SAN FRANCISCO — In a unanimous decision that could have ripple effects across California’s health care industry, the state Supreme Court has ruled that health plans like Aetna and Blue Shield can be sued over unpaid medical bills even if the plans passed financial responsibility to third parties.

Related: Indemnity health insurers win major ACA court fight

The court’s opinion Monday in Centinela Freeman v. Health Net of California is a blow to health care plans and the so-called “risk bearing organizations,” or RBOs, that they regularly contract with in order to share the financial risk they take on in covering patients’ emergency medical expenses.

Affirming a decision by the Second District Court of Appeal, the state high court sided with doctors in ruling that plans can be sued for negligence if they pass financial risk to RBOs that they know are danger of becoming insolvent. Doing so, it said, leaves medical professionals out to dry after treating emergency room patients that they are required to care for under the law.

“Because the emergency care providers rely exclusively on health care service plans to arrange payment for services received by their enrollees, plans that transfer those responsibilities onto an [RBO] they know or should know will not make those payments have not only shirked their statutory obligations, but have essentially withheld from emergency care providers the fair compensation to which they are entitled,” Chief Justice Tani Cantil-Sakauye wrote in the court’s opinion.

The case stems from the collapse of La Vida, an RBO that shuttered in 2010 after years of financial strain. Defendant health plans including Health Net of California, Anthem Blue Cross, Aetna and Blue Shield contracted with La Vida to pay for plan members’ emergency room visits, in return for a share of their premiums. When La Vida failed to pay, the health plans refused to step in, plaintiffs allege.

See also: Humana and Covered California

An army of Big Law attorneys representing the plans had argued that the law and California state regulations absolve them from liability for medical bills once the responsibility has been assigned to a third party. Putting plans on the hook for those bills later would be an “end run” around their business model and could force them to jack up premiums in order to shoulder more risk, their lawyers contended.

The California Association of Health Plans, which submitted an amicus brief on behalf of the defendants, voiced disappointment with the state high court's ruling. (Photo: iStock)

The California Association of Health Plans, which submitted an amicus brief on behalf of the defendants, voiced disappointment with the state high court’s ruling. (Photo: iStock)

“Unfortunately, this decision could be costly and make it harder to return struggling provider groups to solvency, but California’s health plans remain committed to partnering with contracted providers to deliver affordable high quality health care,” Charles Bacchi, president and CEO of the association, said in a prepared statement on Tuesday.

California’s Department of Managed Health Care, which regulates health plans, also argued in an amicus brief that allowing negligence claims could lead health plans to terminate arrangements with RBOs at the first sign of any financial trouble. If that happens, the department warned, patients might have to be directed to different medical providers as well.

But Andrew Selesnick, a partner for Michelman & Robinson who argued on behalf of emergency medicine providers at the Supreme Court, dismissed those warnings as hyperbole. Selesnick said the decision would force plans to be more diligent in ensuring that the RBOs they contract with are sound. A number of existing RBOs, he noted, have not met the department’s financial grading requirements.

The ruling “provides accountability on behalf of the payers,” Selesnick said. “If they’re taking the patients’ premium dollars and promising to cover certain services… they don’t get to do so without making sure those other entities can actually pay their bills. And that’s a good thing.”

See also:

Number of Covered California agents up 11 percent

California exchange board OKs agent comp standards

You’re invited to join us on Facebook.