Judge Mark E. Windham, Case Number: 23STLC03962, Date: 2023-10-25 Tentative Ruling

Judge: Mark E. Windham, Case: 23STLC03962, Date: 2023-10-25 Tentative Ruling

Case Number: 23STLC03962 Hearing Date: October 25, 2023 Dept: 26

Healthcare Ally Management of California, LLC v. United Healthcare Services, Inc., et al.

DEMURRER

(CCP §§ 430.31, et seq.)

TENTATIVE RULING:

Defendant United Healthcare Services Inc.’s Demurrer to the Complaint is OVERRULED AS TO THE 1ST, 2ND AND 4TH CAUSES OF ACTION AND SUSTAINED WITH 20 DAYS’ LEAVE TO AMEND AS TO THE 3RD CAUSE OF ACTION.

THE HEARINGS IN THIS DEPARTMENT ARE VACATED AND THE CASE IS RECLASSIFIED AS AN UNLIMITED CIVIL CASE AND TRANSFERRED TO THE RECLASSIFICATION/TRANSFER DESK FOR COLLECTION OF FEES AND REASSIGNMENT OF THE CASE TO AN INDEPENDENT CALENDAR COURT. PLAINTIFF IS ORDERED TO PAY THE RECLASSIFICATION FEE WITHIN TEN (10) DAYS.

ANALYSIS:

Plaintiff Healthcare Ally Management of California, LLC (“Plaintiff”) brought this action against Defendant United Healthcare Services, Inc. (“Defendant”) on June 21, 2023. On September 20, 2023, Defendant filed the instant demurrer to the Complaint. Plaintiff filed an opposition on October 12, 2023 and Defendant replied on October 18, 2023.

Discussion

The Complaint alleges causes of action for (1) promissory estoppel; (2) violation of Cal. Bus. & Prof. Code § 17200 et seq.; (3) negligent misrepresentation; (4) and breach of written contract. Defendant demurs to each cause of action for failure to allege facts sufficient to state a cause of action. (Citing Code Civ. Proc., § 430.10, subd. (e).) The Demurrer is accompanied by a meet and confer declaration in compliance with Code of Civil Procedure section 430.41. (Motion, Tikker Decl., ¶¶2-3.)

Defendant also requests that the Court take judicial notice of a true and correct copy of the “Plan” noting the contract between “UnitedHealthcare Insurance Company” and the Policyholder, referenced in Plaintiff’s Complaint. (RJN, Exh. A.) The request is granted pursuant to Cal. Evidence Code section 452, subdivision (h).

Allegations in the Complaint

The Complaint alleges that on January 15, 2016, Plaintiff and La Peer Surgery Center (“Medical Provider”) entered into an assignment agreement for unpaid or underpaid bills. (Compl., ¶1.) On September 30, 2021, Medical Provider assigned Patient’s underpaid/unpaid bill and the right to file a lawsuit to Plaintiff. (Ibid.) The claims in this action arise out of the Medical Provider’s interactions with Defendant and the representations and warranties made during those conversations, not from Patient’s contractual rights. (Id. at ¶5.)

Defendant failed to pay or underpaid Medical Provider for procedures provided to Patient, who was an insured, member, policyholder, certificate-holder or was otherwise covered through policies or certificates of insurance issued by Defendant. (Id. at ¶6.) Patient entered into a valid insurance agreement with Defendant for the specific purpose of ensuring that they would have access to medical care and to ensure that Defendant would pay for that care. (Id. at ¶7.) Medical Provider has no written contract/preferred provider agreement with Defendant and therefore has no obligation to reduce its charges. (Id. at ¶¶11-12.) Defendant has underpaid the out-of-network medical providers by using flawed databases and systems and colluding with other insurers, in violation of California law. (Id. at ¶¶13-16.) Medical Provider’s charges are usual, customary, and reasonable (“UCR”), which is defined as “[t]he amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service.” (Id. at ¶¶18-19.) Defendant determines the UCR rate by using a medical bill database from Fair Health Inc., a database available to the public, and Medical Provider expects to be paid that rate. (Id. at ¶¶21-23.)

