California physicians suffered a setback in the effort to block the “balance billing” regulation this week when Sacramento County Superior Court Judge Michael Kenny denied the California Medical Association’s (CMA) petition to invalidate regulations promulgated by the California Department of Managed Health Care (DMHC) that prohibit physicians and hospitals from “balance billing” for emergency care.
“Balance billing” is the practice of billing patients directly for outstanding out-of-network care costs not covered by health plans. Balance billing has been a remedy to address nonpayment or underpayment by HMO’s and health plans; physicians could seek payment of “usual and customary” fees not only from the plans, but from the patients enrolled in the plans when the plans failed to pay. Until the regulations took effect, the only constraint on balance billing were contractual provisions in health plan contracts that prohibited billing patients for “covered services.”
The “Balance Billing regulation” defines “unfair billing pattern” to include balance billing in the context of emergency care rendered to enrollees in a health plan or HMO. The regulation provides as follows:
(a) Except for services subject to the requirements of Section 1367.11 of the Act, “unfair billing pattern” includes the practice, by a provider of emergency services, including but not limited to hospitals and hospital-based physicians such as radiologists, pathologists, anesthesiologists, and on-call specialists, of billing an enrollee of a health care service plan for amounts owed to the provider by the health care service plan or its capitated provider for the provision of emergency services.
(b) For purposes of this section:
(1) “Emergency services” means those services required to be covered by a health plan pursuant to Health & Safety Code section 1345(b)(6), 1367(i), 1371.4, 1371.5 and Title 28, California Code of Regulations,, sections 300.67(g) and 1300.71.4.
(2) Co-payments, coinsurance and deductibles that are the financial responsibility of the enrollee are not amounts owed to the provider by the health care service plan.
(3) “The plan’s capitated provider” shall have the same meaning as that provided in section 1300.71(a).
The DMHC policy appears to have emerged as a negative reaction to a single provider, hospital system Prime Healthcare, which balance billed thousands of Kaiser Permanente HMO patients for out-of-network emergency care. In retrospect, Prime’s action –which was intended to put pressure on Kaiser — led to a alignment of the state with the health plans in a way that puts emergency physicians in California in a terrible position. DMHC now takes the position that California law bars balance billing for emergency services because the legal obligation to provide emergency care under EMTALA gives rise to an implied contract with the health plans obliged to pay for those services.
The CMA had sued DMHC on behalf of California physicians over the regulation, Title 28 California Code of Regulations, § 1300.71.39 (28 C.C.R. 13700.71.39). Judge Kenny heard the CMA writ petition (seeking a writ directing DMHC to cease and desist from enforcing the regulations), Case No. 34-2008-80000059, on November 21, 2008. The CMA was joined by other groups whose members will be hard hit by the new regulations: the California Hospital Association (CHA), California Chapter of the American College of Emergency Physicians (ACEP), California Orthopeadic Association, California Radiological Society, and California Society of Anesthesiologists.
Judge Kenny’s ruling focused on the authority of DMHC under Health and Safety Code § 1371.39, which was added to the Knox-Keene Act as part of Assembly Bill 1455 (Scott, 2000) and allows HMOs to report “instances in which the plan believes a provider is engaging in an unfair billing pattern” to DMHC. Judge Kenny rejected the arguments that the regulation was invalid, which were:
(1) that the DMHC lacked the requisite delegated authority;
(2) that DMHC did not follow proper procedures under the California Administrative Procedure Act in promulgating the regulation because its economic impact statement conflicts with substantial record evidence;
(3) that the record lacked substantial evidence that the Balance Billing Regulation was reasonably necessary to effectuate the statutory purpose;
(4) that the regulation conflicts with the Knox-Keene Act’s purpose that contracts between HMO’s and providers be “fair and reasonable to ensure adequate networks”; and
(5) that the regulation violated due process because it is overly vague. Judge Kenny’s analysis of the issues was as follows:
The full text of Judge Kenny’s ruling can be downloaded here. He rejected all of the CMA’s arguments, concluding that the Knox-Keene Act, California Health and Safety Code § 1371.39(b)(1), plainly authorized DMHC to define “unfair billing practice,” in the manner reflected in the regulation. He declined to consider CMA’s argument that the Legislature never intended to vest DMHC with such sweeping authority. Among other arguments, Judge Kenny also rejected the contention that DMHC lacked statutorily-delegated authority to regulate emergency services providers because doctors and hospitals are regulated by the Medical Board and Department of Public Health, respectively. Relying on a plain language reading of § 1341(a) of the Knox-Keene Act, he held that the Act gives DMHC authority to execute laws “relating to” HMO’s and does not limit that authority to laws directly regulating HMO’s. Moreover, he noted,
the Legislature expressly stated in § 1371.39 that DMHC was to define certain provider conduct. As § 1371.39’s provisions regarding “unfair billing patterns” engaged in by providers in submitting bills to HMO’s are plainly laws “related to” HMO’s, it is within DMHC’s jurisdiction to regulate providers with respect to such billing patterns.
The balance billing issue remains at the heart of a separate case pending before the California Supreme Court. Physicians, hospitals, and their advocates can only hope that the Supreme Court takes a different view. For emergency physicians and hospitals that purposely avoid health plan contracts, balance billing had offered leverage to demand payment of their usual and customary rates; if health plans failed to pay, they faced the prospect of patient-enrollees angered by receiving physician or hospital bills. As of October 15, that leverage is gone as a result of the DMHC, enabling health plans to underpay providers. (DMHC claims that it will regulate plan payment, but, if history is any indication, providers should not expect DMHC to be able to rein in plans’ discretion to set rates for payment where they deem appropriate.) Indeed, early reports from our emergency medicine clients have confirmed that health plans are now unilaterally setting rates for noncontracted emergency care at absurdly low rates that do not even cover staffing costs. Emergency physicians who depended on balance billing (or the threat of balance billing) are likely to cancel or renegotiate contracts with hospitals, who in turn will be pressured to subsidize care. Should the law fail to change, the end result is almost certain to be the closure of even more emergency rooms in an already decimated Southern California emergency care system. Or perhaps another bailout plan?