California Ends Balance Billing
By Angela M. Lai and M. Dylan McClelland, California Department of Managed Health Care, Sacramento, CA
The views presented are solely those of the authors.
The practice of “balance billing” by emergency room doctors is part of a contentious issue that has plagued the managed care industry, providers, and health care consumers for many years. On January 8, 2009, in a unanimous decision in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, the California Supreme Court declared balance billing unlawful in the context of emergency medical care. Where a health plan (i.e., an “HMO”) does not pay, in whole or in part, the amount charged by emergency room doctors, the doctors now must resolve billing disputes solely with the health plans. The providers may seek dispute resolution, or even sue the health plans if they wish, but they may no longer bill patients with a health plan for the disputed amount.
Balance billing is a controversial practice that often occurs in the case of emergency care rendered to health plan consumers. In a non-emergency situation, HMO members generally use the medical services of one of the in-network doctors, i.e., doctors who contract with their HMO. In these non-emergency situations, the parties agree upon, and know in advance, who must pay and how much for medical care. But this typical payment model often breaks down in the case of emergency care. In an emergency, an HMO patient goes to the nearest hospital emergency room for treatment, but either the hospital, the emergency room physicians providing care, or the on-call specialists may not have a preexisting contract with the patient’s HMO, and as such, these providers are considered out-of-network as to the health plan consumer seeking treatment. In this situation, it is undisputed that the doctors are statutorily required, pursuant to EMTALA regulations and California law, to provide emergency care without regard to the patient’s ability to pay. It is undisputed that, pursuant to California law, the health plans (not their patients) are responsible for reimbursing these out-of-network providers for emergency services. It is also undisputed that California law limits recovery of non-network providers for the emergency services rendered to only the “reasonable and customary amount,” not the billed charge. What is disputed, however, is what constitutes “reasonable and customary amount,” since there is no advance agreement between the two.
In a given case, the “reasonable amount” may be the amount a doctor bills, or the HMO chooses to pay, or some amount in between. In California, while an HMO has the initial responsibility for paying the “reasonable and customary amount,” the plan’s determination of the amount is not dispositive, and there are several channels for providers to contest the health plan’s determination. California’s managed care statute, the Knox-Keene Act, allows providers to sue HMOs directly over billing disputes, and requires HMOs to make available a dispute resolution mechanism for non-contracting providers to resolve billing disputes. In addition, the California Department of Managed Health Care has developed a Provider Complaint Unit to enforce a provider’s right to fair and timely payment, and has piloted an independent dispute resolution system for providers that have gone through a health plan’s dispute resolution process but still contest the health plan’s determination.
In an effort to collect the entire bill without seeking dispute resolution or other legal recourse, providers often pressure patients to pay the disputed amount as a leverage against HMOs to ultimately pay the provider’s billed charges in full, even if those charges are in excess of the reasonable and customary value of the services rendered. Other providers simply find collecting from the patients the easiest approach – a no-nonsense self-help remedy.
Unfortunately, some patients may lack the resources to pay the invoiced amount and are subject to harsh collection tactics or negative credit record ratings. Many patients simply are not aware that they are not supposed to pay the extra bills, or lack the resources to fight balance billing on their own. Other unsuspecting patients may be forced to remit payment of the full amount of a provider’s billed charges even if those charges are in excess of the reasonable and customary value of the services rendered. The resulting situation is particularly troubling since an HMO is a risk elimination plan, and HMO members have prepaid through their premiums all services, such as emergency services, absent an occasional copay.
