The California Medical Association (CMA) and nine other physician organizations filed an amicus brief asking the Supreme Court of California to review an appeals ruling that would have significant, widespread negative impact on the health care industry, undermining a California law designed to protect physicians from "silent PPOs."

Robust managed health care provider networks and reasonable reimbursement for medical services are vital to ensuring adequate accessibility and the highest quality of medical care. A historical and ongoing threat to these goals is the silent PPO problem, whereby health plans unilaterally and stealthily conscript their network providers into servicing third parties at discounted in-network rates without affording the providers any benefits in return.

To combat this problem, the California legislature in 2003 passed a CMA-sponsored bill (AB 175) to prevent the improper use of a health provider's contract in the event that a plan rents the provider network to a third party, such as a union trust fund, self-insured employer or another plan, for their use in obtaining discounted rates. The resulting statute (Health and Safety Code section 1375.7) requires that "when a contracting agent sells, leases or transfers a health provider's contract to a payor, the rights and obligations of the providers shall be governed by the underlying contract between the health care provider and the contracting agent."

In this case, a union’s benefits trust – the United Food and Commercial Workers and Employers Benefits Trust (UEBT) – contracted with Blue Shield of California to access the insurer's provider network – which included Sutter Health – at in-network rates. The underlying contract between Blue Shield and Sutter Health included an arbitration agreement, which would be enforceable against UEBT pursuant to Health and Safety Code section 1375.7.

In 2014, UEBT filed a suit against Sutter Health alleging that the health system overcharged millions of workers for health care. Sutter requested binding arbitration, as stipulated in its contract with Blue Shield. The trial court in this case ruled – and the appeals court agreed – that Sutter couldn’t compel UEBT to arbitrate its claims of antitrust and unfair competition because the union was not a party to the “provider contract" between Blue Shield and Sutter.  The court also ruled that section 1375.7 did not apply because Blue Shield did not technically “sell, lease or transfer” Sutter’s provider contract to UEBT, even though the union trust clearly made arrangements to take advantage of Sutter’s services and discounted rates.

CMA’s amicus brief argues that the appeals court misguidedly and narrowly focused on the statute's terms of "sells, leases or transfers." The court ruled that because UEBT merely "accessed" the network, the union is not bound by the arbitration agreement contained in the underlying contract.

"The Court of Appeal myopically reads AB 175 out of context and without regard to the statutory scheme enacted by the Legislature to address silent PPO problems rampant in the late 1990s and early 2000s," CMA and the other physician organizations wrote in the brief. "It would be implausible that the legislature intended for third party payors to be able to avoid their obligations to providers on technical grounds, based on the specific manner in which they access provider discounts."

The brief argues that the appeals court's interpretation of the statute is too narrow, out of context and to the detriment of providers, while giving a windfall to third-party payors and health plans.

"The opinion severely limits the protections of section 1375.7 to the point that it no longer can guarantee that providers continue to receive the advantages and benefits of joining a health plan network when their services are accessed by third-party payors," the brief said. "In short, the Court of Appeal's opinion eviscerates the primary statutory remedy against silent PPOs and could threaten provider network adequacy and patient access to care."

The other physician groups signing on to this amicus brief include the American College of Emergency Physicians (California Chapter); California Academy of Family Physicians; California Orthopaedic Association; California Psychiatric Association; California Radiological Society; California Society of Pathologists; Latino Physicians of California; Medical Oncology Association of Southern California, Inc.; and the Osteopathic Physicians and Surgeons of California.

The Supreme Court is expected to rule on Sutter’s petition for review in early February.

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