Opinion
B304183, consolidated with B306322
11-04-2021
LONG BEACH MEMORIAL MEDICAL CENTER et al., Plaintiffs and Appellants, v. KAISER FOUNDATION HEALTH PLAN, INC., et al., Defendants and Appellants.
Jones Day, Erica L. Reilley, David J. Feder, Kevin L. Kenney, Los Angeles; Payne & Fears, C. Darryl Cordero, El Segundo, Robert C. Leventhal, Damon Rubin, Los Angeles, and Randy R. Haj, El Segundo, for Plaintiffs and Appellants. King & Spalding, Marcia Augsburger, Daron Tooch, Anne Voigts, and Amanda Hayes-Kibreab for California Hospital Association, Sharp Healthcare, Natividad Medical Center, Pomona Valley Hospital Medical Center, and Kaweah Delta Health Care District as Amici Curiae on behalf of Plaintiffs and Appellants. Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum, John T. Fogarty, Marina Shvarts, Los Angeles; Kellog, Hansen, Todd, Figel & Frederick, David C. Frederick, Daniel G. Bird, Joseph L. Wenner, and Jayme L. Weber for Defendants and Appellants.
Certified for Partial Publication.
This opinion is published as to all but Sections IV and V of the Discussion.
Jones Day, Erica L. Reilley, David J. Feder, Kevin L. Kenney, Los Angeles; Payne & Fears, C. Darryl Cordero, El Segundo, Robert C. Leventhal, Damon Rubin, Los Angeles, and Randy R. Haj, El Segundo, for Plaintiffs and Appellants.
King & Spalding, Marcia Augsburger, Daron Tooch, Anne Voigts, and Amanda Hayes-Kibreab for California Hospital Association, Sharp Healthcare, Natividad Medical Center, Pomona Valley Hospital Medical Center, and Kaweah Delta Health Care District as Amici Curiae on behalf of Plaintiffs and Appellants.
Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum, John T. Fogarty, Marina Shvarts, Los Angeles; Kellog, Hansen, Todd, Figel & Frederick, David C. Frederick, Daniel G. Bird, Joseph L. Wenner, and Jayme L. Weber for Defendants and Appellants.
HOFFSTADT, J.
Under federal and state law, a hospital is required to provide "necessary stabilizing treatment" for any person in an "emergency medical condition." ( 42 U.S.C. § 1395dd, subd. (b) ; Health & Saf. Code, § 1317, subd. (a).) If that person is covered by a health care service plan, California's Knox-Keene Health Care Service Plan Act of 1975 (the Knox-Keene Act) (§ 1340 et seq.) requires the plan to reimburse the hospital for providing such "emergency services and care." ( § 1371.4, subd. (b).) The amount of reimbursement depends upon whether the hospital and plan already have a contract in place: If they do, the plan must pay the "agreed upon" contractual rate ( Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(A) ); if they do not, the plan must pay the "reasonable and customary value for the [emergency] health care services rendered" (id. , subd. (a)(3)(B)). If a plan without a contract pays reimbursement that the hospital believes is below the "reasonable and customary value," the hospital may sue the plan in quantum meruit for the shortfall. ( Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 505, 87 Cal.Rptr.3d 299, 198 P.3d 86 ( Prospect Medical ).)
All further statutory references are to the Health and Safety Code unless otherwise indicated.
This appeal raises three issues of first impression regarding the scope of a hospital's lawsuit to collect reimbursement from a plan with which it has no contract, as well as the law applicable in that lawsuit. First, in addition to quantum meruit, may a hospital sue for the tort of intentionally paying an amount that is less than what a jury might later determine is the "reasonable and customary value" of the emergency medical services, and thereby obtain punitive damages? Second, in addition to quantum meruit, may the hospital sue for injunctive relief under California's unfair competition law ( Bus. & Prof. Code, § 17200 ) to enjoin the plan from paying too little reimbursement for possible future claims not covered by a contract? Lastly, in the quantum meruit claim itself, does a trial court err in instructing the jury that the "reasonable value" of emergency medical services is defined as "the price that a hypothetical willing buyer would pay a hypothetical willing seller for the services, [when] neither [is] under compulsion to buy or sell, and both hav[e] full knowledge of all pertinent facts"?
For the reasons described more fully below, we hold that the answer to all three question is "no." Because we also reject challenges to several of the trial court's evidentiary rulings in the unpublished portion of this opinion, we affirm the jury's verdict in this case finding that the plan had paid the suing hospital the reasonable and customary value of its emergency medical services. However, also in the unpublished portion, we reverse the trial court's order categorically denying the plan its costs and remand the matter for the trial court to examine the specific challenges the hospital has raised to the plan's cost bill.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. The parties
1. The hospitals
The Long Beach Memorial Medical Center and the Orange Coast Memorial Medical Center (individually, Long Beach Memorial and Orange Coast Memorial; collectively, the hospitals) operate three hospitals in the region encompassing the southern portion of Los Angeles County as well as the northern portion of Orange County.
The hospitals price their medical services using two rates—namely, (1) the full-price rate they bill , which operates like the "sticker price," and (2) the discounted rate they agree to accept. The hospitals collect their full, billed rate only one to 10 percent of the time. Usually, the hospitals agree to accept a lesser amount, which is typically expressed as a percentage of the full, billed rate. That amount varies, depending on whether the payor is a government program (such as Medicare or Medi-Cal), a health plan or health insurance company that has negotiated a contract with the hospitals (a so-called "managed care agreement"), a member of a so-called "rental network" which negotiates rates with hospitals on behalf of network members, or an individual paying cash.
