Cimmaron OLSZEWSKI, A Minor, etc., Plaintiff and Appellant,
v.
SCRIPPSHEALTH et al., Defendants and Respondents.
Court of Appeal, Fourth District, Division One.
*190 Chavez & Gertler, Mark A. Chavez, Kim E. Card, San Francisco; Blumenthal, Ostroff & Markham, Sheldon A. Ostroff, David R. Markham, San Diego; Law Offices of Thomas J. Brandi and Thomas J. Brandi, San Francisco, for Plaintiff and Appellant.
Manjusha P. Kulkarni, for National Health Law Program as Amicus Curiae on behalf of Plaintiff and Appellant.
Friestad & Giles and Deborah Giles, San Diego, for Defendant and Respondent ScrippsHealth.
*191 Gary M. Orlansky, for Defendant and Respondent Medical Liability Recoveries, Inc.
Stream & Stream, Theodore K. Stream, Jamie E. Wrage, Riverside, and Tera Harden, for Loma Linda University Medical Center, Inc. as Amicus Curiae on behalf of Defendants and Respondents.
Manatt, Phelps & Phillips, Barry S. Landsberg, Harvey L. Rochman and Wendy M. Conole, Los Angeles, for Catholic Healthcare West as Amicus Curiae on behalf of Defendants and Respondents.
McDONALD, J.
When a person eligible for Medi-Cal benefits (the patient) is injured by a third party, receives treatment by a health care provider (the provider) under the Medi-Cal program, and thereafter sues the third party for damages, Welfare and Institutions Code section 14124.791[1] permits the provider to impose a lien on the patient's recovery from the third party to recoup the actual value of its services. Defendants ScrippsHealth and Medical Liability Recoveries, Inc. (together respondents) invoked the section 14124.791 procedure and placed a lien on plaintiff Cimmaron Olszewski's claim against a third party tortfeasor who had contributed to the injuries suffered by Olszewski and treated by ScrippsHealth; respondents sought to recover the actual value of the services provided by ScrippsHealth. Olszewski responded by filing the present action contending that section 14124.791 was invalid and that by filing the lien respondents were liable for unfair competition, fraud, negligent misrepresentation and trespass to chattels. The trial court concluded section 14124.791 was valid and that respondents' conduct was privileged; it therefore sustained respondents' demurrer to the complaint without leave to amend.
This case presents two distinct questions. First, is section 14124.791 invalid because preempted by federal law? The federal law governing the Medi-Cal program requires that every provider that accepts Medi Cal payments for the patient must agree not to seek further payment from the patient; the provider instead must content itself with the amounts paid by Medi-Cal. Whether section 14124.791, which allows a provider to seek more than the amounts paid by Medi-Cal, is preempted by federal law is the broad question posed by this case.
Second, if section 14124.791 is invalid under the preemption doctrine, did the trial court correctly determine that Olszewski's complaint did not state causes of action under the unfair competition statute or in tort? This question requires us to evaluate whether a person who pursues rights under a facially valid statute may be liable under the unfair competition laws or in tort if a court decides the statute is invalid.
I
FACTS[2]
In August 1998 Olszewski was injured in a car accident and received medical *192 treatment from ScrippsHealth. Because Olszewski was eligible for Medi-Cal benefits, ScrippsHealth billed and received payment from Medi-Cal. However, ScrippsHealth claimed the amount it received from Medi-Cal was less than the reasonable value of the services provided to Olszewski.
Olszewski pursued a claim against a third party, seeking damages arising out of the accident. In October 1998 respondents filed a provider lien pursuant to section 14124.791 against any damages Olszewski might recover from the third party; respondents' lien alleged the reasonable value of the services provided to Olszewski by ScrippsHealth was $200,880.22.
Olszewski objected to the lien and filed this class action and private attorney general lawsuit alleging respondents engaged in unlawful, unfair and fraudulent business practices by accepting Medi-Cal payments for services to Medi-Cal patients and thereafter pursuing lien claims under section 14124.791. Olszewski's complaint contended section 14124.791 is invalid because it is preempted by the federal Medicaid rules, and pleaded a cause of action under the unfair competition law[3] (Bus. & Prof. Code, § 17200 et. seq.) as well as causes of action for fraud, negligent misrepresentation and trespass to chattels.
Respondents demurred to the complaint, arguing section 14124.791 was not preempted by federal Medicaid rules and that their conduct was privileged. The trial court agreed with respondents' contentions and sustained the demurrer without leave to amend.[4] Olszewski appeals from the subsequent judgment dismissing her complaint.
