Must a managed care plan pay for Medi-Cal beneficiary hospital services in accordance with the providing hospital’s full billed charges concerning post-stabilization services not under contract?

Posted in: Contract Law, Healthcare by Steven Vartabedian on

In Children’s Hospital Central California v. Blue Cross of California (filed 6/10/14) F065603, Blue Cross, in providing a managed care plan, paid $4.2 million to Children’s Hospital for a 10-month period of coverage without written contract rates for post-stabilization care. Payment was based on the Medi-Cal rates paid by the government. Children’s Hospital sued for $6.6 million, claiming it was entitled to payment for its full billed charges totaling $10.8 million, based on California Code of Regulations title 28, section 1300.71 (a)(3)(B), which defines “Reimbursement of a Claim” as the payment of the reasonable and customary value for the health care services rendered.” Children’s Hospital prevailed at trial. The trial court had precluded Blue Cross from presenting evidence of: the rates accepted by or paid to Children’s Hospital, Medi-Cal fee for service rates paid by the government, and expert testimony that the Medi-Cal rate was the reasonable and customary rate that Blue Cross should be paying for the services in question.

The Court of Appeal, Fifth Appellate District reversed. The court found that the Department of Managed Health Care (DMHC) adoption of 13300.71 (a) (3) (B) was not an exclusive criteria; that neither billed charges nor government rates are determinative of reasonable value; and reasonable value for the purposes here is based on quantum meruit. Accordingly, the trial court committed reversible error in not allowing discovery of these other measures of value, and further erred in excluding any documentary and expert evidence as to fees actually accepted by this and other hospitals for post-stabilization care to determine reasonable value that should be paid by Blue Cross. The billing that the hospital considered as the reasonable and customary charge was not dispositive standing alone.

This ruling does not mean that Blue Cross automatically prevails. The appellate court remanded the matter for a new trial on damages, including additional discovery. At the retrial, the jury will hear the various items of evidence going to the issue of what the reasonable value is here in the broader context of the realities in the managed care marketplace, including evidence of Medi-Cal rates.

The information contained in this blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients, clients or otherwise, should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. The content of this blog contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog.