Prime Healthcare La Palma, LLC v. Kaiser Found. Health Plan

CourtCalifornia Court of Appeals
Decision Date25 August 2021
Docket NumberB296487
PartiesPRIME HEALTHCARE LA PALMA, LLC, et al., Appellants, v. KAISER FOUNDATION HEALTH PLAN, INC., et al., Respondents.




California Court of Appeals, Second District, Seventh Division

August 25, 2021


APPEAL from a judgment of the Superior Court of Los Angeles County No. BC390969, Ann I. Jones, Judge. Affirmed.

King & Spalding, Stephen L. Goff; Greines, Martin, Stein & Richland, Kent L. Richland, David E. Hackett; and A. Joel Richlin for Appellants.

Buchalter, Andrew H. Selesnick and Efrat M. Cogan for American College of Emergency Physicians, State Chapter of California, Inc. as Amicus Curiae on behalf of Appellants.

Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum; Marion's Inn and Mark Palley for Respondents.


Prime Healthcare La Palma, LLC and related entities[1] (collectively Prime) sued Kaiser Foundation Health Plan, Inc. and affiliated entities[2] (collectively Kaiser) seeking additional payments for health care services Prime provided to Kaiser members. Kaiser, in turn, sought reimbursement for overpayments it had made to Prime. The parties agreed to arbitrate their dispute, which involved 47, 000 individual claims from 2004 through 2014.

A panel of three arbitrators issued a multi-million dollar damage award in favor of Kaiser. The superior court denied Prime's petition to vacate the award, granted Kaiser's petition to confirm the award and entered judgment in favor of Kaiser.

Relying on the parties' agreement the arbitration award could be reviewed for legal error, Prime[3] appeals the judgment, contending the arbitration panel and the superior court committed reversible error in three distinct categories:

1. The panel and the superior court erred in ruling that Prime lacked standing to assert claims under California's unfair competition law and that it was proper for the arbitrators to decline to decide those claims on the merits.

2. The panel should have rejected Kaiser's claims to be reimbursed for overpayments as time-barred and voluntarily made.

3. The panel and the court erred in concluding the Prime parties' Medicare Advantage claims were subject to federal preemption and administrative exhaustion.

We affirm.


1. The Parties and Litigation

The Prime parties are a group of 13 Southern California acute care hospitals owned and operated by Prime Healthcare Services, Inc. The Kaiser parties form part of a not-for-profit organization that operates a “closed service model” under which its members generally receive health care from Kaiser or Kaiser-affiliated facilities but are sometimes treated at a non-Kaiser hospital, usually for emergency medical services.

Prime filed suit in state and federal court seeking reimbursement for Kaiser's alleged failure to pay, or adequately pay, for emergency and other health care services rendered by Prime to Kaiser health plan members at Prime's hospitals. The litigation commenced in January 2008 with the filing of five state court actions by several of the Prime hospitals against Kaiser. In July 2009 the Los Angeles Superior Court entered an order coordinating the five actions and an additional matter. In November 2011 three of the Prime hospitals filed new actions against Kaiser in three different counties. In January 2012 those three cases were added to the original coordinated actions. In October 2013 all the actions were ordered consolidated for trial.

Prime's first consolidated complaint alleged Kaiser had engaged “in a long-running scheme to pressure emergency department physicians to transfer [Kaiser Foundation Health Plan, Inc.] members to Kaiser hospitals when they are not stable and safe for transfer, disrupt patient care in [Prime's] emergency departments and to withhold payment from [Prime] of amounts to which [Prime is] legally entitled for having rendered emergency medical services to [Kaiser Foundation Health Plan, Inc.] members.”

Kaiser filed cross-complaints against Prime seeking relief for overpayments. Kaiser's third amended cross-complaint asserted categories of overpayment damages that included payments made at rates exceeding the reasonable value of Prime's services and improper billings.

