Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC367524, Anthony J. Mohr, Judge. Affirmed.
Blecher & Collins, Maxwell M. Blecher and Courtney A. Palko for Plaintiffs and Appellants.
Sheppard, Mullin, Richter & Hampton, Frank Falzetta, John Landry, Moe Keshavarzi; Charles W. Savage and Betty R. Quarles for Defendant and Respondent.
KRIEGLER, J.
Plaintiffs and appellants Jan E. Henstorf, M.D., James Kayvanfar, M.D., Charles R. Resnick, M.D., Inc., James S. Manion, M.D., Inc., and California Orthopaedic Institute Medical Associates, Inc. (the physicians) appeal from a judgment of dismissal following an order sustaining a demurrer in favor of defendant and respondent State Compensation Insurance Fund. The physicians contend that an agreement between State Fund and Blue Cross of California to offer Blue Cross’s medical provider network to State Fund’s insureds violated the antitrust provisions of the Cartwright Act (Bus. & Prof. Code, § 16720) and constituted unfair competition in violation of the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200, et seq.). We conclude State Fund’s conduct in combining with Blue Cross to form an efficient bargaining unit is expressly exempt from antitrust and unfair competition laws under Business and Professions Code section 16720, Health and Safety Code section 1342.6, and Insurance Code section 10133.6. Therefore, we affirm.
In accordance with the standard of review, we treat the material facts alleged in the operative complaint as true, disregarding conclusions of law or allegations contrary to facts that may be judicially noticed. (LoriRubinstein Physical Therapy, Inc. v. PTPN, Inc. (2007) 148 Cal.App.4th 1130, 1133, fn. 1.)
Physicians incur significantly higher costs to treat workers’ compensation patients. The California Legislature adopted an Official Medical Fee Schedule for workers’ compensation cases that takes the higher costs of treatment into account. In 2004, State Fund issued 51 percent of the workers’ compensation insurance written in California.
The Legislature enacted Labor Code section 4616, effective January 1, 2005, to allow self-insured employers and workers’ compensation insurers to establish medical provider networks to treat work-related injuries. In early 2005, State Fund established a medical provider network of physicians to provide care to the worker’s compensation patients of State Fund’s insureds. State Fund paid the physicians in its network at the rates in the official fee schedule.
Blue Cross offered medical services to commercial patients through a medical provider network under its Prudent Buyer healthcare plan. Blue Cross paid physicians in its Prudent Buyer network at rates lower than the official fee schedule. With the approval of the California Department of Industrial Relations, Blue Cross offered the Prudent Buyer plan as a medical provider network for workers’ compensation cases. Although the Prudent Buyer plan provided care to workers’ compensation patients, all or substantially all of the commercial Prudent Buyer plans exclude coverage for work-related injuries and illnesses.
Blue Cross affiliate Blue Cross Life & Health Insurance Company (BCL&H) developed a business unit known as Workers’ Compensation Managed Care Services to provide care to workers’ compensation patients through a workers’ compensation medical provider network.
In the middle of 2005, in collaboration with Blue Cross, State Fund dissolved its medical provider network and required physicians to contract with Blue Cross’s medical provider network in order to continue providing services to the workers’ compensation patients of State Fund’s insureds.
Blue Cross required physicians who wanted to participate in the Prudent Buyer network or the BCL&H network to participate in both and accept payment at the Prudent Buyer rates.
On November 24, 2006, Blue Cross announced that its physician members could, beginning January 1, 2008, “opt out” of the network for workers’ compensation patients while retaining membership in Blue Cross’s commercial provider network. State Fund now issues 36 percent of the worker’s compensation insurance written in California.
PROCEDURAL BACKGROUND
On March 8, 2007, the physicians filed a complaint on behalf of themselves and a class of similarly situated physicians against State Fund, Blue Cross, and Blue Cross’s parent company Wellpoint Health Networks, Inc. for violation of Business and Professions Code sections 16720 and 17200 et seq. On February 25, 2008, the physicians filed an amended complaint. The physicians contend the agreement between State Fund, Blue Cross, and Blue Cross’s affiliates constitute price fixing in violation of Labor Code section 4614, subdivision (a). In addition, the agreements unreasonably restrained or eliminated competition in the California market for the provision of medical care for workers’ compensation patients in violation of the Cartwright Act. As a result, Blue Cross paid fees to the physicians and other class members for medical services furnished to workers’ compensation patients at artificially depressed and noncompensatory rates. The violation of the Cartwright Act is a fraudulent business practice under the UCL.
The physicians dismissed Wellpoint and Blue Cross from the instant action without prejudice, based on proceedings in another case. State Fund filed a demurrer to the amended complaint on the grounds that the Cartwright Act and the Labor Code expressly allow State Fund to contract for medical services through Blue Cross and reimburse physicians at rates below the official fee schedule. In addition, State Fund’s conduct did not violate antitrust laws under controlling case law. The physicians opposed the demurrer and State Fund filed a reply.
Hearings were held on May 19 and July 31, 2008. The physicians argued that State Fund’s agreement with Blue Cross to cease competition and pay lower rates for medical services was “post-formation” conduct that was not exempt from antitrust laws. The trial court entered an order sustaining the demurrer without leave to amend on September 3, 2008. On September 10, 2008, the trial court entered a judgment of dismissal with prejudice in favor of State Fund. The physicians filed a timely notice of appeal.
