Plaintiffs Jerry Jay Martin, Jerry Lloyd Martin, Tressa Brown, and Lisa Vindell (collectively the Martins) appeal from a
At trial, PacifiCare moved for nonsuit based on the recent decision in Watanabe v. California Physicians' Service (2008) 169 Cal.App.4th 56 [86 Cal.Rptr.3d 374] (Watanabe), which held Health and Safety Code section 1371.25 (section 1371.25) barred a cause of action seeking to hold a health care service plan vicariously liable for the acts or omissions of the health care provider who agreed to deliver medical care to the plan's subscribers. (Watanabe, at pp. 63-64.) The trial court granted the motion, finding section 1371.25 barred the Martins' claims because they sought to hold PacifiCare vicariously liable for the acts or omissions of Bright Medical Group (Bright), the health care provider PacifiCare contracted with to provide Elsie medical care and to make all initial determinations regarding whether any particular care or treatment was medically necessary.
The Martins contend we must reverse the trial court's judgment because Watanabe misinterpreted section 1371.25. As the Martins interpret the statute, section 1371.25 bars health care service plans from requiring medical providers to hold the plans harmless for the plan's own acts or omissions; it does not bar common law or other liability theories against health care service plans. The Martins also argue section 1371.25 does not apply to their claims because insurance bad faith is a direct liability theory, not a vicarious liability theory.
PacifiCare is a licensed health care service plan under California's Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act; Health & Saf. Code, § 1340 et seq.).
The Medicare Advantage program (previously known as Medicare+Choice) is a federal program permitting Medicare recipients to enroll in private insurance plans, with Medicare paying all or most of the insurance premiums in lieu of paying Medicare benefits directly to health care providers. PacifiCare contracts with the federal agency that administers Medicare to receive a flat monthly payment for each person enrolled in its Secure Horizons plan. In return, PacifiCare arranges to provide its subscribers a specified range of medical services through its network of medical providers. (Yarick v. PacifiCare of California (2009) 179 Cal.App.4th 1158, 1163 [102 Cal.Rptr.3d 379].)
Bright is a medical service provider PacifiCare hired to provide medical services to PacifiCare's subscribers. The contract between PacifiCare and Bright requires Bright to provide medical care to Secure Horizons subscribers who select a member of Bright's medical group as their primary care physician. The contract also requires Bright to perform utilization review on
By enrolling in PacifiCare's Secure Horizons plan, Elsie agreed to receive her medical care (except certain emergency and urgently needed services not applicable in this case) from PacifiCare's medical providers. Her contract with PacifiCare required her to choose a primary care physician, and emphasized the doctor Elsie selected would be responsible for providing or arranging all her medical care. The contract limited Elsie to specialists and facilities that belonged to the same medical group as the physician she selected.
The contract explained PacifiCare's contractual relationship with Medicare and the providers Elsie would look to for her medical care. It also explained the utilization review process that determined whether to approve any medically necessary service or treatment. Finally, the contract described Elsie's right to contact PacifiCare with any questions or concerns regarding her health care and to appeal any utilization review decision, including an expedited appeal in case of emergency. Through its contracting process with PacifiCare, Medicare reviewed and approved PacifiCare's contract with its Secure Horizons subscribers.
When she enrolled in Secure Horizons, Elsie selected Bright's Dr. Ronald Galbreath as her primary care physician.
In late August 2003, Presbyterian Intercommunity Hospital, an in-network hospital affiliated with Bright, admitted Elsie for a neurological evaluation. An MRI (magnetic resonance imaging) and MRA (magnetic resonance angiogram) revealed Elsie had a large aneurysm in her left middle cerebral artery. An aneurysm is a weakening or ballooning of a blood vessel.
Giannotta described three treatment options for Elsie's aneurysm: (1) surgery on the affected blood vessel to prevent blood from enlarging and rupturing the aneurysm; (2) coil embolization, a process where increasingly smaller platinum coils are threaded into the aneurysm through a catheter to block blood flow and prevent the aneurysm from rupturing; and (3) doing nothing. Giannotta recommended the coil embolization option and referred Elsie to Drs. George Teitelbaum and Donald Larsen, the neurointerventional radiologists who performed coil embolization procedures at USC.
To determine whether coil embolization is a viable treatment option for their patients, Teitelbaum and Larsen perform a cerebral angiogram, which involves threading a diagnostic catheter through an artery to the aneurysm to determine whether the aneurysm has an adequate "neck" to permit coil embolization. If the aneurysm is amenable to the procedure, Teitelbaum and Larsen place the patient under general anesthesia, replace the diagnostic catheter with a guiding catheter, and perform the coil embolization procedure during the same visit.
