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:

  1. the provider’s training, qualifications, and length of time in practice;
  2. the nature of the services provided;
  3. the fees usually charged by the provider;
  4. prevailing provider rates charged in the general geographic area in which the services were rendered;
  5. other aspects of the economics of the medical provider’s practice that are relevant; and
  6. 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.