May an HMO be found negligent in the delegation of its statutory duty to reimburse non-contracting emergency physicians?

Posted in: Healthcare by Steven Vartabedian on

Emergency room physicians have a legal duty to treat a patient regardless of patient’s inability to pay the physician’s bill. Where patient is enrolled in an HMO (Health Maintenance Organization care service plan), even where the emergency physician is not under contract to the HMO, the obligation to pay for the physician’s services still rests with the HMO. But HMO’s are statutorily allowed to delegate this responsibility to IPA’s (independent practice associations). Where this delegation has occurred, and the emergency physician providing treatment neither contracted with the patient’s HMO nor was a member of the delegated IPA, is the physician entitled to payment from the HMO when the IPA fails to pay?

The answer to this complex question is equally complex, and is found in Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (filed 4/2/14) B238867a. It may seem surprising that the answer is more a matter of tort law than contract law. And much like the inquires found in the venerable tort law authority in Rowland v. Christian (1968) 69 Cal.2d 108, public policy considerations play a large role. As the discussion below indicates, central to the answer is the policy that the HMO patient (the consumer) not be vulnerable to such billings in violation of their HMO contractual entitlement. In resolving a split of appellate authority, that answer found in Centinella is the HMO has a duty not to delegate its obligation to reimburse emergency physicians to an IPA it knows, or has reason to know, will be unable to pay. On the facts alleged in this case, the Court of Appeal, Second Appellate District, Division Three, found a sufficient basis for the physicians to seek payment from the HMO on the claim of negligent delegation. The trial court’s sustaining of the HMO’s demurrer without leave was reversed, and the matter was remanded.

In the trial court, the HMO had succeeded in arguing that no duty arose for it to protect the financial interests of the third party physician-plaintiffs under Biakanja v. Irving (1958) 49 Cal.2d 647. The trial court agreed that Biakanja barred relief in that it requires an intent to harm a plaintiff specifically, which was not alleged here. The appellate court disagreed with this interpretation of Biakanja, discussing the split of authority on the issue. The proper interpretation, ruled the court, is that the duty of the HMO is owed to the plaintiff or to a class of which plaintiff is a member.
An important element in the discussion of the HMO’s duty is the impact of Health and Safety Code section 1379, which prohibits a physician who has contracted with a plan from billing a patient sums owed by the plan (balance billing). In Prospect Medical Group v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, the California Supreme Court concluded that emergency physicians may not balance bill even if they have not contracted with the provider HMO. One difference with the present case was that Prospect did not involve an insolvent IPA. But the policy that emergency physicians should resolve their disputes directly with the HMO rather than the patient may be even stronger in the case of an insolvent IPA. Thus the HMO needs to be aware of the consequences to non-contracting emergency physicians where the HMO should at least be aware that an IPA is insolvent or even underfunded.

The appellant court then goes through the six Biankanja factors to assess whether the HMO had a duty to the emergency physicians: (1) the extent transaction was intended to affect the plaintiffs; (2) the foreseeability of harm; (3) the degree of certainty of injury; (4) the closeness between defendant’s conduct and the injury; (5) moral blame; and (6) the policy of preventing future harm. In addition to finding the first factor present as discussed above, the court found each of the factors and their policies to weigh in favor of finding a cause of action for negligent delegation.

This opinion sends a strong message to HMO’s to take greater care in adequately funding (for example, through capitations) and keeping a watchful eye over the IPA’s with which they contract in the provision of emergency services.

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