Judge Deirdre Hill, Case 22TRCV01019 2023-05-04 Tentative Ruling

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

On October 21, 2022, plaintiff R & R Surgical Institute filed a complaint against Anthem Blue Cross Life and Health Insurance Company 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.

Defendant Anthem Blue Cross demurs to both causes of action in the complaint on the ground that they fail to state sufficient facts to constitute a cause of action.

In the complaint, plaintiff R & R alleges that it is an out-of-network ambulatory surgery center where a patient insured by defendant received medically necessary services. Complaint, ¶5. The causes of action asserted are based upon the rights of R&R as an independent entity and are not derivative of the rights of R & R’s patients. Id., ¶6. R&R does not seek to enforce the contractual rights of its patient through an assignment of the patient’s health insurance benefits. Id., ¶7. The asserted claims arise from R&R’s interactions with defendant’s and/or its agents’ representations during pre-service and post-service communications. Id., ¶8. In-network rates are generally fixed at less than fair-market value, whereas out-of-network rates are more fluid and can change as the market changes from year-to-year. Id., ¶9. Out-of-network rates are typically based on one or two methodologies: either a percentage of the national Medicare rate, or the usual and customary rate (sometimes referred to as the “allowable” amount) of the geographic region. Id., ¶10. 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., ¶11. Prior to rendering treatment to any given patient, it is R&R’s pattern and practice to first contact the insurance company or health plan to verify the patient’s insurance eligibility and to obtain pre-authorization for proposed services, if required. Id., ¶12. R&R ultimately renders medically necessary services in reliance on the representations made during pre-service insurance verification and pre-authorization phone calls. Id., ¶13. R&R has a history of dealing with defendant since about 2018 and contends that defendant failed to reimburse the claims addressed herein in accordance with its pre-service representations. Id., ¶14.

Plaintiff further alleges that Patient A was scheduled to undergo an esophagogastroduodenoscopy with possible biopsy, possible polypectomy, and possible dilation at R&R on August 3, 2020. Id., ¶15. On July 27, 2020, prior to rendering services, plaintiff called defendant and spoke with representatives Chelsea (Reference No. 582992), who confirmed Patient A was eligible for coverage; that Patient A’s plan covers out-of-network general and bariatric surgery services, which are reimbursed at 60% of the Allowable rate; and that Patient A’s remaining deductible and out-of-pocket amounts were $3,000 and $5,000, respectively. Id., ¶16. It is standard in the industry of out-of-network services that once a patient’s deductible and out-of-pocket maximum amounts are met, services are then paid at 100% of the quoted rate. Id., ¶17. Defendant 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., ¶18. Plaintiff memorialized these terms contemporaneously in the regular course of business on an in-office form entitled “Insurance Verification.” Id., ¶19.

Plaintiff further alleges that on July 29, 2020, plaintiff called defendant again to determine whether Patient A’s proposed services required preauthorization. Plaintiff spoke with Gia C. (Reference No. 128311891) and provided the specific diagnosis codes (R12 and K21.9) and the Current Procedural Terminology code (CPT 43239) for Patient A’s proposed treatment. Gia C. confirmed that the proposed treatment did not require preauthorization. This information was memorialized contemporaneously in the regular course of business on an in-office form entitled “Pre-Authorization Form.” Id., ¶20. Following Patient A’s August 3, 2020 date of service, plaintiff submitted a $30,000 facility fee claim to defendant. Id., ¶21. Defendant sent plaintiff an Explanation of Benefits (“EOB”) and check dated November 6, 2020 with payment in the amount of $302.63. R&R disputes that $302.63 is commensurate with 60% of the Allowable rate for the geographic area. Id., ¶22. There was no explanation or basis provided on the EOB. Id., ¶23. Plaintiff appealed the underpayment, and defendant responded on February 1, 2021, stating that the claim was priced/processed by a third-party administrator. Id., ¶24.

The complaint further alleges that Patient A was also scheduled to undergo a possible Laparoscopic Open Sleeve Gastrectomy, Hiatal Hernia Repair, and Cholecystectomy at plaintiff on October 25, 2020. Id., ¶25. Having already verified that Patient A was eligible for coverage of both general and bariatric surgical services at 60% of the Allowable rate, plaintiff called defendant on August 24, 2020 to determine whether Patient A’s proposed services required preauthorization. Plaintiff spoke with Erian S. and provided the specific diagnosis codes and CPT codes for Patient A’s proposed treatment. Erian S. confirmed that the proposed treatment did not require preauthorization. Id., ¶26. Following Patient A’s October 25, 2020 date of service, plaintiff submitted a $255,000 facility fee claim to defendant. Id., ¶27. Defendant sent plaintiff an EOB and corresponding check dated October 24, 2020 in the amount of $1,672.03. The EOB states the Allowed amount is $255,000; however, defendant failed to pay the percentage of that amount quoted pre-service. Id., ¶28. Plaintiff appealed the underpayment and on July 30, 2021, defendant responded stating that the claim was processed by a third-party administrator and that Anthem was unable to change their determination. Id., ¶29.

