Daily Blast June 10, 2014

The Fifth Appellate District Court of Appeal (Fresno), issued an opinion in Children’s Hospital Central California v. Blue Cross of California (June 10, 2014, F065603) __ Cal.App.4th __, analyzing whether California Code of Regulations, title 28, section 1300.71, subdivision (a)(3)(B) (“section1300.71(a)(3)(B)”), is the exclusive standard for calculating the reasonable and customary value of health care services. The court expanded on Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, and determined that a jury must hear evidence of “paid” amounts when determining reasonable value of medical treatment. (Slip opn., pp. 2, 15.)

This case arose out of a dispute between plaintiff Hospital and defendant insurance company “over the reasonable value of post-stabilization emergency medical services provided by Hospital to Medi-Cal beneficiaries enrolled in [insurer’s] Medi-Cal managed care plan. The services at issue were rendered during a 10-month period when Hospital and [insurer] did not have a written contract that covered those beneficiaries.” (Slip opn., p. 2.) The insurer paid approximately $4.2 million based on the Medi-Cal rates paid by the government. But, Hospital demanded its full billed charges of $10.8 million. (Ibid.) The trial court denied the insurer’s motions to compel responses to discovery requests and motions in limine based on the determination that the six-factor test in section 1300.71(a)(3)(B) was the exclusive standard for calculating the reasonable and customary value for post-stabilization medical care. (Id. at pp. 6-8.) The jury, which was instructed on damages based on section 1300.71(a)(3)(B), found that there was an implied-in-fact contract between Hospital and the insurer and awarded Hospital damages of approximately $6.6 million, the amount of the hospital’s full billed charges less the amount that the insurer had already paid. The insurer appealed. (Id. at pp. 8-9.)

The Court of Appeal determined that Hospital bore the burden of proof to establish the reasonable value of specific services it provided. In citing to Howell v. Hamilton Meats & Provisions, Inc., the appellate court explained a “‘medical care provider’s billed price for particular services is not necessarily representative of either the cost of providing those services or their value.’”  (Slip opn., p. 15 quoting Howell, supra, 52 Cal.4th at p. 564.) Instead, “reasonable value is market value.” (Slip opn., p. 18.) In this case, “Hospital was required to demonstrate the reasonable value, i.e., market value, of the post-stabilization care it provided.” “Hospital rarely receives payment based on its published charge master rates.” (Ibid.) Thus, the market value was not ascertainable from the hospital’s full billed charges alone. (Id. at p. 15.) “[Relevant] evidence would include the full range of fees that [the hospital] both charges and accepts as payment for similar services.” (Ibid.) Further, “[all] rates that are the result of contract or negotiation, including rates paid by government payors, are relevant to the determination of reasonable value.” (Ibid.) “Accordingly, although Hospital’s full billed charges were relevant to the issue of reasonable and customary value of the services, they were not determinative.” (Ibid.) Therefore, the trial court’s use of an incorrect value standard led to the prejudicial legal errors in its discovery rulings, ruling on the motions in limine, and jury instructions. (Id. at pp. 17-21.)

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