Calif. Court Rules Insurer Payments Should Reflect Value of Care

An appellate court ruling in Fresno last week could change the way California hospitals and health insurers enter into contracts and negotiate payments for services, the Sacramento Business Journal reports.

Background on Case

The lawsuit between Children's Hospital Central California and Anthem Blue Cross involved a dispute over insurer reimbursement rates for hospital services.

In 2007, the hospital and insurer for about 10 months were unable to reach an agreement to renew a contract setting reimbursement rates for hospital services. During that time, federal and state laws required that Children's Hospital continue to provide emergency care to Anthem beneficiaries.

The hospital later billed Anthem for post-stabilization emergency medical care that took place during the 10-month contract gap. In the billing, the hospital listed the full rate of services included in its "chargemaster" document instead of the usual discounted rate based on volume. In total, the hospital charged Anthem $10.8 million for care provided to 896 beneficiaries.

Anthem paid the hospital about $4.2 million based on Medi-Cal rates. Medi-Cal is California's Medicaid program. 

Children's Hospital filed a lawsuit over the difference, and a jury awarded the hospital $6.6 million. Anthem then filed an appeal.

Details of Ruling

On Tuesday, the Fifth District Court of Appeals ruled that insurers are not required to reimburse hospitals for amounts that are more than the actual value of services.

The ruling states that the hospital "rarely received payment based on [their] published chargemaster rates." Therefore, the trial court should have allowed Anthem to present evidence of the value of post-stabilization emergency services.

The appeals court ordered a new trial between Children's Hospital and Anthem to establish damages that reflect the "reasonable value" of services, as opposed to the higher costs included on hospital's bill to the insurer.

Implications

Dan Baxter, an attorney representing Anthem, said, "This ruling will absolutely change the landscape between hospitals and health plans in litigation going forward." He added, "It's a clear-cut California case we didn't have until now -- finally -- that says in no uncertain terms you can consider a full body of information, not just billed charges."

However, Glenn Solomon, an attorney representing Children's Hospital, said the ruling could result in insurers paying contract rates for health care services without actually establishing a contract.

Solomon said, "If a health plan can get the benefit of contracted rates without actually engaging in a contract themselves, there's less incentive for them to enter into a contract in the first place," adding, "That's not just bad for hospitals. It's bad for all of California" (Robertson, Sacramento Business Journal, 6/13).