Client Alerts

Public Entity Health Plans Immune from Implied Contract Theories

Public Entity’s Determination of Reasonable and Customary Value is Discretionary, Not a Mandatory Duty

The California Court of Appeal recently issued a decision upholding governmental immunity for a public health plan sued by an out-of-network hospital based on implied contract theories.  In County of Santa Clara v. Superior Court, 77 Cal. App. 5th 1018 (2022), the court held that the public health plan was immune from breach of implied-in-law contract and breach of implied-in-fact contract causes of action under section 815 of the Government Claims Act.  This statute immunizes public entities from liability for non-contractual claims.

In County of Santa Clara, the out-of-network hospital asserted the health plan breached its obligation to pay the “reasonable and customary value” of emergency services provided to the plan’s members.  Because this requirement is statutory, as part of the Knox-Keene Act, the hospital asserted that its breach of implied-in-law contract claim was authorized by an exception to governmental immunity that applies when the entity fails to discharge a “mandatory duty imposed by an enactment.”

The Court of Appeal rejected this argument.  It held that the Knox-Keene Act’s implementing regulation that requires payment at a “reasonable and customary” amount gave the health plan discretion to set the rate.  The court recognized that although the duty to pay for emergency services is mandatory, the health plan is vested with discretion to determine the reasonable and customary value of the services provided.  Therefore, the duty was not purely mandatory and the exception to government immunity under Government Code section 815.6 did not apply.

The court further held that the hospitals’ breach of implied-in-fact contract theory also failed because ultimately the nature of the right sued upon was the breach of a noncontractual duty, supplied by county ordinance, statute, and regulation, to pay for the care.  Accordingly, the court found that the nature of the action was tortious, rather than contractual, and the public entity was immune.

For more information about the Court of Appeal’s decision, please contact Mike Daponde, Tony Eaton, or Darcy Muilenburg.

CMS Interoperability Rule

CMS Recently Introduced New Interoperability Mandates for Health Plans That Must be Implemented by July 1, 2021

The CMS Interoperability and Patient Access Rule (“Interoperability Rule”) requires payors to permit third-party applications to retrieve, with the approval and at the direction of a current enrollee certain health care data.  42 C.F.R. §§ 422.119(a), 431.60(a), 457.730(a); 45 C.F.R. § 156.221(a).  The Interoperability Rule does not alter covered entities’ or business associates’ responsibilities to protect PHI under HIPAA, however, once a member selects a third-party application and authorizes access of their data to the application, the covered entity and business associate are no longer liable for the privacy and security of the PHI or any electronic health information sent.  85 Fed. Reg. 25510, 25518 (May 1, 2020).

CMS has indicated that covered entities and business associates are free to offer advice to patients on the potential risks involved with requesting data transfers to an application or entity not covered by HIPAA, “but such efforts generally must stop at education and awareness or advice regarding concerns related to a specific app.”  85 Fed. Reg. 25510, 25518 (May 1, 2020).  Further, if a member still wants their data to be shared despite an application’s privacy policy, or lack thereof, a payor would need to share the data via the application programming interface or API absent an unacceptable security risk to the payor’s own system.

Therefore, the most payors can do is educate its members through its member resource document required by the new rule.  Beneficiary and enrollee resources regarding consumer-friendly (non-technical, simple, and easy to understand), patient facing privacy and security information must be made available through appropriate mechanisms usually used to communicate with patients, such as on a website.  Further, the Interoperability Rule requires that certain information be made available such as factors to consider in selecting a health information management application, practical strategies to help them safeguard the privacy and security of their data, and how to submit complaints to the Office of Civil Rights (OCR) or the Federal Trade Commission (FTC).

For more information about the Interoperability Rule, please contact Eunice C. Majam-Simpson or Lisa J. Mayberry.

