Filed 7/15/14; pub. order 7/31/14 (see end of opn.)




              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                               DIVISION TWO


ORTHOPEDIC SPECIALISTS OF                               B248535
SOUTHERN CALIFORNIA,
                                                        (Los Angeles County
         Plaintiff and Appellant,                       Super. Ct. No. BC486953)

         v.

CALIFORNIA PUBLIC EMPLOYEES’
RETIREMENT SYSTEM,

         Defendant and Respondent.



         APPEAL from a judgment of the Superior Court of Los Angeles County,
William F. Highberger, Judge. Affirmed.


         Law Offices of Gray L. Tysch, Gary L. Tysch; Snyder ♦ Dorenfeld, David K.
Dorenfeld and Michael W. Brown for Plaintiff and Appellant.


         Steptoe & Johnson, Edward Gregory and Jason Levin for Defendant and
Respondent.


                                      _________________________
       Appellant Orthopedic Specialists of Southern California (OSSC) provided
nonemergency medical services to a participant of a health plan covered by defendant
California Public Employees’ Retirement System (CalPERS). OSSC is an out-of-
network medical provider. CalPERS paid OSSC a small portion of the amount charged
for services. OSSC insists that it is entitled to receive its higher customary and usual rate
and seeks the balance of $297.46, plus damages for a putative class. The trial court
sustained CalPERS’s demurrer without leave to amend. Because we agree with the trial
court that there is no contractual or other requirement that CalPERS pay OSSC its usual
and customary rate, we affirm the judgment of dismissal.
                  FACTUAL AND PROCEDURAL BACKGROUND
CalPERS, the PERS Choice Health Plan, the Evidence of Coverage
       CalPERS is a unit of the Government Operations Agency. (Gov. Code, § 20002.)
In addition to administering the retirement system for employees of California and other
public entities, CalPERS operates health insurance plans, including the PERS Choice
health plan. It does so through contracts with third party administrators, including
Anthem Blue Cross (Anthem). (Mintz v. Blue Cross of California (2009) 172
Cal.App.4th 1594, 1598–1599.) A separate contract—the Evidence of Coverage
(EOC)—exists between CalPERS and individual health plan members, and governs a
health plan’s obligations to its members and their dependents. (Id. at p. 1603; see also
Watanabe v. California Physicians’ Service (2008) 169 Cal.App.4th 56, 67.) The EOC’s
contents are regulated by the Department of Managed Health Care. (Cal. Code Regs.,
tit. 28, § 1300.63.1.)
Allegations of the First Amended Complaint (FAC)
       In August 2011, OSSC, an out-of-network provider, provided nonemergency
medical services to a member of the PERS Choice health plan, who had signed an
Assignment of Benefits allowing OSSC to be paid directly by CalPERS. Before treating
the member, OSSC contacted CalPERS, through Anthem, and was informed that the
member was “insured, covered and eligible,” and that OSSC “would be paid” for
performance of services. OSSC “was led to believe that it would be paid either its total

                                              2
billed charges or the usual, customary and reasonable value of its total charges.”
CalPERS ultimately paid OSSC an amount “far below [its] billed charges.”
       The Government Claims Form, attached to the FAC, shows that OSSC determined
that $390 was the usual, customary and reasonable rate for the services it provided. But
OSSC charged CalPERS $650, of which CalPERS paid $92.54. OSSC seeks the balance
of $297.46 ($390 minus $92.54).
       The class allegations of the FAC state that OSSC is seeking damages on behalf of
a class of about 5,000 other out-of-network service providers to PERS Choice members
who received less than “the usual, customary or reasonable rates for the services they
provided.”
       The FAC alleges nine causes of action for (1) “recovery of payment for services
rendered,” (2) open book account, (3) quantum meruit, (4) breach of implied-in-fact
contract, (5) declaratory relief, (6) breach of oral contract, (7) “estoppel,” (8) statutory
violations, and (9) negligence per se.
The PERS Choice EOC
       The PERS Choice EOC attached to the FAC provides that covered services
provided by an out-of-network or nonpreferred provider are paid at 60 percent of the
“Allowable Amount,” and the EOC repeatedly states that plan members are responsible
for the remaining 40 percent and for all charges in excess of the Allowable Amount, plus
all charges for noncovered services. The Allowable Amount is defined as the lesser of:
       “1. the amount that Anthem Blue Cross or the local Blue Cross and/or Blue Shield
Plan has determined is an appropriate payment for the service(s) rendered in the
provider’s geographic area, based on such factors as the Plan’s evaluation of the value of
the service(s) relative to the value of other services, market considerations, and provider
charge patterns; or
       “2. such other amount as the Preferred Provider and Anthem Blue Cross or the
local Blue Cross and/or Blue Shield Plan have agreed will be accepted as payment for the
service(s) rendered; or