Pursuant to Cal. Health and Safety Code section 1371.31 and Cal. Code of Regulations, title 28, section 1300.71(3)(c), all medical providers have an individual right to payment from insurers for medical services provided to their insureds in accordance with the patient’s evidence of coverage and failure to pay vests a right of recovery in the medical provider. (Id. at ¶¶25-26.) Medical Provider performed surgery and provided services to Patient on March 2, 2020. (Id. at ¶27.) On February 26, 2020, Plaintiff’s representative spoke with Defendant’s representative, Sandy, who represented that Medical Provider would be paid for medical services at 100 percent of the UCR rate. (Id. at ¶¶28, 30.) At no time was Medical Provider advised that there might be a denial of coverage, limitation of payment, or non-UCR rate payment. (Id. at ¶33.) Despite its representations, Defendant was aware that it would pay Medical Provider at the Medicare rate, not the UCR rate. (Id. at ¶¶35-36.) Medical Provider relied upon Defendant’s representations by providing the medical services. (Id. at ¶37.)

Alternatively, under Cal. Health and Safety Code section 1371.31 and Cal. Code of Regulations, title 28, section 1300.71(3)(c), Defendant was contractually obligated to pay Medical Provider in accordance with Patient’s plan document and agreement the full billed amount. (Id. at ¶¶38-39.) Medical Provider submitted to Defendant a total bill of $23,500.00 with all billing information but was only paid $1,077.16, well below the UCR rate. (Id. at ¶¶40-41.)

Demurrer to Entire Complaint

Defendant first demurs to the entire Complaint on the grounds that it is not a proper party to the Complaint. Defendant asks that the Court take judicial notice of what it refers to as “the applicable health plan” under which the patients are covered, which does not list Defendant as an administrator. (RJN, Exh. A.) Plaintiff does not object to the request for judicial notice, thereby conceding that the copy of the applicable plan is the one referenced in the Complaint. However, the demurrer does not show that only an “administrator” under the plan would be liable under Plaintiff’s claims. The Complaint does not use the term “administrator.” Therefore, the Court declines to find that Defendant is not a properly named party at this time.

1st Cause of Action for Promissory Estoppel

Defendant demurs to the cause of action for promissory estoppel on the grounds that it does not allege a clear and unambiguous promise and is duplicative of the breach of contract cause of action. The “elements of promissory estoppel are (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages….” (Toscano v. Greene Music (2004) 124 Cal. App. 4th 685, 692.) Although Defendant disputes that there are allegations of a clear and unambiguous promise, the Demurrer does not analyze the representations allegedly made by Defendant to Plaintiff on February 26, 2020. (Demurrer, p. 4:13-5:1.) The Complaint specifically alleges that “Defendant represented to Medical Provider that Medical Provider would be paid for medical services at one hundred (100) percent of the UCR amount” and that “Defendant further represented that payment would not be made at a rate based on Medicare.” (Compl., ¶¶30-31, 44-45.) Defendant, therefore, allegedly promised to pay Medical Provider at the full UCR rate, which is not simply a verification of coverage, as Defendant contends.

Nor do the district court cases cited by Defendant regarding verification of coverage —which are not binding on this Court—address representations to pay a specific rate during the verification call. (See Cedars Sinai Medical Center v. Mid-West Nat. Life Ins. Co. (C.D. Cal. 2000) 118 F.Supp.2d 1002, 1008; TML Recovery, LLC v. Humana Inc. (C.D. Cal. 2018) 2018 WL 8806104, at *3.) In fact, one of Defendant’s cases opined that “it is possible that a provider may be entitled to more payment if the insurer specifically agreed to pay the provider more.” (TML Recovery, LLC, supra, WL 8806104, at *3.) Here, the allegations are that Defendant made specific representations about what would be paid. Another case cited by Defendant in reply also contradicts its argument: in Ramin M. Roohipour, M.D., Inc. v. Blue Cross Blue Shield of Illinois, the district court ruled that the plaintiff inaccurately argued that its pleading contained promises to pay specific rates when, in fact, the pleading contained no such allegations. (Ramin M. Roohipour, M.D., Inc. v. Blue Cross Blue Shield of Illinois (C.D. Cal. 2021) 2021 WL 5104383, at *5.) This suggests that a case where the pleading did contain allegations of promises to pay specific rates would sufficiently allege promissory estoppel. Also, the part of the Ramin ruling cited by Defendant actually pertained to the breach of contract cause of action. (Citing Ramin M. Roohipour, M.D., Inc., supra, 2021 WL 5104383, at *4.) Additionally, Defendant’s reply does not address the cases to which Plaintiff cites in opposition in which a verification call was the basis of a clear and unambiguous promise other than to mischaracterize Plaintiff’s argument as seeking a general rule that verification alone supports a cause of action for promissory estoppel. Plaintiff seeks no such rule. Finally, Defendant argues that Plaintiff has not alleged facts defining the term “UCR,” which is incorrect. The Complaint alleges in detail what is meant by the UCR rate. (See Compl., ¶¶18-23.)