For instance, between 2015 and 2017, the hospitals agreed to accept the following rates from the following groups:
| Payor | Percentage of full, billed rates |
| Medi-Cal | 10% |
| Medicare | 15% |
| Health plans with contractual "managed care agreements" | Typically, between 40% and 65%, with between 44% and 52% paid for trauma and emergency services |
| Member of a "rental network" | Typically, between 60% and 85% |
| Individuals paying cash | 22% |
Between 2015 and 2017, the average rate which the hospitals agreed to accept for emergency medical services—across all of these categories—was 27 percent of the hospitals’ full, billed rates.
2. The Kaiser entities
Kaiser Foundation Health Plan, Inc. (Kaiser) is an "insurance company" that provides medical insurance to its enrollees. Kaiser Foundation Hospitals is a related entity, and operates hospitals throughout California, although none in the communities served by the hospitals.
B. Prior contracts between the hospitals and Kaiser
In the past, Kaiser had entered into managed care agreements with the hospitals; Kaiser let its agreement with Orange Coast Memorial expire in 2008 and let its agreement with Long Beach Memorial expire in June 2015. Under the most recent iteration of these agreements, the hospitals agreed to accept from Kaiser the following rates for the following medical services:
The parties only introduced the rates from the Long Beach Memorial agreement, and did not distinguish the rates in the Orange Coast Memorial agreement. We will do the same.
| Service | Percentage of full, billed rates |
| General medical services | 47% |
| Emergency room services | 56% |
| Outpatient trauma services | 73.4% |
| Inpatient trauma services | 76% |
C. Postcontractual payments
Although Kaiser allowed its managed care agreements with the hospitals to expire, Kaiser's enrollees would still sometimes seek emergency medical care from the hospitals, and under the Knox-Keene Act, the hospitals were obligated to provide emergency medical care to those enrollees. Between July 2015 and October 2015, Kaiser joined several different rental networks and, pursuant to those networks’ agreements with the hospitals, ended up paying the hospitals between 75 and 85 percent of the hospitals’ full, billed rates for the emergency medical services provided to their enrollees.
In October 2015, Kaiser used an internal methodology for calculating the reasonable value of medical services. Between October 2015 and October 2017, the hospitals provided prestabilization emergency medical services to 3,609 Kaiser enrollees, and billed Kaiser for those services at their full-billed rate for a total of $31,007,982. Using its internal methodology, Kaiser reimbursed the hospitals $16,524,537—or 53.2 percent of the full, billed charges.
II. Procedural Background
A. Pleadings
1. The hospitals’ complaint(s)
In August 2017, the hospitals sued Kaiser, Kaiser Foundation Hospitals, Kaiser Permanente Insurance Company, and The Permanente Medical Group, Inc.
In the operative, second amended complaint filed in May 2018, the hospitals sued Kaiser, Kaiser Foundation Hospitals, and Kaiser Permanente Insurance Company for (1) breach of contract (namely, breaching the rental network contracts), (2) breach of an implied contract and recovery of services rendered—that is, quantum meruit—under the Knox-Keene Act, (3) the tort of intentionally violating the "statutory duty under the Knox-Keene Act to provide and pay for the reasonable and customary value of" emergency medical services by "implement[ing] a provider reimbursement structure that systematically fails to pay [and] underpays" the hospitals, and (4) violating the unfair competition law by "systematically failing to pay [and] underpaying" the reimbursement required by the Knox-Keene Act. The hospitals sought reimbursement for underpayments made between October 2015 and October 2017 allegedly totaling $26,750,000, punitive damages for the intentional tort, and an injunction "enjoining Kaiser" from violating the Knox-Keene Act by underpaying charges in the future. 2. Kaiser's cross-complaint
The hospitals dropped Permanente Medical Group, Inc. as a defendant.
The hospitals also allege that Kaiser "strategically" placed its medical facilities in geographic locations that would obligate the hospitals to serve their patients, but they have abandoned this allegation on appeal.
Kaiser filed a cross-complaint to recapture any payments it may have made to the hospitals in excess of the reasonable value of the emergency medical services provided.
B. Summary adjudication of intentional tort and unfair competition claims
Kaiser moved for summary adjudication of the hospitals’ intentional tort and unfair competition claims. Following briefing and a hearing, the trial court granted the motion and dismissed those two claims. The court ruled that recognizing an intentional tort for underpayment of reimbursement costs would "undermine the carefully balanced and comprehensive managed health care scheme established by the Knox-Keene Act" and would be "full of pitfalls that [the court] can't begin to comprehend." The court ruled that recognizing an unfair competition claim for underpayment made no sense because enjoining Kaiser from "paying inadequate reimbursement" was not a workable injunction.
As the summary adjudication motion was being litigated, the hospitals voluntarily dismissed Kaiser Permanente Insurance Co. as a defendant.
C. Trial
After two days of pretrial hearings, the trial court convened a three-day jury trial.
The trial was a proverbial battle of the experts. The hospitals’ expert testified that the reasonable value of the hospitals’ emergency services was 85 percent of the hospitals’ full, billed rate, which came to $27,137,053.25. Subtracting Kaiser's previous reimbursements, the hospitals’ expert opined that Kaiser underpaid by $9,815,080.25. Kaiser's expert testified to the charges the hospitals accepted from a variety of different payors, and opined that Kaiser had overpaid the hospitals by as little as $222,285 and by as much as $11,755,594.
Midtrial, the court granted a nonsuit as to Kaiser Foundation Hospitals.
The jury returned a special verdict finding that Kaiser—the sole remaining defendant—had paid the hospitals "an amount equal to or greater than [the] reasonable value" of the hospitals’ services, and that the reasonable value of those services was $16,524,537. Because that amount was precisely the amount Kaiser had already paid as reimbursement, Kaiser voluntarily dismissed its cross-claim.
D. Costs
Kaiser filed a memorandum of costs seeking $229,903.96 in costs as the prevailing party.
