Judge Deirdre Hill, Case 22TRCV00853 2023-04-04 Tentative Ruling

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Responding Party: Plaintiffs Ramin M. Roohipour, M.D., Inc. and R&R Surgical Institute

The demurrer to the complaint and the 1^st and 2^nd causes of action in the complaint are OVERRULED. Defendants are ordered to file an answer within 20 days.

On September 26, 2022, plaintiffs Ramin M. Roohipour, M.D., Inc. and R&R Surgical Institute filed a complaint against Highmark Western and Northeastern New York Inc., dba Bluecross Blueshield of Western New York and Blue Shield of California Life & Health Insurance Company, dba Blue Shield of California for (1) breach of oral contract and (2) promissory estoppel.

When considering demurrers, courts read the allegations liberally and in context. Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228. “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905. “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.

Defendants High Mark Western and Northeastern New York Inc. (“Highmark”) and Blue Shield of California Life & Health Insurance Company (“Blue Shield”) demur to both causes of action in the complaint on the ground that they fail to state sufficient facts to constitute a cause of action and to the entire complaint based on uncertainty.

In the complaint, plaintiffs allege that R & R is a state-of-the-art ambulatory surgery center. Complaint, ¶10. MD Inc. is a medical corporation with billing rights to the services rendered by the primary surgeon, assistant surgeon, and anesthesiologist. Id., ¶11. R&R and MD Inc. (“plaintiffs”) are out-of-network providers, which means neither has a written contract with defendant to be reimbursed based on a negotiated fee schedule. Id., ¶12. The causes of action asserted are based upon the rights of plaintiffs as independent entities and are not derivative of the contractual rights of plaintiffs’ patient. The claims arise from plaintiffs’ interactions with defendants in the regular course of dealing and from defendants’ representations made during pre-service and post-service communications. Plaintiffs do not seek to enforce the contractual rights of their patient through an assignment of the patient’s right to benefits under any insurance contract, policy, plan, and/or certificate of coverage. Id., ¶13. Generally, while in-network rates are usually fixed at less than “fair market” rates, out-of-network rates are more fluid and can change as the market changes from year-to-year. Out-of-network rates are typically based on one or two methodologies: either a percentage of the national Medicare rates, or the usual and customary rate of the geographic region. A usual and customary rate can be anywhere from five to ten times more than its in-network counterpart. Id., ¶14. It is therefore customary in the healthcare industry for out-of-network providers to seek pre-service assurances from insurance companies or plans regarding coverage, payment rates, and whether proposed services require preauthorization or other conditions precedent. Id., ¶15. Prior to rendering treatment to any given patient, it is plaintiffs’ pattern and practice to first contact the insurance company or health plan to verify the patients’ insurance eligibility and to obtain pre-authorization for proposed services, if required. Id., ¶16. Plaintiffs ultimately render medically necessary services in reliance on the representations made during pre-service insurance verification and pre-authorization phone calls. Id., ¶17. Plaintiffs contends that defendants failed to reimburse the claims addressed in accordance with their pre-service representations. Id., ¶18.

Plaintiffs further allege that Patient A was scheduled to undergo an esophagogastroduodenoscopy with possible biopsy at R&R on September 3, 2020. Id., ¶19. On August 20, 2020, prior to rendering services, plaintiffs called defendants and spoke with representatives Will and Dan (Reference Nos. 20233303709 and 2023303992), who confirmed Patient A was eligible for coverage; that Patient A’s plan covers out-of-network general surgery and bariatric surgery services, which are reimbursed at 60% of the Blue Shield Local Allowable rate; and that Patient A’s remaining deductible and out-of-pocket amounts were $5,000 and $0, respectively. It is standard in the industry that once a patient’s deductible and out-of-pocket maximum are met, health insurance plans then pay at 100% of the quoted rate. Id., ¶20. With regards to the facility fee, defendants’ representatives further confirmed that Patient A’s plan covered out-of-network outpatient surgery at an ambulatory surgery center, and that there was not a “per-day-max-cap” on out-of-network facility fee claims. Id., ¶21. Plaintiffs memorialized these terms contemporaneously in the regular course of business on an in-office form entitled “Insurance Verification.” Id., ¶22.

