OUT-OF-NETWORK EMERGENCY SERVICES REIMBURSEMENT NEEDS TO BE MORE EFFICIENT

Each day, many Californians are taken to emergency rooms at hospitals not contracted with their carriers. For obvious reasons, people in a medical emergency are entitled to seek treatment at the closest emergency room regardless of whether it is contracted. The provider cannot turn them away and the carrier cannot redirect them to a contracted provider. The parties are forced to transact without any price agreement in place. So what happens when the carrier and provider disagree on price? Oddly, that depends on what type of carrier it is.

Managed care health plans (HMO plans and some PPOs) are regulated by the Department of Managed Health Care (DMHC) subject to the Health & Safety Code, whereas health insurers (most PPOs) are regulated by the California Department of Insurance (CDI) subject to the Insurance Code. If the patient is covered by a health insurer, the federal government’s No Surprises Act (NSA) applies and establishes that emergency providers are paid the median rate the insurer has with its contracted providers, with a streamlined administrative process to resolve any objection to that rate by a provider. On the other hand, if the patient is covered by a health plan, the DMHC has taken the position that existing state law displaces the federal system. Under the state process, the plan tenders a payment using a methodology reviewed by the DMHC. That payment is not binding on the emergency provider, who can seek a judicial determination of reasonable value under common law principles of quantum meruit. This results in many lawsuits, where lay juries with no health care or economics experience hear competing expert presentations using wildly different data points and philosophies about market value. And when those suits are resolved, the emergency provider often files another suit on a new batch of patient claims involving the same types of services, and the process commences again – the legal equivalent of the movie, Groundhog Day. This framework is massively inefficient, benefiting few people other than lawyers and hired experts.

The Legislature could easily end the cycle of litigation by setting a rate that governs how much to pay noncontracted emergency providers, like it has done in other similar situations where patients are treated by noncontracted doctors that they do not choose. For example, if you have a non-emergency surgery at a hospital contracted with your plan but the anesthesiologist assigned to your surgery is not contracted, AB 72 establishes that the doctor must be paid the higher of the average contracted rate or 125% of what Medicare would pay, subject to a binding streamlined administrative dispute resolution process. The Legislature could extend that process to emergency services or otherwise set a sensible rate to avoid litigation. Or the DMHC and the federal regulator could agree to apply the NSA’s procedures to patients covered by health plans. Under no rational scenario does it make sense to subject one subset of patients and their carriers to an entirely different procedure that inevitably results in lawsuits taking years to resolve and costing millions, just to get to a market value number that the losing party invariably argues has no relevance for the next group of claims.

And in litigation, unsurprisingly, each side offers vastly differing approaches to determining fair market value. Providers take the position that juries should ignore the plan’s contracted rates. They argue that plans get a discount for contracting, so why should noncontracted plans get those same rates in an emergency? The plans respond that the caselaw provides that market value is what willing buyers and sellers agree on when neither of them is required to transact and both can walk away, and that the cases establish that contracted rates are the best evidence of this. Children’s Hosp. Cent. California v. Blue Cross of California, 226 Cal. App. 4th 1260, 1274 (2014); Long Beach Mem’l Med. Ctr. v. Kaiser Found. Health Plan, Inc., 71 Cal. App. 5th 323, 345 (2021).

Plans argue that this makes sense because when a patient is taken to an ER, the provider has a monopoly over the service. To avoid price gouging, the provider is entitled to the rate that willing buyers and sellers establish for the service when they are not forced together in an emergency (much like in eminent domain, where we look to prices established in the open market when determining what to pay for the property being seized).

But until Sacramento decides to establish a better, more efficient way to determine what to pay noncontracted emergency providers, the endless cycle of lawsuits will continue for patients covered by managed care plans.

Gregory N. Pimstone is a partner at Manatt, Phelps & Phillips, LLP.