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A recent California Supreme Court decision has significant implications for any agreement attempting to waive a substantive statutory remedy in California. In McGill v. Citibank, the Court held that an arbitration provision that provides for a waiver of the right to seek public injunctive relief is contrary to California public policy and unenforceable.  The Court also held that California law prohibiting such waivers is not preempted by the Federal Arbitration Act (FAA).  Crowell & Moring’s Product Liability & Torts and Litigation Groups provided a thorough analysis of the McGill decision in an alert posted on April 10, 2017.

Overview

Plaintiff Sharon McGill filed a class action against Citibank under California consumer protection laws, including the Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA) and false advertising law.  Among other remedies, McGill sought public injunctive relief that would prohibit Citibank from continuing to engage in its allegedly illegal and deceptive practices.  Citibank petitioned to compel McGill to arbitrate her claims on an individual basis, pursuant to the terms and conditions of their agreement.

The trial court ordered McGill to arbitrate all claims other than those for injunctive relief.  The Court of Appeal reversed, concluding that the FAA preempted California’s Broughton-Cruz rule,[1] which prohibits agreements to arbitrate claims for public injunctive relief under the UCL, CLRA, or the false advertising law.

The Supreme Court of California held that the Broughton-Cruz rule was not applicable.  Rather, the panel’s decision centered on the application of the California Civil Code § 3513, which states that “a law established for a public reason cannot be contravened by a private agreement.”   The Court held that McGill’s statutory right to seek certain injunctive relief cannot be waived through an arbitration provision.

Implications for Health Care Plans

The Supreme Court’s opinion has several implications for health plans that use binding arbitration to resolve disputes with enrollees. The Court’s opinion only carves out from the requirement of binding arbitration only those claims that seek injunctive relief on behalf of the general public and does not impact the arbitrability of claims seeking other forms of relief  including other remedies under the UCL, CLRA, and the false advertising law.  For instance, the decision does not preclude parties from agreeing to arbitrate claims that seek compensatory, monetary and punitive damages, or claims that seek injunctive relief in form of restitution.  But, the McGill opinion stands for the proposition that waivers of the right to seek public injunctive relief in any contract are void under California Civil Code § 3513, including those waivers in health plan contracts with enrollees.

 

 


[1] The Broughton-Cruz rule, named after two decisions in the California Supreme Court – Broughton v. Cigna Healthplans, 21 Cal. 4th 1066 (1999) and Cruz v. Pacificare Health Systems, Inc., 30 Cal. 4th 1157 (2003).

California recently enacted Assembly Bill 72 (“AB 72”) to target surprise medical bills from out-of-network professionals.  The new law applies to commercial plans licensed by the Department of Managed Health Care and the Department of Insurance.  AB 72 sets reimbursement rates for out-of-network professionals at in-network facilities at either the average contracted rate, or 125 percent of the Medicare Fee-for-Service reimbursement for the same or similar services.  The constitutionality of these provisions has been challenged in federal court by the Association of American Physicians and Surgeons.  AB 72 also implements a new dispute resolution process to resolve reimbursement disputes between commercial health plans/insurers and non-contracting health professionals that provide services at a contracted facility.  Read the full client alert titled “New California Law to Curb Surprise Medical Bills Will Impact Relationships Between Health Plans and Non-Contracted Professionals,” here.

On November 2, President Obama signed the Bipartisan Budget Act of 2015. As an offset for near-term increases in federal spending, the new law extends by one year – to 2025 – two-percent sequestration reductions in federal spending for mandatory federal programs including Medicare.  The end result is that Medicare Advantage Organizations (MAOs) can expect their capitated payments from Centers for Medicare and Medicaid Services (“CMS”) to continue to be reduced, and Medicare fee-for-service providers can also expect to have sequestration reductions on their CMS reimbursements until at least 2025.

First established by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), “sequestration” is a process of automatic, largely across-the-board reductions enacted to constrain federal spending. Sequestration in its current form began on March 1, 2013, when President Obama, pursuant to the Budget Control Act of 2011, ordered cuts to federal spending effective April 1, 2013, after Congress and the President failed to reach a budget compromise.

Under the Budget Control Act of 2011, the size of reductions to the Medicare program is limited to two-percent. As required by President Obama’s sequestration executive order, on March 8, 2013, CMS notified providers that a “2 percent reduction in Medicare payment[s]” would apply to “Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013.” In other words, due to sequestration, as of April 1, 2013, CMS reduced the amount it pays to providers for fee-for-service Medicare claims by two-percent.

Continue Reading Sequestration Extended to 2025 in Federal Budget Deal

On July 8, 2015, CMS issued proposed regulations that would modify the “two-midnight rule” that governs payments by Medicare Part A for short inpatient hospital stays.  The proposed changes are contained in the CY 2016 proposed regulations for the Hospital Outpatient Prospective Payment System (OPPS).  Stakeholders may submit comments on the proposal by August 31, 2015.

Inpatient vs. Outpatient Status

The distinction between inpatient and outpatient classification is important under Medicare.  Medicare reimbursement rates for identical services differ dramatically if the care is provided in an inpatient or outpatient setting.[1]

The admission status also has important implications for the patient.  Under Medicare Part A, a beneficiary admitted as an inpatient is required to pay a one-time deductible for the first sixty days in the hospital.[2]  For outpatient services under Medicare Part B, the beneficiary must make a co-payment for every individual service rendered by the provider.[3]

Background on the Two-Midnight Rule

In 2013, CMS created the “two-midnight rule” to determine whether Medicare Part A payment for inpatient stay is appropriate.  The “two-midnight rule” is based on the physician’s expectation of the patient’s length-of-stay at the time of admission.  It included two medical review policies:

  • Under the “two-midnight benchmark,” CMS considered an inpatient admission to be appropriate when the admitting physician had a reasonable and supportable expectation that a patient would need to receive care at the hospital for a period spanning two-midnights; and
  • Under the “two-midnight presumption,” auditors were directed not to select claims for review if the inpatient stay spanned two-midnights from the time of admission, absent evidence of gaming or abuse.

Continue Reading CMS Proposes To Modify “Two-Midnight Benchmark” To Broaden Exceptions for Part A Payments for Short Inpatient Stays

The California Department of Insurance (CDI) has issued emergency regulations governing health insurer provider networks that became effective January 30, 2015.  The new regulations, which do not modify existing standards for plans licensed under California’s Knox-Keene Act, impose several requirements on health insurers, including standards for network adequacy, timely access to care, provider directories and network adequacy reports.

Please read the full alert here.