Allied Anesthesia Medical Group, Inc. v. Inland Empire Health Plan (June 10, 2022, E074729) __ Cal.App.5th __ [2022 WL 2390162]

Noncontracted providers of nonemergency services to Medi-Cal managed care plan enrollees are not entitled to reimbursement exceeding Medi-Cal fee schedule rates.

Plaintiffs Allied Anesthesia Group, Inc., and Upland Anesthesia Medical Group provided anesthesia services for elective, nonemergency surgeries to enrollees of Inland Empire Health Plan (IEHP), a Medi-Cal managed care plan. Plaintiffs had no provider contract with IEHP, but had exclusive agreements with the hospitals where the surgeries were performed. After IEHP reimbursed plaintiffs at the Medi-Cal fee schedule rate for anesthesia services, plaintiffs sued IEHP for breach of contract (as third-party beneficiaries) and breach of implied-in-fact contract, arguing that its payments were less than the “reasonable and customary value” of the services that IEHP was required to pay plaintiffs as contracted providers without a written contract pursuant to the Knox-Keene Act’s implementing regulation, California Code of Regulations, title 28, section 1300.71, subdivision (a)(3)(B). The trial court sustained IEHP’s demurrer without leave to amend, and entered judgment for IEHP. Plaintiffs appealed.

The Court of Appeal affirmed. First, the court held that plaintiffs’ breach of contract claim failed because they were not third party beneficiaries of IEHP’s contract with the California Department of Health Care Services. The intended beneficiaries of that contract were the plan’s enrollees. While that contract contained some provider compensation provisions, its overriding purpose was to ensure enrollees had access to health care; any benefit to providers was incidental and therefore inadequate to support a third party beneficiary claim. Second, the court held plaintiffs failed to allege essential elements of an implied-in-fact contract claim. Because plaintiffs failed to allege any communications or agreement with IEHP regarding their anesthesia services, the court rejected plaintiffs’ argument that IEHP’s authorization of its enrollees’ elective, nonemergency surgeries that required anesthesia supported an implied agreement to pay plaintiffs a higher rate than the Medi-Cal fee schedule rate. Plaintiffs did not ask IEHP for separate authorization and did not communicate a customary rate to IEHP before providing anesthesia services. IEPH’s reimbursement at Medi-Cal rates reflected its belief that those rates applied, defeating a “meeting of the minds” claim about paying more than Medi-Cal rates.  Moreover, even if IEHP were required to reimburse plaintiffs for the reasonable and customary value of their services, California Code of Regulations, title 22, section 51503, would cap that amount at the Medi-Cal rate absent an agreement to pay more (which was lacking here). The court distinguished authority allowing providers to recover in quantum meruit for emergency services.

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, who are partners at the appellate firm Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.