California Medical Assn. v. Lackner

• Decision Date: 31 March 1981
• Citation: 117 Cal.App.3d 552,172 Cal.Rptr. 815
• Parties: CALIFORNIA MEDICAL ASSOCIATION et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants. Robert J. PRENTICE, M. D., Plaintiff and Respondent, v. DIRECTOR, DEPARTMENT OF HEALTH OF the STATE OF CALIFORNIA, Defendant and Appellant. Z. A. ADROUNY, M. D. et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants. CALIFORNIA DENTAL ASSOCIATION et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants. Civ. 18052.
• Court: California Court of Appeals Court of Appeals

Page 815

172 Cal.Rptr. 815

117 Cal.App.3d 552

CALIFORNIA MEDICAL ASSOCIATION et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants.

Robert J. PRENTICE, M. D., Plaintiff and Respondent, v. DIRECTOR, DEPARTMENT OF HEALTH OF the STATE OF CALIFORNIA, Defendant and Appellant.

Z. A. ADROUNY, M. D. et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants.

CALIFORNIA DENTAL ASSOCIATION et al., Plaintiffs and Respondents, v. Jerome LACKNER, M. D. et al., Defendants and Appellants.

Civ. 18052.

Court of Appeal, Third District, California.

March 31, 1981.

Hearing Denied May 27, 1981.

George Deukmejian, Atty. Gen., Thomas E. Warriner, Asst. Atty. Gen., Charlton G. Holland and John J. Klee, Jr., Deputy Attys. Gen., for defendants and appellants.

Hassard, Bonnington, Rogers & Huber, and David E. Willett and Rick C. Zimmerman, San Francisco, Wilke, Fleury, Hoffelt & Gray, and Thomas G. Redmon, Sacramento, Banker & Linderman and John F. Banker and Jay S. Linderman, Tiburon, Peter E. Sitkin, Berkeley, Davis, Cowell & Bowe, and Geoffrey V. White, San Francisco, for plaintiffs and respondents.

BLEASE, Associate Justice.

At issue in this appeal is the validity of a provision of the Medi-Cal reimbursement statutes (Welf. & Inst. Code, § 14077, eff. Sept. 22, 1976) which mandated the director of the State of California Department of Health Services ¹ (director) to establish a new, uniform schedule for reimbursing physicians and dentists for services rendered to Medi-Cal patients, retroactive to July 1, 1976.

We conclude that the legislation, insofar as it is retroactive, violates article IV, section 17 of the California Constitution, prohibiting payment of extra compensation to contractors for services already rendered, and article I, section 10 of the United States Constitution, prohibiting the impairment of contracts. We reverse the judgment mandating the director to apply his administrative schedules retroactively.

FACTS

On September 22, 1976, Assembly Bill 4242 (1975-1976 Reg. Sess.) was signed into law as urgency legislation. (Stats.1976, ch. 1207, § 2, p. 5494; codified, in relevant part, as Welf. & Inst.Code, §§ 14075-14080.) The legislation, intended to assure Medi-Cal recipients of reasonable access to medical care, required the director of the State Department of Health Services to establish new reimbursement schedules for physicians and dentists providing services to recipients. It provides that the new, generally higher rates are to apply to services performed on or after July 1, 1976 (Welf. & Inst. Code, § 14077, 14078 (physicians); Stats.1976, ch. 1207, § 5 (dentists) (repealed, by its terms, effective January 1, 1978).) ²

The director promulgated such schedules shortly thereafter, but based on his reading of article IV, section 17 of the California Constitution, restricted application of the new rates to services rendered on or after September 22, 1976, the effective date of the legislation. (Cal.Admin. Code, tit. 22, § 51503, former § 51505, filed Nov. 1, 1976, Cal.Admin. Register 76 No. 45.) ³

Various affected providers and professional associations brought suit to compel the director ⁴ to give effect to the retroactive increases called for in the statutes. The superior court granted a peremptory writ of mandate requiring the director to amend the regulations to make the new rates retroactively applicable to services rendered on or after July 1, 1976, and to pay any necessary incremental sums to providers reimbursed for such services under the old schedules. The director appeals.

I

The crux of this case is the legal relationship between the state and Medi-Cal providers. The director contends that the relationship is essentially contractual, that physicians and dentists rendering services under the program are "contractors," and that retroactive application of higher or lower levels of payment to services performed between July 1 and September 22, 1976, would contravene, respectively, article IV, section 17 of the California Constitution, ⁵ prohibiting payment of extra compensation or allowances to state employees or contractors for services already rendered, or article I, section 10 of the United States Constitution, prohibiting legislative impairment of contracts. We agree.

