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Cause of Action Exists for HMO’s Negligent Delegation of Statutory Obligation to Reimburse Emergency Physicians

On February 19, the California Court of Appeal reversed a Los Angeles County Superior Court decision holding that an HMO has a duty not to delegate its obligation to reimburse emergency physicians to an independent practice association (IPA) it knows or has reason to know will be unable to pay. The Court of Appeal further held that “this duty is a continuing one, and is breached by an HMO’s failure to act when it learns, after an initial delegation, that its delegatee is no longer able to fulfill its obligations.”

According to California Health & Safety Code § 1375.4(g)(1), an IPA is a group of physicians that contracts with an HMO to provide services for the plan’s enrollees, for which it receives compensation on a capitated or fixed payment basis. As a risk-bearing organization, under § 1375.4(g)(1)(C), the IPA also is statutorily responsible for processing and paying claims made by physicians for services rendered by those physicians that are covered under the payments made by the plan to the IPA.

The plaintiffs in Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. were two groups of physicians that performed emergency medical services. The law imposes a duty on emergency physicians to treat patients regardless of ability to pay. The law also requires that, when emergency services have been provided to the plan enrollees, the HMO or its IPA shall reimburse the physicians, even when the physicians are not under contract with the HMO. Neither of the plaintiffs’ physician groups alleged to have contracted with the subject IPA or the HMOs. Accordingly, the court’s decision was limited to physicians who provide emergency services to enrollees in HMOs and IPAs with whom the physicians have no contract.

The HMO delegated responsibility for some of its enrollees to an IPA; the delegation included the duty to reimburse emergency physicians. The IPA experienced financial problems and failed to reimburse the emergency physicians. The emergency physicians sought payment from the HMO, which instructed them to continue seeking payment from the IPA even though it was clear the IPA was unable to render payment. The emergency physicians sued the HMO alleging, among other things, negligent delegation. The HMO successfully demurred to the complaint, and the plaintiffs appealed.

The main issue on appeal was whether a cause of action exists for negligent delegation of an HMO’s statutory obligation to reimburse emergency physicians. The court began its analysis by reviewing two contradictory decisions addressing the issue: California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1135-36 (CEP) (finding no negligence cause of action) and Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 796-97 (finding negligence cause of action exists).

The court in CEP and Ochs relied on the seminal case of Biakanja v. Irving (1958) 49 Cal.2d 647, which identified several factors to be considered in determining whether a duty exists. Ochs specifically disagreed with CEP to the extent it held that, when economic damages are sought, the conduct must have been intended to affect the specific plaintiff, rather than persons of the class to which the plaintiff belongs. Instead, Ochs found, “it is well established that liability for negligent conduct may be imposed when a duty is owed to the plaintiff or to a class of which the plaintiff is a member.” Ochs and CEP did however agree that emergency physicians do not have a direct cause of action against HMOs under Health and Safety Code § 1371.4 when IPAs fail to reimburse emergency physicians for services provided to their enrollees.

Section 1371.4 provides in pertinent part that “[a] health care service plan, or its contracting medical providers, shall reimburse providers for emergency services and care provided to its enrollees. . . .” (subd. (b)). Further, “[a] health care service plan may delegate the responsibilities enumerated in this section to the plan’s contracting medical providers.” (subd. (e)).

In the instant case, the plaintiffs argued, pursuant to Ochs, that they had a cause of action against the defendant HMOs for negligent delegation of the duty set forth in § 1371.4. The parties agreed that resolution of the case was governed by Biakanja and its progeny.

Biakanja sets forth the following factors to be considered in determining the existence of a duty: (1) the extent to which the transaction was intended to affect the plaintiffs; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injury suffered; (5) the moral blame attached to the defendant’s conduct; and (6) the policy of preventing future harm. Later cases have also considered whether extending liability would impose an undue burden on the defendant’s profession.

The court found that each of the Biakanja factors, as well as policy considerations, weighed in favor of finding a cause of action for negligent delegation and concluded in line with Ochs: “[A] cause of action for negligent delegation exists in favor of emergency physicians who allege an HMO negligently delegated its Health and Safety Code section 1371.4 duty to an IPA it knew or had reason to know was financially unsound.” The court further found that the HMO’s duty not to delegate is a continuing one. The court emphasized that its conclusion applies only to noncontracting physicians who have provided emergency services, as mandated by statute, to patients enrolled in the HMO.

Accordingly, the Court of Appeal reversed and remanded the matter to the trial court.

Click here for the opinion.

This opinion in Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2014) ___ Cal.App.4th __ ; 2014 Cal. App. LEXIS 158 (2nd Dist. February 19, 2014) is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority in California state courts.

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Matthew G. Kleiner