The hospitals filed a motion to tax costs, arguing that (1) Kaiser was not the prevailing party, and (2) many of the line items were not recoverable or reasonable. Following further briefing, the trial court granted the hospitals’ motion to tax "in its entirety" and awarded no costs.
E. Appeal and cross-appeal
Following the entry of judgment, the hospitals filed a timely notice of appeal. Following the postjudgment order denying all costs, Kaiser filed a timely notice of cross-appeal.
Kaiser Foundation Hospitals also sought its costs and cross-appealed the trial court's denial of those costs. For convenience, we refer to both parties as "Kaiser" solely when discussing the costs proceedings and cross-appeal.
DISCUSSION
I. Pertinent Background of Regulatory Scheme
Under the federal Emergency Medical Treatment and Active Labor Act ( 42 U.S.C. § 1395dd et seq. ) and the Knox-Keene Act, hospitals and other medical providers have a statutory duty to provide "emergency [medical] services and care" to persons who are in "danger of loss of life, or serious injury or illness." ( Health & Saf. Code, § 1317, subd. (a) ; 42 U.S.C. § 1395dd, subd. (b) ; Prospect Medical , supra , 45 Cal.4th at p. 501, 87 Cal.Rptr.3d 299, 198 P.3d 86 ; T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 189, 226 Cal.Rptr.3d 336, 407 P.3d 18 ( T.H. ).) Under the Knox-Keene Act, the health care service plan (or its "contracting medical providers") must, within 30 or 45 days, reimburse the hospital or other medical providers for the "emergency services and care provided to its enrollees" as to (1) all care necessary for "stabilization" of the enrollee, and (2) for all poststabilization care the plan authorizes the hospital to provide. ( Health & Saf. Code, § 1371.4, subds. (b) & (c) ; Cal. Code Regs., tit. 28, § 1300.71, subd. (g) ; T.H. , at p. 189, 226 Cal.Rptr.3d 336, 407 P.3d 18.) When the hospital or other medical providers have a contract with the plan, the plan must reimburse them for the services at the "agreed upon contract rate." ( Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(A).)
However, when the hospital or other medical providers do not have a contract with the plan, the plan is statutorily obligated to reimburse the hospital or providers for the "reasonable and customary value [of] the [emergency] health care services rendered." ( Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(B).) "The reasonable and customary value" must "take[ ] into consideration" six different factors—namely, (1) "the [hospital's or] provider's training, qualifications, and length of time in practice"; (2) "the nature of the services provided"; (3) "the fees usually charged by the [hospital or] provider"; (4) "prevailing [hospital or] provider rates charged in the general geographic area in which the services were rendered"; (5) "other aspects of the economics of the [hospital's or] medical provider's practice that are relevant"; and (6) "any unusual circumstances in the case." (Ibid. )
These factors are borrowed from Gould v. Workers’ Comp. Appeals Bd. (1992) 4 Cal.App.4th 1059, 1071, 6 Cal.Rptr.2d 228, which used them to define how to calculate "reasonable" medical care charges in the workers’ compensation context.
If a hospital or other medical provider believes that the amount of reimbursement it has received from a health plan is below the "reasonable and customary value" of the emergency services it has provided, the hospital or provider may assert a quantum meruit claim against the plan to recover the shortfall. ( Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 213-214, 221, 31 Cal.Rptr.3d 688 ( Bell ); Prospect Medical , supra , 45 Cal.4th at p. 505, 87 Cal.Rptr.3d 299, 198 P.3d 86 ; Children's Hospital Central California v. Blue Cross of California (2014) 226 Cal.App.4th 1260, 1273, 172 Cal.Rptr.3d 861 ( Children's Hospital ).) As the plaintiff in a quantum meruit lawsuit, the hospital or provider bears the burden of establishing that the plan's reimbursement was less than the "reasonable and customary value" of its services. ( Children's Hospital , at p. 1274, 172 Cal.Rptr.3d 861.)
II. Propriety of Pretrial Dismissal of the Hospitals’ Intentional Tort and Unfair Competition Claims
The hospitals argue that that the trial court erred in granting summary adjudication of their claims against Kaiser for (1) intentionally reimbursing them at an amount below the "reasonable and customary value" of the emergency medical services they provided, and (2) violation of the unfair competition law.
Like summary judgment, summary adjudication is appropriate when the moving party shows "[it] is entitled to a judgment as a matter of law" ( Code Civ. Proc., § 437c, subd. (c) ) because, among other things, the nonmoving party (here, the hospitals) cannot establish "[o]ne or more elements of [its] cause of action" (id. , subd. (o)(1)); see id. , subd. (p)(2)). Because a motion for summary adjudication "necessarily includes a test of the sufficiency of the complaint" ( Centinela Hospital Assn. v. City of Inglewood (1990) 225 Cal.App.3d 1586, 1595, 275 Cal.Rptr. 901 ), summary adjudication is also appropriate if the entire cause of action is unsupported by the law. Because the propriety of summary adjudication and the subsidiary question of the validity of a cause of action involve questions of law, our review is de novo. ( Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 273, 219 Cal.Rptr.3d 859, 397 P.3d 210 ; Bettencourt v. Hennessy Industries, Inc. (2012) 205 Cal.App.4th 1103, 1111, 141 Cal.Rptr.3d 167.)
