Judge: Deirdre Hill, Case: 22TRCV01315, Date: 2023-04-20 Tentative Ruling

Case Number: 22TRCV01315    Hearing Date: April 20, 2023    Dept: M

Hearing Date:                         April 20, 2023

Moving Parties:                      Defendant Blue Shield

Responding Party:                  Plaintiff R & R Surgical Institute

Demurrer to Complaint

The court considered the moving, opposition, and reply papers.

RULING

            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.

BACKGROUND

            On November 22, 2022, plaintiff R & R Surgical Institute filed a complaint against California Physicians Service dba Blue Shield of California for (1) breach of oral contract and (2) promissory estoppel.

LEGAL AUTHORITY

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.

DISCUSSION

            Defendant Blue Shield 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 a hernia repair surgery at R&R on November 13, 2020.  Id., ¶15.  On October 20, 2020, prior to rendering services, plaintiff called defendant and spoke with representatives Avvy (Reference No. 203040023334), who confirmed Patient A was eligible for coverage; that Patient A’s plan covers out-of-network general surgery services, which are reimbursed at 70% of the Allowable rate; and that Patient A’s remaining deductible and out-of-pocket amounts were $0 and $2,588.34, respectively.  Id., ¶16.  It is standard in the industry of out-of-network services that services are not paid until the patient’s deductible is met, and that once the patient’s out-of-pocket maximum amount is 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 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.  Defendant also provided a number for plaintiff to call to obtain authorization for the proposed surgical services, if necessary.  Id., ¶19.  Plaintiff memorialized these terms contemporaneously in the regular course of business on an in-office form entitled “Insurance Verification.”  Id., ¶20. 

Plaintiff further alleges that on November 12, 2020, plaintiff called the number provided by defendant to determine whether preauthorization was necessary.  Plaintiff spoke with Kay E. and provided the ICD-10 Diagnosis Code and the Current Procedural Terminology Code for the proposed service.  Plaintiff also advised that the outpatient surgery would be performed at an out-of-network ambulatory surgery center.  Id., ¶21.  Kay E. confirmed that further authorization was not needed.  Id., ¶22.  Plaintiff memorialized these terms contemporaneously in the regular course of business on an in-office form entitled “Pre-Authorization Form.”  Id., ¶23.  Plaintiff proceeded with Patient A’s surgery on November 13, 2020, in reliance on defendant’s and/or its agents representations made pre-service during the insurance verification and pre-authorization phone calls.  Id., ¶24.  Following Patient A’s November 13, 2020 date of service, plaintiff submitted a $192,796 facility fee claim to defendant and/or its agents.  Id., ¶25.  On December 1, 2020, defendant and/or its agents issued an Explanation of Benefits (“EOB”) to plaintiff regarding the claim.  Id., ¶26.  The EOB states that the allowed amount for services rendered on November 13, 2020 is $116,596.07.  Id., ¶27.  However, only $2,660.05 was paid to plaintiff, which is not the percentage of the Allowable amount quoted pre-service.  Id., ¶28.  Plaintiff appealed the underpayment but defendant and/or its agents did not make additional payment.  Id., ¶29.

1^st cause of action for breach of oral contract

“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.

Plaintiff alleges that an oral contract existed between the parties, whereby defendant and/or its agents promised plaintiff that out-of-network services rendered to Patient A would be paid at specific percentages of the allowed amount.  Complaint, ¶31.  Defendant and/or its agents further promised and represented that the proposed services did not require preauthorization or any other conditions precedent.  Id., ¶32.  Plaintiff accepted Patient A for treatment and rendered medically necessary services.  Id., ¶33.  Plaintiff satisfied all obligations and conditions precedent required on its part to be performed pursuant to the agreement.  Id., ¶34.  Defendant and/or its agents breached the agreement by failing to pay plaintiff the specific percentages of the allowed amount quoted pre-service.  Id., ¶35.

