to the complaint without leave to amend.

This case presents two distinct questions. First, is section 14124.791 invalid because preempted by federal law? The federal law governing the Medi-Cal program requires that every provider that accepts Medi Cal payments for the patient must agree not to seek further payment from the patient; the provider instead must content itself with the amounts paid by Medi-Cal. Whether section 14124.791, which allows a provider to seek more than the amounts paid by Medi-Cal, is preempted by federal law is the broad question posed by this case.

Second, if section 14124.791 is invalid under the preemption doctrine, did the trial court correctly determine that Olszewski's complaint did not state causes of action under the unfair competition statute or in tort? This question requires us to evaluate whether a person who pursues rights under a facially valid statute may be liable under the unfair competition laws or in tort if a court decides the statute is invalid.


In August 1998 Olszewski was injured in a car accident and received medical treatment from ScrippsHealth. Because Olszewski was eligible for Medi-Cal benefits, ScrippsHealth billed and received payment from Medi-Cal. However, ScrippsHealth claimed the amount it received from Medi-Cal was less than the reasonable value of the services provided to Olszewski.

Olszewski pursued a claim against a third party, seeking damages arising out of the accident. In October 1998 respondents filed a provider lien pursuant to section 14124.791 against any damages Olszewski might recover from the third party; respondents' lien alleged the reasonable value of the services provided to Olszewski by ScrippsHealth was $200,880.22.

Olszewski objected to the lien and filed this class action and private attorney general lawsuit alleging respondents engaged in unlawful, unfair and fraudulent business practices by accepting Medi-Cal payments for services to Medi-Cal patients and thereafter pursuing lien claims under section 14124.791. Olszewski's complaint contended section 14124.791 is invalid because it is preempted by the federal Medicaid rules, and pleaded a cause of action under the unfair competition law3 (Bus. & Prof. Code, § 17200 et. seq.) as well as causes of action for fraud, negligent misrepresentation and trespass to chattels.

Respondents demurred to the complaint, arguing section 14124.791 was not preempted by federal Medicaid rules and that their conduct was privileged. The trial court agreed with respondents' contentions and sustained the demurrer without leave to amend.4 Olszewski appeals from the subsequent judgment dismissing her complaint.

A. The Federal Ban on Balance Billing.

California's Medi-Cal program receives federal Medicaid funds to help finance California's Medi-Cal program. As a condition of receipt of Medicaid funds, the Medi-Cal program must comply with federal laws and regulations. (Mission Community Hospital v. Kizer (1993) 13 Cal.App.4th 1683, 1689, 17 Cal.Rptr.2d 303.) The preemptive federal rule alleged in this case is the rule prohibiting what has been called balance billing. Balance billing refers to the practice of billing patients for the balance remaining on a medical bill after deducting the amount paid by Medi-Cal.5 (See Palumbo v. Myers (1983) 149 Cal.App.3d 1020, 1025, 197 Cal.Rptr. 214.)

Under the federal Medicaid law, a "[s]tate plan for medical assistance must [provide] [¶] ... [¶] that in case of an individual who is entitled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the service may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service...." (42 U.S.C. § 1396a, subd. (a)(25)(C).)6 Medi-Cal, as the state agency distributing the federal funds, "must limit participation in the Medicaid program to providers who accept, as payment in full, the amounts paid by the agency. . . ." (42 C.F.R. § 447.15.) Therefore, under federal law, ScrippsHealth was eligible for Medi-Cal money only if it agreed to accept the Medi Cal money as payment in full. Because the complaint alleges Scripps-Health made such an agreement, Scripps-Health is barred from billing the patient for any balance above the amounts paid by Medi-Cal. (Palumbo v. Myers, supra, 149 Cal.App.3d 1020, 197 Cal.Rptr. 214; Serafini v. Blake (1985) 213 Cal.Rptr. 207, 167 Cal.App.3d Supp. 11, 17; cf. Rybicki v. Hartley, supra, 792 F.2d at pp. 261-262 [Medicare].)

B. The 1985 Effort to Avoid the Balance Billing Ban.

In 1985 the California Legislature attempted to avoid in part the federal ban on balance billing by enacting provisions contained in Chapter 776 of the Statutes of 1985. This Chapter tentatively amended section 14124.791 to allow providers to file a lien for the balance not paid by Medi-Cal against sums recovered by the patient from third parties responsible for the patient's injuries. It also tentatively amended section 14124.74 to provide that if a Medi-Cal patient received an award in a lawsuit arising out of the patient's injury, the court—after first ensuring payment of litigation expenses and reimbursement to Medi-Cal—was to impose a lien against the patient's recovery in favor of the provider in the amount of any unpaid charges.

The Legislature apparently recognized that these provisions were in conflict with the federal ban on balance billing, and specified that these provisions were not to become effective until "appropriate federal waivers" were obtained. (Stats.1985, ch. 776, § 6, p. 2515.) The federal government denied the waiver requests in 1986, and these provisions never became effective. (Historical and Statutory Notes, 74A West's Ann. Welf. & Inst.Code (1991 ed.) § 14019.3, p. 77.)

C. The 1992 Effort to Avoid the Balance Billing Ban.

In 1992 the Legislature again sought to avoid in part the federal ban on balance billing by enacting the current version of section 14124.791. Subdivision (a) of section 14124.791 contains two relevant provisions. The first provision permits the provider to file a lien for services provided to a patient in connection with an injury caused by a third party, even if the provider has received payment from Medi-Cal, "for all fees for services provided to the [patient] against any judgment, award, or settlement obtained by the [patient] against that third party." The second provision permits the provider to "recover upon the lien [only] if the provider has made a full reimbursement of any fees" paid to the provider by Medi-Cal.7 The 1992 version of section 14124.791 provides for creation of a lien against a personal injury recovery from a third person for the full amount of the provider's bill and for recovery of this full amount by the provider if the provider makes a full reimbursement to Medi-Cal of the monies it had previously been paid.

In 1997 Ms. Moore, acting director of the federal Medicaid Bureau, issued a letter "clarifying our policies" regarding provider reimbursement rights when the patient has a tort claim against third parties. The letter, synopsizing the clarification, stated federal rules would be broadened to:

"allow States to permit providers to pursue payment in excess of Medicaid's reimbursement in tort situations as long as certain conditions are met. Specifically, States must assure that Medicaid is made whole before providers can keep any monies. Second, the State must assure protection to its Medicaid...

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3 cases
  • Grauberger v. St. Francis Hosp., C-00-2625 CAL.
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    • U.S. District Court — Northern District of California
    • June 15, 2001
    ......Thus, in all but the most legalistic sense, the lien runs against plaintiff. See Olszewski" v. ScrippsHealth, 88 Cal. App.4th 1268, 1281, 107 Cal.Rptr.2d 187, 196-97 (2001). This violates the Hospital Agreement. See Hospital Agreement at \xC2"......
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