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.