II
STATUTORY FRAMEWORK
A. The Federal Ban on Balance Billing.
California's Medi-Cal program receives federal Medicaid funds to help finance California's Medi-Cal program. As a condition of receipt of Medicaid funds, the Medi-Cal program must comply with federal laws and regulations. (Mission Community Hospital v. Kizer (1993)
Under the federal Medicaid law, a "[s]tate plan for medical assistance must [provide] [¶] ... [¶] that in case of an individual who is entitled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the service may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service...." (42 U.S.C. § 1396a, subd. (a)(25)(C).)[6] Medi-Cal, as the state agency distributing the federal funds, "must limit participation in the Medicaid program to providers who accept, as payment in full, the amounts paid by the agency. . . ." (42 C.F.R. § 447.15.) Therefore, under federal law, ScrippsHealth was eligible for Medi-Cal money only if it agreed to accept the Medi Cal money as payment in full. Because the complaint alleges Scripps-Health made such an agreement, Scripps-Health is barred from billing the patient for any balance above the amounts paid by Medi-Cal. (Palumbo v. Myers, supra,
B. The 1985 Effort to Avoid the Balance Billing Ban.
In 1985 the California Legislature attempted to avoid in part the federal ban on balance billing by enacting provisions contained in Chapter 776 of the Statutes of 1985. This Chapter tentatively amended section 14124.791 to allow providers to file a lien for the balance not paid by Medi-Cal against sums recovered by the patient from third parties responsible for the patient's injuries. It also tentatively amended section 14124.74 to provide that if a Medi-Cal patient received an award in a lawsuit arising out of the patient's injury, the courtafter first ensuring payment of litigation expenses and reimbursement to Medi-Calwas to impose a lien against the patient's recovery in favor of the provider in the amount of any unpaid charges.
The Legislature apparently recognized that these provisions were in conflict with the federal ban on balance billing, and specified that these provisions were not to become effective until "appropriate federal waivers" were obtained. (Stats.1985, ch. 776, § 6, p. 2515.) The federal government denied the waiver requests in 1986, and these provisions never became effective. (Historical and Statutory Notes, 74A West's Ann. Welf. & Inst.Code (1991 ed.) § 14019.3, p. 77.)
*194 C. The 1992 Effort to Avoid the Balance Billing Ban.
In 1992 the Legislature again sought to avoid in part the federal ban on balance billing by enacting the current version of section 14124.791. Subdivision (a) of section 14124.791 contains two relevant provisions. The first provision permits the provider to file a lien for services provided to a patient in connection with an injury caused by a third party, even if the provider has received payment from Medi-Cal, "for all fees for services provided to the [patient] against any judgment, award, or settlement obtained by the [patient] against that third party." The second provision permits the provider to "recover upon the lien [only] if the provider has made a full reimbursement of any fees" paid to the provider by Medi-Cal.[7] The 1992 version of section 14124.791 provides for creation of a lien against a personal injury recovery from a third person for the full amount of the provider's bill and for recovery of this full amount by the provider if the provider makes a full reimbursement to Medi-Cal of the monies it had previously been paid.
In 1997 Ms. Moore, acting director of the federal Medicaid Bureau, issued a letter "clarifying our policies" regarding provider reimbursement rights when the patient has a tort claim against third parties. The letter, synopsizing the clarification, stated federal rules would be broadened to:
"allow States to permit providers to pursue payment in excess of Medicaid's reimbursement in tort situations as long as certain conditions are met. Specifically, States must assure that Medicaid is made whole before providers can keep any monies. Second, the State must assure protection to its Medicaid beneficiaries by prohibiting providers from receiving money that has been designated to go to the beneficiary."
In the detailed analysis accompanying this policy clarification, the HCFA letter recognized that in tort situations the judgment or settlement will often contain elements compensating the patient for items other than the costs incurred for medical services, including compensation for pain and suffering and loss of consortium; that existing federal rules permit a state to impose a lien on the entire judgment or settlement up to the amount paid by Medicaid; and that under the federal rules Medicaid payments are reimbursed first, with any remaining balance distributed to the patient. Against that background, the analysis stated:
"[I]n a tort situation, if the provider were to reimburse the Medicaid program, and then seek reimbursement for *195 the full amount of its charges which includes the amount Medicaid has paid the provider, this could have the effect of taking monies from the [patient]. [¶] As long as States assure preservation of certain principles, Federal law would not preclude the practice of providers pursuing payment in tort situations in excess of Medicaid's reimbursement.... Specifically, the State must assure that Medicaid is made whole before providers can keep any monies. The State must also prohibit providers from pursuing money that has been awarded to the [patient]. In other words, the provider lien must be against the tortfeasor and not the general assets of the [patient], e.g., the provider would be entitled to reimbursement from a tort judgment or settlement when the settlement specifically designates a set amount of money for medical expenses and then only if this amount is above the amount owed to Medicaid. The provider could be reimbursed only if the money has not been allotted to the beneficiary in a court judgment or settlement. This would mean that if the lien were not perfected, the tortfeasor would stand to retain the money."
