County of Santa Clara v. Superior Court (Apr. 26, 2022, H048486) __ Cal.App.5th __ [2022 WL 1223254]

The Knox-Keene Act does not permit (and the Government Claims Act otherwise bars) unaffiliated hospitals from suing counties for emergency services reimbursements.

The County of Santa Clara operates a health service plan licensed under the Knox-Keene Act. Two hospitals that did not have contracts with the county provided emergency medical services to plan members. The hospitals submitted reimbursement claims to the county, which provided partial reimbursement. The hospitals sued the county for the balance, alleging breach of a contract implied-in-fact or implied-in-law (meaning implied in the Knox-Keene Act). The hospitals argued that they had provided emergency medical services to plan members expecting the county to pay their reasonable and customary rates (about five times the county’s payment). The county demurred, arguing that there is no express right of action for reimbursement under the Knox-Keene Act, that no right of action may be implied against a public entity, and that the county is immune under the Government Claims Act (Gov. Code, § 810 et seq.). The trial court overruled the demurrer and the county petitioned for writ relief.

The Court of Appeal granted writ relief. The Knox-Keene Act does not provide an express right of action, and none could be implied here because Government Code section 815 bars a quantum meruit or other common law action against the county. The mandatory duty exception in section 815.6 did not salvage the hospitals’ claim. While the Knox-Keene Act requires the county to pay the reasonable and customary value of the emergency health care services provided to its members, the county has discretion to determine the reasonable and customary value of the services being reimbursed. The court rejected the trial court’s constitutional concerns about allowing the county to have unfettered discretion to set the reimbursements amounts, noting that the Knox-Keene Act provides enforcement alternatives to litigation: providers may report allegedly unfair payment patterns to the Department of Managed Health Care, which has the authority to investigate and impose penalties on health care service plans. The hospitals’ implied-in-fact contract claim likewise failed.  Because the hospitals’ suit was based on an alleged breach of a statutory duty rather than the breach of a promise, the nature of the action was tortious and the county is immune from tort suits under section 815. Finally, the court concluded that affording leave to amend would be futile because the hospitals failed to identify any other statutory basis for abrogating government immunity.

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.