                                               3
       “3. if an amount is not determined as described in either (1) or (2) above, the
amount that Anthem Blue Cross or the local Blue Cross and/or Blue Shield Plan
determines is appropriate considering the particular circumstances and the services
rendered.”
The Demurrer and Ruling
       CalPERS filed a demurrer to the FAC, arguing that the express contractual
provisions of the EOC did not obligate it to pay an out-of-network provider the provider’s
usual and customary rates. The trial court agreed and sustained the demurrer without
leave to amend. The court found that each cause of action failed because it conflicted
with the EOC, that OSSC’s implied and equitable contract theories could not be asserted
against a government agency, and that the action was not amenable to class treatment.
The court entered a judgment of dismissal and this appeal followed.
                                       DISCUSSION
I. Standard of Review
       “A demurrer tests the legal sufficiency of the complaint; we review the complaint
de novo to determine whether it alleges facts sufficient to state a cause of action. For
purposes of review, we accept as true all material facts alleged in the complaint, but not
contentions, deductions or conclusions of fact or law. [Citation.] If facts in exhibits
attached to the complaint contradict the facts alleged, the facts in the exhibits take
precedence. [Citation.]” (Mintz v. Blue Cross of California, supra, 172 Cal.App.4th at
p. 1603.)
II. The Demurrer Was Properly Sustained Without Leave to Amend
       OSSC acknowledges that the issue of payment for nonemergency services
provided by out-of-network providers is governed by the EOC. (Cal. Code Regs., tit. 28,
§ 1300.71(a)(3)(C) [“For non-emergency services provided by non-contracted providers
to PPO and POS enrollee’s: the amount set forth in the enrollee’s Evidence of
Coverage”].) The EOC clearly states that an out-of-network provider will be paid 60
percent of the Allowable Amount, which is broadly defined as the amount Anthem “has
determined is an appropriate payment” for the services rendered.

                                              4
       OSSC does not focus on this provision; rather, OSSC takes the position that the
EOC should require payment of the usual, customary and reasonable rate charged by an
out-of-network provider for nonemergency services. OSSC asserts that if this is not the
case, then Anthem can essentially pay a provider whatever amount it deems appropriate
and the provider is left without any recourse. There are two responses.
       First, it is correct that the EOC allows Anthem itself to determine what is an
appropriate amount to pay an out-of-network provider for nonemergency services. But
just because OSSC believes that the EOC’s provisions are unfair does not mean the
provisions can be ignored or that they are unenforceable. The contract says what it says.
And for good reason. When a PERS Choice member (i.e., the patient) seeks treatment
with an in-network provider, CalPERS can better control healthcare costs because the
parties have agreed in advance upon the price and CalPERS can use the resulting savings
to provide better or lower-cost coverage. Thus, CalPERS deliberately discourages
members from going out of network by paying lower reimbursement rates and holding
the member responsible for the unpaid balance.
       Second, an out-of-network provider is not left without any recourse. The EOC
makes clear that the PERS Choice member is responsible for the remaining 40 percent
not paid by CalPERS and for any other charges billed by the out-of-network provider.
Moreover, the EOC allows the out-of-network provider and the patient to contact Anthem
prior to the rendition of any medical services for a determination of the exact amount that
will be paid for the services. This allows the provider and the patient to determine
whether it makes economic sense for the patient to find an in-network or preferred
provider, whose charges are paid at a higher contracted rate and for which the patient is
not responsible.
       In its briefs, OSSC relies on two cases, which do not assist it. In both Prospect
Medical Group, Inc. v. Northridge Emergency Medical (2009) 45 Cal.4th 497 and Bell v.
Blue Cross of California (2005) 131 Cal.App.4th 211, the courts held that out-of-network
emergency room physicians could assert claims directly against health care service plans
for payments the physicians deemed too low, because such physicians are required by