On September 25, 2003, Giannotta sent a letter to Galbreath seeking approval for Elsie to undergo an angiogram and coil embolization with Teitelbaum and Larsen. Galbreath forwarded the request to Bright's utilization review committee. On October 7, 2003, Dr. Eric Flanders, a family practitioner and Bright's utilization review committee chairman, denied the request. Instead, Flanders approved a cerebral angiogram to be performed at Presbyterian Intercommunity Hospital, Bright's in-network hospital. Flanders did not consult with either Giannotta or Galbreath before making his decision.
Bright sent Elsie a denial letter explaining the medical documentation her doctors submitted failed to support the request and it required further diagnostic testing before Bright would refer Elsie to an out-of-network provider. The denial letter included a lengthy explanation regarding Elsie's right to appeal Bright's utilization review decision to PacifiCare and how Elsie could exercise that right.
At trial, Flanders conceded the letter's statements regarding the basis for the denial were false because the documentation adequately supported the request and Elsie already had been referred to USC for her aneurysm.
Galbreath received a copy of the denial letter, but he did not actually see it until October 24, 2003, when Elsie's husband brought it to his attention during Elsie's office visit. Elsie's husband asked Galbreath to intervene on her behalf. Galbreath asked Bright's medical director, Dr. David Wortham, to reconsider the denial, but Wortham refused because he found the denial reasonable.
On November 12, 2003, Bright sent a fax to Giannotta at USC explaining it modified the requested consultation with Teitelbaum and Larsen to a cerebral angiogram at Presbyterian Intercommunity Hospital. Giannotta responded by fax that same day, explaining, "We need a new authorization for Elsie to see Dr. [sic] Larsen and Teitelbaum. They are endo vascular neuro radiologists who plan on treating the aneurysm if amendable [sic] not for a diagnostic angio gram only but potential treatment also. Requesting authorization for diagnostic angio with possible coil embolization." He marked this request "stat," meaning "hurry up," but he never received any response.
Giannotta sent the fax because a cerebral angiogram at Presbyterian Intercommunity Hospital would delay Elsie's treatment and force her to needlessly undergo two cerebral angiograms. Teitelbaum and Larsen still would perform a cerebral angiogram using USC's more advanced equipment to determine whether coil embolization could treat Elsie's aneurysm and then immediately perform the procedure.
Although it received Giannotta's fax, Bright took no action because its utilization review staff failed to bring it to any physician's attention. Wortham testified he did not see the fax until nearly a month later and Galbreath and Flanders testified they did not see it until after the Martins filed this litigation. At trial, Flanders conceded Giannotta's fax showed the cerebral angiogram he approved at Presbyterian Intercommunity Hospital was not reasonable and, if he had seen the fax, would have approved the referral to Teitelbaum and Larsen.
Elsie underwent the cerebral angiogram at Presbyterian Intercommunity Hospital on November 25, 2003. On December 9, 2003, Galbreath submitted a new request to Bright's utilization review committee for Elsie to consult with Teitelbaum and Larsen at USC. Bright approved that request and Elsie saw Teitelbaum and Larsen on December 15, 2003.
On December 16, 2003, Teitelbaum submitted a "rush" request for Bright's approval to conduct an angiogram and coil embolization on Elsie. Bright
On January 10, 2004, Elsie's aneurysm burst and her treating physicians informed Elsie's family her condition was terminal. The doctors removed Elsie from life support and she died on January 16, 2004. Ironically, when Jerry returned home from the hospital on January 10, 2004, his mail contained a letter from Bright stating her treatment with Teitelbaum and Larsen had been approved and scheduled for February 4, 2004.
At no time did Elsie or anyone acting on her behalf contact PacifiCare to discuss Elsie's medical care or challenge Bright's utilization review of Elsie's treatment requests.
The Martins sued PacifiCare in April 2005.
PacifiCare moved for summary judgment on the ground section 1371.25 barred the Martins' causes of action. PacifiCare argued it could not be vicariously liable because Bright made all utilization review decisions regarding Elsie's medical care and neither Elsie nor anyone acting on her behalf brought the matter to PacifiCare's attention. According to PacifiCare, a vicarious liability theory failed as a matter of law because section 1371.25 barred health care service plans from being held liable for a health care provider's acts or omissions.
The trial court denied the motion because no reported case interpreted section 1371.25 to bar vicarious liability theories against health care service plans. The court found a triable issue of fact existed on whether PacifiCare and Bright's contract created an agency relationship making PacifiCare vicariously liable for Bright's acts or omissions.
