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DMHC Sues Prime Health for Balance Billing by Orange County Hospitals
By Allen E. Briskin
[July 2008]
On June 27, 2008, the California Department of Managed Health Care (DMHC) filed a lawsuit against Prime Healthcare Services, Inc. and a number of Prime Health affiliates in connection with their billing practices at West Anaheim Medical Center, La Palma Intercommunity Hospital and Huntington Beach Hospital (together, "Prime").
The essential facts described in the DMHC's lawsuit are as follows: HMO members, including specifically Kaiser Foundation Health Plan members, received care in Prime hospitals' emergency departments; Kaiser directly paid Prime a "reasonable and customary charge" for those services; Prime then balance billed Kaiser's members for the difference between Kaiser's payment and Prime's actual charges, and sought to collect from those members aggressively.
The DMHC claims that Prime thus violated the Knox-Keene Act. The DMHC's claim is based on the "implied-in-law contract" theory, under which a hospital that routinely and as a course of business provides emergency services to a community that includes HMO members is subject to a contract that is implied under the law, and that this implied contract constitutes the hospital's agreement to accept the HMOs' payments of "reasonable and customary" charges as payment in full. The Knox-Keene Act forbids contracting providers from balance billing HMO members.
The lawsuit notes that the DMHC has received numerous complaints about Prime hospitals balance billing members of all the major health plans. Although the DMHC and others have discussed the "implied-in-law contract" theory for a number of years, the California courts have yet to endorse this theory in the context of balance billing HMO members. The DMHC has filed this lawsuit while it continues to review public comments to proposed regulations that would define non-contracting providers' balance billing for emergency services as an "unfair billing pattern."
While it is possible that the DMHC believes that the particular facts concerning Prime's activities warrant taking legal action at this time, it is noteworthy that the basic claim the DMHC is making in this lawsuit could be made against any emergency provider that does not contract with a health plan and does not wish to accept that plan's payment as payment in full.
If the DMHC is successful arguing the implied-in-law contract theory against Prime, that success may lead to a broader application of the theory to other providers, and to continued DMHC action against providers. We will follow the progress of this case as well as the DMHC's other activities in this area.
For more information, please contact:
This advisory is a publication of the Health Law Group of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Copyright 2008, Davis Wright Tremaine
LLP.
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