Ass'n of Am. Physicians & Surgeons, Inc. v. Rouillard

392 F. Supp. 3d 1151
CourtDistrict Court, E.D. California
DecidedJune 13, 2019
DocketNo. 2:16-cv-02441-MCE-EFB
StatusPublished

This text of 392 F. Supp. 3d 1151 (Ass'n of Am. Physicians & Surgeons, Inc. v. Rouillard) is published on Counsel Stack Legal Research, covering District Court, E.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ass'n of Am. Physicians & Surgeons, Inc. v. Rouillard, 392 F. Supp. 3d 1151 (E.D. Cal. 2019).

Opinion

MORRISON C. ENGLAND, JR., UNITED STATES DISTRICT JUDGE

By way of this action, Plaintiffs Association of American Physicians and Surgeons, Inc. ("AAPS") and Dr. Eileen Natuzzi ("Dr. Natuzzi") seek declaratory and injunctive relief against Shelley Rouillard, in her official capacity as the Director of the California Department of Managed Health Care, ("Defendant") on the basis that Assembly Bill No. 72 ("the Act" or "AB 72"), which passed into law on September 23, 2016, violates multiple constitutional rights of AAPS members and Dr. Natuzzi. Pls.' First Am. Compl., ¶¶ 1-6 (ECF No. 33). More specifically, Plaintiffs allege causes of action for violations of the Due Process, Takings, and Supremacy Clauses of the United States Constitution. Id.

Presently before the Court is Defendant's Motion to Dismiss Plaintiffs' First Amended Complaint ("FAC") for failure to state a claim upon which relief can be granted. Def.'s Mot. To Dismiss (ECF No. 34). For the following reasons, Defendant's Motion is GRANTED with one (1) final leave to amend.

BACKGROUND

Out-of-network physicians, who are called "noncontracting" physicians by AB 72, do not have the benefits or obligations of being contractually bound with insurance companies. There are both advantages and disadvantages to patients and physicians resulting from an out-of-network status. Some physicians are out-of-network not by choice, but because insurance companies increased their profits by excluding them for reasons other than quality of care. Out-of-network physicians often lack the referral volume of physicians who are within the networks of insurance companies, and, as a result, out-of-network physicians tend to provide more charity care than in-network physicians do. To remain in business, out-of-network physicians may charge more for certain services than the in-network insurance reimbursement rates.

Insured patients, in many cases, obtain policies that require their insurance companies to pay charges submitted by out-of-network physicians, or at least a substantial percentage of those charges. The only meaningful leverage that a physician or hospital has in negotiating a contract with an insurance company is the option of the physician or hospital to go out-of-network and not accept the insurance company rates. AB 72 denies the right of a physician to go out-of-network with an insurance company and charge out-of-network *1155rates. Signed into law by the Defendant Governor of California on September 23, 2016, AB 72 adds several new sections to the Health and Safety Code and the Insurance Code to limit the rights of reimbursement for out-of-network physicians. Specifically, the Act requires the following for out-of-network physicians, effective July 1, 2017:

[U]nless otherwise agreed to by the noncontracting individual health professional and the plan, the plan shall reimburse the greater of the average contracted rate or 125 percent of the amount Medicare reimburses on a fee-for-service basis for the same or similar services in the general geographic region in which the services were rendered. For the purposes of this section, "average contracted rate" means the average of the contracted commercial rates paid by the health plan or delegated entity for the same or similar services in the geographic region. This subdivision does not apply to subdivision (c) of Section 1371.9 or subdivision (b) of this section.

AB 72, § 2 (adding Section 1371.31 to the Health and Safety Code ).

According to Plaintiff, the Act prohibits an out-of-network physician from recovering fully on his or her claims for services lawfully rendered. Specifically, the Act establishes that, beginning with health plans issued on or after July 1, 2017:

An enrollee shall not owe the noncontracting individual health professional more than the in-network cost-sharing amount for services subject to this section ... A noncontracting individual health professional shall not bill or collect any amount from the enrollee for services subject to this section except for the in-network cost-sharing amount.... If the noncontracting individual health professional has received more than the in-network cost-sharing amount from the enrollee for services subject to this section, the noncontracting individual health professional shall refund any overpayment to the enrollee within 30 calendar days after receiving payment from the enrollee.

AB 72, § 3 (adding Section 1371.9 to the Health and Safety Code ). This ban in the Act on collecting from enrollees purportedly has the effect of preventing out-of-network physicians from recovering their fees from the insurance carriers that cover the enrollees for services rendered.

In addition, the Act requires the Department, by September 1, 2017, to "establish an independent dispute resolution process for the purpose of processing and resolving a claim dispute between a health care service plan and a noncontracting individual health professional for services" rendered. AB 72 § 1 (adding Section 1371.30 to the Health and Safety Code ). Out-of-network physicians are thereby required to participate in this alternative dispute resolution on their claims, rather than immediately pursue their remedies in court.

In its instant Motion, Defendant emphasizes, however, that a health care service plan and out-of-network provider are permitted to "agree on a reimbursement rate." ECF No. 34 at 5. Only if no agreement is reached does AB 72 require plans to reimburse relevant providers at no less than the statutory default rate. Moreover, to calculate that rate,

AB 72 requires each health plan, and its delegated entities, to provide to DMHC all of the following information for the 2015 calendar year: (1) data listing average contracted rate for services most frequently provided in or resulting from services provided in contracted facilities by out-of-network providers in each geographic region in which the services are rendered; (2) its methodology for determining these rates, including the highest and lowest contracted rates; and (3) its *1156policies and procedures used to determine the average contracted rates.

Id. at 5-6.

Defendant further stresses, as to the dispute resolution procedures, that if dissatisfied with the results of arbitration, "either party may pursue any right, remedy, or penalty established under any other applicable law." Id. at 8 (quoting Cal. Health & Safety Code § 1371.30(d) ). Despite the foregoing procedures, Plaintiffs allege that Dr. Natuzzi is pursuing claims, at least in part, "based on losses she has already suffered due to the implementation of AB 72, in the form of a loss of 25% of her revenue in 2018 due to reduced reimbursement by health plans." ECF No. 33 at ¶ 14.

In light of the above facts, Plaintiffs allege Defendant's implementation of the Act violates the Due Process, Takings, and Supremacy Clauses of the Constitution. Defendant has now moved to dismiss for failure to state a claim, arguing that Plaintiffs have once again failed to allege they have standing to bring their claims and that those causes of action fail on the merits in any event.

STANDARDS

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Bluebook (online)
392 F. Supp. 3d 1151, Counsel Stack Legal Research, https://law.counselstack.com/opinion/assn-of-am-physicians-surgeons-inc-v-rouillard-caed-2019.