California Law Regarding Balance Billing
Frequently, a health insurance plan (especially an HMO) and a health care provider have negotiated terms for payment for the services which the provider renders for the people insured by that company. By this agreement, the provider promises to accept an established amount for the services rendered. These services are first paid for by any co-pay or deductible that the patient owes under the terms of the plan with the rest paid by the insurance company or other entity that sponsors the plan. As a consequence of this agreement, the provider cannot ask the patient for payment in excess of that established rate for service. Putting this another way, the provider cannot charge a patient for the difference between its "full charge" or "usual rate" and what the plan pays -- a practice which is referred to as "balance billing." Balance billing is also illegal for Medicare and Medicaid beneficiaries.
When a patient seeks care from a provider who does not have an existing relationship with the patient's health plan, or does not follow the plan's rules for using "in network" doctors or for getting a referral from the patient's primary care physician before seeing a specialist, the patient is independently obligated to pay for the care. Sometimes the plan might pay some of the cost (as it were operating under the old fashioned "medical insurance" type system), but there is no promise to pay a going rate to the physician, and the physician has not promised to accept what the insurance company pays under its rate chart. Here, because the patient has decided to operate outside of the rules for his health plan, he does not get the cost protection of the health plan. Payments made by insurance offset but do not satisfy the patient's debt.
What happens when an HMO plan member must obtain medical care in an emergency? The hospital he goes to for service and the doctors on duty there are obligated by law to provide the care needed to stabilize the patient. The HMO is also obligated by law to pay for its members' emergency care. A dilemma arises when the provider and the plan have not already agreed on how payment for services will be handled: how much must the plan pay, and is the provider obligated to accept the amount paid by the HMO as payment in full? Providers claim that plans are setting reimbursement rates unfairly, at sums too low to adequately pay for the services. Plans claim that providers are charging rates that are not fair, that are beyond the usual and customary charges for the location.
The California Supreme Court, in Prospect Medical Group vs. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, ruled that California law requires that the dispute about payment for the out of network provider cannot involve the patient, but is between the provider who must render the care and the plan which is obligated to pay for the care. The provider cannot use balance billing to try to force the plan to pay more by putting economic demands on the patient, and plans cannot pay too little thereby forcing its members to pay the rest of a fair compensation to the provider. As a result, when a plan member in an emergency must get medical treatment from an out of network hospital or physician, his financial obligations are the exact same as they would be under the plan terms for in-network providers. The provider cannot bill the patient but must work out payment with the health plan.