In its January 8, 2009, opinion, Prospect Medical Group v. Northridge Emergency Medical Group, the California Supreme Court banned balance billing for emergency services provided by out-of-network physicians to HMO-enrolled patients. The court overturned an appellate decision when it concluded that a "patient who is a member of an HMO may not be injected into the dispute."

The court recognized that the typical HMO model -- where doctors contract to provide care to members for pre-established rates -- fails when patients arrive at an emergency room where the physicians may not have contracted with the patient's HMO. In such situations, doctors are statutorily required to provide the emergency care without consideration of the patient's ability to pay, and HMOs, by statute, are required to pay for the emergency care. However, conflicts can arise regarding how much payment is owed to the provider. As illustrated in the case, patients ensnared in the dispute may find themselves asked to pay the difference between the bills submitted to the insurance company and the amount the insurance companies paid, a practice referred to as "balance-billing."

In interpreting the Knox-Keene Health Care Service Plan of 1975, in light of the statutory framework as a whole, the court decided that "billing disputes over emergency medical care must be resolved solely between the emergency room doctors, who are entitled to reasonable payment for their services, and the HMO, which is obligated to make the payment. . . Emergency room doctors may not bill the patient for the dispute amount." The court recognizes that emergency room doctors are entitled to payment for services, but clarifies that "all we are holding is that this entitlement does not further entitle the doctors to bill patients for any amount in dispute." Shortchanged emergency room physicians in California still may sue HMOs directly over billing disputes.