"We independently review an order granting a nonsuit, evaluating the evidence in the light most favorable to the plaintiff and resolving all presumptions, inferences and doubts in his or her favor. [Citations.] `Although a judgment of nonsuit must not be reversed if plaintiff's proof raises nothing more than speculation, suspicion, or conjecture, reversal is warranted if there is "some substance to plaintiff's evidence upon which reasonable minds could differ . . . ."' [Citation.] In other words, `[i]f there is substantial evidence to support [the plaintiff's] claim, and if the state of the law also supports that claim, we must reverse the judgment.' [Citation.]" (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1124-1125 [76 Cal.Rptr.3d 585], original italics.) Similarly, "[s]tatutory interpretation is a question of law that we review de novo." (Bruns v. E-Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724 [122 Cal.Rptr.3d 331, 248 P.3d 1185].)
Section 1371.25 states as follows: "A plan, any entity contracting with a plan, and providers are each responsible for their own acts or omissions, and are not liable for the acts or omissions of, or the costs of defending, others. Any provision to the contrary in a contract with providers is void and unenforceable. Nothing in this section shall preclude a finding of liability on the part of a plan, any entity contracting with a plan, or a provider, based on
The court in Watanabe interpreted section 1371.25 to preclude an action seeking to hold a health care service plan vicariously liable for a health care provider's acts or omissions. (Watanabe, supra, 169 Cal.App.4th at pp. 63-64.) The plan in Watanabe contracted with a provider to deliver medical care to the plaintiff and the plan's other subscribers. That contract delegated to the provider the utilization review function. Thus, the medical provider made the initial determination whether a service or treatment was medically necessary and therefore covered by the plan's policy. The plan retained the power to override the provider's utilization review decision through its established appeal or grievance procedures. (Id. at pp. 59-60.) The plaintiff sued the plan for breach of contract and breach of the implied covenant of good faith and fair dealing based on the provider's malfeasance in the utilization review function, alleging the provider unreasonably delayed and denied medically necessary care. The plan, however, did not delay or deny medical care and overturned the only utilization review decision the plaintiff brought to the plan's attention. Based on section 1371.25, the trial court instructed the jury it could find the plan liable only for the plan's own acts or omissions, but not the acts or omissions of the provider. The jury returned a verdict in the plan's favor and the plaintiff appealed.
The Watanabe court noted that the plaintiff sued the plan based solely on the provider's failure to give the plaintiff necessary medical care. In essence, the plaintiff sought to hold the plan vicariously liable for the provider's failings. (Watanabe, supra, 169 Cal.App.4th at p. 62.) The appellate court concluded, however, that section 1371.25 barred reliance on the theory of vicarious liability. As the Watanabe court explained, by making all plans and providers responsible for their own acts or omissions and not one another's acts or omissions, section 1371.25 barred the plaintiff from holding the plan vicariously liable for the provider's malfeasance. (Watanabe, at pp. 63-64.) The Watanabe court found section 1371.25 so "unmistakably clear in precluding the imposition of vicarious liability," it refused to consider the statute's legislative history. (Watanabe, at p. 64.)
The Martins contend Watanabe is wrongly decided because section 1371.25 does not preclude holding a health care service plan vicariously liable for a medical provider's acts or omissions. According to the Martins, section 1371.25 only bars a plan from enforcing a contractual provision that requires a provider to hold the plan harmless for the plan's own acts or omissions. As the Martins interpret section 1371.25, the second sentence is the key to determining the statute's overall meaning and effect. The Martins contend the first sentence's declaration that plans and providers are liable only for their own acts or omissions merely forms the "predicate" to the second sentence's prohibition against hold harmless provisions. The third sentence then preserves all "`statutory or common law bases for liability,'" so the net effect is that hold harmless provisions are barred, but no specific liability theory against a plan is precluded.
The Martins contend the Watanabe court misinterpreted the statute because it refused to consider section 1371.25's legislative history. The Martins argue that history shows the Legislature intended only to bar a health care service plan from requiring a medical provider to indemnify it. A careful review of section 1371.25's legislative history supports Watanabe's interpretation, however.
The Martins ignore this statement in the Legislative Counsel's Digest and instead rely on the purpose identified when section 1371.25 was originally introduced. Section 1371.25's purpose when first proposed was to "prohibit plans and entities employed by plans to review claims from holding themselves harmless in cases in which denial of services resulted in harm to the patient." (Legis. Counsel's Dig., Assem. Bill No. 1840 (1995-1996 Reg. Sess.) as introduced Feb. 24, 1995.) In its original form, section 1371.25 read as follows: "In contracts with health care providers, health care service plans and entities employed by plans for the purpose of reviewing claims for service shall not hold themselves harmless from liability in cases in which a denial for services resulted in harm to the patient." (Assem. Bill No. 1840 (1995-1996 Reg. Sess.) § 3, as introduced Feb. 24, 1995.)