III
THE PREEMPTION ISSUE
Olszewski contends that section 14124.791 is invalid because it is preempted by the federal ban on balance billing; that the HCFA letter purporting to approve statutes like section 14124.791 is contrary to the federal statutes and regulations and is entitled to no weight in construing the federal scheme; and, even if the HCFA letter properly construes the federal scheme, section 14124.791 does not comply with the conditions described in the HCFA letter. Respondents counter that section 14124.791 is valid because it is not an improper balance billing statute, and instead is a form of substitute billing that is consistent with the goals of the Medicaid law and with the regulatory interpretation of the federal rules contained in the HCFA letter.
A. Standards for Evaluating a Claim of Preemption.
When a state law is contrary to a valid federal law, the federal law controls. (U.S. Const., art. VI, cl.2.) The courts have developed three alternative tests for determining whether state law is contrary to and therefore preempted by federal law. Under the test denominated as express preemption, the issue is whether Congress has explicitly declared an intent that its enactments will preempt state law. Under the second test, denominated as field preemption, the issue is whether Congress intended federal law to occupy the field and thereby impliedly intended to preempt state regulation in that arena. Under the third test, denominated as conflict preemption, the issue is whether the state law actually conflicts with federal law either because compliance with both federal and state laws is impossible or because state law is an obstacle to the accomplishment of the purposes and objectives of Congress. (English v. General Electric Co. (1990)
*196 B. Section 14124.791 is Preempted by Federal Law.
Olszewski contends section 14124.791 is preempted because it is inconsistent with, and frustrates the achievement of, the payment in full language of 42 C.F.R. § 447.15 and the ban on balance billing contained in 42 U.S.C. § 1396a, subd. (a)(25), both of which embody a core policy of Medicaid law: a provider who is properly paid under the Medicaid program may not collect any additional amounts by levying on the patient's other assets.[8] Olszewski argues section 14124.791 conflicts with these laws and policies because permitting a provider to levy on a patient's recovery from a third party tortfeasor, whether in the form of a judgment or settlement, improperly authorizes a provider to seize an asset belonging to the patient to satisfy the balance owed to a provider. Respondents contend there is a distinction between the federally-prohibited balance billing, which bars a provider from seeking from the patient amounts beyond those paid by Medicaid, and substitute billing, in which the provider substitutes payment from a third party source for the payment receivable from Medicaid. Respondents argue substitute billing does not conflict with federal law, but instead furthers the policy that Medicaid be used as a payer of last resort, and assert section 14124.791 is a valid substitute billing statute because it allows the provider to collect only from third party sources.
Whether section 14124.791 is a balance billing statute preempted by federal law, or is instead a substitute billing statute that does not offend the federal ban on balance billing,[9] is principally a matter of statutory construction. When construing a statute, we examine the language used, and when the plain meaning of the language is unambiguous that meaning is controlling. (Diamond Multimedia Systems, Inc. v. Superior Court (1999)
The plain meaning of section 14124.791 does not support respondents' claim that it operates to allow the provider to collect from the third party tortfeasor rather than from the patient. Section 14124.791 does not create any direct right of action against the tortfeasor in favor of the provider. Instead, it permits the provider to assert a lien against, and to collect from, "any judgment, award, or settlement obtained by the [patient]" against the third party tortfeasor. Although section 14124.791 limits the type of asset owned by the patient that is subject to the provider's lien (e.g. the funds collected from the judgment or settlement), it nevertheless permits a provider to levy on property owned by the patient to satisfy the patient's full medical bill. Thus, the "actual content of [section 14124.791] and its real effect on federal rights" (Livadas v. Bradshaw, supra,
Although there are no California cases evaluating statutes similar to section 14124.791, courts in other jurisdictions that have considered analogous situations have concluded the federal ban on balance billing prohibits a provider from levying on a judgment obtained by the patient against the third party tortfeasor. For example, in Evanston Hosp. v. Hauck (7th Cir.1993)
The only distinction between Evanston Hospital and the instant case is that in Evanston Hospital there was no state statute specifically authorizing repayment of Medicaid funds followed by a collection action against the patient and his assets; here respondents proceeded under a state statute authorizing that procedure. This distinction, however, is immaterial because the decision in Evanston Hospital did not depend upon the absence of a state-enabling statute, and the presence of a state statute does not change the decision here. The Evanston Hospital decision rested primarily on the ban on balance billing, and noted there was no suggestion in the federal law that providers could avoid the payment-in-full mandate merely because a patient later became wealthier.[10] Moreover, *198 the Evanston Hospital court noted the adverse financial effects on the Medicaid system that could flow from a rule allowing a hospital to recover Medicaid funds in all cases, then later decide to repay in selected cases in order to collect from patients who later became solvent. If the hospital had that option, "hospitals would have every incentive to capture as much government money as they could without regard for the probabilities of collecting reimbursement from the private party" (id. at p. 544) and could "turn Medicaid upside down by converting the system into an insurance program for hospitals rather than for indigent patients." (Ibid.) For these reasons, Evanston Hospital rejected the proposition that the hospital could repay the Medicaid funds and then sue the patient; this proposition conflicted with federal law.