The detailed features of the Medi-Cal program have been described elsewhere. (Morris v. Williams (1967) 67 Cal.2d 733, 63 Cal.Rptr. 689, 433 P.2d 697; California Assn. of Nursing Homes etc., Inc. v. Williams (1970) 4 Cal.App.3d 800, 84 Cal.Rptr. 590.) We examine here the nature of the obligation of the state to reimburse Medi-Cal providers for services rendered to Medi-Cal patients.

Section 14019.3 of the Welfare and Institutions Code provides in part: "Upon presentation of the Medi-Cal card or other proof of eligibility, the provider shall submit a Medi-Cal claim for reimbursement, subject to the rules and regulations of the Medi-Cal program. Payment received from the state in accordance with the Medi-Cal fee structures shall constitute payment in full...."

The director is authorized under Welfare and Institutions Code section 14105 ⁶ to prescribe the rules for payment of Medi-Cal services, within statutory requirements.

The director had promulgated, under the prior law regulations (Cal.Admin. Code, tit. 22, former §§ 51503, 51505) which were in effect during the period July 1 to September 22, 1976. Director contends that the regulations amount to a promise by the state to pay physicians and dentists for services rendered to Medi-Cal patients at the rates set forth therein and that providers accepted the state's offer by obtaining Medi- Cal "provider numbers," necessary for billing purposes. (Cal.Admin. Code, tit. 22, § 51502) and by treating such patients. ⁷ Former regulation section 51505 provided that dentists would be paid their "usual charges" up to the "limits specified in the State Schedule of Maximum Allowances ...." (Cal.Admin. Register 75, No. 32) much as present section 51506(a) provides reimbursement "not exceed(ing) charges made to the general public," subject to listed "maximum reimbursement rates." The new section merely provides higher maximum rates.

Former regulation section 51503 of the Medi-Cal regulations reimbursed physicians their "usual charges made to the general public," up to maximum rates determined by taking into account the individual physician's claim, his usual charges for the same procedure during the preceding six months ("Individual Profile"), charges in his geographical area ("Prevailing Geographic Area Profile"), and the relationship between the local charges and the 1964 California Relative Value Studies, a guide published by the California Medical Association to aid physicians in setting their fees and to provide a useful reference for insurance carriers and government agencies ("Broad Band Profile"). (Cal.Admin. Register 76, No. 10.) This variable maximum rate structure resulted in payment of different amounts of compensation to physicians in different localities and to those whose practices were established in greater or lesser degrees. The present section 51503 establishes a uniform schedule of maximum reimbursement, consistent with the mandate of section 14077 of the Welfare and Institutions Code, with generally higher rates.

In County of San Luis Obispo v. Gage (1903) 139 Cal. 398, 73 P. 174, the Supreme Court considered whether a law providing for payment of specified sums annually toward the maintenance of each orphan, half-orphan, or abandoned child supported by a political subdivision of the state created a contractual relation between the state and the local entity. The court concluded that it did. "(I)t must be conceded upon principle that the obligation here in controversy is an obligation arising upon a contract. The state ... in effect promised to each county in the state that if it should thereafter maintain and support persons of a class mentioned in the act, the state would appropriate and pay to such county the sums of money therein stated. This was the equivalent of an offer upon condition, and upon the performance of the condition by any county the offer became a promise, and binding as such upon the state.... It may be conceded that there may be other obligations arising by operation of law which do not also come within the class of obligations arising from contract; but it must also be admitted that there are obligations which, in a certain sense, arise from the operation of law, and at the same time are in substance and effect contracts. The obligation here in question comes within this latter class. It arises from the operation of the act of 1880. The act itself, coupled with the subsequent performance of the conditions by the respondent, furnishes all the elements which are necessary to the formation and existence of an implied contract." (Id., at pp. 407-408, 73 P. 174.) ⁸ Respondents reply that, in California Assn. of Nursing Homes etc., Inc. v. Williams (1970) 4 Cal.App.3d 800, 84 Cal.Rptr. 590, we rejected a contention that Welfare and Institutions Code section 14105 expressed a statutory offer which could culminate in a contract between the state and an offeree. (Id., at p. 817, 84 Cal.Rptr. 590.) We there invalidated a regulation governing rates of reimbursement of long-term care facilities under the Medi-Cal program because it was improperly promulgated. We rejected the nursing home's claim of a statutory contractual entitlement to retroactive payment of the "reasonable cost" of care.

We said: "A statute fixing government payments may amount to an offer which, when accepted by performance, culminates in a contract between the government and the offeree. (County of San Luis Obispo v. Gage (1903) 139 Cal. 398, 406-407, 73 P. 174.) (P) Sections 14104 and 14105 ... do not express a statutory offer. They fix no scale of payment, but only a standard, i.e., reasonable cost,...