Therefore, the Court finds the Complaint sufficiently alleges a clear and unambiguous promise by Defendant.

Alternatively, Defendant demurs to the first cause of action as duplicative of the cause of action for breach of contract, which is a proper basis to sustain a demurrer to a cause of action. (Citing Award Metals, Inc. v. Superior Court (1991) 228 Cal.App.3d 1128, 1135.) As pointed out in the reply, promissory estoppel is meant to make a promise binding, under certain circumstances, even in the absence of consideration. (Citing Youngman v. Nevada Irr. Dist. (1969) 70 Cal.2d 240, 250.) Defendant has not shown what allegations in the first cause of action pertain to consideration such that it duplicates the breach of contract cause of action. The causes of action are not alleged on the same facts. The first cause of action is based on Defendant’s alleged representations; the breach of contract cause of action is based on Defendant’s obligation “to pay Medical Provider in accordance with Patient’s health plan documents and evidence of coverage.” (Compl., ¶70.) The Court, therefore, declines to find the promissory estoppel cause of action duplicates the cause of action for breach of contract such that it should be dismissed.

The demurrer to the first cause of action is overruled.

2nd Cause of Action for Violation of the Unfair Competition Law

Defendant first demurs to the second cause of action on the grounds that it is an equitable remedy that cannot be pursued if there is an adequate remedy at law, which it contends exists based on the breach of contract cause of action. (Citing Prudential Home Mortg. Co. v. Super. Ct. (1998) 66 Cal.App.4th 1236, 1249-50.) In opposition, Plaintiff points out that it is seeking an equitable remedy that is unavailable at law: injunctive relief against further nonpayment or underpayment. (Citing Compl., ¶60.) Defendant’s reply does not address the effect of the request for injunctive relief on the viability of Plaintiff’s second cause of action. Therefore, the Court finds that the cause of action of violation of the UCL is not barred by an adequate remedy at law.

Next, Defendant demurs on the grounds that the second cause of action cannot be maintained because it is a contractual claim that does not affect consumers or the general public. Yet the Demurrer does not cite any part of the Complaint to show that the UCL cause of action arises out of a contract, or that it does not affect consumers. Plaintiff alleges that Defendant’s obligation arises out of the Knox-Keene Act, as set forth at California Health and Safety Code, section 1371.31, and Cal. Code of Regulations, title 28, section 1300.71. (Compl., ¶¶54-55.) It also alleges harm to consumers from Defendant’s conduct, who are burdened with having to pay for services from out-of-network providers. (Id. at ¶57.) Therefore, the purported lack of alleged harm to consumers or the general public arising from a contract claim is also not grounds to sustain the demurrer to the second cause of action.