TCPA: Summary of the Facebook Decision

New U.S. Supreme Court Decision May Expand Health Plans’ Ability to Text Members Under the TCPA

The Telephone Consumer Protection Act of 1991 (TCPA) has restricted health plans’ ability to call or send text messages to cell phone numbers.  The U.S. Supreme Court’s recent decision in Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021) (“Facebook”) eases those restrictions by clarifying and narrowing the type of dialing equipment which falls within the TCPA’s definition of an automatic telephone dialing system (“autodialer”).

The TCPA generally makes it unlawful to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using an autodialer, or an artificial or prerecorded voice.  The Ninth Circuit Court of Appeals had adopted an extremely broad interpretation of the definition of an autodialer, which potentially included anything from a smart phone to the equipment used by health plans.  Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1053 (9th Cir. 2018), (“Marks”).  The U.S. Supreme Court’s Facebook decision expressly overturned Marks and narrowed the definition of an autodialer.

Under Facebook’s narrower definition, the critical question is whether the equipment being used to make calls or send texts has the capacity to use a random or sequential number generator to store or produce telephone numbers.  This is a highly technical, fact-specific question, and if the answer is no—i.e., if the equipment does not have the capacity to use a random or sequential number generator—then those health plans will now have the green light to text members or make live calls to cell phone numbers.

While Facebook did significantly limit the types of equipment that come within the definition of an autodialer, health plans must still be cautious and thorough when evaluating whether the equipment they (or their vendor) are using to make calls and send texts falls within that definition.  Furthermore, Facebook had no impact on the TCPA’s restrictions on calls made using a pre-recorded or artificial voice, or calls and texts to phone numbers which are listed on the National Do Not Call Registry.  Therefore, health plans still cannot make robocalls to cell phone numbers unless they have member consent.

For more information about the TCPA or calling and texting in a post-Facebook world, please contact Megan Rowe.

Medi-Cal Managed Care Procurement Request for Information

Department of Health Care Services Seeks Input From Health Plans

The Department of Health Care Services (DHCS) released a Request for Information (RFI) to solicit stakeholder input into the development of a forthcoming Medi-Cal Managed Care Plan Request for Proposal (RFP) and the updated Medi-Cal managed care contract.

The RFI contained two parts.  The first is a set of questions to guide stakeholder input to the RFI related to the DHCS’s expressed goals for the Medi-Cal managed care delivery system.  The second is an invitation for input specifically from health plans that may be interested in submitting a proposal in the upcoming RFP process.  Responses to the latter are non-binding at this stage and meant to be informational to the DHCS in the development of the RFP.  DHCS is evaluating possible model changes, such as Regional Model counties joining a County Organized Health System (COHS) and possibly reducing the number of health plans that will operate in the Geographic Managed Care (GMC) counties.

DHCS priorities for Medi-Cal Managed Care
DHCS stated ten overarching goals guiding the RFP process and update of the managed care contract.  DHCS will award contracts to health plans that are able to demonstrate an ability to meet the following:

  1. Quality – Minimum Performance Levels (MPLs), including measures in the Managed Care Accountability Set.
  2. Access to Care – Comprehensive networks that provide all members timely access to appropriate, culturally competent, and high-quality care, within time and distance standards.
  3. Continuum of Care – The demonstrated ability to manage individuals’ care, including comprehensive person-centered health care and social services, spanning all levels of intensity of care.
  4. Children services – Greater emphasis on preventive and early intervention, maternal services, and care that supports social and emotional development and that addresses adverse childhood experiences.
  5. Behavioral health services – Expanding access to evidence-based behavioral health services, focused on earlier identification and engagement in treatment for children, youth and adults.
  6. Coordinated/integrated care – Coordinated, integrated care for Medi-Cal members, particularly vulnerable populations with complex health care needs, consistent with the CalAIM initiative.
  7. Reducing health disparities – Identifying health disparities in access, utilization, and outcomes among racial, ethnic, language, and LGBTQ groups and improving health outcomes within the groups and communities most impacted by the disparities.
  8. Increased oversight of delegated entities – Increased oversight of all delegated entities to ensure enrollees receive quality care and service.
  9. Local presence and engagement – Engaging with local community partners and resources to ensure community needs are met.
  10. Emergency preparedness and ensuring essential services – Ensuring continuity of business operations, delivery of essential care and services to members, and the ability to mitigate any potential harm caused by an emergency, such as a health crisis or natural disaster.