                                             5
law to render services to all emergency room patients without regard to the patient’s
insurance status or ability to pay (Health & Saf. Code, § 1317). While OSSC
acknowledges that these cases only apply to emergency room physicians, it argues that
“the logic and reasoning are the same here.” Not true. Unlike emergency room
physicians, who must treat all patients seeking emergency care, OSSC is free to pick and
choose its patients and focus on those with the greatest ability to pay its charges. OSSC
can also find out, in advance of treatment, how much it will be reimbursed by CalPERS
and how much it must recover from the patient. Emergency room physicians have none
of these advantages.
       At oral argument, OSSC relied on two additional cases, which, again, are not
helpful to its position. In Children’s Hospital Central California v. Blue Cross of
California (2014) 226 Cal.App.4th 1260, it was undisputed that Blue Cross owed the out-
of-network hospital its reasonable and customary rates for poststabilization emergency
medical services during the time the parties did not have a written contract. The rates
were owed pursuant to Code of Regulations, title 28, section 1300.71, subdivision
(a)(3)(B), because the patients were enrolled in a Medi-Cal HMO, and the opinion mostly
centered on the parties’ dispute as to how to calculate the appropriate amount. Here, by
contrast, the patients at issue were members of PERS Choice, a PPO, and therefore Code
of Regulations, title 28, section 1300.71, subdivision (a)(3)(C), not subdivision (a)(3)(B),
would apply. OSSC also cited Consumer Watchdog v. Department of Managed Health
Care (2014) 225 Cal.App.4th 862 for the proposition that the Knox-Keene Health Care
Service Plan Act of 1975 (Health & Saf. Code, § 1340 et seq.) would apply to CalPERS.
While CalPERS disputes this, CalPERS assumed that the Act applied for purposes of
bringing its demurrer, thus making this point irrelevant.
       OSSC further argues that, notwithstanding the EOC, an implied oral promise
existed between OSSC and CalPERS, because CalPERS (through Anthem) authorized
treatment and stated that OSSC “would be paid” for the treatment. While we disagree
that an oral promise was created under the circumstances here, we need not reach the
issue because, as the trial court correctly noted, an oral promise cannot be enforced

                                             6
against a government agency, like CalPERS. (Gov. Code, § 815, subd. (a); Janis v.
California State Lottery Com. (1998) 68 Cal.App.4th 824, 830 [“It is settled that ‘a
private party cannot sue a public entity on an implied-in-law or quasi-contract theory,
because such a theory is based on quantum meruit or restitution considerations which are
outweighed by the need to protect and limit a public entity’s contractual obligations’”];
Katsura v. City of San Buenaventura (2007) 155 Cal.App.4th 104, 109–110.)
                                     DISPOSITION
       The judgment of dismissal is affirmed. CalPERS is entitled to recover its costs on
appeal.




                                   _____________________________, Acting P. J.
                                         ASHMANN-GERST


We concur:



______________________________, J.
           CHAVEZ



______________________________, J.*
           FERNS




*       Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

                                             7
Filed 7/31/14
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                     DIVISION TWO


ORTHOPEDIC SPECIALISTS OF                          B248535
SOUTHERN CALIFORNIA,
                                                   (Los Angeles County
        Plaintiff and Appellant,                   Super. Ct. No. BC486953)

        v.                                         ORDER CERTIFYING OPINION
                                                   FOR PUBLICATION
CALIFORNIA PUBLIC EMPLOYEES’
RETIREMENT SYSTEM,

        Defendant and Respondent.




THE COURT:*

        The opinion in the above-entitled matter filed on July 15, 2014, was not certified
for publication in the Official Reports.
        For good cause it now appears that the opinion should be published in the Official
Reports and it is so ordered.




*       ASHMANN-GERST, Acting P. J. and FERNS, J.†
†       Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