Third, Defendant demurs by arguing that Plaintiff has not alleged with sufficient particularity that its conduct is “unlawful, unfair, or fraudulent.” (See Cal. Bus. & Profs. Code, § 17200.) According to Defendant, Plaintiff has simply alleged that its conduct was “unfair.” The Complaint, however, does allege with specificity that Defendant’s underpayment of out-of-network medical providers is unlawful and unfair. First, it is alleged to be unlawful because it violates the Knox-Keene Act, which requires payment in accordance with the patient’s evidence. (Compl., ¶¶54-55.) Second, Defendant’s conduct is alleged to be unfair because it disregards the patients’ desire to choose doctors out-of-network and requires the patients to pay for the services. (Id. at ¶¶56-59.) Defendant also incorrectly cites Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1408 as an example of a demurrer that was sustained because the patient simply alleged that the defendant hospital’s billing practices were “unlawful, unfair, and/or fraudulent.” (Demurrer, p. 7:4-6.) Rather, the Court of Appeals determined that the defendant’s alleged conduct was not unfair as defined by law. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1407-1409.) The Complaint alleges that Defendant’s conduct was both unlawful and unfair with sufficient particularity.

In its last challenge to the second cause of action, Defendant argues that it is not subject to the Knox-Keene Act. Defendant argues that it is an insurer licensed and regulated by the California Department of Insurance and governed by the California Insurance Code, as set forth in a number of recent cases. In opposition, Plaintiff argues that the correct question is whether Defendant is a “health care service plan” that would be regulated by the Knox-Keene Act. Under the Health and Safety Code, a health care service plan is defined as “[a]ny person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees.” (Cal. Health & Safety Code, § 1345, subd. (f)(1).) The Department of Managed Health Care (“DMHC”) regulations define a health care service plan as “a licensed health care service plan and its contracted claims processing organization.” (Cal. Code Regs., § 1300.71, subd. (a)(12).)

The Court of Appeals has “recognized that the Legislature has elected to subject insurers and health care service plans to distinct regulatory regimes. Insurers are regulated by the Insurance Code and the Insurance Commissioner. Health care service plans fall under the jurisdiction of the Department of Managed Care and the Knox–Keene Act.” (Smith v. PacifiCare Behavioral Health of California, Inc. (2001) 93 Cal.App.4th 139, 159 [citing Williams v. California Physicians’ Service (1999) 72 Cal.App.4th 722, 729].) Therefore, if Defendant is regulated by the CDI, it cannot be regulated by the DMHC and the Knox-Keene Act.

In the first district court case on which Defendant relies, the court ruled that Defendant “is not a Health Care Service Plan governed by the Knox-Keene Act, but an Insurance Provider properly registered with the California Department of Insurance and governed by the California Insurance Code.” (Namdy Consulting, Inc. v. UnitedHealthcare Ins. Co. (C.D. Cal. 2018) 2018 WL 6507890, at *3.) In making this ruling, the district court cited its own earlier order and noted that the plaintiff did not “provide any non-conclusory, factual allegations supporting the application of [the Knox-Keene] Act or its exception to Defendant.” (Ibid.) The Court is not persuaded that the ruling in Namdy is grounds to make the same ruling on the Demurrer in this action. Plaintiff points to allegations in this Complaint that Defendant provides health care services and receives a periodic fee for its services, which place Defendant within the statutory definition of a health care services plan. (See Compl., ¶¶8, 41.) These are the types of allegations that were presumably missing from the Namdy pleading.

In Defendant’s other cited case, Ata Mazaheri, M.D., Inc. v. UnitedHealthcare Ins. Co. (C.D. Cal. 2023) 2023 WL 5167362, the plaintiff specifically alleged that Defendant was “licensed to issue health insurance policies in the State of California and [is] regulated by the California Insurance Code.” (Ata Mazaheri, M.D., Inc. v. UnitedHealthcare Ins. Co. (C.D. Cal. 2023) 2023 WL 5167362, *1.) The Ata Mazaheri plaintiff, therefore, made no allegation that Defendant was a health care service plan and the district court’s ruling did not consider the possibility. (See id. at *5.) Finally, the Court notes that in its reply, Defendant contends that it is a claims administrator regulated by the Insurance Code and Commissioner. (Reply, p. 6:11-12.) This is a fact extrinsic to the pleadings or any request for judicial notice, however, and the Court cannot consider it on demurrer.

Based on the foregoing, Defendant’s demurrer to the second cause of action is overruled.