Section 1371.25's purpose and language, however, expanded as the statute worked its way through the Legislature. The Senate broadened the section to limit liability by making plans and providers liable for their own acts or omissions only. A Senate Committee on Insurance report explained, "
Shortly before the Senate's final approval, a proposed amendment sought to limit section 1371.25 to its original purpose of barring hold harmless
Finally, the Enrolled Bill Report by the Department of Corporations acknowledged that the Legislature expanded section 1371.25 beyond its initial purpose to include provisions limiting liability for others' acts or omissions. The report explained, "Although the bill provides that certain persons are not liable for others, this provision is inconsistent with the laws of agency and employment. For instance, existing law recognizes that principal parties are liable for the acts or omissions of agents. . . . [¶] The bill's nonliability provisions may be interpreted by courts to exempt plans or providers from liability for the actions of persons acting on their behalf." The report urged the Governor to veto the bill for these reasons, but the Governor nonetheless signed it. (Cal. Dept. of Corporations, Enrolled Bill Rep. on Assem. Bill No. 1840 (1995-1996 Reg. Sess.) prepared for Governor Wilson (Sept. 14, 1995) pp. 3-4.) As the Supreme Court explained in Elsner v. Uveges (2004) 34 Cal.4th 915 [22 Cal.Rptr.3d 530, 102 P.3d 915], "[W]e have routinely found enrolled bill reports, prepared by a responsible agency contemporaneous with passage and before signing, instructive on matters of legislative intent." (Id. at p. 934, fn. 19.)
These legislative materials demonstrate that section 1371.25 began as a measure to prevent health care service plans from requiring medical providers to hold them harmless for the plans' own acts or omissions. The Legislature, however, ultimately broadened section 1371.25 to not only prohibit hold harmless agreements, but also to bar actions seeking to hold plans and providers vicariously liable for one another's acts or omissions. Hence, as in Watanabe, section 1371.25 applies to prevent the Martins from holding PacifiCare vicariously liable for Bright's acts or omissions. In other words, the liability remains with the party at fault and cannot be shifted to another by a statutory or common law liability theory or a contractual hold harmless provision.
Moreover, the cases the Martins cite are readily distinguishable because they do not involve a statutory scheme that expressly authorizes an insurer to delegate a duty to a third party while also barring the insurer from liability for that third party's acts or omissions. As Watanabe explains, the Health and Safety Code not only prevents health care service plans from being held liable for a health care provider's acts or omissions, it also specifically authorizes and regulates health care service plans' delegation of the utilization review function to health care providers. (Watanabe, supra, 169 Cal.App.4th at pp. 65-66 [discussing Health & Saf. Code, §§ 1371.25 and 1367.01].) The Hughes case the Martins cite involved a bad faith claim against a medical insurer, but it was decided before the Legislature enacted section 1371.25 or
Here, PacifiCare's delegation of the utilization review function to Bright did not bar the Martins' claims. Rather, Elsie's failure to invoke PacifiCare's appeal or grievance process barred the subsequent claims. Had Elsie or someone acting on her behalf contacted PacifiCare and involved it in the utilization review process, the Martins could have asserted a claim under Civil Code section 3428 and avoided Health and Safety Code section 1371.25's bar on vicarious liability because PacifiCare's own conduct would have been at issue, assuming PacifiCare had acted negligently. The Martins do not explain
The Martins assert their claims survive section 1371.25's vicarious liability bar because they based their insurance bad faith claims on direct liability. The Martins contend PacifiCare is directly liable for its bad faith because it is the only party subject to bad faith liability. According to the Martins, neither Bright nor any other third party to which PacifiCare delegated its responsibilities can be liable for bad faith because they were not in contractual privity with Elsie. (See Gruenberg, supra, 9 Cal.3d at p. 576; Sanchez, supra, 72 Cal.App.4th at p. 253.) The Martins therefore conclude that PacifiCare's bad faith liability is direct liability.
The Martins nonetheless contend their claims are based on direct liability because "PacifiCare should have identified and remedied these glaring problems in Bright's claims-handling process." According to the Martins, federal Medicare regulations required PacifiCare to continuously monitor Bright's compliance with PacifiCare's standards for timely access to medical care. (See 42 C.F.R. § 422.112(a)(6)(i) (2010).) But the Martins do not point to any evidence showing PacifiCare failed to properly monitor Bright, nor do they provide any authority or explanation regarding what sort of monitoring this regulation required. Similarly, the Martins point to no evidence or authority showing that proper monitoring would have uncovered Bright's alleged failure to follow PacifiCare's standards and procedures.