            Defendant Blue Shield argues that plaintiff fails to allege mutual assent as to the price and services.  Defendant asserts that references to percentages of vague industry terms like “allowed,” “reasonable and customary,” and “total billed charges” is not enough.  Defendant argues that a statement that the plan covers general surgery services at 70% of the Allowable rate is not an agreement on price.  Defendant contends that Blue Shield’s statements are factual statements about the patient’s health plan, not promises or agreements to do anything and that there are no allegations as to the meaning of the term “allowable rate.”  Defendant cites 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).  Defendant also contends that there is no allegation that Blue Shield knew what services would be provided when it “agreed” to pay.  Thus, defendant argues, plaintiff “cannot cobble together an enforceable contract based on two different conversations with two different people on two different topics two weeks apart.”  Defendant also asserts that the complaint fails to allege consideration and that Blue Shield’s alleged promise to plaintiff is merely a promise to perform its preexisting duty to its member, which it is already legally bound to do, which cannot establish consideration. 

            In opposition, plaintiff argues that the claim is adequately pled as it alleges definite terms, objective manifestations of mutual assent, and consideration sufficient to establish contract formation.  Plaintiff contends that the complaint identifies the parties to the contract, the purpose of the contract, and sets forth payment terms, namely, Blue Shield confirmed its pay out-of-network general surgery claims at 70% of the Allowable rate.  Further, following that submission of the claim, Blue Shield sent plaintiff an EOB stating the allowable rate was $116,597.07 but failed to pay 70% of that amount as promised.  Thus, plaintiff argues, the terms of the contract are reasonably certain enough to provide a basis for determining the existence of a breach and the appropriate remedy.  Also, as to consideration, plaintiff suffered a detriment.  Moreover, plaintiff alleged pattern and practice.  Plaintiff also notes 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 further argues that Pacific Bay Recovery, supra, is distinguishable, because specific facts are not lacking in the present action.

            In reply, defendant argues that plaintiff cannot rely on “commercial realities” to cure a deficient complaint because California law limits health plan’s payment for out of network, non-emergency care.  Defendant reiterates its argument that the complaint fails to allege mutual assent as to the price and services or consideration.  Defendant also argues that plaintiff’s 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 (finding California Spine, supra, inapplicable and holding 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 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 70% of the Allowable rate), type of treatment being sought, breach (failure to pay 75%), 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 70%, 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 detained allegations that Blue Shield authorized a certain amount of treatment or agreed to pay a specific rate.”  Id. at 215.

            The demurrer is OVERRULED.

2^nd cause of action for promissory estoppel

“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 and/or its agents promised and represented to plaintiff atht they would pay for out-of-network services rendered to Patient A at specific percentages of the allowable rate.  Complaint, ¶39.  Defendant and/or its agents further promised that the proposed procedures did not require preauthorization.  Id., ¶40.  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 the date of service.  Id., ¶41.  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 noncontracting providers contact insurance companies before rendering services to determine coverage eligibility issues and rate of payment.  Id., ¶42.  Plaintiff relied on defendant’s and/or its agents’ representations and rendered treatment to Patient A based on that reliance.  Id., ¶43.

Defendant argues that the complaint fails to allege a promise that is clear and unambiguous.  Defendant reiterates its argument that the complaint does not allege that Blue Shield promised plaintiff anything.  Further, defendant contends, no specific dollar amount was ever discussed or agreed to by the parties.

In opposition, plaintiff argues that the claim is adequately pled.

In reply, defendant asserts that plaintiff has not shown how a statement that general surgery benefits are covered is a clear and unambiguous promise to do anything.

The court finds that the complaint alleges sufficient facts to infer a clear and unambiguous promise, that defendant would pay plaintiff 70% of the Allowable rate.  Plaintiff has also alleged the other elements.

The demurrer is OVERRULED.

Plaintiff is ordered to give notice of the ruling.