Plaintiffs further allege that on August 27, 2020, plaintiffs called defendants against to determine whether Patient A’s proposed services required preauthorization. Providers spoke with Riley M. (Reference No. 2024004579) and provided the specific diagnostic codes (R12 and K21.9) and the Current Procedural Terminology (“CPT”) code (CPT 43239) for Patient A’s proposed treatment. Riley M. confirmed that the proposed treatment did not require preauthorization. This information was memorialized contemporaneously by plaintiffs in the regular course of business on an in-office form entitled “Pre-Authorization Form.” Id., ¶23. Following Patient A’s September 3, 2020 date of service, plaintiff MD Inc. submitted a $25,000 primary surgeon fee claim and a $30,000 anesthesia fee claim to defendants. Plaintiff R&R submitted a $40,000 facility fee claim to defendants. Id., ¶24. Defendants sent MD Inc. an EOB dated September 25, 2020, stating that $248.75 was allowed and applied to Patient A’s deductible for the $25,000 primary surgeon fee claim. MD Inc. disputes that $390.88 is commensurate with 60% of the local Allowable amount, as quoted pre-service. There is no explanation for defendants’ claim determination on this EOB. MD Inc. appealed the adverse determination, but defendants upheld their original decision without providing any basis. Id., ¶25. Defendants sent MD Inc. an EOB dated September 25, 2020, stating that $390.88 was allowed and applied to Patient A’s deductible for the $30,000 anesthesia fee claim. MD Inc. disputes that $390.88 is commensurate with 60% of the local Allowable amount, as quoted pre-service. There is no explanation for defendants’ claim determination on this EOB. MD Inc. appealed the adverse determination, but defendants upheld their original decision without providing any basis. Id., ¶26. Defendants sent R&R an EOB and corresponding check dated September 25, 2020, stating that $5640.52 was allowed, and $4,040.67 was applied to Patient A’s deductible for the $40,000 facility fee claim. R&R was paid $959.91. R&R disputes that $5,640.52 is commensurate with 60% of the local Allowable amount, as quoted pre-service. R&R appealed the adverse determination, but defendants upheld their original decision without providing any basis. Id., ¶27.

Plaintiffs also allege that Patient A was also scheduled to undergo a Laparoscopic Sleeve Gastrectomy and Possible Hiatal Hernia Repair at R&R on October 12, 2020. Id., ¶28. On September 22, 2020, plaintiffs re-verified Patient A’s benefits with defendants and were told the same information iterated above in paragraphs 20-22. Defendants represented that Patient A’s deductible amount was still $5,000, which plaintiffs understood to mean that the claims submitted for Patient A’s September 3, 2022 date of service was still being process and the new deductible amount was not yet updated. Id., ¶29. On October 9, 2020, plaintiffs called defendants again to determine whether Patient A’s proposed services required preauthorization. Plaintiffs spoke with Evan S. (Reference No. 2028302204) and provided the specific diagnosis codes (G47.9, R06.02, and E66.01) and CPT codes (CPT 43375 and 43280) for Patient A’s proposed treatment. Evan S. confirmed that the proposed treatments did not require preauthorization. This information was memorialized contemporaneously by plaintiffs in the regular course of business on an in-office form entitled “Pre-Authorization Form.” Id., ¶30. Following Patient A’s October 12, 2020 date of service, MD Inc. submitted a $80,000 primary surgeon fee claim and a $47,549.96 anesthesia fee claim to defendants. R&R submitted a $207,000 facility fee claim to defendants. Id., ¶31. Defendants sent MD Inc. an EOB dated November 17, 2020, and payment in the amount of $834.61 on the $80,000 primary surgeon fee claim. MD Inc. disputes that $834.61 is commensurate with 100% of the local Allowable amount, as quoted pre-service (here, the applicable rate would increase from 60% of the Allowable to 100% of the local Allowable amount since EOB indicates Patient A’s deductible is met). There is no explanation for defendants’ claim determination on this EOB. MD Inc. appealed the adverse determination, but defendants upheld their original decision without providing any basis. Id., ¶32. Defendants sent MD Inc. an EOB dated November 17, 2020 and payment in the amount of $667.52 on the $47,499.96 anesthesia fee claim. MD Inc. disputes that it is commensurate with 100% of the local Allowable amount. Plaintiff appealed and defendants upheld their decision. Id., ¶33. Defendants sent R&R an EOB and check dated December 2, 2020 stating that $112,361.50 was allowed, yet only $3,216.90 was paid on the $207,000 facility fee claim. R&R disputes that it is commensurate with 100% of the local Allowable amount. R&R appealed but defendants upheld their decision. Id., ¶34.

