Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc.
1 Cal. 5th 994
| Cal. | 2016Background
- Noncontracting emergency providers (two consolidated actions by emergency physician and radiology groups) provided statutorily compelled emergency care to enrollees of various HMOs.
- Health plans had delegated statutory reimbursement responsibility for emergency claims to three IPAs (La Vida entities) under Cal. Health & Safety Code §1371.4(e); the IPAs became insolvent and failed to pay providers.
- Plaintiffs alleged plans knew or should have known of La Vida’s insolvency (financial reports, lender bankruptcy filing/withdrawal) yet continued capitation payments and advised providers to submit claims to La Vida.
- Plans demurred, arguing statutory delegation insulated them from liability and no common-law duty to third-party providers existed; trial court sustained demurrers without leave to amend.
- Court of Appeal reversed as to negligence for negligent initial delegation and negligent failure to reassume; Supreme Court granted review to decide whether common-law duties exist despite the Knox‑Keene framework.
- Supreme Court held plans can be liable in negligence for (1) negligently delegating to an IPA they knew or should have known was insolvent, and (2) negligently continuing/renewing delegation when there is no reasonable expectation the delegate can reimburse noncontracting emergency providers; scope of continuing duty is narrow to avoid undermining regulatory CAP process.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a health plan’s delegation under §1371.4(e) precludes common-law negligence by the plan for unpaid emergency claims | Plans remain liable in tort if they negligently choose an insolvent IPA | Statutory delegation and regulatory scheme foreclose common-law duty; plans are not guarantors | Held: Plans owe a duty to act reasonably in initial delegation; negligent delegation to an IPA the plan knew or should have known was insolvent states a claim |
| Whether plan has a continuing duty to reassume payment when delegate becomes insolvent | Plans must reassume payment when they know or should know there is no reasonable expectation the delegate can pay | Requiring reassumption would undermine CAP/regulatory rehabilitation and improperly expand tort liability | Held: Narrow continuing duty exists — triggered when plan knows/should know there is no reasonable expectation a CAP can remedy solvency; until then cooperating with CAP is not negligent |
| Whether regulatory provisions or specific DMHC regulations create or negate a private cause of action to compel plan payment | Regulators’ rules (e.g., claims-processing regs) support a duty to assume payment | Administrative scheme demonstrates Legislature withheld a statutory remedy and did not intend to create a private right against plans | Held: No per se statutory cause of action; regulations do not themselves create a private remedy that displaces common-law negligence analysis |
| Policy concerns about open-ended liability and interference with managed‑care model (Bily-type arguments) | Plaintiffs are a limited, identifiable class compelled to provide care and cannot contract around the risk, so tort liability is appropriate | Imposition of duty would cause large, indeterminate liability and disrupt delegated risk arrangements | Held: Policy concerns do not outweigh factors favoring a duty here; scope limited to avoid large systemic disruption |
Key Cases Cited
- Biakanja v. Irving, 49 Cal.2d 647 (recognition of duty to third parties requires balancing six policy factors)
- Bily v. Arthur Young & Co., 3 Cal.4th 370 (limitations on auditor liability to foreseeable third parties; policy concerns about indeterminate liability)
- Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal.4th 26 (special duty in business contexts is the exception; Biakanja framework applied)
- Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, 45 Cal.4th 497 (context on IPA definition and related managed care issues)
- Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., 27 Cal.4th 705 (transaction not intended to affect plaintiff; distinguished)