The California high court turned to the California Knox-Keene Act and previous case law in reaching its decision that balance billing is illegal. The Court interpreted the Knox-Keene Act as a whole, and noted the statutory scheme “(1) intends to transfer the financial risk of health care from patients to providers; (2) requires emergency care patients to agree to pay for the services or to supply insurance information; (3) requires HMO’s to pay doctors for emergency services rendered to their subscribers; (4) prohibits balance billing when the HMO, and not the patient, is contractually required to pay; (5) requires adoption of mechanisms to resolve billing disputes between emergency room doctors and HMO’s; and (6) permits emergency room doctors to sue HMO’s directly to resolve billing disputes.” The Court concluded that the only reasonable interpretation of such statutory scheme is that doctors must resolve their differences solely with HMOs. Specifically, the statutory scheme prohibits doctors from interjecting patients into the disputes, or from using patients as cheap leverage in payment disputes.
The Court also looked to legislative policy to confirm its decision that balance billing is illegal. Again, California law not only requires HMOs (not the patients) to reimburse out-of-network providers for emergency services, it also limits these providers’ recovery to the “reasonable and customary amount” (not the billed charge). Noting the bills the doctors submit may or may not be the reasonable payment to which they are entitled, the Court criticized balance billing as a practice that unnecessarily involves patients in billing disputes between providers and health plans, and an attempt by some doctors to seek payment in excess of the reasonable and customary value they are entitled. In fact, since the emergency room doctors won the right to sue HMOs in an earlier case, Bell v. Blue Cross of California, the Court concluded “no reason exists to permit balance billing.”
While this matter was pending before the California Supreme Court, the California Department of Managed Health Care adopted a regulation defining balance billing in the emergency care context as an unfair billing pattern. The regulation took effect on October 15, 2008, despite efforts by the California Medical Association, California Hospital Association, and other provider associations to invalidate the regulation. Prospect and the new regulation resolve the contentious debate on the legality of balance billing in the context of emergency services in California.
Outlawing balance billing for emergency services has broad implications. A 2007 study commissioned by the California Association of Health Plans concluded that 1.76 million insured Californians who had visited emergency rooms in the previous two years received $528 million in balance bills.
Balance billing is not unique to California. Nationwide, it is estimated that consumers are balance billed by physicians or other providers for an estimated $1 billion or more annually. Many states have already outlawed or restricted balance billing, both in the context of emergency services and medical services in general. New Jersey, for example, prohibits all balance billing and requires health plans to pay “non-participating providers a benefit large enough to insure that the non-participating provider does not balance bill the member for the difference between his billed charges and the payment.” Maryland prohibits the balance billing of HMO patients “under any circumstance.” Similarly, federal law prohibits providers from balance billing Medicare patients. With California’s ruling, it is anticipated other states may follow. With the practice of balance billing in the context of emergency medical care now outlawed in California, what remains at issue is another facet of the controversial debate – what rate is “reasonable and customary.” Maryland, for example, only requires HMOs to pay non-contracted providers 125 percent of what they pay their contracted providers. Proposed legislation in California last year sought to set the rate at 240% of the Medicare Fee Schedule, but was vetoed by Governor Schwarzenegger. The battle between health plans and providers may continue, but consumers are no longer caught in the middle of the war.
Equally notable about Prospect, however, may be what the Court didn’t say. The provider-litigant in the case and amici on its behalf strongly contended that every emergency provider had a common law quantum meruit claim against the patient, entitling the provider to recover from the patient or the HMO or both. The Court rejected this argument finding that the statutory scheme made the HMO solely liable for the costs of emergency care. By rejecting the provider’s quantum meruit claim, the Court may have impliedly granted preemptive effect to California’s managed care statute. Equally compelling, in upholding and interpreting California law to prohibit providers from balance billing, the Court implicitly subjected providers to the jurisdiction of the state agency responsible for regulating California’s managed care laws and industry. What began as a lawsuit to curtail an abusive consumer billing practice may well have rewritten the common law and broadened the state’s regulatory authority over providers.
* The Authors are attorneys in the Office of Enforcement in the California Department of Managed Health Care, the sole stand alone managed care regulator in the United States. Ms. Lai may be contacted at ALai@dmhc.ca.gov, and Mr. McClelland may be contacted at MMcclelland@dmhc.ca.gov.
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