In Public Health Trust v. Dade Cty. School (Fla.App.1996)
The only California case to evaluate an analogous effort by a provider concluded a provider may not repay Medicaid and thereafter collect from the patient's recovery from a tortfeasor. In Palumbo v. Myers, supra,
Respondents correctly note that, with the exception of Public Health Trust v. Dade Cty. School, supra,
The HCFA letter placed two specific limitations on permissible state statutes. First, the hypothetical statute must assure Medicaid is made whole before providers can obtain any monies. Second, the hypothetical statute must assure Medicaid beneficiaries are protected by prohibiting providers from seizing money awarded to the beneficiary apart from the portion of the award representing medical expenses.[12] We interpret this latter limitation, which preserves the patient's right to retain all amounts awarded either as general damages or as special damages apart from medical expenses, to be consistent with the core policy underlying the ban on balance billing: the provider may not collect from a patient's assets for balances owed above the amounts paid by Medicaid.
Although section 14124.791 meets the reimburse Medicaid condition, it does not *200 satisfy the second condition. First, section 14124.791's lien attaches to the entire award recovered by the patient; the lien is not limited to those cases where the recovery "specifically designates a set amount of money for medical expenses...." Second, in California, the special damages for medical care recoverable by a Medicaid beneficiary against a third party tortfeasor is limited to the amounts paid by Medi-Cal. (Hanif v. Housing Authority (1988)
Even if the HCFA correctly opined a provider lien statute could be designed that would be consistent with Medicaid's ban on balance billing, section 14124.791 on its face does not limit, and could not be construed (absent a change in the rule of law described in Hanif v. Housing Authority) as limiting, the provider to collecting only that portion of the judgment or settlement representing special damages for medical expenses in excess of the amount paid by Medi-Cal. Because its "actual content ... and its real effect on federal rights" (Livadas v. Bradshaw, supra,
IV
THE PLEADING ISSUES
Olszewski argues the trial court erroneously sustained respondents' demurrer to her cause of action under the UCL and her tort claims because respondents' actions were not protected by the litigation privilege (Civ.Code, § 47, subd. (b)(2)), and her complaint otherwise sufficiently pleaded claims for relief under each of those theories. Respondents counter that they were entitled to rely on, and did nothing more than pursue the rights conferred by, the provisions of section 14124.791; accordingly, Olszewski did not and could not plead facts sufficient to *201 constitute claims in either tort or under the UCL and their actions were absolutely privileged. We conclude that, under Cel-Tech, supra,
A. General Principles.
The standards governing Olszewski's cause of action under the UCL are well established. The UCL does not proscribe specific practices, but instead defines "unfair competition" to include "any unlawful, unfair or fraudulent business act or practice." (Bus. & Prof.Code, § 17200.) Its coverage is sweeping and embraces "`"anything that can properly be called a business practice and that at the same time is forbidden by law."'" (Rubin v. Green (1993)
Olszewski's fraud cause of action requires (1) a misrepresentation of a past or existing material fact knowing it to be untrue, (2) with intent to induce another's reliance on the fact misrepresented, (3) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (4) damages. (Wilkins v. National Broadcasting Co. (1999)
Olszewski's final tort claim, denominated as "trespass to chattel," is a "seldom employed [ ] tort theory in California" (Thrifty-Tel, Inc. v. Bezenek (1996) *202
However, conduct that is otherwise tortious is not actionable if it is privileged. (5 Witkin, Summary of Cat. Law (9th ed. 1988) Torts, § 278, p. 360.) If the conduct that causes the injury is protected by the absolute privilege conferred by Civil Code section 47, subdivision (b)(2), all tort causes of action (other than malicious prosecution or abuse of process) are barred (Ribas v. Clark (1985)
B. Analysis of UCL Claim.
Although the language of the UCL is broad, it does not confer unlimited powers on a court to declare what conduct is actionable. As the court explained in Cel-Tech:
"Courts may not simply impose thenown notions of the day as to what is fair or unfair. Specific legislation may limit the judiciary's power to declare conduct unfair. If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination. When specific legislation provides a `safe harbor,' plaintiffs may not use the general unfair competition law to assault that harbor." ((Cel-Tech, supra,20 Cal.4th at p. 182 ,83 Cal.Rptr.2d 548 ,973 P.2d 527 .)
