Reported / Citable
Background
Kaiser Foundation Health Plan provides medical services to its members primarily through its own hospitals and clinics, but federal and state law require non-Kaiser hospitals to treat Kaiser members in true emergencies. Kaiser must then reimburse the treating hospital for the emergency services. Pomona Valley Hospital Medical Center, a regional medical center with a trauma center and emergency department, treated thousands of Kaiser members in emergencies under a 2004 reimbursement contract.
In 2017, Kaiser terminated the 2004 contract and began paying Pomona Valley Hospital based on what Kaiser unilaterally determined was the reasonable value of the services. Pomona Valley Hospital believed it was being substantially underpaid and sued in quantum meruit for the unreimbursed reasonable value of emergency services provided from October 2017 through March 2020. The hospital sought roughly $66 million in addition to the approximately $40 million Kaiser had already paid. A jury returned a verdict for the full amount sought.
Kaiser moved for a new trial, arguing that the trial court erred by allowing the jury to consider the rates set by the 2004 contract. The trial court granted the new trial motion on that ground but conditionally allowed the hospital to accept an $8 million remittitur instead of a new trial. Pomona Valley Hospital accepted the remittitur, judgment was entered, and both sides appealed.
The Court’s Holding
The Second District Court of Appeal, Division Two, reversed the new trial order and vacated the amended judgment. The published opinion focuses on two principal issues: the admissibility of the 2004 contract and the proper prejudgment interest rate.
On admissibility, the court held that the trial court properly admitted the 2004 contract at trial. Regulation 1300.71, subdivision (a)(3)(B), of title 28 of the California Code of Regulations sets out a list of factors for valuing emergency services in administrative disputes between health plans and noncontracting providers, and a provision in the 2004 contract excluded its use in those administrative valuations. But the issue at trial was a common-law quantum meruit valuation of services rendered, not the regulatory valuation. The contract’s exclusion provision did not extend to common-law valuations. The 2004 contract reflected what Kaiser and Pomona Valley Hospital had actually agreed was reasonable for the same kinds of services, and that information is highly probative of reasonable value in a quantum meruit case.
The court rejected Kaiser’s remaining contentions about excluded operating-cost evidence and challenged expert testimony. On prejudgment interest, however, the court agreed with Kaiser that the proper rate was 7 percent under Civil Code section 3287, subdivision (b), not 10 percent under section 3289. Section 3289 applies only to actions for breach of contract, and a quantum meruit action, while in the broader category of contract claims, is not an action for breach of an express contract. The court directed the trial court to enter judgment consistent with the jury’s original verdict and the original judgment, but with prejudgment interest at 7 percent.
Key Takeaways
- In a quantum meruit action between a non-contracting hospital and a health plan over emergency reimbursement, the parties’ prior contract rates can be probative of reasonable value and admissible at trial.
- A contractual provision excluding the contract’s use in administrative valuations under Regulation 1300.71 does not necessarily exclude its use in a common-law quantum meruit action.
- Quantum meruit recovery for emergency services is properly determined by the broad reasonable-value framework, not solely by the regulatory factors set out in Regulation 1300.71.
- Quantum meruit actions are not actions for breach of contract for purposes of Civil Code section 3289; the prejudgment interest rate is 7 percent under section 3287, subdivision (b).
- Trial courts should be cautious about granting conditional remittiturs based on supposed evidentiary errors, particularly where the evidence is admissible on a discrete legal theory.
Why It Matters
The decision is significant for hospitals, health plans, and their lawyers across California. With many emergency-services contracts expiring or being renegotiated, this opinion confirms that hospitals can rely in court on the parties’ own historical contract rates as evidence of reasonable value, even when the contract has been terminated. Health plans need to be aware that unilateral payment decisions following contract termination can lead to large quantum meruit verdicts grounded in the very rates the plans previously agreed to.
The prejudgment interest holding is also important. Health-care lawyers preparing quantum meruit cases should compute interest exposure at 7 percent under section 3287, subdivision (b), not 10 percent under section 3289. The opinion follows Carmel Development and resolves any ambiguity left by older cases that addressed only the availability of prejudgment interest, not the rate.