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 616. “A demurrer for uncertainty will be sustained only where the complaint is so bad that defendant cannot reasonably respond—i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.” Weil & Brown, Civil Procedure Before Trial (The Rutter Group) § 7:85.

Defendants argue that plaintiffs fail to distinguish between defendants, which are two separate entities.

In opposition, plaintiffs contend that “this was unavoidable since Defendants are all named on the patient’s insurance card, thus, Plaintiffs allege that each named defendant was the agent and/or employee of the other, and was always acting within the purpose and scope of said agency and/or employment and with the authorization and ratification of each other.” See Complaint, ¶¶7-8. Plaintiffs further argue that they complied with Cal. Rules of Court, Rule 2.112 as each cause of action is titled to state the nature of the claim asserted and identifies the defendants against whom the claim is asserted. Also, plaintiffs contend, the facts alleged in the complaint are within defendants’ knowledge since they insure the at-issue patient and possessed the at-issue claims.

The court finds that the complaint is not so uncertain that defendants cannot reasonably respond.

“The elements of a cause of action for breach of contract are: (1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.” Coles v. Glaser (2016) 2 Cal. App. 5th 384, 391. “It is essential to the existence of a contract that there should be: 1. Parties capable of contracting; 2. Their consent; 3. A lawful object; and, 4. A sufficient cause or consideration.” Civil Code §1550. “The terms of a contract are reasonably certain if they provide a basis for determining . . . the existence of a breach and for giving an appropriate remedy.” Weddington Productions, Inc. v. Flick (1998) 60 Cal. App. 4^th 793, 811.

Plaintiffs allege that an oral contract existed between the parties, whereby defendants promised plaintiffs that Patient A’s out-of-network surgical claims would be reimbursed at 60% of the Allowable rate until the deductible was met, and at 100% of the Allowable rate thereafter. Complaint, ¶36. Defendants further promised and represented that Patient A’s claims did not require preauthorization or any other conditions precedent. Id., ¶37. Plaintiffs accepted Patient A for treatment and rendered the preauthorized medically necessary services. Plaintiffs satisfied all obligations and conditions precedent required on its part to be performed pursuant to the oral agreement. Id., ¶38. Defendants breached the agreements by failing to pay plaintiffs amounts commensurate with the applicable local Allowable rate. Id., ¶39.

Defendants argue that there are no allegations that defendants promised any payment, much less agreed to pay a specific amount of payment that would give rise to definite terms, and that the allegations fail to show a meeting of the minds on any agreement to pay. Defendants cite to Pacific Bay Recovery, Inc. v. Cal. Physicians’ Servs., Inc. (2017) 12 Cal. App. 5^th 200 and Allied Anesthesia Med. Grp., Inc. v. Inland Empire Health Plan (2022) 80 Cal. App. 5^th 794, review denied (Sept. 28, 2022), arguing that verification of insurance, coverage, and authorization of services, and a provider’s understanding or expectation of payment alone, cannot support any cause of action.

In opposition, plaintiffs argue that the claim is adequately pled as it alleges definite terms and objective manifestations of mutual assent sufficient to establish contract formation. Plaintiffs assert that the complaint identifies the parties to the contract, the purpose of the contract, and sets forth payment terms, namely, defendants confirmed they offer out-of-network coverage for Patient A and that those services would be paid at 60% of the Local Allowable rate.