The Cel-Tech court cautioned that, in order to invoke this safe harbor, another provision of law must actually bar the action or clearly permit the conduct; it is not enough that the statute does not itself provide a cause of action or prohibit the challenged conduct, because there is a difference between not making an activity unlawful, and making that activity lawful. The court reasoned that an act the Legislature has determined to be lawful may not form the basis for an action under the UCL, but an act may (if otherwise unfair) be challenged under the UCL even if the Legislature did not specifically proscribe it in some other provision; the Legislature cannot anticipate all possible forms in which unfairness might occur. (Id. at 182-183,
"If, in the Unfair Practices Act (or some other provision), the Legislature considered certain activity in certain circumstances and determined it to be lawful, courts may not override that determination under the guise of the unfair competition law. However, if the Legislature did not consider that activity in those circumstances, the failure to proscribe it in a specific provision does not prevent a judicial determination that it is unfair *203 under the unfair competition law." (20 Cal.4th at p. 183 ,83 Cal.Rptr.2d 548 ,973 P.2d 527 .)
Cel-Tech applied its test utilizing a "a two-step process. First, we must determine whether the Legislature has provided a safe harbor for [defendant's] conduct. Second, if it has not, we must determine whether that conduct is unfair as we have just defined it." (Cel-Tech, supra,
The conduct alleged by Olszewski as the unlawful, unfair or fraudulent business act or practice is precisely the conduct authorized by section 14124.791. Because the Legislature considered that activity and determined it to be lawful, we may not override that determination by permitting a UCL claim against a private party and deprive that private party of the safe harbor constructed by the Legislature. Olszewski argues the safe harbor cannot protect respondents from her UCL claim because section 14124.791 is invalid. We acknowledge Cel-Tech's safe harbor doctrine has not yet been applied to a statute operative at the time the private party relied on the statute and engaged in the permitted conduct and the statute was later declared invalid. We conclude, however, that Cel-Tech's safe harbor doctrine should be applied in this context. When the Legislature enacts a facially valid state law that specifically grants a right or remedy to private parties, we believe the parties should be entitled to rely on that law to conduct their affairs and not be required to second guess the legislative enactment, or to prognosticate whether the statute will survive myriad subsequent legal challenges, and be subjected to liability under the UCL should their crystal ball fail them. Accordingly, when a private party engages in conduct that, at the time he or she acts, qualifies for Cel-Tech's safe harbor protection, conduct lawful when the party acted is not made unlawful (at least for purposes of liability under the UCL) by a later judicial determination that closes the safe harbor created by the Legislature.[15] Olszewski's UCL claim is therefore *204 barred by Cel-Tech's safe harbor protection.
C. The Tort Claims.
Respondents contend that, because the conduct allegedly causing Olszewski's injury was shielded by the absolute privilege under Civil Code section 47, subdivision (b)(2), her tort causes of action are barred. Olszewski argues the privilege does not apply.
The principal purpose of Civil Code section 47, subdivision (b)(2) is to afford litigants and witnesses freedom of access to the courts without fear of being subsequently harassed by derivative tort actions. "[T]he privilege applies to any communication (1) made in judicial or quasijudicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that has some connection or logical relation to the action." (Silberg v. Anderson (1990)
The courts, applying these general principles, have concluded that lien notices required or permitted by law are protected by the privilege as communications in judicial proceedings made to achieve the objects of the litigation. (See, e.g., Frank Pisano & Associates v. Taggart (1972)
"Like mechanics' liens, homeowners' assessment liens are permitted by law to achieve the object of litigation. Both types of liens must be filed as a first step in foreclosure actions to remedy defaults, and are thus closely related to judicial proceedings. We therefore conclude that the publication of homeowners' assessment liens is absolutely privileged under Civil Code section 47, subdivision (b)." (Wilton, supra,18 Cal. App.4th at p. 569 ,22 Cal.Rptr.2d 471 .)
The remedy provided by section 14124.791 is analogous to the lien rights *205 considered by Pisano and Wilton. In each case, the legislative scheme confers on private parties the right to pursue certain remedies but requires that the claimant/prospective litigant give notice of a lien to the affected parties to pursue those remedies. Accordingly, the absolute privilege protects respondents from derivative tort lawsuits seeking to recover for injuries caused by respondent's assertion of its lien claim.