DISCUSSION
Standard of Review
“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
Formation of Efficient-Sized Bargaining Unit
The physicians contend that State Fund’s agreement to dissolve its preferred-provider network and rely solely on Blue Cross’s medical provider network was “post-formation conduct” that was not exempt from antitrust regulations. State Fund contends that its conduct constituted the formation of a new group, which is expressly exempt from antitrust regulations. We agree with State Fund.
In 1982, the California Legislature enacted legislation to encourage the creation of PPO plans in order to restrain rising health care costs. (LoriRubinstein Physical Therapy, Inc. v. PTPN, Inc. (2007) 148 Cal.App.4th 1130, 1136 (Rubenstein).) In a PPO plan, a third party payer contracts with medical providers to deliver medical services to insureds at discounted prices. (Ibid.) The insured generally pays more for services from a provider who is not on the panel of preferred providers. (Ibid.)
Recognizing that antitrust laws were a disincentive to the formation of larger, more efficient bargaining groups, the Legislature enacted the “virtually identical” provisions of Business and Professions Code section 16770, Health and Safety Code section 1342.6, and Insurance Code section 10133.6 in 1985. (Rubenstein, supra, 148 Cal.App.4th at p. 1137.) In Business and Professions Code section 16770, subdivision (b), the Legislature declared that “it is in the public interest to enhance the ability of California purchasers, providers, and payers to form efficient-sized bargaining units for the purpose of contracting for the delivery of health care services.” In Health and Safety Code section 1342.6 and Insurance Code section 10133.6, the Legislature similarly declared that “it is in the public interest to promote various types of contracts between public or private payers of health care coverage, and institutional or professional providers of health care services.”
The Legislature found that “individual providers or purchasers, whether institutional, professional, or otherwise, have not proven to be efficient-sized bargaining units for these contracts, and that the formation of groups and combinations of institutional and professional providers and purchasing groups for the purpose of creating efficient-sized contracting units represents a meaningful addition to the health care marketplace.” (Bus. & Prof. Code, § 16770, subd. (d); see also Health & Saf. Code, § 1342.6; Ins. Code, § 10133.6.)
The Legislature stated its intent in Business and Professions Code section 16770.6, subdivision (g), and Health and Safety Code section 1342.6, that “the formation of groups and combinations of providers and purchasing groups for the purpose of creating efficient-sized contracting units be recognized as the creation of a new product within the health care marketplace, and be subject, therefore, only to those antitrust prohibitions applicable to the conduct of other presumptively legitimate enterprises.” Insurance Code section 10133.6 similarly states the Legislature’s intent that “the formation of groups and combinations of purchasers, payers, and institutional and professional providers of health care services for the purpose of creating efficient-sized contracting units” is to be considered a new product in the health care market and “subject, therefore, only to those antitrust prohibitions applicable to the conduct of other presumptively legitimate enterprises.”
“In other words, the groups’ conduct in forming efficient-sized contracting units is exempt from the antitrust laws, although their conduct in negotiating alternative rates of payment is subject to antitrust enforcement. [Citation.]” (Rubenstein, supra, 148 Cal.App.4th at p. 1141, fn. omitted.)
In this case, State Fund and Blue Cross formed a combination of payers to create a more efficient-sized contracting unit to negotiate rates with medical providers. The formation of this combination is expressly exempted from antitrust laws under Insurance Code section 10133.6. The physicians’ reliance on dicta in Rubenstein to argue otherwise is misplaced. The Rubenstein court stated in a footnote that “if two or more groups each formed contracting units and agreed that only one group would negotiate with each insurer, that conduct could be subject to antitrust enforcement.” (Rubenstein, supra, 148 Cal.App.4th at p. 1141, fn. 9.) The Rubenstein hypothetical is subject to two possible interpretations, neither of which is applicable to the instant case. The hypothetical may refer to an agreement between two contracting units that unit A will negotiate exclusively with insurer A and unit B will negotiate solely with insurer B. The other possibility is an agreement between two contracting units that unit A will be the sole negotiator on behalf of units A and B with all insurers. The Rubenstein court simply acknowledged in dicta that a post formation agreement between two or more contracting units could be subject to antitrust enforcement. However, this case does not involve an agreement between two contracting units. State Fund dissolved its contracting unit and formed a new group with Blue Cross. There is only one contracting unit in existence to negotiate rates with medical providers on behalf of the payor group. Formation of a contracting unit is expressly allowed under the law, and nothing prevents payors from combining to form a new, more efficient contracting unit.
In light of our holding that State Fund’s conduct did not violate antitrust laws, and because plaintiffs may not use the general unfair competition law to avoid a safe harbor provision provided by specific legislation, the physicians cannot state a cause of action for violation of the UCL based on the same conduct. (Rubenstein, supra, 148 Cal.App.4th at p. 1142.) The trial court properly sustained the demurrer without leave to amend.
DISPOSITION
The judgment is affirmed. Respondent State Compensation Insurance Fund is awarded its costs on appeal.
We concur: ARMSTRONG, Acting P. J., MOSK, J.