Moreover, plaintiffs argue, they alleged pattern and practice and that defendants partially performed by accepting and processing the claims. Plaintiffs also note that courts have taken divergent views on whether insurance verification and preauthorization calls can constitute a promise to pay for purposes of contract creation, citing to California Spine & Neurosurgery Institute v. United Healthcare Services (C.D. Cal. June 28, 2018) 2018 U.S. Dist. LEXIS 225961 (finding that a plaintiff out-of-network provider adequately pled claims for breach of oral contract and promissory estoppel based solely on a verification of benefits phone call); In re Out of Network Substance Use Disorder Claims Against Unitedhealthcare (C.D. Cal. Feb. 21, 2020) 2020 U.S. Dist. LEXIS 81195; Bristol SL Holdings, Inc. v. Cigna Health Life Ins., Co. (C.D. Cal. Jan. 6, 2020) 2020 U.S. Dist. LEXIS 76342. Plaintiffs further argue that Pacific Bay Recovery, supra, and other cases cited by defendants are distinguishable, because specific facts are not lacking in the present action.

In reply, defendants argue that plaintiffs’ “notion of ‘commercial realities’ is at odds” with the decisions in Pacific Bay and Allied Anesthesia. Defendants also argue that plaintiffs’ federal authorities are unpersuasive and distinguished and cites to Ramin M. Roohipour, M.D., Inc. v. Blue Cross Blue Shield of Illinois (C.D. Cal. Oct. 21, 2021) 2021 U.S. Dist. LEXIS 211272, involving the same plaintiff and similar allegations. In that case, the court found that California Spine, supra, was inapplicable and held that the plaintiff did not state a claim for breach of contract by alleging that the health plan “represented that Patient A was eligible for coverage; that Patient A’s plan reimburses out-of-network benefits at 60% of the Maximum Allowable rate” because the plaintiff did not allege a “promise”.

For purposes of a demurrer, the court finds that the allegations are sufficient to meet the elements for breach of oral contract as plaintiffs have adequately alleged the parties to the contract, formation of a contract, including mutual assent, the terms of the contract (out-of-network coverage for services rendered to Patient A and paid at 60% of the Allowable rate), type of treatment being sought, breach (failure to pay percentage whether it be 60% or 100%), and damages (difference between what was paid and what was owed). Aside from confirming coverage and preauthorization, plaintiffs allege the amount or rate at which the procedures would be paid. Also, “[t]he conduct of the parties after execution of the contract and before any controversy has arisen as to its effects affords the most reliable evidence of the parties’ intentions.” Kennecott Corp. v. Union Oil Co. of California (1987) 196 Cal. App. 3d 1179, 1189 (citations omitted). Plaintiffs have alleged that their and the industry’s custom and practice to contact insurance companies to verify eligibility and preauthorization requirements, and plaintiff alleges that it did so in this case. Plaintiffs also allege that defendants’ conduct as to the submitted claim, including sending EOBs and paying plaintiffs, albeit not at 70%, shows breach.

Moreover, although the federal cases cited by plaintiffs are not binding, they are persuasive. See, e.g., Bristol SL Holdings, Inc. v. Cigna Health Life Ins., Co. (C.D. Cal. Jan. 6, 2020) 2020 U.S. Dist. LEXIS 76342. In that case, the court found that the provider plaintiff had sufficiently alleged facts to state its breach of oral contract and promissory estoppel claims based on insurance verifications and preauthorization phone calls. The defendant insurance company had characterized plaintiff’s allegations as nothing more than “a recitation of the authorization and verification process” and insufficient as a matter of law to “transform” those phone calls “into promises to pay or contracts.” The Bristol court disagreed, noting that the allegations “go beyond a simple pre-authorization or verification and the blanket guarantee that Cigna would cover the treatment” because for each patient, the plaintiff had alleged what type of treatment was being sought, and “further alleges a specific billing rate pegged to a percentage of the usual, customary and reasonable rate.” In California Spine & Neurosurgery Institute v. United Healthcare Services (C.D. Cal. June 28, 2018), the court had found that a plaintiff out-of-network provider adequately pled causes of action for breach of oral contract and promissory estoppel based solely on a per-service verification of benefits phone call because the “facts alleged include specific names and dates of the calls between Plaintiff and Defendant regarding payment for Patient’s services, what the services would be, what was said, and by whom—including that Defendant agreed to pay a specific price; 75% of the UCR Rate.”

