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Court Rules Against Dignity Health in Out-of-Network Case, L.A. Care CEO Reacts

By Jack O'Brien  
   January 13, 2020

The Second District Court of Appeal unanimously ruled in favor of the Los Angeles-based insurer.

A California court sided with L.A. Care in its case against Dignity Health over out-of-network payments at a Los Angeles hospital. 

The Second District Court of Appeal ruled unanimously that non-contracted hospitals must receive the Medi-Cal reimbursement rate from a plan that a patient belongs to.

The case centered around inpatient post-stabilization care services at Northridge Hospital Medical Center, owned by Dignity, which is not part of L.A. Care's network of provider organizations.

Northridge sought reimbursement rates above the Medi-Cal rates, which L.A. Care argued were consistent with state law regarding out-of-network care.

The court agreed with the trial court's ruling that the California State Legislature's amendments in 2012 applied APR-DRG rates to out-of-network inpatient post-stabilization care services, replacing provisions in former section 14091.3. 

According to the court's decision, Dignity's argument that the Legislature had a different intent when it allowed 14091.3 to sunset and passed amendments defining reimbursement rates to out-of-network care was "unreasonable."

"The reasonable conclusion is that the sunset provision worked as intended, repealing former section 14091.3 when implementation of the APR-DRG rates rendered the statute no longer necessary," the court wrote.

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John Baackes, CEO of L.A. Care, told HealthLeaders that he did not see "how [the Court] could have ruled any other way" and hopes this settles the five-year legal battle with Dignity.

"I would hope they take their ball and go home because we have to use our income, which is Medicaid dollars, to defend this stuff and it's a stupid waste of money," Baackes said. "I would think after two decisions, especially with the [Second District Court of Appeal] being 3-0, that they would take their ball and go home, but here we are. We will continue to defend this if [Dignity] appeals to the [California] state Supreme Court."

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Out-of-network billing has been a contentious issue in healthcare as lawmakers at the state and federal level look to implement laws to protect consumers, though providers and insurers have contended over the potential impact of such legislation.

Baackes said L.A. Care benefited from support among insurers and even a state agency throughout the Dignity case. 

"One of the reasons that the [California] Department of Health Care Services and the California Association of Health Plans filed amicus briefs in support was because they saw the danger if this case was ruled against us," Baackes said. "Non-contracted hospitals would have the ability to bill whatever they chose for Medicaid patients that came into their institutions."

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Baackes said that hospitals would be "better off" contracting with Medicaid managed care plans in order to achieve reimbursement rates that are above the standard Medicaid rate.

"We could structure arrangements with hospitals so that if people show up in the emergency room and it's not the place they should be admitted to because of a contract or the service they need, we work with [the hospital] to stabilize the patient and transfer them to the place where they do belong," Baackes said.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

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