A. Tort of intentional failure to reimburse the "reasonable and customary value" of emergency medical services
Because " ‘[a] tort, whether intentional or negligent, involves a violation of a legal duty ... owed by the defendant to the person injured,’ " and because the existence of a legal duty turns on whether the " ‘ "sum total" ’ " of " ‘ "policy" ’ " " ‘ "considerations" ’ " favors " ‘ "say[ing] that the particular plaintiff is entitled to [the] protection" ’ " of tort law, our task in deciding whether to recognize a tort for intentionally failing to reimburse a hospital or medical provider for the "reasonable and customary value" of emergency medical services is to "examine and weigh the relevant ‘considerations of policy’ " and to ask whether the "social benefits" of creating such a tort remedy "outweigh[ ] any costs and burdens it would impose." ( Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 8, 74 Cal.Rptr.2d 248, 954 P.2d 511 ( Cedars ), italics in original; Gregory v. Cott (2014) 59 Cal.4th 996, 1012, 176 Cal.Rptr.3d 1, 331 P.3d 179 [" ‘A tort, whether intentional or negligent, involves a violation of a legal duty ...’ "];) Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1013, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ( Centinela ) [looking to whether " ‘public policy ... dictate[s] the existence of a duty ...’ "]; The MEGA Life & Health Ins. Co v. Superior Court (2009) 172 Cal.App.4th 1522, 1527, 92 Cal.Rptr.3d 399 ["whether to recognize a new ‘legal wrong’ or ‘tort’ is often governed by policy factors"].) Although our Supreme Court in Biakanja v. Irving (1958) 49 Cal.2d 647, 650, 320 P.2d 16 ( Biakanja ) and Rowland v. Christian (1968) 69 Cal.2d 108, 113, 70 Cal.Rptr. 97, 443 P.2d 561 ( Rowland ) identified several factors bearing on the propriety of recognizing a new tort, we need not examine them on a factor-by-factor basis where, as here, the social benefits and costs of a potential new tort are more aptly analyzed in the aggregate. ( Kurtz-Ahlers, LLC v. Bank of America, N.A. (2020) 48 Cal.App.5th 952, 961, 262 Cal.Rptr.3d 420.)
Although there is language in Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 967, 163 Cal.Rptr.3d 44 (Fuller ) that " ‘everyone owes a duty not to commit an intentional tort against anyone ,’ " the Fuller court's use of italics confirms that this statement is meant, at most, to show that there need not be a preexisting relationship between the intentional tortfeasor and the victim. Because Fuller itself involved the underlying legal duty not to defraud others (id. at pp. 958-959, 163 Cal.Rptr.3d 44 ), Fuller does not stand for the broader proposition that courts may entirely skip the precursor question of whether there is an underlying legal duty when it comes to intentional torts. And to the extent Fuller is read to stand for that proposition, we respectfully disagree.
Biakanja lists the factors relevant in the "business context" as (1) "the extent to which the transaction was intended to affect the plaintiff," (2) "the foreseeability of harm to [the plaintiff]," (3) "the degree of certainty that the plaintiff suffered injury," (4) "the closeness of the connection between defendant's conduct and the injury suffered," (5) "the moral blame attached to the defendant's conduct," and (6) "the policy of preventing future harm." (Biakanja , at p. 650, 320 P.2d 16.) Rowland lists the factors relevant outside the business context: "The first five Rowland [factors] are identical to the second through sixth Biakanja [factors]. (See Rowland , at pp. 112-113, 70 Cal.Rptr. 97, 443 P.2d 561.) Where the list of [factors] differs is that (1) Rowland does not consider ‘the extent to which the transaction was intended to benefit the plaintiff’ (Biakanja , at p. 650, 320 P.2d 16 ) (because there is no transaction), and (2) Rowland adds two further [factors] that flesh out ‘the policy of preventing future harm’ consideration—namely, (a) ‘the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach,’ and (b) ‘the availability, cost, and prevalence of insurance for the risk involved.’ (Rowland , at p. 113, 70 Cal.Rptr. 97, 443 P.2d 561.)" (QDOS, Inc. v. Signature Financial, LLC (2017) 17 Cal.App.5th 990, 999, 225 Cal.Rptr.3d 869.)
The relevant policy considerations counsel against recognizing a legal duty by health plans—compensable via a tort—not to reimburse hospitals and other medical providers of emergency medical services at an amount less than the "reasonable and customary value" of those services.
The social benefits of recognizing such a duty are slight. The hospitals have provided no evidence or argument suggesting that inadequate reimbursement for emergency medical services under the Knox-Keene Act is a widespread problem (see Cedars , supra , 18 Cal.4th at p. 13, 74 Cal.Rptr.2d 248, 954 P.2d 511 [looking whether "problem" to be solved by tort liability is "widespread"]), or that the problem is not sufficiently addressed by the quantum meruit remedy already available to hospitals and other medical providers (see Brennan v. Tremco (2001) 25 Cal.4th 310, 314, 105 Cal.Rptr.2d 790, 20 P.3d 1086 [looking at whether new tort remedy is "derivative" because "adequate remedies" already exist]). Amici curiae for the hospitals assert that underreimbursement is a problem, but provide nothing to substantiate that assertion, and the jury's finding of proper reimbursement in this case, which we conclude below was valid, would seem to undermine that assertion.
The social costs of recognizing a new tort duty, on the other hand, are staggering. The trial court lamented that such a new tort would be "full of pitfalls" too numerous to enumerate. We agree, but will enumerate a few.
