Health Law Daily No mandatory duty prohibiting MCO from offering premium assistance to its high-cost patients
Friday, October 23, 2020

No mandatory duty prohibiting MCO from offering premium assistance to its high-cost patients

By Elena Eyber, J.D.

Blue Shield’s claim against MCO was dismissed for failure to satisfy the requirements for a waiver of government immunity from tort liability.

The California Court of Appeals affirmed the summary judgment of the trial court in favor of a managed care organization (MCO), CenCal, holding that none of Blue Shield’s proposed legal bases for an exception to the general rule of government tort immunity established a mandatory duty that prohibited the MCO from offering premium assistance to its high-cost renal failure patients. The court also held that if there was a duty, that it was intended to benefit private insurers like Blue Shield (California Physicians’ Service v. Santa Barbara San Luis Obispo Regional Health Authority, October 21, 2020, Siggins, P).

Procedural history. CenCal operated a "Premium Assistance Program" for a small percentage of its members, where the MCO paid private health insurance premiums for qualifying members so they could have access to private coverage and health care providers outside of its network. Previously, members in the program had existing private health insurance coverage when they first sought the MCO’s help paying their premiums. In 2014, approximately 40 high-cost renal failure patients who did not have private insurance applied for the program. CenCal approved their program applications and paid their premiums for newly obtained Blue Shield policies.

Blue Shield complained to the California Department of Health Care Services that the MCO was improperly shifting its obligation to cover California Medicaid (MediCal) beneficiaries by extending premium assistance to individuals who lacked pre-existing coverage. The Department agreed. In 2015, it informed the MCO that the operation of a premium assistance program that does not require pre-existing coverage has never been authorized and directed the MCO to immediately cease enrolling any MediCal beneficiaries in commercial products with the use of premium assistance. The MCO agreed to stop enrolling new members in the program and in 2016 terminated the program altogether. But it refused Blue Shield’s demand for reimbursement of $12 million the insurer claimed it wrongly expended as a result of what it described as the MCO’s scheme to dump high-cost medical risk into private plans.

Trial court decision. Blue Shield filed a lawsuit against the MCO for failure to perform its mandatory duties under Government Code section 815.6. The complaint alleged the MCO’s premium assistance program was legally unauthorized, implemented in an unlawful manner, and violated the MCO’s mandatory duty to provide coverage to its high-cost renal failure members and not to shift the members into qualified health plans.

The trial court ruled that the MCO was not required to reimburse Blue Shield for the additional costs it incurred for the renal failure patients’ care. The court concluded that it was required to adhere to the case law construing Government Code 815.6, the provision of the Government Claims Act providing for public entity liability for failure to discharge a mandatory duty. The court held that because none of Blue Shield’s proffered enactments contained a clear and explicit statement that the MCO was prohibited from providing health services for its members by purchasing insurance, the undisputed material facts established that the MCO did not violate any mandatory duty it owed to Blue Shield. Moreover, even if one or more of Blue Shield’s proffered enactments were construed per section 815.6 case law as prohibiting the MCO from purchasing insurance to provide health services for its members, the undisputed material facts established that any prohibition was, in the language of section 815.6, not designed to protect against the risk of a particular kind of injury suffered by Blue Shield.

Appellate court decision. Blue Shield identified three legal bases for the mandatory duties it asserted the MCO breached by offering initial premium assistance to the 40 high-cost renal failure patients: (1) 42 C.F.R. §435.1015; (2) Attachment 4.22-C to California’s state Medicaid Plan; and (3) the state’s "Bridge to Reform Demonstration Project."

Regarding 42 C.F.R. §435.1015, the appellate court agreed with the trial court and rejected Blue Shield’s contention that section 435.1015 implements a mandatory duty as required for public entity liability. The appellate court found that section 435.1015 does not satisfy the rigid requirements necessary for a waiver of government tort immunity for breach of the alleged duty.

Next, the appellate court addressed Blue Shield’s assertion that Attachment 4.22-C, an amendment to California’s Medicaid plan, provides a basis for government tort liability. Both the appellate court and the trial court were unpersuaded that Attachment 4.22-C either created a mandatory duty prohibiting the MCO from purchasing insurance for its high-cost renal failure members, or that it was intended to protect Blue Shield from the cost of those members’ health care. Blue Shield identified nothing in the record that indicates Attachment 4.22-C was designed to shield private insurers from incurring costs due to high-need Medicaid patients accessing private coverage through premium assistance programs.

Lastly, the appellate court and the trial court rejected Blue Shield’s argument that California’s "Bridge to Reform Demonstration Project," or the "BTR Waiver," read together with 42 C.F.R. §438.2, creates a mandatory duty prohibiting the MCO from operating a premium assistance program. Both courts found they lack explicit language to support the asserted mandatory duty and, further, that nothing in the waiver, section 438.2, or Blue Shield’s supporting materials demonstrates they were intended to benefit private insurers.

The case is No. A155736.

Attorneys: Gregory N. Pimstone (Manatt Phelps & Phillips LLP) for California Physicians' Service d/b/a Blue Shield of California. William Clinkenbeard (Clinkenbeard Ramsey Spackman & Clark LLP) and Caroline Brown (Brown & Peisch, PLLC) for Santa Barbara San Luis Obispo Regional Health Authority.

Companies: California Physicians' Service d/b/a Blue Shield of California; Santa Barbara San Luis Obispo Regional Health Authority

MainStory: TopStory CMSNews ManagedCareNews MedicaidNews MedicaidPaymentNews

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