The court also finds that Pacific Bay Recovery, supra, is distinguishable to the extent that the implied contract claim failed because the complaint did not allege that any amount was promised to be paid. In that case, an out-of-network provider contacted the insurer “to obtain prior authorization, precertification, and consent to render treatment and perform procedures on the subscriber. [The insurer] advised . . . subscriber was insured, covered, and eligible for coverage” for the proposed services. 12 Cal. App. 5^th at 204. The provider “was led to believe that it would be paid a portion or percentage of its total billed charges, which charges correlated with usual, reasonable and customary charges.” Id. at 204, 215. “During the course of its treatment of the subscriber, Pacific Bay submitted five invoices to Blue Shield for its services at its usual and customary rate of $3,500 per day. In response, Blue Shield provided Pacific Bay with an explanation of benefits (EOB) in relation to the subscriber’s plan. Blue Shield paid Pacific Bay for six of the 31 days of service at a rate of $3,500 pers day. It paid nothing for the additional 25 days.” Id. at 204. Citing to the California Code of Regulations, the court stated that “any reimbursement Blue Shield owes Pacific Bay for treatment of the subscriber would be set forth in the applicable EOC. Yet, there is no mention of the EOC [evidence of coverage] in the FAC.” Id. at 212. The court determined that “Pacific Bay does not offer more detailed allegations that Blue Shield authorized a certain amount of treatment or agreed to pay a specific rate.” Id. at 215.

“The elements of promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person (which we refer to as detrimental reliance), and (4) injustice can be avoided only by enforcement of the promise.” West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal. App. 4th 780, 803. “The party claiming estoppel must specifically plead all facts relied on to establish its elements.” Smith v. City and County of San Francisco (1990) 225 Cal. App. 3d 38, 48 (citations omitted).

Plaintiffs allege that defendants promised and represented to plaintiffs that they would pay for out-of-network services rendered to Patient A at 60% of the Allowable rate until the deductible was met, and at 100% of the Allowable rate thereafter. Defendants further promised that the proposed procedures did not require preauthorization. Complaint, ¶43. Defendants should have reasonably expected that plaintiffs would in fact render services to Patient A expecting that payment would be made at the rates verified telephonically prior to each date of service. Id., ¶44. Plaintiffs relied on defendants’ representations and rendered treatment to Patient A based on that reliance. Defendants are the party with access to Patient A’s health plan information, and it is standard practice in the industry of out-of-network medical care that providers contact insurance companies before rendering services to determine coverage eligibility issues and rate of payment. Id., ¶45.

Defendants argue that the complaint fails to allege that defendants made a definite and clear promise. Defendants also contend that given the vague and uncertain nature of the alleged promise, any reliance on the representations would necessarily be unreasonable.

In opposition, plaintiffs argue that the claim is adequately pled. Plaintiffs also cite to California Spine, supra (“a promise of payment at [a specified rate] is sufficiently clear and definite” for a promissory estoppel claim to survive demurrer). Plaintiffs further assert that plaintiff’s reliance was reasonable given the “commercial realities” health care providers face.

In reply, defendants reiterate their argument that the allegations do not establish a sufficiently clear and unambiguous promise that could give rise to a promissory estoppel claim.

The court finds that the complaint alleges sufficient facts to infer a clear and unambiguous promise, that defendants would pay plaintiffs a 60% of the Allowable rate. Plaintiffs have also alleged the other elements.