Doctor’s group has standing to challenge health plan policies and could improve access to better care

Last week, the California Supreme Court held that the California Medical Association had standing under California’s unfair competition law to pursue claims against a health insurance plan because CMA incurred staff time costs challenging a new policy of the health plan.

In most industries, the standard for commercial contracts is that a contract can only be amended upon mutual consent. For many years in the health care industry, however, health plans have used template contracts that reserve for the plans the ability to unilaterally revise the terms of their contracts with health care providers using “provider manuals,” “administrative protocols,” “payment policies,” and other policy-like documents. By changing or adding to these policies, health plans have been unilaterally changing the terms of their contracts with health care providers, sometimes in ways that interfere with patient care. Providers often have limited bargaining power, leaving them with few options other than to accede to health plans having the right to make unilateral changes to contracts.

California law currently offers only limited protections, giving providers the ability under the Health Care Providers’ Bill of Rights to terminate their health plan contract if impacted by a policy change. Few providers could ever actually exercise this right because their contracted status is critical to ensuring they can provide services to in-network patients. A loss of contracted status inherently means a loss of patients and this creates a significant disincentive for providers to exercise their rights to terminate.

Health plans’ policy changes take a variety of forms and frequently impact fundamental terms of health plan/provider contracts, like the rates being paid and services being provided. The policy changes are also frequently viral; after one health plan implements a new policy, others often follow suit with similar measures. For health care providers, keeping up with these policy changes has been challenging: A provider may expend significant resources objecting to a health plan’s new policy, with varying success, only to receive a new notice from the health plan with a new set of policies. And this is the best case scenario. The unfortunate reality is that many health care providers lack resources necessary to challenge health plans’ policies. Further, these policy changes do not occur in a vacuum. They are on top of the paperwork that health plans impose on their contracted providers. These burdens may result in some providers canceling their contracts with health plans or even leaving the profession altogether. For our health care system to work efficiently, our laws should encourage balanced contracts and not allow one party to introduce changes to a contract that the other party could never have predicted during negotiations.

That is why the California Supreme Court’s decision in California Medical Assn. v. Aetna Health of California is a win for providers and the associations that represent them. The decision stems from a 2012 lawsuit filed by the CMA, the primary association that represents physicians’ interests in California, in which the CMA accused a health plan of implementing a “network intervention policy” that was designed to reduce the number of referrals by the health plan’s contracted providers to providers that don’t have a contract with the health plan. CMA’s lawsuit alleged that through a variety of methods, the health plan used its network intervention policy to interfere with physician decision-making. Those methods included retaliating against physicians who made out-of-network referrals by threatening to or sometimes actually terminating their contracts with the health plan. The policy put physicians in a difficult quandary: They could ignore the policy and refer patients to the provider they believed would render the most medically appropriate care, but by doing so, put their contract with the health plan at risk, or they could adhere to the policy and refer the patient to an in-network provider that may not be as medically appropriate.

This was also frustrating to patients covered by the health plan’s preferred provider organization products. PPOs are attractive because members are not restricted to seeking services from contracted providers. Instead, members have coverage for services received from providers that don’t have a contract with their health plan. While members pay higher out-of-pocket costs when they seek out-of-network services, for many patients this is a small price to pay in exchange for being able to see a top provider that is out-of-network. The health plan’s policy potentially left patients technically entitled to coverage for out-of-network services but practically unable to obtain those services out-of-network.

The decision in CMA v. Aetna did not reach the merits of CMA’s lawsuit. Rather, the decision resolved whether a membership organization like CMA has standing to pursue a claim under California’s unfair competition law when the alleged injury in fact was the organization’s expenditure of resources in the form of staff time spent responding to a health plan’s implementation of a policy. Still, the Supreme Court’s decision is an important development for the many providers that lack the resources necessary to challenge health plan policy changes and must rely on their membership associations like CMA to seek injunctions against health plans that implement new policies.

The specter of being subject to a claim under the unfair competition law can be a powerful check against unlawful business practices. This new Supreme Court decision is a step towards encouraging health plans and providers to adopt the standard approach to amendments to commercial contracts: to be effective, any amendment requires mutual consent.