3rd Cause of Action for Negligent Misrepresentation

For the third cause of action, Defendant demurs on the grounds that Plaintiff has not alleged sufficient facts and is violative of the economic loss rule.

The Demurrer contends that Plaintiff has not alleged Defendant’s intent to deceive or Plaintiff’s honest belief of the misrepresentation with the requisite factual specificity. (Demurrer, p. 8:11-13.) The Court notes that, in its reply, Defendant adds an argument that the Complaint does not allege a representation of a past or existing material fact. (Reply, p. 7:6-24.) As Plaintiff did not have notice of this argument, the Court will not consider it.

Regarding allegations of Defendant’s intent to deceive, the parties dispute whether that element is required for negligent misrepresentation. The cases on which both parties rely cite the same underlying case of West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792. (See Majd v. Bank of Am., N.A. (2015) 243 Cal.App.4th 1293, 1307; see also Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231.) West does include the element of intent to deceive and so, too, does Plaintiff’s case, Chapman. (West, supra, 214 Cal.App.4th at 792; Chapman, supra, 220 Cal.App.4th at 231.) The only case that omits the scienter element cited by Plaintiff is Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821. As Defendant points out, however, the analysis in Tenet was derived from the elements of intentional fraud and does not accurately speak to the elements of negligent misrepresentation. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 845 [citing Gagne v. Bertran (1954) 43 Cal.2d 481, 487-488].)

Those elements are, as follows: (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant made the representation without reasonable ground for believing it to be true; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation, and (5) the plaintiff suffered damages as a result. (Majd v. Bank of Am., N.A. (2015) 243 Cal.App.4th 1293, 1307.) The specificity requirement is lessened but not eliminated where the defendant likely has greater knowledge of the relevant facts. (Chapman, supra, 220 Cal.App.4th at 231.) The Complaint, however, does not offer sufficient facts regarding Defendant’s intent to deceive Plaintiff in making the representations regarding payment at the UCR rate. The allegation that “Defendant knew or should have known that it would be paying Medical Provider at a Medicare rate” is too conclusory to support this cause of action. (See Compl., ¶35.) The Complaint does, however, allege facts to support Plaintiff’s reasonable reliance on the representation, which the Demurrer does not analyze. (Id. at ¶37.)

Defendant also argues that the third cause of action is barred by the economic loss rule, which prohibits a remedy in negligence if there is a remedy in contract. (Citing Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 915, 925; Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) Plaintiff opposes application of this rule as unprecedented in the context of promises of payment made to a medical provider. Tort claims for monetary losses “are barred when they arise from — or are not independent of — the parties’ underlying contracts.” (Sheen, supra, 12 Cal.5th at 923.) The Demurrer does not indicate what contract gives rise to the cause of action for negligent misrepresentation such that it would be prohibited by the economic loss rule. (Demurrer, p. 8:14-20.)

Based on the foregoing, the demurrer to the third cause of action is sustained for failure to allege Defendant’s intent to deceive with sufficient particularity.

4th Cause of Action for Breach of 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. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) Defendant demurs to the fourth cause of action for failure to allege specific facts showing what purported terms of the contract were breached. In opposition, Plaintiff points out that it alleges that the contract is the Patient’s health plan document and that it required Defendant to pay Medical Provider’s billed charge. (Citing Compl., ¶¶39, 70-71.) Defendant allegedly breached the terms of the health plan document by not paying Medical Provider its billed charge. (Id. at ¶41.) Neither Defendant’s demurrer nor reply address the allegations at paragraphs 39-41 of the Complaint regarding the provision of the health plan document with which it allegedly failed to comply.

Therefore, the demurrer to the fourth cause of action is overruled.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment but the burden is on the complainant to show the Court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) There is a reasonable possibility that Plaintiff can amend the third cause of action to allege the necessary elements with specificity. Leave to amend is granted.

Transfer of Action to Court of Unlimited Jurisdiction

The second cause of action includes a request for injunctive relief, which is beyond the scope of this Court’s jurisdiction. (Code Civ. Proc., § 85-86.) Therefore, the case is reclassified as an unlimited civil case.

Conclusion

Moving party to give notice.