Olszewski argues the absolute privilege is inapplicable here. First, she argues the privilege applies only to communications made "in a judicial proceeding" (LiMandri v. Judkins (1997)
Olszewski also asserts the privilege does not bar her tort claims based on the analysis employed by this court in LiMandri v. Judkins, supra,
Olszewski seeks to bring herself within LiMandri by arguing her complaint does not seek to recover for injuries caused by the filing of the lien, but instead seeks to recover for the injury caused by respondents' improper collection practice of attempting to collect money in violation of the federal ban on balance billing. However, unlike LiMandri Olszewski's complaint does not identify any wrongful conduct by respondents apart from pursuing collection by asserting the lien authorized by section 14124.791.[17] Thus, Olszewski does not assert any injury-producing conduct that is divorced from the privileged communication (Ribas v. Clark, supra,
V
THE AMENDMENT ISSUE
Olszewski next argues the court abused its discretion by denying her request, made orally at the hearing on the demurrer, for leave to amend her complaint to assert two new theories of liability under the UCL. Her first proposed theory was that respondents' practices violated the contract obligations they owed to the California Department of Health Services. In her second theory, she argued that even if the HCFA letter correctly concluded statutes like section 14124.791 could be consistent with federal Medicaid rules, the HCFA letter specified that certain conditions must be satisfied and respondents' practices violated those conditions.
It is an abuse of discretion to deny a plaintiff leave to amend a complaint if there is a reasonable possibility that the pleading can be cured by amendment. (Hendy v. Losse (1991)
At trial, Olszewski did not submit a proposed pleading containing the new allegations, either in opposition to the demurrer or by a motion for reconsideration, and she has not on appeal lodged a proposed pleading articulating how her new allegations would change the legal effect of her complaint in a manner that would state a claim under the UCL. Because there exists no proposed pleading showing a reasonable possibility that an amended complaint will cure the defect (Baum v. Duckor, Spradling & Metzger (1999)
Even disregarding the absence of a proposed pleading, the fundamental impediments to Olszewski's ability to state a UCL claim that we have identified are not obviated by the theories she has articulated. Olszewski's first theory rests on the contract between ScrippsHealth and the State of California governing services to Medi-Cal beneficiaries. Under the contract,[18] ScrippsHealth is obligated to accept Medi-Cal payments as payment for services provided to Medi-Cal beneficiaries; Olszewski argues she should be given leave to amend her complaint to allege that respondents' practice of seeking additional compensation was a breach of contract constituting an unlawful, unfair or fraudulent business practice. However, the contract provides it is governed by Part 3, Division 9 of the Welfare and Institutions Code, which includes section 14124.791, and explicitly states that "[a]ny provision of this Contract in conflict with [those laws] is hereby amended to conform to the provisions of those laws and regulations [and] [s]uch amendment of the Contract shall be effective on the effective date of the statute or regulation necessitating it, and shall be binding on the parties even though such amendment may not have been reduced to writing and formally agreed upon and executed by the parties ..." Olszewski does not explain how respondents, as parties to a contract automatically amended to adopt the provisions of section 14124.791, could be found to have violated that contract by pursuing the rights conferred by section 14124.791. Thus, the same impediment to Olszewski's UCL claim remains extant under her breach of contract theory: respondents' pursuit of rights statutorily and contractually conferred on them entitle respondents to Cel-Tech's safe harbor and precludes Olszewski from stating a viable UCL claim.
Olszewski's noncompliance with HCFA conditions theory faces an analogous defect. Although this theory is somewhat opaque, she appears to argue that because the HCFA permits lien claims only when certain conditions are met and respondents' lien claim did not satisfy those conditions, respondents committed an unlawful, unfair or fraudulent business practice. We agree section 14124.791 does not satisfy the HCFA standards for permissible *208 lien statutes, and that respondents' invocation of section 14124.791 does not create any enforceable lien on Olszewski's recovery. However, this theory alleges nothing more than that respondents invoked the statutory procedure but their lien claim did not satisfy the HCFA standards because section 14124.791 does not conform to those standards. Because this theory is a mere reformulation of Olszewski's claim that respondents are liable under the UCL because they pursued their statutory remedies, we conclude respondents are entitled to the benefits of Cel-Tech's safeharbor and Olszewski cannot negate that protection by recharacterizing respondents' compliance with the statute as a distinct business practice that violates federal law.