Defendant argues that plaintiff lacks standing to bring any claims based on the existence of the Plan because the Plan contains a valid and enforceable anti-assignment language. Defendant requests judicial notice of the “California Times PPO (‘Plan’) Summary Plan Description, sponsored by NantMedia Holdings, LLC dba California Times.

In opposition, plaintiff argues that defendant’s argument is irrelevant because it is not suing as the assignee of Patient A. Further, plaintiff objects to the request for judicial notice, which the court sustains.

In opposition, plaintiff argues that ERISA does not preempt claims by a third-party suing an ERISA plan not as the assignee of a plan member, but as an independent entity claiming damages.

The court does not address as the court denies defendant’s request for judicial notice of the purported Plan.

Plaintiff alleges that an oral contract existed between the parties, whereby defendant promised plaintiff that Plaintiff A’s out-of-network surgical claims would be reimbursed at 60% of the Allowable rate once the deductible was met, and at 100% of the Allowable rate after the out-of-pocket maximum was met. Complaint, ¶31. Defendant further promised and represented that Patient A’s claims did not require preauthorization or any other conditions precedent. Id., ¶32. Plaintiff accepted Patient A for treatment and rendered medically necessary services. Plaintiff satisfied all obligations and conditions precedent required on its part to be performed pursuant to the agreement. Id., ¶33. Defendant breached the agreement by failing to pay plaintiff amounts commensurate with the applicable Allowable rate. Id., ¶34.

Defendant argues that plaintiff fails to allege sufficient facts to show the existence of a contract or an agreement to pay, citing to Ramin M. Roohipour, M.D., Inc., et al. v. Blue Cross Blue Shield of Illinois (C.D. Cal. Oct. 21, 2021) 2021 WL 5104383, where the court dismissed plaintiffs’ claims. Defendant also contends that verification calls do not amount to consent to enter a contract, citing to Stanford Hosp. and Clinics v. Multinat’l Underwriters, Inc. (N.D. Cal. Dec. 12, 2008) 2008 WL 5221071. Defendant further argues that there was no meeting of the minds or agreement for defendant to pay plaintiff a specific amount, citing to Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017) 12 Cal. App. 5^th 200, 216.

In opposition, plaintiff argues that the Roohipour v. Blue Cross Blue Shield case is distinguishable and not binding. Plaintiff asserts that the complaint alleges industry standard definitions of relevant out-of-network payment rates and that pre-service, Anthem promised to pay a specific percentage of the Allowable rate and that post-service, Anthem sent plaintiff an EOB stating the Allowable rate was $255,000 but only paid the facility $1,672. Plaintiff further argues that the complaint alleges definite terms and objective manifestations of mutual assent sufficient to establish contract formation and that the making of an agreement may be inferred by proof of conduct. Also, plaintiff contends, whether verification of benefits and preauthorization establishes a binding contract must be decided on a case-by-case basis and 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. Plaintiff notes that the Stanford Hosp. case cited by defendant was decided on summary judgment. Further, plaintiff argues that the Pacific Bay case does not apply because plaintiff does not claim a right to reimbursement at the UCR rate pursuant to California regulations; rather they are based on Anthem’s pre-service representations that Patient A’s out-of-network claims would be paid at 60% of the Allowable rate.

In reply, defendant reiterates its arguments that plaintiff has not alleged a promise by Anthem to enter into any contract with plaintiff because there was no mutual consent, including as to pricing. Defendant also argues that the cases cited by defendant are applicable.

For purposes of a demurrer, the court finds that the allegations are sufficient to meet the elements for breach of oral contract as plaintiff has adequately alleged the parties to the contract, formation of a contract, including mutual assent, consideration, 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 60%), and damages (difference between what was paid and what was owed). Aside from confirming coverage and preauthorization, plaintiff alleges 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). Plaintiff has alleged its 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. Plaintiff also alleges that defendant’s conduct as to the submitted claim, including sending an EOB and paying plaintiff, albeit not at 60%, shows breach.

Moreover, although the federal cases cited by plaintiff 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).

Plaintiff alleges that defendant promised and represented to plaintiff that they would pay for out-of-network services rendered to Patient A at 60% of the Allowable rate once the deductible was met, and at 100% of the Allowable rate after the out-of-pocket maximum amount was met. Complaint, ¶38. Defendant further promised that the specific proposed procedures to be performed on Patient A did not require preauthorization. Id., ¶39. Defendant should have reasonably expected that plaintiff 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. Defendant is the party with access to Patient A’s health plan coverage 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., ¶40. Plaintiff relied on defendant’s representations and rendered treatment to Patient A based on that reliance. Id., ¶41.

Defendant argues that plaintiff fails to allege a clear and unambiguous promise by defendant and that defendant “merely recited the general terms of the plans.” Defendant also contends that this claim fails because it is not based on purported bargained-for exchanges as there is neither a request for services nor a benefit received by defendant alleged.

In opposition, plaintiff argues that the claim is adequately pled, including a sufficiently clear promise and reasonable reliance.

The court finds that the complaint alleges sufficient facts to infer a clear and unambiguous promise, that defendant would pay plaintiff 60% of the Allowable rate. Plaintiff has also alleged the other elements.