First, recognizing a legal duty—and, on the basis of that duty, an intentional tort—not to underreimburse a hospital the "reasonable and customary value" of emergency medical services runs afoul of the longstanding principle that tort "liability ... for purely economic losses is ‘the exception, not the rule.’ " ( Southern California Gas Leak Cases (2019) 7 Cal.5th 391, 400, 247 Cal.Rptr.3d 632, 441 P.3d 881 ; Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 715, 117 Cal.Rptr.2d 541, 41 P.3d 548 ; Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58, 77 Cal.Rptr.2d 709, 960 P.2d 513 ; Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 70, 81-82, 17 Cal.Rptr.2d 649 ( Harris ) ["our Supreme Court has advised against judicial activism where an extension of tort remedies is sought for a duty whose breach previously has been compensable by contract remedies"].) This principle rests on the premise that economic relationships are typically governed by contracts or by comprehensive government regulation, and recognizes that tort liability creates incentives that alter the conduct of market participants and thus runs the risk of significantly reordering these relationships and the economic markets in which they are formed. ( Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 694, 254 Cal.Rptr. 211, 765 P.2d 373 ( Foley ) ["Significant policy judgments affecting social policies and commercial relationships are implicated [by creating a new tort and] ... ha[ve] the potential to alter profoundly the nature of [those relationships]"].) What is more, this principle is fully implicated here because the economic relationship regarding the payment for emergency medical services between hospitals and other medical providers (on the one hand) and health plans (on the other) is governed both by contracts and by comprehensive government regulation: The underlying duty to repay is established by the Knox-Keene Act, which is a " ‘comprehensive system of licensing and regulation under the jurisdiction of the Department of Managed Health Care’ " (Prospect Medical , supra , 45 Cal.4th at p. 504, 87 Cal.Rptr.3d 299, 198 P.3d 86 ; Centinela , supra , 1 Cal.5th at p. 1005, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ), while the amount of repayment is governed either by contract (when the parties have a preexisting contract) or by the quasi-contractual remedy of quantum meruit (when they do not) ( Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 346, 84 Cal.Rptr.3d 38 [quantum meruit is a type of " ‘contract implied in law’ " or " ‘[q]uasi-contract’ "]; Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370, 108 Cal.Rptr.3d 682 [same]; Newfield v. Insurance Co. of the West (1984) 156 Cal.App.3d 440, 445, 203 Cal.Rptr. 9 [cause of action for breach of an implied contract does not "sound in tort"]).
Second, recognizing a legal duty—and, on the basis of that duty, an intentional tort—not to underreimburse a hospital the "reasonable and customary value" of emergency medical services would inevitably lead to an outcome fundamentally at odds with one of the avowed purposes of the Knox-Keene Act to "help[ ] ensure the best possible health care for the public at the lowest possible cost by transferring the financial risk of health care from patients to providers." ( § 1342, subd. (d), italics added;
Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017) 12 Cal.App.5th 200, 207, 218 Cal.Rptr.3d 562.) If we recognize a legal duty not to underreimburse hospitals and other medical providers for the "reasonable and customary value" of emergency medical services, that duty would ostensibly give rise to a negligence-based tort claim as well as the intentional tort claim the hospitals explicitly urge us to create here. A health plan would be liable for negligence if it acted unreasonably in anticipating the "reasonable and customary value" of the services its enrollees received. But such a negligence-based tort would be both useless and impossible to comply with. It is useless because the alleged damages—the amount by which it shorted the hospital or medical provider—are already recoverable in a quantum meruit action. It is impossible to comply with because a health plan's liability would turn on whether the reimbursement amount it pays on day 45 ends up being reasonably or unreasonably below the amount that a jury in the quantum meruit action will fix on day 200 as being the "reasonable and customary value" of the services rendered. Health plans trying to avoid negligence liability for this tort would have every incentive to pay more just to be safe, which would drive up the cost of health care to the public—a result, as noted above, that is at odds with one of the Knox-Keene Act's purposes. A health plan would be liable for the intentional tort if it intended to pay less than the amount that a jury at some point in the future fixes as being the "reasonable and customary value" of the services rendered. But health plans do not accidentally select the amount of reimbursement they remit to a hospital or other medical provider; the payment amount is always intentionally selected. As a result, the only way to avoid liability for such an intentional tort is to err on the side of paying too much—which will also drive up the cost of health care, and thus is also at odds with one of the Knox-Keene Act's purposes.
Third, recognizing a legal duty—and, on the basis of that duty, an intentional tort—not to underreimburse a hospital the "reasonable and customary value" of emergency medical services would create a powerful incentive for a hospital or other medical provider to bring such a tort claim in every case. By statute, punitive damages are available whenever a tortfeasor is "guilty of oppression, fraud, or malice" ( Civ. Code, § 3294, subd. (a) ), and this finding turns on the tortfeasor's alleged motive ( Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 516, 28 Cal.Rptr.2d 475, 869 P.2d 454 ). The hospitals in this case assert that Kaiser is deserving of punitive damages because it intentionally underpaid them with the alleged bad motive of trying to save money and turn a profit. Given that health plans’ payments are always intentional and that health plans always act to varying extents with a profit motive, health plans would be potentially liable for punitive damages in every case. And given that punitive damages can be imposed up to a constitutional maximum of 10 times the amount of the underpayment (see Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182, 29 Cal.Rptr.3d 379, 113 P.3d 63 ( Simon ) ["ratios between the punitive damages award and the plaintiff's actual or compensatory damages significantly greater than 9 or 10 to 1 are suspect"]), hospitals and other medical providers would have every reason to bring an intentional tort claim in every case in the hopes of convincing a jury to award them up to 11 times the amount of underpayment. Where, as here, the "imposition of a tort duty of care" is "likely to add an unnecessary and potentially burdensome ... volume of ... litigation," that potentiality counsels strongly against such a duty. ( Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 841, 243 Cal.Rptr.3d 299, 434 P.3d 124 ; Centinela , supra , 1 Cal.5th at pp. 1017-1018, 209 Cal.Rptr.3d 280, 382 P.3d 1116 [same]; Cedars , supra , 18 Cal.4th at p. 15, 74 Cal.Rptr.2d 248, 954 P.2d 511 [discouraging creation of a duty when "[a] separate tort remedy would be subject to abuse"]; see Harris , supra , 14 Cal.App.4th at p. 81, 17 Cal.Rptr.2d 649 [discouraging "[p]roposals to extend tort remedies to commercial contracts[, which] create the potential of turning every breach of contract dispute into a punitive damage claim"].) And even if it is desirable to try to draw a line between an ordinary, "healthy" profit motive that does not warrant punitive damages and a truly venal profit motive that does, that line is far too illusory to offset the otherwise powerful incentive to take one's chances by suing for punitive damages. (Accord, Foley , supra , 47 Cal.3d at p. 697, 254 Cal.Rptr. 211, 765 P.2d 373 [refusing to create a tort when "it would be difficult if not impossible to formulate a rule that would assure that only ‘deserving’ cases give rise to tort relief"].)
