Apache Health receives frequent inquiries about California medical billing and whether it is legal to balance bill in full or contrarily to waive patient balances.  As noted in greater detail in some prior articles we have written, facility-based physician groups like for anesthesia billing, radiology billing, hospitalist billing, and ER billing often seek to balance bill a patient in full when they are out of network, however facilities like ASC billing, laboratory billing, and imaging center billing often seek to waive the patient balances in whole or in part when billing out of network.  Following is some information specific to California rules and regulations regarding patient balance billing.

California Attorney General

In one of the earliest influences on California medical billing for balance billing, the California Attorney General in 1981 issued an opinion that stated that the routine waiver of copays was legal. At that time there was no statutory law to state otherwise and no case law.  While this does not hold the weight of statutory law or case law, in the absence of those, this would indicate that the state would not pursue legal action against a provider engaged in this practice.


The California Health and Safety Code Section 1379, also known as the Knox-Keene Act was passed in 1975.  This and predecessor statutes give the California Department of Managed Health Care authority to regulate health plans, not providers.  In summary, this act states that patients don’t owe more than what their contract with their insurer states.  This law will become the foundation for much future case law.  Balance billing was never an issue here and didn’t come up, so it left open the issue of balance billing patients for non-contracted providers.

Prospect v. Northridge

In 2006, the Court of Appeal in Prospect v. Northridge Emergency Medical Group et al. held that Health & Safety Code §1379(b) does not prohibit balance billing in the case of emergency medical services rendered by non-contracted providers. In so holding, the Court of Appeal acknowledged that an implied-in-law contract exists between emergency providers and payors, but held that §1379(b) only applies in the case of “voluntarily negotiated contracts.”

The Prospect court agreed that an implied-in-law contract exists in the emergency context but nonetheless held that balance billing by non-contracted providers is not prohibited in California. The court’s holding was that §1379 (b)’s prohibition on balance billing when the contract between the parties has not been reduced to writing applies only to voluntary or intentional contracts and not to implied contracts.

More significantly, the Prospect court also agreed with the Bell court that non-contracted emergency providers are entitled to be paid the reasonable value of their services under a quantum meruit theory. It is this holding that is likely to prove the most important part of the decision to IPAs in California, because IPAs deal with quantifying the value of non-contracted provider claims every day.

California Governor Executive Order

Later in 2006, Governor Arnold Schwarzenegger signed an executive order S-13-06 in which he directed the California DMHC to “Take all necessary steps to protect Californians from balance billing, including fully enforcing existing regulations and developing new regulations if necessary” and “guards against balance billing”.

California Supreme Court Ruling

In 2009 in the California Supreme Court in Prospect v Northridge Emergency and Prospect v St John’s Emergency, reversed the Appeal Court ruling and held that emergency physicians cannot balance bill a patient that has an HMO, citing the Knox-Keene Act.  While it was generally viewed as “outlawing” balance billing, the case narrowly ruled specifically on HMOs and “emergency doctors”.  In other words, the case determined that if a patient with an HMO plan visited an emergency room and was treated by an emergency physician that was not contracted with their HMO, the emergency doctor could not balance bill the patient if the physician was not satisfied with the reimbursement from the insurer.

This means that it does not regulate non-emergency physicians (e.g. anesthesia billing, radiology billing, hospitalist billing, etc.), nor does it regulate laboratory billing, imaging center billing, ASC billing, etc.  Additionally, the case does not regulate any type of provider (whether emergency physician, hospitalist, anesthesiologist, radiologist, etc.) when billing PPOs.

Notably, this court case also does not regulate whether a facility, for example in ASC billing, can WAIVE the patient balance in full.

Aetna Lawsuit

In 2012 Aetna sued a non-contracted ambulatory surgery center over its billing in California.  In 2016 jurors awarded $37 million to Aetna in a lawsuit against Bay Area Surgical Management for fraud.  One of the key issues in the case was the fact that the ASC billing routinely waived patient balances in an effort to recruit patients.  BASM plans to appeal and it is not clear what if any implications this will have on balance billing in California.

California AB 72

In 2016, bill AB 72 was passed into law in California.  It introduces new restrictions on balance billing by non-contracted physicians.  It will go into effect later in 2017 and 2018.  We will provide more detailed discussion of CA AB 72 in the next article.


While much legal activity has resolved some uncertainty over the last few years, it appears as though there are still some significant areas that have not been resolved via statutes or case law in the venn diagram of type of provider (physician/facility), type of plan (PPO, HMO, etc.), contracted status (out-of-network/contracted), etc.  In order to help you determine what you can and should do for your practice, first engage a top quality healthcare attorney who is knowledgeable in medical billing in California and specifically patient balance billing.  Second, utilize a California medical billing company that can customize processes around patient balance billing to ensure that your goals are accomplished.  A top medical billing company should stay abreast of the ever changing landscape of regulation surrounding California medical billing, including but not limited to patient balance billing.

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Legal disclaimer: Apache Health is engaged in the business of healthcare revenue cycle management analytics.  We offer information about regulations, rules, and industry practices relating to compliance.  Apache has researched that subject and has set forth the results of that research herein.  Apache Health is not a law firm and we do not offer legal advice.  Apache does not guarantee the completeness nor the accuracy of its research.  You should consult with your qualified healthcare attorney.