Counties impacted by Procurement

Local Initiatives (LIs) and COHS contracts are not up for bid through the RFP.  However, DHCS intends to use the updated contract as the boilerplate for all Medi-Cal managed care plans, including LIs and COHS plans, once the RFP process is concluded.

Responses to the RFI are due to no later than 4:00 p.m. on Thursday, October 1, 2020.

For questions about the Medi-Cal Managed Care RFI, please contact Mike DapondeMegan Rowe, or Wendy Soe-McKeeman.

Current Medicaid Actuarial Soundness Principles Upheld by Appellate Court

Federal Court ruling confirms that the Health Insurance Provider Fee must be factored into Medicaid capitation rates

In a recent decision, the Fifth Circuit Court of Appeals reversed a United States District Court judgment that would have resulted in Medicaid managed care organizations (MCOs) paying the Affordable Care Act’s (ACA) Health Insurance Provider Fee (HIPF) without having that enormous expense factored into their capitation rates.  The appellate decision maintains the rule that actuarially sound rates are to provide for all reasonable, appropriate, and attainable costs, and such costs include government-mandated taxes and fees like the HIPF.

In Texas v. United States the states of Texas, Kansas, Louisiana, Indiana, Wisconsin, and Nebraska (the “States”) challenged the rule that Medicaid actuarial rate-setting must require an MCO’s rates to include an amount accounting for the HIPF that MCOs are required by law to pay.  The judgment in the States’ favor threatened the future of actuarial rate-setting because Medicaid MCOs would have been at risk of paying the HIPF without being compensated for this liability through their capitation payments.

The States also challenged the “Certification Rule,” which requires that the capitation rates paid by the States be certified by actuaries who follow the practice standards established by the Actuarial Standards Board (ASB).  The States argued that by creating the Certification Rule, the federal government unlawfully delegated to the ASB rulemaking power governing the States’ access to Medicaid funds.  The States also argued that the federal government’s incorporation of Actuarial Standard of Practice (ASOP) 49 into the Certification Rule was unlawful because doing so exceeded statutory authority.

The Fifth Circuit ruled that requiring actuaries to follow the ASB’s standards was not an unlawful delegation of federal authority and that the federal government can require states to factor the HIPF into Medicaid capitation rates pursuant to ASOP 49 and other actuarial soundness principles established by the ASB.

For more information about the Fifth Circuit’s recent decision, please contact Tony Eaton or Mike Daponde.

Beware of Opportunistic TCPA Lawyers During the Pandemic

The FCC’s Declaratory Ruling Exempts COVID-19 Messages

The Telephone Consumer Protection Act (TCPA) establishes various restrictions on the use of calls or text messages, particularly without express consent.  The TCPA does, however, include an exemption for “emergency purposes.”  In the event there were any question regarding whether the current COVID-19 pandemic qualifies as an emergency under this exemption, the Federal Communications Commission (FCC) removed all doubt in late March 2020, issuing a Declaratory Ruling (DA 20-318).  The Declaratory Ruling provides immediate emergency exemptions for government officials, health care providers, and state and local health officials, among others, to communicate information made necessary because of the COVID-19 outbreak so long as the information is directly related to the imminent health and safety risks arising out of the outbreak.  The FCC has deemed this type of health information related to COVID-19 vital, time-sensitive, and necessary for health and safety purposes.

On top of this, the California Department of Health Care Services directed Medi-Cal managed care plans to communicate certain COVID-19 related information directly to their Medi-Cal members, such as the common signs of coronavirus and instructions on how to seek medical help.

Notwithstanding the fact that both the federal and state governments have encouraged state and local health officials to communicate important information to their members during this pandemic, some TCPA plaintiffs’ lawyers nevertheless view this crisis as an opportunity to threaten the health plans sending these messages, including the threat of potential class action lawsuits against the health plans.