The hospitals and their amici respond with what boil down to two arguments.
First, the hospitals argue that Kaiser is already under a tort duty not to violate the Knox-Keene Act's provisions because Centinela , supra , 1 Cal.5th 994, 1 Cal.5th 994, 382 P.3d 1116, previously recognized a negligence-based tort grounded in the Knox-Keene Act, and because a negligent violation of this duty must necessarily be subsumed within an intentional violation of the same duty. This argument rests on an incorrect and overgeneralized reading of Centinela . Centinela held that a health plan has a legal duty, enforceable in a tort claim, (1) not to negligently "delegate its financial responsibility" to reimburse hospitals and other medical providers under the Knox-Keene Act to other entities known as risk-bearing organizations if the plan knows or should know that its delegate "would not be able to pay" the reimbursements, and (2) not to negligently "continu[e] or renew[ ] a delegation contract" with its delegate "when it knows or should know that there can be no reasonable expectation that its delegate will be able to" pay reimbursements. ( Centinela , at pp. 1002, 1017-1022, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ; T.H. , supra , 4 Cal.5th at p. 189, 226 Cal.Rptr.3d 336, 407 P.3d 18.) Because a health plan's act of delegation absolves the plan of any further liability under the Knox-Keene Act ( Centinela , at pp. 1010, 1014, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ), the legal duty recognized in Centinela operated to fill a gap in the provisions of the Knox-Keene Act that would have otherwise allowed health plans to make reckless—and hence "morally blameworthy"—delegations of the duty to pay and thereby to leave hospitals and other medical providers "without any reasonable prospect of payment" despite their statutory entitlement to such remuneration. ( Id. at p. 1017, 209 Cal.Rptr.3d 280, 382 P.3d 1116.) Contrary to what the hospitals suggest, Centinela did not purport to create a free-floating tort duty attaching to every provision of the Knox-Keene Act, including those where there is no gap, such as in the context of this case, where the hospitals and other medical providers already have the right to sue for quantum meruit to recover any underpayment. Second, amici seem to suggest that a tort remedy is warranted because the existing quantum meruit remedy is inadequate. Specifically, they urge that the quantum meruit remedy inevitably undervalues emergency medical services because "reasonable and customary value" is keyed to the market value for those services and the market includes contractually agreed-upon rates, yet those contract-based rates are lower because hospitals and other providers are willing to offer discounts in exchange for benefits like being able to market and cross-sell their full range of medical services to the health plans’ enrollees. A market value that does not add a premium to account for the absence of the benefits of a contract, amici continue, is inadequate and creates a disincentive for health plans to form contracts in order to get lower rates. We disagree. The quantum meruit remedy by definition looks to the reasonable, market-based value of the services provided: That value is calculated by looking at the "full range of fees" charged and accepted in the market (e.g., Sanjiv Goel, M.D., Inc. v. Regal Medical Group, Inc. (2017) 11 Cal.App.5th 1054, 1060, 1062, 217 Cal.Rptr.3d 908 (Goel )), and thus encompasses the lower rates grounded in contracts as well as the higher rates charged and accepted where no contract exists. As a result, the quantum meruit remedy is not inadequate simply because it does not require the trier of fact to add a premium across the board . More to the point, creating a tort remedy with the extensive drawbacks outlined above in order to fine-tune the complex market for health care services is, in any event, a bit like swatting a fly with Thor's hammer. Such fine-tuning is better left to our Legislature. ( Foley , supra , 47 Cal.3d at p. 694, 254 Cal.Rptr. 211, 765 P.2d 373 ["Significant policy judgments affecting social policies and commercial relationships" that "ha[ve] the potential to alter profoundly ... the cost of products and services ... is better suited for legislative decisionmaking"].)
Because we conclude that there is no legal duty not to negligently or intentionally underreimburse a hospital or other medical provider, the trial court properly dismissed the hospitals’ intentional tort claim based on that duty's nonexistence.
B. Unfair competition law
"As its name suggests, California's unfair competition law bars ‘unfair competition’ and defines the term as a ‘business act or practice’ that is (1) ‘fraudulent,’ (2) ‘unlawful’, or (3) ‘unfair.’ " ( Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1135, 258 Cal.Rptr.3d 270 ( Shaeffer ), quoting Bus. & Prof. Code, § 17200 ; see Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527.) "Each is its own independent ground for liability under the unfair competition law." ( Shaeffer , at p. 1135, 258 Cal.Rptr.3d 270 ; Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1196, 151 Cal.Rptr.3d 827, 292 P.3d 871 ( Aryeh ) [noting independent "prong[s]"].)
