Healthcare Claim Administrator’s Authorization of Services While Failing to Disclose Alcohol-Related Exclusion Supports Action for Fraud

In Tenet Healthsystem Desert v. Blue Cross of California (No. D069057, filed 3/17/16), a California Court of Appeal held that a hospital was not limited to simply collecting on its bills, but could state causes of action against Anthem Blue Cross for negligent misrepresentation, fraud and deceit in suppression of facts, intentional fraud and unfair business practices under Business and Professions Code section 17200, following the denial of coverage for healthcare services provided to an Anthem-Blue Cross (“Anthem”) insured based on an exclusion for injuries sustained as a result of the insured’s driving with a blood alcohol level in excess of the legal limit.

The hospital alleged that the Anthem insured was severely injured in an auto accident. Acting on his insurance identification card, the hospital’s personnel contacted Anthem’s claim administrators for preauthorization of treatment. Among the initial exchange of documents was a report stating that the insured had been brought to the emergency room by ambulance after having been in a motor vehicle accident in which he was an unrestrained driver, and that he had “tested positive for cannabis and a blood alcohol level … of .235.”

After being compelled to amend its complaint to plead fraud with specificity, the hospital filed a 276-page third amended complaint alleging details of communications over 50 days, in which the claim administrator repeatedly authorized services that ultimately totaled $1.99 million. At no point, however, did the administrator mention the exclusion of injuries sustained as a result of driving with an illegal blood alcohol level. When the administrator finally did inform the hospital regarding the exclusion, the hospital was unable to seek reimbursement from Medi-Cal because it was too late, since claims for Medi-Cal had to be submitted within 60 days from the date of service.

Notwithstanding pages of allegations detailing the history of the claim, the trial court sustained Anthem’s demurrer, finding that the complaint did not state causes of action for fraud on a theory that there was no specific allegation of any express misrepresentation by the claim administrator.

The appeals court reversed. The appeals court found that the actions of the claim administrator were binding on Anthem, since the hospital alleged that there was an administrative services contract between Anthem and the administrator for “all communications and direct dealings with providers, such as the hospital, including but not limited to verification of eligibility, benefits and authorization of services; negotiating with providers.”

The appeals court also agreed with the hospital that by virtue of trade usage and custom, the authorization of services constituted an affirmative representation, based on all of the information the health plan had been provided, that the services were covered:

“Given the specificity of these numerous alleged communications, and given the allegation that the provision of an ‘authorization’ has a specific meaning in this context, i.e., that an ‘authorization of services constitutes an affirmative representation that . . . the services are covered,’ Hospital has sufficiently alleged the existence of multiple affirmative misrepresentations that the care that Hospital rendered to Patient X would be covered by his insurance plan.”

The appeals court then cited authority for the proposition that fraud may also arise from conduct that is designed to mislead, and not only from verbal or written statements. That is, “a misrepresentation need not be express, but may be implied by or inferred from the circumstances.” The hospital pointed out that Anthem’s administrators had continued to request information about the treatments that would have been unnecessary had Anthem intended to rely on the exclusion, and that Anthem would have been barred from requesting disclosure of private patient information that was not covered.

The appeals court also said that fraud includes the suppression of facts; i.e., concealment: “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; or (3) the defendant actively conceals discovery from the plaintiff.”

Finally, the court said that because negligent misrepresentation is basically fraud without the element of scienter, the hospital had also sufficiently alleged a claim for negligent misrepresentation as well. Thus, Anthem’s demurrer was overruled and the hospital was permitted to pursue its claims for fraud damages.

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March 22, 2016