VI
THE APPROPRIATE DISPOSITION
Our review of the record below convinces us the trial court correctly perceived that Olszewski's complaint, although nominally asserting only claims under the UCL and in tort, contained an imbedded claim for declaratory relief as to the validity of section 14124.791 and respondents' claim of lien under that section.[19] (Minor v. Municipal Court (1990)
We have concluded that the judgment, insofar as it encompasses the declaration that section 14124.791 is valid and not preempted by federal law, was erroneous and to that extent cannot stand. However, we have also concluded that, even though section 14124.791 is invalid and respondents therefore have no enforceable lien claim to the fund received by Olszewski from the third party tortfeasor, the trial court nevertheless correctly sustained respondents' demurrer to Olszewski's UCL and tort claims without leave to amend. (J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997)
We must therefore consider the appropriate disposition of this matter. Where it appears from the record that as a matter of law there is only one proper judgment, an appellate court may reverse and direct that the trial court enter the proper judgment (Conley v. Matthes (1997)
DISPOSITION
Section 14124.791 is invalid because it is preempted by federal law. Accordingly, *209 respondents' lien under section 14124.791 is invalid, and all funds collected by Olszewski from the third party tortfeasor, whether by settlement or judgment, are free of any lien claimed by respondents under section 14124.791. In all other respects, the judgment of dismissal is affirmed. The parties shall bear their own costs on appeal.
NARES, Acting P.J., and O'ROURKE, J., concur.
NOTES
Notes
[1] All statutory references are to the Welfare and Institutions Code, unless otherwise specified.
[2] Because this appeal is from a judgment of dismissal following the sustaining of a demurrer without leave to amend, we accept as true the facts alleged in the complaint, together with facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995)
[3] The Legislature did not give an official name to the provisions of Business and Professions Code section 17200 et seq., but the courts have labeled these provisions the "unfair competition law." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999)
[4] At oral argument on the demurrer, the primary focus of Olszewski's argument was that the court should grant her leave to amend the complaint to assert two new theories of liability. First, she argued that even if a June 1997 letter and policy statement from the federal Health Care Financing Administration (the HCFA letter) correctly concluded that statutes such as section 14124.791 could be consistent with federal Medicaid rules if certain conditions were satisfied, her complaint could be amended to assert that respondents' practices violated the terms and conditions outlined in the HCFA letter. Second, she argued that her complaint could be amended to allege that respondents' practices violated the contractual obligations respondents owed to the California Department of Health Services. We evaluate below Olszewski's argument that the trial court abused its discretion by denying her request for leave to amend.
[5] An identical ban on balance billing applies to providers obtaining reimbursement directly from the federal government, rather than from a state-run program like California's Medi-Cal program. Under title 42 United States Code section 1395cc, subd. (a)(1), "Any provider of [Medicare] services . . . shall be qualified to participate under this subchapter and shall be eligible for payments under this subchapter if it files with the Secretary an agreement(A) not to charge . . . any individual or any other person for items or services for which such individual is entitled to have payment made under this subchapter ... or for which such provider is paid...." This statute has been interpreted to bar hospitals that have been paid by Medicare from placing liens on settlements or judgments obtained by patients from third parties. (Rybicki v. Hartley (1st Cir.1986)
[6] The ban against a provider collecting anything from the patient is subject to minor exceptions not pertinent here. (42 U.S.C. § 1396a, subd. (a)(25)(C)(i)-(ii).) It is also subject to the exception that the state may seek to recoup Medicaid payments from third parties under circumstances not relevant here.
[7] Although the language of the 1992 version of section 14124.791, subdivision (a) changed from its 1985 predecessor, the substantive impact on the parties appears to be unchanged. The 1985 version permitted a lien only when there was a balance owed above the amounts paid by Medi-Cal, and the extent of the provider's lien was for "the amount of unpaid charges." However, under the statutory scheme in effect in 1985, the state could assert its own lien to recover the amounts paid by Medi-Cal. (Palumbo v. Myers, supra, 149 Cal.App.3d at pp. 1029-1030,
[8] Olszewski's preemption argument apparently relies on the conflict test for preemption. Olszewski makes no claim of field preemption and, as respondents persuasively point out, a congressional intent to entirely occupy the field from which we might imply an intent to preempt state regulation in that field is inconsistent with a Medicaid scheme that not only contemplates but requires state regulation of its Medicaid program. Although Olszewski attempts to construct an express preemption argument, this argument merely recasts her conflict argument. Olszewski cites Medicaid's express mandate that a state Medicaid plan must comply with federal law to show Congress expressly intended to preempt state law that does not comply or is inconsistent with the dictates of federal law. However, she supports her express preemption argument by asserting that "in every case in which there has been a challenge to state law as inconsistent with the federal mandates, the courts have either found the state law to be preempted, or found that no actual conflict existed." It is apparent from her argument and the cases on which she relies that the issue is not one of express preemption but is instead whether the state law is preempted because it conflicts with Medicaid law.
[9] Olszewski appears to claim that, even if section 14124.791 is viewed as a substitute billing statute, permitting providers to pursue the third party for payment would still conflict with federal laws and regulations because under federal law only the state agency administering the Medicaid program is authorized to pursue reimbursement from third parties for the costs of medical care provided to patients. Although numerous federal statutory provisions specify the state plan for administering its Medicaid program must provide mechanisms for the state to seek out and pursue reimbursement from responsible third parties (see, e.g., 42 U.S.C. § 1396a(a)(25), subsections (A), (B) and (H); see also 42 U.S.C. § 1396k), nothing in those rules expressly or impliedly prohibits a state from enlisting private providers to implement those mandates.