For more information about the TCPA or the FCC’s Declaratory Ruling, please contact Megan Rowe or Pam Stone.

The COVID-19 Pandemic and Force Majeure Clauses in Provider and Vendor Contracts

What Triggers a Force Majeure Provision and Excuses Performance?

According to Merriam-Webster, “force majeure” translates from French as “superior force.”  In contracting terms, a “force majeure” clause is an often overlooked provision containing boilerplate language that will very rarely ever be triggered.  The clause is intended to allow a party to be relieved of contractual obligations when unforeseen events beyond that party’s control make it impossible or impracticable for the party to perform.

Most health plan contracts with providers or vendors contain a force majeure clause.  Whether and/or to what extent a particular force majeure clause will be impacted by the COVID-19 pandemic will depend on the specific language of each clause.  The following items commonly appear in force majeure clauses and may be implicated by the events related to COVID-19:

  • Pandemic, epidemic, or disease
  • National or State emergency
  • Government acts, regulations, mandates, or orders
  • Quarantines
  • Shortage of materials and/or resources
  • Disruption of transportation systems
  • Labor stoppage

Additionally, many force majeure clauses have catch-all language such as “any other event beyond the reasonable control of a party.”  Thus, an event may be deemed a force majeure event even if it is not specifically listed in the contract itself.

It is important to note that the fact of the current pandemic, in and of itself, does not necessarily trigger a force majeure clause.  The party seeking to be excused from performance would need to demonstrate the degree to which the party’s ability to perform is impacted by the pandemic.  In many cases, the contract language will determine the circumstances under which performance will be excused.  Some language may prescribe that a party may be excused if a triggering event fully “prevents” performance whereas others may be less strict, merely requiring that performance be “impeded” by the triggering event.

For more information about the impact of the COVID-19 pandemic on a specific force majeure clause, please contact Megan Rowe or Mike Daponde.

Appellate Victory For Medi-Cal Managed Care Plans

Court Rules that California Legislature Intended Medi-Cal Managed Care Plans to Pay
APR-DRG Rates to Out-Of-Network Hospitals for Post-Stabilization Services

A five-year battle against Dignity Health concluded on January 9, 2020 when the Second District Court of Appeal ruled in L.A. Care’s favor.  L.A. Care successfully defended the State’s All Patient Refined Diagnosis Related Groups (APR-DRG) payment methodology as the appropriate payment for out-of-network emergency and post-stabilization services provided to L.A. Care’s Medi-Cal members by Dignity’s subsidiary, Northridge Hospital.  The appellate court’s ruling establishes once and for all that the State’s APR-DRG payment methodology (which provides a single payment amount for a patient’s entire episode of care and is designed to cover all the costs of care provided by the hospital) is the payment intended for both emergency and post-stabilization inpatient services provided by an out-of-network hospital to a Medi-Cal managed care beneficiary.

Dignity did not dispute that it was required to accept the APR-DRG payment for out-of-network emergency services.  However, Dignity contended that Medi-Cal managed care plans are required to transfer patients after the emergency condition is stabilized at an out-of-network hospital or else be subject to the hospital’s full-billed charges.  The appellate court ruled that the California Legislature intended the APR-DRG payment to be used for out-of-network post-stabilization services as well.

In the lawsuit, Dignity had asserted that approximately $98 million was owed for services from 2012 to mid-2016.  For the periods from mid-2016 to mid-2019, Dignity claimed an additional $390 million under the same legal theory through a second lawsuit and various government claims.

DSR Health Law represented L.A. Care in the action.  The California Department of Health Care Services (DHCS), the California Association of Health Plans (CAHP), and the Local Health Plans of California (LHPC) all submitted amicus curiae (friend of the court) briefs supporting L.A. Care’s position.

The decision, which is certified for publication, can be considered a victory for the entire Medi-Cal managed care community.  A copy of the appellate court decision is available here.

For more information, please contact Michael Daponde or David McDonough.