2. The Arbitration Agreement

On February 7, 2015 the parties settled a substantial portion of their dispute and agreed to arbitrate their remaining claims. The arbitration agreement, under the heading “Scope of Arbitration, ” stated the parties agreed to “binding arbitration... in lieu of litigation in any court” of the consolidated Los Angeles Superior Court proceeding, “including, without limitation, Prime's Medicare Advantage Claims and Kaiser's Medicare Advantage cross-claims”; a related case filed by Prime addressing 2013-2014 claims; and “any and all cross-claims Kaiser wishes to advance in response” to Prime's 2013-2014 claims. Kaiser also agreed to dismiss its common law fraud cause of action, and Prime agreed to dismiss a federal lawsuit.

In a separate section, under the subheading “Disputes Concerning Scope, ” the arbitration agreement provided, “In the event of a dispute between the Parties concerning the scope of arbitration, the Arbitrators shall decide, in the exercise of sound discretion, the dispute.”

Under the heading “Decision and Final Award, ” the arbitration agreement provided, “The Arbitrators shall have the power to grant all legal and equitable remedies available to the Parties under California law, including, but not limited to, preliminary and permanent private injunctions, specific performance, reformation, cancellation, accounting, and compensatory damages, at the Arbitrators' discretion. The Arbitrators shall not be empowered to make mistakes of law or legal reasoning.” Under that same heading the agreement further provided, “The Final Award shall be conclusive and binding and may be confirmed thereafter as a judgment by the Superior Court of the State of California, subject only to challenge on the grounds set forth in California Code of Civil Procedure Section 1285 et seq. or on the grounds that the Arbitrators exceeded his/her/their powers by making a mistake of law or legal reasoning. The Parties agree that the court shall have jurisdiction to review, and shall review, all challenged findings of law and legal reasoning based on a de novo review.”

The arbitration agreement also provided, as to the Medicare Advantage claims, “[T]he arbitrators will be empowered to determine whether those claims should be dismissed based on federal preemption and/or exhaustion of administrative remedies, and that the agreement to arbitrate does not waive or alter any such defenses and arguments that the parties would have had in the federal or state courts.”

3. The Arbitration and Final Award

The arbitration proceeded before a panel of three arbitrators in nine phases (including a damages phase) over a three-year period, with awards following each phase. The panel heard 67 days of live testimony and argument and issued several partial final awards and interim awards, which were summarized in, and attached as appendices to, the final arbitration award.

On May 1, 2017 the panel issued a tentative decision. The parties submitted objections, and in June 2017 the panel issued an order on the objections to the tentative decision.

On March 19, 2018, determining both Kaiser and Prime were entitled to a damages award, with Kaiser's amount exceeding Prime's, the panel issued a final arbitration award entitling Kaiser to a net multi-million dollar recovery against Prime and identifying the Kaiser parties as the prevailing parties.[4]

4. The Petitions To Confirm and To Vacate the Arbitration Award and the Superior Court's Order and Judgment

Kaiser petitioned in the consolidated and coordinated superior court action to confirm the arbitration award, and Prime petitioned to vacate it.[5] After hearing argument, the superior court on February 11, 2019 issued an order granting Kaiser's petition and denying Prime's. On February 26, 2019 the superior court entered a judgment confirming the final arbitration award.


1. Grounds for Vacating an Arbitration Award and Standard of Review

When parties agree to private arbitration, the scope of judicial review is strictly limited to give effect to the parties' intent to bypass the judicial system and thereby avoid potential delays at the trial and appellate levels. (E.g., Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10; Branches Neighborhood Corp. v. CalAtlantic Group, Inc. (2018) 26 Cal.App.5th 743, 750.) The exclusive grounds on which a court may vacate an arbitration award are identified in Code of Civil Procedure section 1286.2, which include, in subdivision (a)(4), the arbitrator exceeded his or her powers. (See Richey, at p. 916 [“courts are authorized to vacate an award if it was (1) procured by corruption, fraud, or undue means; (2) issued by a corrupt arbitrator; (3) affected by prejudicial misconduct on the part of the arbitrator; or (4) in excess of the arbitrator's powers”].)

Generally, “‘[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, '” and a court may not review the merits of the controversy between the parties, the validity of the arbitrator's reasoning or the sufficiency of the evidence supporting the arbitration award. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 10-11.) However, “‘[a]n exception to the general rule assigning broad powers to the arbitrators arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers. [Citation.] “The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate. [Citation.] Awards in excess...

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