In a June 2014 opinion, the California Court of Appeals determined that reasonable & customary (R&C) charge valuations can consider actual payments accepted by a hospital for its services, not just the billed charges based on its charge master. This means that when determining the R&C values of services, California courts are required to consider the discounted amounts hospitals accept from governmental payers such as Medicare and Medi-Cal (Medicaid) and private plans. On the other hand, the Court also indicated that a provider’s cost may not be relevant to R&C valuations.
The case, Children’s Hospital Central California v. Blue Cross of California, 226 Cal.App.4th 1260 (Cal. Ct. App. 2014) which involved a dispute between an out-of-contract hospital and Blue Cross of California regarding amount of reimbursement owed to the hospital for post-stabilization services rendered to certain Medi-Cal beneficiaries enrolled in the plan.
California Department of Managed Health Care codified the so-called “Gould factors” in the Code of Regulations, title 28, section 1300.71, that are used to determine R&C value for reimbursement of claims. Under Gould v. Workers’ Comp. Appeals Bd. (1992) 4 Cal.App.4th 1059, R&C value of services rendered is to be based upon statistically credible information that is updated at least annually and takes into consideration:
- the provider’s training, qualifications, and length of time in practice;
- the nature of the services provided;
- the fees usually charged by the provider;
- prevailing provider rates charged in the general geographic area in which the services were rendered;
- other aspects of the economics of the medical provider’s practice that are relevant; and
- any unusual circumstances in the case.
In Children’s Hospital Central California v. Blue Cross of California, the hospital argued that the Gould factors provided the exclusive test for value – which meant that a court could not consider rates accepted by or paid to the hospital by Medi-Cal and Medicare, and the hospital’s service specific costs. Blue Cross argued that to determine R&C, a court should look at the payments a hospital actually accepted for its services, net of all discounts as well as costs of those services. The trial court limited the evidence a jury could consider, including granting the hospital’s motion in limine to exclude evidence of Medi-Cal and Medicare reimbursement rates and excluded evidence of service specific costs.
The Court of Appeal reversed. In determining the scope of evidence that can be considered in determining R&C value, the panel stated that the Gould factors are not the exclusive measure of value. The Court reasoned that R&C is meant to embody the concept of quantum meruit. Thus, the Court also stated that the jury may consider the following:
- range of payment accepted by the provider, including amounts paid by the government
- range of amounts paid to the provider
However, the Appellate Court also determined that the costs of services are not relevant to determination of R&C. The Court reversed the judgment of the trial court and remanded the case for further proceedings.
This decision significantly modifies the scope of evidence a court may consider in payment dispute litigation between payors and providers.