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Out-of-Network Referral Lawsuit Revived in California: CMA vs. Aetna Case Resumes

In a recent development with potentially significant implications for insurers and physicians in California, the state’s highest court has revived a long-standing and high-profile lawsuit. The case, which dates back to 2012, involves a legal battle between the California Medical Association (CMA) and Aetna, one of the largest health insurance providers in the country. The CMA, representing nearly 50,000 physicians, alleges that Aetna engaged in illegal retaliation against doctors who referred their patients to certain out-of-network medical facilities.

Out-of-network providers and clinics accounted for only 4.7% of professional medical claims in 2020, as reported in a federal report released earlier this month. However, such claims are more likely to face denials and result in unexpected medical bills, which has led to the enactment of state and federal laws targeting “surprise billing.”

On July 17, the California Supreme Court unanimously revived the CMA v Aetna case after it had previously been dismissed by a judge and a state appeals court, who questioned the CMA’s standing to sue Aetna. The high court’s ruling clarified that the CMA does have the right to sue on its own behalf, but it refrained from commenting on the merits of the case.

As a result of this ruling, the CMA’s lawsuit is expected to return to Superior Court in Los Angeles County. While the case will not have a direct nationwide impact as it is being heard in state court, the outcome could influence judicial thinking in other jurisdictions.

The lawsuit, filed in 2012, alleges that Aetna’s actions have had a detrimental effect on patient care by mistreating and terminating contract physicians who referred patients to out-of-network ambulatory surgery centers. Aetna’s defense argued that their policy aimed to encourage physicians to use in-network care providers, such as ambulatory surgery centers, to ensure better coordination of care. The insurer claimed that the policy was not intended to interfere with medical judgments but rather to address potential financial conflicts of interest.

In a 2012 letter to the CMA, an Aetna attorney went further, suggesting that some physicians and their business partners were benefitting excessively at the expense of Aetna’s plan members and employers.

Notably, the CMA’s lawsuit has received support from various entities in the form of friend-of-the-court legal briefs. These include the California attorney general, city attorneys from several major California cities, the American Medical Association (AMA), major labor unions, the AIDS Healthcare Foundation, and the consumer advocacy group Consumer Watchdog. On the other side, Aetna has garnered support from the US Chamber of Commerce, the California Association of Health Plans, and the Association of California Life and Health Insurance Companies.

Following the recent ruling reviving the CMA v Aetna case, Aetna, which is now part of CVS Health, has chosen not to provide any comments on the matter.

In contrast, the California Medical Association (CMA) has responded to the ruling through a statement from its president, Dr. Donaldo Hernandez, who is an internist and hospitalist. Dr. Hernandez asserted that the practice of threatening physicians who refer patients to out-of-network providers is illegal, and the CMA is pleased that the court recognizes their right to challenge such practices in a legal setting.

To understand why some insurers might punish doctors for referring patients to healthcare providers outside their approved network, Dr. Jack Hoadley, a research professor emeritus at Georgetown University’s McCourt School of Public Policy, offered some insights. Many health plans do not cover out-of-network care, and those that do, such as PPOs and hybrid plans, often require patients to pay a larger share of the total cost or have a separate or higher deductible. Patients may end up blaming insurers for the higher costs associated with out-of-network care, leading to tensions. Additionally, insurers may be unhappy when physicians refer patients out of network, as they have contractual agreements with these physicians to direct a certain number of patients within the insurer’s network.

Despite the federal No Surprises Act, passed by Congress in 2020 to address surprise medical billing, the relationship between providers and insurers concerning out-of-network fees has not improved significantly. As the effects of the law are still being worked out in the courts, an adversarial relationship persists.

In California, the out-of-network landscape experienced changes three years prior to the federal law. In 2017, the state enacted its own no-surprise-billing law to protect consumers from unexpected medical bills when they receive non-emergency services at an in-network health facility but from an out-of-network provider without their consent. In such cases, patients are only required to pay according to in-network cost-sharing agreements. As a result of this law, a 2019 report from the USC-Brookings Schaeffer Initiative for Health Policy found indications that out-of-network care was decreasing in California, except for emergency situations, potentially due to the state’s legislation.

Given the potential ramifications of this case, it will be closely monitored by both the medical and insurance communities. The court’s decision could have far-reaching effects on how insurers interact with physicians and handle out-of-network referrals in California and potentially influence similar legal matters in other states.


Dr. Oche Otorkpa PG Cert, MPH, PhD

Dr. Oche is a seasoned Public Health specialist who holds a post graduate certificate in Pharmacology and Therapeutics, an MPH, and a PhD both from Texila American University. He is a member of the International Society of Substance Use Professionals and a Fellow of the Royal Society for Public Health in the UK. He authored two books: "The Unseen Terrorist," published by AuthorHouse UK, and "The Night Before I Killed Addiction."
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