Yarick v. Pacificare of California, F057032.

CourtCalifornia Court of Appeals
Citation179 Cal.App.4th 1158,102 Cal. Rptr. 3d 379
Decision Date01 December 2009
Docket NumberNo. F057032.,F057032.
PartiesLISA YARICK, as Administrator, etc., Plaintiff and Appellant, v. PACIFICARE OF CALIFORNIA, Defendant and Respondent.
179 Cal.App.4th 1158
102 Cal. Rptr. 3d 379
LISA YARICK, as Administrator, etc., Plaintiff and Appellant,
PACIFICARE OF CALIFORNIA, Defendant and Respondent.
No. F057032.
Court of Appeals of California, Fifth District.
December 1, 2009.

[179 Cal.App.4th 1160]

Balisok & Associates, Russell S. Balisok and Steven C. Wilheim for Plaintiff and Appellant.

Dorsey & Whitney, Steven D. Allison and Christy L. Bertram for Defendant and Respondent.

[179 Cal.App.4th 1161]



This is an appeal from judgment entered after the court sustained without leave to amend a demurrer to the fourth amended complaint filed by plaintiff and appellant Lisa Yarick, administrator of the estate of Joseph Yarick. The court ruled that claims against defendant and respondent PacifiCare of California (hereafter respondent), one of several defendants below, were "preempted in [their] entirety by the federal government." (Capitalization omitted.) We agree and will affirm the judgment.

Facts and Procedural History

According to the allegations of the fourth amended complaint, which we deem true for the present appeal from judgment after a sustained demurrer (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58]), Joseph Yarick received health care benefits under the federal Medicare Advantage program. (See generally 42 U.S.C. § 1395w-21 et seq.) His health care benefits were provided through Secure Horizons, respondent's Medicare managed care plan.

In early January of 2006, Mr. Yarick, who "was over 85 years of age," was admitted to defendant San Joaquin Community Hospital because he had fallen and broken his leg. Mr. Yarick had surgery to repair his broken leg and, three days later, was transferred to Rosewood Health Facility, operated by defendant American Baptist Homes of the West, for rehabilitation and custodial care.

Over the next three weeks, Mr. Yarick's condition deteriorated in various ways. Nevertheless, Rosewood Health Facility and defendant Bakersfield Family Medical Group, despite the objection of Mr. Yarick's family, discharged Mr. Yarick. When the family arrived to receive Mr. Yarick upon discharge, they found him "slumped in a wheel chair and not responsive." The family called an ambulance, which transported Mr. Yarick to Mercy Hospital, operated by defendant Catholic Healthcare West.

Mr. Yarick was diagnosed with multiple conditions, including pneumonia and congestive heart failure. Over the next two weeks, according to the complaint, doctors of defendant Bakersfield Family Medical Group first counseled, and then pressured, appellant to terminate efforts at curing Mr. Yarick and to substitute, instead, "comfort" or end-of-life care. Although appellant continued to insist on curative care, as a result of the efforts of the various defendants, Mr. Yarick died on February 18, 2006.

179 Cal.App.4th 1162

The fourth amended complaint alleges that all of the foregoing events happened because of the financial pressures and incentives that arose from the care providers' contracts with respondent. The complaint alleges respondent's contracts with providers offer insufficient payment to permit the providers to make decisions and to provide care based on patients' reasonable medical needs, requiring the providers to substitute a standard of financial expediency. It alleges some of the contracts provide financial incentives for the refusal to provide reasonably necessary medical care. It alleges respondent has failed to implement and utilize necessary quality control mechanisms that would require providers to give good medical care despite the financial incentives not to do so. The complaint does not allege respondent made or participated in care determinations concerning Mr. Yarick specifically, nor does it allege appellant sought respondent's assistance to obtain care for Mr. Yarick.

Respondent demurred to the original complaint and to each subsequent complaint. As relevant to this appeal, on respondent's demurrer to the third amended complaint, the court granted the demurrer without leave to amend as to appellant's second cause of action, entitled "Willful Misconduct." The court determined the second cause of action failed to allege facts sufficient to state a cause of action and that appellant conceded there were no further facts she could allege. The court also sustained the demurrer as to the remaining causes of action, but permitted appellant to file a further amended complaint.

Appellant's fourth amended complaint set forth causes of action for negligence, elder abuse, and wrongful death. Respondent demurred to the fourth amended complaint on the basis that the causes of action were preempted by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 42 United States Code section 1395w-26(b)(3). Respondent also contended that none of the causes of action stated facts sufficient to constitute a cause of action and that all were uncertain.

After hearing, the court sustained the demurrer on all causes of action without leave to amend on the basis that the claims were preempted by federal law. The court entered judgment dismissing the complaint. Appellant filed a timely notice of appeal.

I. The Medicare Advantage Program

Appellant's primary claim against respondent, both here and in the trial court, is that the contractual structure through which respondent arranges to provide medical services gives the medical care providers an undue financial incentive to deny medically reasonable services. We will begin with a brief

179 Cal.App.4th 1163

description of the insurance program pursuant to which respondent enters into contracts with medical providers.

Medicare Advantage (MA) (previously known as Medicare+Choice) is a federal program designed to permit persons eligible for Medicare to enroll in private insurance plans, including health maintenance organizations (HMO's). The Medicare program pays all or most of the premium for that insurance in lieu of paying Medicare benefits directly to service providers. (See 1 Cal. Elder Law Resources, Benefits, and Planning (Cont.Ed.Bar 2009) Introduction to Medicare, §§ 7.65, 7.68, pp. 437-440; see also Medicare Advantage Program, 42 C.F.R. § 422.1 et seq. (2008) [all citations to federal regulations are to the Oct. 1, 2008, edition].)

Respondent provides an MA HMO plan marketed under the name Secure Horizons. Respondent is a health insurance company and does not directly provide medical services. Instead, it contracts with local health care providers, who then provide physician, hospital, and other medical services to Secure Horizons plan members.

As an organization providing an MA plan, respondent, through a process of bidding and negotiation (see 42 C.F.R. § 422.250 et seq. (2008)), contracts with the Centers for Medicare and Medicaid Services (CMS) to receive a monthly payment from Medicare for each person enrolled in respondent's MA plan. In return, respondent must arrange to provide a specified range of services for enrollees. (See 42 C.F.R. § 422.300 et seq. (2008).) Similarly, as relevant in this case, respondent contracts with a physicians group and two hospitals for provision of direct services to enrollees, again based, primarily, on a negotiated monthly fee for each enrollee regardless of services actually provided in a particular month. This payment mechanism is generally called "capitation." (See 42 C.F.R. § 422.208(a) (2008).)

Respondent and its participating medical providers are contractually bound to provide adequate access to covered medical services. (See, e.g., 42 C.F.R. § 422.112(a)(1) (2008).) Service providers are required to provide medically necessary care in a competent manner. (See id., § 422.112(a)(6)(i) (2008).) Nevertheless, it is obvious that an MA organization or a provider receiving capitation payments would, in any given month, make more money if it reduced costs by providing fewer services than the average anticipated by the parties in arriving at a capitation formula.

Apparently Medicare is concerned that contractual, ethical, and long-term patient satisfaction considerations may not be sufficient incentives for organizations

179 Cal.App.4th 1164


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