The Martins' complaint sought to hold PacifiCare directly liable for how it designed and implemented the standards and procedures it required Bright to use in performing the utilization review function. At trial, however, the court found the Martins failed to present sufficient evidence to support this direct liability theory and, on appeal, the Martins do not argue PacifiCare's standards and procedures were deficient in any respect. Although the conclusory assertion that PacifiCare should have discovered the "glaring problems in Bright's claims-handling process" may state a claim at the pleading stage, it is not sufficient to avoid nonsuit at trial.
Moreover, the Martins did not make their direct liability argument in the trial court. Neither their written nor oral opposition to the nonsuit motion asserted section 1371.25 did not apply because the Martins based their claims on PacifiCare's direct liability. After hearing the Martins' case at trial, the trial judge recognized the Martins based their claims on a vicarious liability theory, not a direct liability theory. Indeed, in explaining to the jury that Watanabe and section 1371.25 required him to grant PacifiCare's nonsuit motion, the trial judge stated "the whole theory of this case was that, as you
"`The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant. [Citation.]' [Citations.]" (Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 874 [242 Cal.Rptr. 184].)
The record shows the Martins tried their claims against PacifiCare on a vicarious liability theory rather than a direct liability theory. The Martins cannot change their liability theory on appeal. Even if they could, the Martins failed to point to sufficient evidence and authority to establish a direct liability theory.
On appeal, the Martins contend for the first time that section 1371.25 does not bar their claims because federal law preempts that statute. Specifically, the Martins contend federal law regarding the Medicare Advantage program preempts section 1371.25 if the current version of the Medicare Act's (Pub.L. No. 89-97 (July 30, 1965) 79 Stat. 291) express preemption provision applies in this case. The Martins, however, defeat their own preemption challenge by conceding (1) the Medicare Act does not preempt section 1371.25 if the preemption provision's prior version applies and (2) the prior version applies in this action.
The Martins raise this preemption challenge as a fallback position. Both sides presented extensive briefing on whether the Medicare Act preempts the Martins' causes of action, and which preemption provision applies in this case. The Martins simply assert the Medicare Act preempts section 1371.25 in case we reject their argument and conclude the preemption provision's current version applies. Because we conclude section 1371.25 bars the Martins' claims, we do not reach the question whether the Medicare Act preempts the Martins' claims.
Here, Congress enacted the current version of the Medicare Act's preemption provision on December 8, 2003. (Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc. (Fed.Cir. 2008) 527 F.3d 1278, 1283, fn. 2; Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub.L. No. 108-173 (Dec. 8, 2003) 117 Stat. 2066, 2208).) All acts and omissions giving rise to the Martins' claims occurred before that date, including Bright's denial of the initial request for an angiogram and coil embolization at USC, its refusal to reconsider that denial, its failure to respond to Giannotta's fax explaining the need for an angiogram at USC rather than Presbyterian Intercommunity Hospital, and the unnecessary angiogram at Presbyterian Intercommunity Hospital. Bright's acts that occurred after Congress enacted the preemption provision's current version consisted of prompt approvals of a consultation, angiogram, and coil embolization with Teitelbaum and Larsen at USC. Elsie died after Congress enacted the current version, but the Martins claim she died due to the delays Bright caused before Congress amended the preemption provision. Consequently, we agree with the Martins that the prior version applies.
Because they concede the prior version does not preempt section 1371.25, the Martins provide no argument or authority explaining how that version could preempt section 1371.25. By failing to provide any authority to support that contention, the Martins waived it. The Medicare Act does not preempt section 1371.25 in this case.
The judgment is affirmed. PacifiCare shall recover its costs on appeal.
Fybel, J., and Ikola, J., concurred.
Watanabe refused to consider any legislative history materials because it found section 1371.25 unmistakably clear. (Watanabe, supra, 169 Cal.App.4th at p. 64.) Both the United States and California Supreme Courts have stated that legislative history materials may properly be considered to confirm or bolster a court's interpretation of even an unambiguous statute. (Samantar v. Yousuf (2010) 560 U.S. ___, ___, fn. 9 [130 S.Ct. 2278, 2287, fn. 9]; In re Tobacco II Cases (2009) 46 Cal.4th 298, 316 [93 Cal.Rptr.3d 559, 207 P.3d 20].)
