Law in Issue
CalPERS’ statutory obligations when offering health benefits are governed in part by the Public Employees’ Medical and Hospital Care Act (“PEMHCA”), Government Code §§22750 to 22944.3, and regulations based thereon. The regulations require that the payment schedule must be sufficient to meet the “major share of usual, customary, or reasonable charges for such services” and “shall take into account the Relative Value Studies of the California Medical Association.” (2 CCR, § 599.510).
However, the California Medical Association has not produced any Relative Value Studies since the 1980’s.
CalPERS and Anthem do not harmonize the law, all of the contract terms, or prevailing standards. Instead, CalPERS and Anthem argue that one part of 28 CCR §1300.711(a)(3) holds that the terms in the enrollees’ Evidence of Coverage (EOC) control the terms of reimbursement. Then CalPERS and Anthem focus solely on one term in the EOC: the third subpart of the “Allowable Amount” definition. CalPERS and Anthem ignore the other terms and examples in the EOC, including those that represent that CalPERS and Anthem will provide identical “Allowable Amounts” calculations for “in-network” and “out-of-network” services. CalPERS and Anthem say that the third subpart of the “Allowable Amount” definition allows Anthem complete discretion to determine an “Allowable Amount” as Anthem finds “appropriate,” without reference to any standards, including without requiring “usual, customary, and reasonable” rates (UCR). CalPERS and Anthem then cite to dicta in Orthopedic Specialists of Southern California v. California Public Employees’ Retirement System (2014) 228 Cal.App.4th 644 (a quantum meruit case) that the “terms” in the EOC control even if the terms are not fair.
In their “logic,” CalPERS and Anthem view incomplete partial terms in isolation, take irrelevant case law out of context, and apply the irrelevant case law to the isolated incomplete facts. As a result, CalPERS and/or Anthem purport to allow Anthem the unfettered discretion to calculate the “Allowable Amount” at whatever low rate Anthem chooses, and then reimburse “out of network” medical services as a set percentage of this arbitrarily reduced, low “Allowable Amount.”
Among other things, CalPERS, and Anthem’s logic is contrary to law and unsupported by fact. CalPERS and Anthem’s reliance on Orthopedics Specialists is misplaced. This is not a quantum meruit case. Plaintiffs allege breaches of statutory rights, fiduciary duties, and contract law based in part on non-negotiable written form contracts offered by CalPERS which is a fiduciary. Factually, CalPERS and Anthem fail to consider the other terms and express examples in the EOC. The EOC’s other terms and express examples contradict CalPERS’ and Anthem’s isolated “facts.” Indeed, the EOC’s express examples indicate that the “Allowable Amounts” will be calculated in an identical manner for “in network” or “out-of-network” services. The other terms in the first two subparts of the “Allowable Amount” definition require reimbursement based on contracted rates or the UCR rates. CalPERS and/or Anthem suggest that the third subpart is wholly different than and overrides the express examples and the first two subparts, but there is no notice of this. The third subpart is also so vague, inconsistent, and without standards as to be undefined or illusory. Among other things, CalPERS and Anthem also ignore that (i) 28 CCR §300.71 provides standards when the EOC is unclear; and (ii) 2 CCR §510.598 requires CalPERS to reimburse class members for at least the majority share of the usual, customary, and reasonable rates.