For the first time, a California appellate court has recognized a legal cause of action that holds California’s health plans liable when they negligently delegate risk to an IPA that subsequently fails to reimburse providers. In a precedent-setting opinion in Centinela Freeman Emergency Medical Assocs. v. Health Net et al., the court is allowing emergency care providers to proceed with such a negligent delegation claim against the state’s largest health plans.

In 2011, the Centinela physicians filed a lawsuit against health plans that delegated risk to La Vida Independent Practice Association (IPA) to seek reimbursement for claims for emergency medical care that were left unpaid after La Vida went bankrupt. The lawsuit alleged that La Vida was having trouble paying providers, yet the health plans did nothing to rectify the situation and continued to delegate their enrollees to La Vida. When La Vida went bankrupt it owed the emergency care physicians over $3 million.

The Centinela physicians initially lost their bid to recoup the money when a Los Angeles County Superior Court judge dismissed the case, based on existing law holding that health plans generally are absolved of responsibility to pay claims under the Knox-Keene Act after the health plans delegate risk to an IPA. On appeal the Centinela plaintiffs argued that there should be a narrow exception to that law for providers who are not contracted with the IPA or delegating health plan and who still must provide emergency medical care under federal and state law. In such circumstances, the Centinela plaintiffs argued, health plans should remain liable when they negligently delegate to an IPA that they knew or should have known is not capable of paying medical claims.

The California Medical Association (CMA) had filed an amicus brief in July 2013 in the case on behalf of a broad coalition of health care provider associations, including the California Hospital Association, California Orthopaedic Association, California Radiological Society and California Society of Pathologists. La Vida, a risk bearing organization that provided health care coverage to hundreds of thousands of patients in Southern California, was contracted by Health Net and six other health plans to pay insurance claims to providers.

CMA's amicus brief acknowledged the viability of the delegation model and accepted that generally health plans are absolved of liability after they delegate to an IPA, but the brief forcefully argued that case law still recognizes that health plan immunity arises if and only if the health plans delegate responsibly.

The brief argued that a negligent delegation claim would strengthen the delegation model because it would put responsibility on health plans to ensure that IPAs they delegate to can handle risk and pay claims. The court opinion, which was published on February 19, agreed with CMA's arguments.

CMA has fought long and hard to make insurers responsible for payment when they delegate to an IPA that they know is not financially sound. In the early 2000s, when a number of major IPAs went bankrupt, CMA and others filed lawsuits to try to hold the health plans liable for unpaid claims. Again and again, the courts held that the Knox-Keene Act generally insulates health plans from payment responsibility once they delegate to an IPA. The Centinela ruling creates a narrow exception to the earlier court precedents.

The defendant health plans in this lawsuit are Health Net of California, Inc., Blue Cross of California Anthem Blue Cross, PacifiCare of California, California Physicians’ Service Blue Shield of California, Cigna HealthCare of California, Inc., Aetna Health of California, Inc., and SCAN Health Plan.

Read the Court of Appeal’s ruling here.

Contact: CMA's legal information line, (800) 786-4262 or legalinfo@cmadocs.org.