Because a plaintiff states a claim under the unlawful prong of the unfair competition law by showing that the challenged practice violates a California "statute or regulation" ( Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1265, 248 Cal.Rptr.3d 61 ( Gutierrez ); Aryeh , supra , 55 Cal.4th at p. 1196, 151 Cal.Rptr.3d 827, 292 P.3d 871 ), a plaintiff may as a general matter state a claim under the unfair competition law for a violation of the Knox-Keene Act. (See Bell , supra , 131 Cal.App.4th at pp. 217, fn. 6, 221 & fn. 9, 31 Cal.Rptr.3d 688 [unfair competition claim based on failure to reimburse under section 1371.4 viable]; Coast Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal.App.4th 693, 699, 704-706, 129 Cal.Rptr.2d 650 [same]; California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1134, 4 Cal.Rptr.3d 583 [same], disapproved on another ground in Centinela , supra , 1 Cal.5th 994, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ; Northbay Healthcare Group - Hospital Div. v. Blue Shield of California Life & Health Insurance (N.D.Cal. 2018) 342 F.Supp.3d 980, 986-987 ( Northbay ) [same]; see generally California Medical Assn., Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 169, 114 Cal.Rptr.2d 109 [unfair competition claims based on "acts made unlawful by Knox-Keene" Act viable]; Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237, 1250-1251, 102 Cal.Rptr.3d 615 [same]; cf. Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, 1297-1299, 22 Cal.Rptr.2d 20 [prior to enactment of section 1371.4, Knox-Keene Act did not require reimbursement, such that the failure to reimburse was "lawful on its face" and hence not actionable under unfair competition law); Regents of the Univ. of California v. Global Excel Mgmt. (C.D.Cal. Jan. 10, 2018, No. SA CV 16-0714-DOC (Ex)) 2018 WL 5794508, pp. *21-22, 2018 U.S.Dist. Lexis 89413, p. *62 ( Regents ) [entering judgment declining relief under unfair competition law due to lack of proof].)
The unfair competition law affords two types of relief—namely, restitution and injunctive relief. ( Bus. & Prof. Code, § 17203 ; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950, 119 Cal.Rptr.2d 296, 45 P.3d 243.) Of the two, injunctive relief is the " ‘primary form of relief.’ " ( Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 337, 120 Cal.Rptr.3d 741, 246 P.3d 877 ). Relief does not , however, include damages , whether they be consequential or punitive. ( Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1148, 131 Cal.Rptr.2d 29, 63 P.3d 937 ; Inline, Inc. v. Apace Moving Systems, Inc. (2005) 125 Cal.App.4th 895, 904, 23 Cal.Rptr.3d 216.)
As applied to a violation of the Knox-Keene Act's requirement for reimbursement of emergency medical services, the restitution available under the unfair competition law would be entirely duplicative. The hospitals may certainly seek restitution for Kaiser's violation of its Knox-Keene Act duty to reimburse them for the "reasonable and customary value" of the emergency medical services they provided to Kaiser enrollees, but that restitutionary award is indistinguishable from the award they would receive through their quantum meruit claim. ( Hartford Casualty Ins. Co. v. J.R. Marketing, L.L.C. (2015) 61 Cal.4th 988, 996, 190 Cal.Rptr.3d 599, 353 P.3d 319 [quantum meruit allows for "restitution"].)
What is more, the injunctive relief the hospitals seek—that is, an order enjoining Kaiser from violating the Knox-Keene Act by underpaying for emergency medical services in the future—is legally unavailable. To the extent it requires Kaiser more specifically not to underpay reimbursement when its enrollees receive emergency medical services in every future instance, it is difficult to see how Kaiser could comply: It is impossible for Kaiser to definitively know the "reasonable and customary value" of emergency medical services until a jury fixes that value, but Kaiser is statutorily obligated to pay some reimbursement amount within 30 or 45 days of rendering those services. If Kaiser incorrectly estimates the "reasonable and customary" value and underpays, it will have violated the injunction and will ostensibly be subject to contempt penalties. To us, such an injunction would be " ‘so vague that [persons] of common intelligence must necessarily guess at its meaning and differ as to its application’ "; as such, it would be invalid and could not form the basis for the "potent weapon" of contempt. ( In re Berry (1968) 68 Cal.2d 137, 156, 65 Cal.Rptr. 273, 436 P.2d 273 ; People v. Uber Technologies, Inc. (2020) 56 Cal.App.5th 266, 316, 270 Cal.Rptr.3d 290 ; see generally People ex rel. Gascon v. HomeAdvisor, Inc. (2020) 49 Cal.App.5th 1073, 1082, 263 Cal.Rptr.3d 438 [" ‘An injunction must be sufficiently definite to provide a standard of conduct for those whose activities are to be proscribed ..."].) To the extent it requires Kaiser more generally to "obey the law," such an injunction would be equally invalid. ( City of Redlands v. County of San Bernardino (2002) 96 Cal.App.4th 398, 416, 117 Cal.Rptr.2d 582 ["a court may not issue a broad injunction to simply obey the law ..."]; Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 752, 53 Cal.Rptr.3d 203 [same].)
Thus, the trial court properly dismissed the hospitals’ unfair competition claim to the extent it sought injunctive relief but erred in dismissing that claim to the extent it sought restitution. The latter error was harmless, however, given that the hospitals were able to effectively pursue restitution as part of their quantum meruit claim. (Cf. Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 352, 100 Cal.Rptr.2d 352, 8 P.3d 1089 [where cause of action is duplicative of another cause of action in the complaint, it is "superfluous" and subject to summary adjudication].)
In light of this conclusion, we have no occasion to consider whether injunctive relief is also barred by the doctrine of judicial abstention. (E.g., Alvarado v. Selma Convalescent Hospital (2007) 153 Cal.App.4th 1292, 1297-1298, 64 Cal.Rptr.3d 250 ; Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 150, 189 Cal.Rptr.3d 31.)
III. Propriety of the Jury Instruction Defining "Reasonable and Customary Value"
The hospitals and their amici level two different complaints at the trial court's jury instruction defining "reasonable and customary value." We independently examine instructional issues. ( People v. Scully (2021) 11 Cal.5th 542, 592, 278 Cal.Rptr.3d 792, 486 P.3d 1029.)
A. Pertinent facts
In its initial instructions given prior to the presentation of evidence, the trial court instructed the jury that (1) it would be "asked to decide" the "reasonable value" of the emergency medical services the hospitals provided, (2) "reasonable value" is defined as "what a hypothetical buyer would have offered and what a hypothetical seller would have accepted" for those services, (3) in assessing reasonable value, the jury may "consider" (a) "all of the people in the market," and (b) "what" Kaiser and the hospitals "agreed on before" because "these folks are in the market," but that their prior agreements do not "dictate" the "reasonable value."
