In a much anticipated decision, the California Supreme Court held, in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, that billing disputes over emergency medical care must be resolved solely between the emergency department physicians and the HMO; emergency department physicians may not bill the HMO enrollee for any disputed amount. When an emergency physician, who has not contracted with the HMO, provides emergency care to a patient that is enrolled in an HMO, the emergency physician only has recourse against the HMO, and not against the patient. The decision was filed by the California Supreme Court on January 8, 2008.

The case was governed by the Knox-Keene Act, which among other things requires emergency health care providers to provide emergency services without regard to the ability of a patient to pay, and requires HMOs to reimburse emergency health care providers for services provided to the HMO's enrollees, regardless of whether the emergency health care provider contracted with the HMO. A dispute often arises when the emergency physician, who has not contracted with the HMO, bills the HMO at the physician's standard rates for the emergency care provided to a patient enrolled in the HMO. The HMO often takes the position that the charges billed exceed fair market rates and issues payment to the physician for less than the full amount of the billed charges. In order to recover the difference between the amount billed and the amount reimbursed, the emergency physicians then bill the patient for the unpaid balance. This is referred to as "balance billing."

It is interesting to note that in this case, Prospect Medical Group agreed to reimburse the emergency physician for the equivalent of the Medicare allowable rate. The Court's opinion did not address the issue of reasonable reimbursement, and more specifically, whether the Medicare allowable rate should be considered reasonable reimbursement.

The California Supreme Court determined that the Knox-Keene Act evidenced a legislative intent to prohibit balance billing in this context based on the following factors: (1) an intent in the Knox-Keene Act to transfer the financial risk of health care from patients to providers, (2) the statutory requirement that requires emergency care patients to either agree to pay for the services or to supply insurance information, (3) the statutory requirement that HMOs pay doctors for emergency services rendered to their subscribers, (4) the statutory prohibition on balance billing when the HMO, and not the patient, is contractually required to pay, (5) the statutory requirement that HMOs adopt mechanisms to resolve billing disputes between emergency room (i.e., non-contracting) doctors and HMOs, and (6) Bell v. Blue Cross of California (2005), wherein the Court of Appeal interpreted the Knox-Keene Act to permit emergency room physicians to sue the HMO directly for the reasonable value of the emergency services.

During the pendency of this action, the Department of Managed Health Care adopted a regulation that defines balance billing as an unfair billing pattern (Cal. Code Regs., tit. 28, § 1300.71.39). While the Court took note of the regulation, since it did not become effective until after the commencement of litigation in this case, the Court determined it was not dispositive.

The holding in Prospect Medical Group is limited to situations under which an emergency room physician bills a patient for emergency room services when such emergency room physician has recourse against the patient's HMO. The California Supreme Court explicitly expressed no opinion as to situations when no such recourse is available. Additionally, the California Supreme Court did not take a position on either the issue of what is reasonable and fair payment, or how to resolve disputes between the non-contracting physicians and the HMOs.

The effect of this decision will not be limited to emergency department physicians, because other physician specialists, such as radiologists, anesthesiologists, pathologists, trauma surgeons, and others, are frequently called upon to render emergency medical services to HMO patients who present for medical care in a hospital's Emergency Department. Look for the next round of litigation on this topic to involve suits by hospital-based physicians against HMO's seeking "fair market value" reimbursement for their professional services.