[10] The Evanston Hospital court, rejecting the provider's claim that it was proper to reimburse Medicaid and pursue the patient because Medicaid is only a "payor of last resort," stated at page 543: "Even if there were a payor-of-last-resort requirement in Medicaid law, it could not have the meaning plaintiff proposes because there will always be some possibility that an indigent patient will emerge victorious in a future lawsuit, win the lottery, strike gold, or land a good job and save some money. Under plaintiff's reading of Medicaid law, no state administrative agency could ever qualify as a Medicaid payor of last resort because alternative sources of reimbursement might later emerge."
[11] When a court is asked to defer to a federal agency's construction of the statutes it administers, the court "is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." (Chevron U.S.A. v. Natural Resources Defense Council (1984)
[12] The HCFA letter recognized a tort plaintiff's recovery will often contain elements compensating the patient for losses other than the costs incurred for medical services, including pain and suffering, and loss of consortium. To this list, we add that the award could include lost income or property damage unrelated to the medical expenses component of the award. To comply with the core policy of prohibiting providers from pursuing money awarded to the patient, the HCFA letter specifies "the provider lien must be against the tortfeasor and not the general assets of the [patient], e.g., the provider would be entitled to reimbursement from a tort judgment or settlement when the [the recovery] specifically designates a set amount of money for medical expenses and then only if this amount is above the amount owed to Medicaid. The provider could be reimbursed only if the money has not been allotted to the beneficiary in a court judgment or settlement."
[13] We recognize that, when a Medicaid-eligible patient is injured by a third party tortfeasor, the ban on balance billing confers a windfall at the expense of the provider, although the recipient of that windfall differs from state to state. In those jurisdictions where the Hanif limitation does not apply and the patient is entitled to recover the actual value of the medical expenses, it appears that the patient is the beneficiary of the windfall. In California, however, it is the third party tortfeasor that benefits from the impact of the Hanif limitation, because he avoids liability for the full amount of medical expenses based on the patient's eligibility for Medi-Cal. Nothing in our opinion should be taken as suggesting that federal Medicaid law would preclude a state from seeking to remedy this anomaly, as for example by a statutory direct cause of action in favor of the provider against the third party tortfeasor; we conclude only that section 14124.791 does not survive federal preemption.
[14] The issue in Cel-Tech was whether below-cost sales of cellular phones violated the UCL. It noted that nothing in Business and Professions Code sections 17043 and 17044 provided a safe harbor for below-cost sales if the seller did not have the purpose of injuring competitors or destroying competition, because those provisions neither outlawed nor affirmatively permitted all nonpurposeful below-cost sales. However, it noted that Business and Professions Code section 17026.1, subdivision (a)(2) did provide a safe harbor by specifically authorizing below-cost sales when the sales were "a good faith endeavor to meet the legal market prices of competitors in the same locality or trade area." Because the statute stated such sales "shall be permitted," Cel-Tech concluded the language "shows the Legislature affirmatively permitted, i.e., made lawful, these good faith sales." (Cel-Tech, supra, 20 Cal.4th at pp. 187-188,
[15] Although we have found no direct precedent in this area, analogous considerations led the court in Moss v. Superior Court (1998)
[16] Olszewski also asserts the privilege applies only to communications by "participants authorized by law" (LiMandri v. Judkins, supra,
[17] Here, the only wrongful collection activity alleged by Olszewski is that respondents asserted their lien rights. In contrast, LiMandri noted the defendant's wrongful conduct included, but was not limited to, the assertion of the lien, because the wrongful conduct included knowingly creating a security interest in the recovery that conflicted with the attorney's prior security interest, and inducing the clients to breach their fee agreement with the attorney. (Id. at p. 344,
[18] Olszewski did not file a copy of the current contract between ScrippsHealth and the State of California, but instead submitted the 1983 and 1992 versions of the contract in support of her request for leave to amend. She posited that the current contract is likely similar to those earlier contracts. However, it is undisputed that those contracts were executed before the current version of section 14124.791 was enacted by the Legislature, and therefore would not reflect the additional remedies conferred on a Medi-Cal provider.
[19] For example, Olszewski's UCL cause of action alleged respondents unlawfully asserted liens against personal injury judgments and requested, among other relief, a "declaration of the rights, remedies and obligations of the parties." Her prayer for relief similarly sought an order "declaring that all lien claims by defendants .. . are unlawful, unenforceable, and [uncollectable], and [ ] voiding such lien claims."