At the conclusion of trial, the court instructed the jury in pertinent part:
"The measure of recovery in quantum meruit is the reasonable value of the services. Reasonable value is the price that a hypothetical willing buyer would pay a hypothetical willing seller for the services, neither being under compulsion to buy or sell, and both having full knowledge of all pertinent facts. Reasonable value can be described as the ‘going rate’ for those services in the market.
"In determining reasonable value, you should consider the full range of transactions presented to you, but you are not bound by them. You may choose to use the transactions you believe reflect the price that a hypothetical
willing buyer would pay a hypothetical willing seller for the services. On the other hand, you may reject transactions you believe do not reflect the price that a hypothetical
willing buyer would pay a hypothetical willing seller for the services."
(Italics added.)
B. Analysis
The hospitals argue that the trial court erred in telling the jury to determine "reasonable value" by looking at what a "hypothetical willing buyer" would pay a "hypothetical seller" for the services. Amici, by contrast, argue that the trial court erred in not telling the jury to give the parties’ prior agreements greater—if not dispositive—weight in assessing that value. Neither argument has merit.
In Children's Hospital , supra , 226 Cal.App.4th 1260, 172 Cal.Rptr.3d 861, the court held that the "reasonable and customary value" of reimbursement for emergency medical services under the Knox-Keene Act is pegged to the "[r]easonable" or "fair market value" of those services. ( Id. at p. 1274, 172 Cal.Rptr.3d 861.) Children's Hospital went on to define that value as "the price that " ‘a willing buyer would pay to a willing seller, neither being under compulsion to buy or sell, and both having full knowledge of all pertinent facts.’ " [Citation.]" ( Ibid. ) As one would anticipate given the quantum meruit claim at issue, Children's Hospital borrowed its "reasonable market value" standard from the law of quantum meruit. ( Id. at pp. 1274-1275, 172 Cal.Rptr.3d 861.) That law looks to the "reasonable value of [the] services" in the "open market," and explicitly acknowledges that this value may be different than the price fixed by a prior contract between the parties to that case. ( Maglica v. Maglica (1998) 66 Cal.App.4th 442, 450, 78 Cal.Rptr.2d 101 ( Maglica ).) The determination of reasonable value is to account for a "wide variety of evidence." ( Children's Hospital , at p. 1274, 172 Cal.Rptr.3d 861.)
Under this law, the trial court's reference to a "hypothetical buyer" and "hypothetical seller" was entirely appropriate. "Fair market value" is defined in many other contexts as that amount that "hypothetical buyers and sellers" would pay in a "hypothetical transaction." ( South Bay Irrigation Dist. v. California-American Water Co. (1976) 61 Cal.App.3d 944, 976, 133 Cal.Rptr. 166 ; People v. Seals (2017) 14 Cal.App.5th 1210, 1217, 222 Cal.Rptr.3d 589 ; Xerox Corp. v. County of Orange (1977) 66 Cal.App.3d 746, 752-753, 136 Cal.Rptr. 583 ; County of San Diego v. Assessment Appeals Board No. 2 (1983) 140 Cal.App.3d 52, 57, 189 Cal.Rptr. 145 ; People ex rel. Dept. of Transportation v. Clauser/Wells Partnership (2002) 95 Cal.App.4th 1066, 1083, fn. 15, 116 Cal.Rptr.2d 240.) This makes sense. Where, as here, the reimbursement transactions at issue between the hospitals and Kaiser are compelled by the Knox-Keene Act and federal law, and where fair market value by definition looks to a fully consensual transaction, a determination of fair market value is necessarily hypothetical. As a result, and contrary to what the hospitals strenuously urge, the absence of the word "hypothetical" in the definition of "reasonable value" set forth in Children's Hospital is of no consequence.
Not only is it legally appropriate to key "reasonable value" to the price fixed by a willing "hypothetical buyer" and willing "hypothetical seller" in a "hypothetical transaction," but it is affirmatively helpful because it emphasizes another pertinent legal principle—namely, that the parties’ prior actual transactions are not dipositive. ( Maglica , supra , 66 Cal.App.4th at p. 450, 78 Cal.Rptr.2d 101.) For much the same reason, amici's argument that the prior transactions should be accorded extra weight—rather than be treated as one of the colors in the prism of the "wide variety of evidence" relevant to reasonable value—is legally incorrect. (See Children's Hospital , supra , 226 Cal.App.4th at p. 1274, 172 Cal.Rptr.3d 861.) At oral argument, the hospitals articulated a new challenge to the instruction—namely, that the portion of the instruction allowing the jury to "reject transactions you believe do not reflect the price that a hypothetical willing buyer would pay a hypothetical willing seller for the services" improperly empowered the jury to capriciously disregard relevant evidence bearing on the "reasonable and customary value" of the services provided, and thereby undercut the earlier portion of the instruction advising the jury to "consider the full range of transactions presented." We are unpersuaded. The discretion accorded by the jury to reject some transactions does no more than reflect the reality that some market transactions will more closely resemble the transactions at issue in the case before the jury, and some will bear less resemblance, and thus gives the jury the ability to give greater weight to the former and less weight to the latter in fixing what a hypothetical buyer and seller would pay for the specific services at issue in that case.
See footnote *, ante .
DISPOSITION
The judgment is affirmed. The order denying costs is reversed and remanded for the trial court to consider the hospitals’ previously raised objections to specific cost items. Kaiser and Kaiser Foundation Hospitals are entitled to their costs on the appeal and cross-appeal.
We concur:
ASHMANN-GERST, Acting P. J.
CHAVEZ, J.