The Knox Keene Act

Resources           Pleading and Exhibits       The Knox Keene Act        PEMCHA          CalPERS’ & Anthem’s Breach of PEMCHA & Knox Keene Act

Breach of Contract     Breach of Fiduciary Duties     Unfair Business Practices

            Administrative Process, Tolling, Delayed Accrual

The Knox-Keene Act

The Knox-Keene Act. CalPERS and Anthem plans offered by CalPERS/Anthem (including PersCare, PERSChoice, PERSSelect, et al) are health care service plans. As such, the CalPERS and Anthem plans may be governed by in part the comprehensive system of licensing and regulation known as the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act). (Health & Saf.Code, § 1340 et seq.Prospec Medical Group, Inc. v. Northridge Emergency Medical Group (2009)45 Cal.4th 497, 504.)

Law of Reasonable Reimbursements, Knox Keene Act. The Department of Managed Health Care (DMHC) is charged with the administration and enforcement of the laws relating to health care service plans. (Health & Saf. Code, §1341.) To carry out its duties, the DMHC is authorized to promulgate regulations. (Health & Saf .Code, §1344; Children’s Hospital Central California v. Blue Cross of California (2014) 226 Cal.App.4th 1260, 1271–73.)

Although applicable directly only to emergency services, section 1300.71 of title 28 of California Code of Regulations is titled “Claims Settlement Practices” should apply to clarify the “Allowable Amount” definition and the reimbursements. This regulation is authorized by Health and Safety Code sections 1371 and 1371.35. These statutes impose procedural requirements on claim processing and subject health care service plans to disciplinary action and penalties for failure to timely comply with those requirements. (California Medical Assn. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 163.)

The DMHC explained in its initial statement of reasons that California Code of Regulations, title 28, section 1300.71 was “necessary to clearly define terms relating to claim settlement and reimbursement, and provide procedures for plans and providers to prevent unreasonable delays in payment of provider claims.” Further, the DMHC wanted to clarify “the meaning of unfair payment practices and the term ‘complete and accurate claim.’ ”

In this case, CalPERS’ and Anthem’s EOC terms are not clearly defined, especially in the third subpart of the “Allowable Amount” definition. In order to incorporate standards and clarity that are required as a matter of public policy, the standards in section 1300.71(a)(3)(B) should also be applied to “Allowable Amount” and reimbursement terms for the non-emergency, out-of-network medical services in this case. Section 1300.71 would give clear meaning and consistency to the three subparts of the “Allowable Amount” definition in the PPO policy. Section 1300.71 is consistent with the first and second part of the “Allowable Amount” definition, and would provide needed standards for the third part of the definition, especially as the examples are consistent with the terms in regulation 1300.71.

As outlined above, section 1300.71(a)(3)(B) defines ” ‘Reimbursement of a Claim’ ” for noncontracted providers. Such reimbursement means “the payment of the reasonable and customary value for the health care services rendered.” The reasonable and customary value is to be “based upon statistically credible information that is updated at least annually” and takes six factors into consideration. These factors are: “(i) the provider’s training, qualifications, and length of time in practice; (ii) the nature of the services provided; (iii) the fees usually charged by the provider; (iv) prevailing provider rates charged in the general geographic area in which the services were rendered; (v) other aspects of the economics of the medical provider’s practice that are relevant; and (vi) any unusual circumstances in the case.” (§1300.71(a)(3)(B).)

In responding to comments, the DMHC refused to specifically set reimbursement amounts. For example, the DMHC rejected suggestions that noncontracted providers should either be reimbursed at 100 percent of their billed charges or be reimbursed based on Medicare or Medicaid fee schedules. Rather, the DMHC explained that California law requires payors to reimburse noncontracted providers based upon the reasonable and customary value of the services rendered.

The DMHC further noted that the “regulations are intended to set forth the minimum payment criteria to ensure compliance with the [Knox-Keene] Act’s claims payment and dispute resolution standards” (italics added), and that, to the extent providers wish to pursue other common law or statutory remedies, they may seek redress in the courts. According to the DMHC, this regulation accurately reflects California law and incorporates the concept of quantum meruit.

In the final statement of reasons for California Code of Regulations, title 28, section 1300.71, the DMHC explained that the intent was to establish a methodology for determining the reasonable value of health care services by noncontracted providers but that the criteria specified do not dictate a specific payment rate. Rather, the payor is required to calculate the appropriate reimbursement based on statistically credible information that takes the Gould factors into consideration. If a payor fulfills its claims payment obligation using these criteria, the DMHC will consider the payor compliant with Health and Safety Code sections 1371 and 1371.35, i.e., the reimbursement of the claim will be deemed timely. “However, the definition is not a substitute for traditional forums for contract dispute resolution. If a provider disputes the payor’s calculation of the fair and reasonable value of the health care services he has rendered, the provider is free to seek resolution of that dispute in a court of law or through any other available civil remedy.”

In sum, in adopting section 1300.71(a)(3)(B), the DMHC established the minimum criteria for reimbursement of a claim, not the exclusive criteria. Children’s Hospital Central California v. Blue Cross of California (2014) 226 Cal.App.4th 1260, 1271–73 [172 Cal.Rptr.3d 861, 870–71].

Since the third subpart of the “Allowable Amount” definition in the EOC is inherently ambiguous and unclear, the court should use Section 1300.71 to establish a minimum criteria for reimbursement.