Family Health Ctrs. of San Diego v. State Dep't of Health Care Servs.

• Decision Date: 07 October 2021
• Docket Number: C090618
• Citation: Family Health Ctrs. of San Diego v. State Dep't of Health Care Servs., 71 Cal.App.5th 88, 285 Cal.Rptr.3d 801 (Cal. App. 2021)
• Parties: FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.
• Court: California Court of Appeals

71 Cal.App.5th 88

285 Cal.Rptr.3d 801

FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant,

v.STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.

C090618

Court of Appeal, Third District, California.

Filed October 7, 2021

Certified for Partial Publication.^*

Murphy, Campbell, Alliston & Quinn, George E. Murphy, Sacramento; Douglas S. Cumming Law Office and Douglas S. Cumming, Folsom, for Plaintiff and Appellant.

Rob Bonta, Attorney General, Matthew Rodriguez, Acting Attorney General, Cheryl L. Feiner, Assistant Attorney General, Gregory D. Brown and Kevin L. Quade, Deputy Attorneys General, for Defendant and Respondent.

KRAUSE, J.

This case concerns the determination of a reasonable reimbursement rate for a federally qualified health center (FQHC) participating in the Medi-Cal program.

As part of a request to receive a higher reimbursement rate, plaintiff Family Health Centers of San Diego (Family Health) submitted a cost report detailing the reimbursable costs incurred by its clinics in providing covered services to Medi-Cal patients.The cost report also identified certain nonallowable costs pertaining to inpatient obstetric (OB) services provided at outside hospitals, subcontracted medical services, and subcontracted homeless services.Because the costs were not allowable Medi-Cal costs, Family Health eliminated them from its cost report.As part of an audit, however, defendantState Department of Health Care Services(the Department) determined the costs should not have been eliminated from the cost report.Instead, the Department reclassified the costs to a nonreimbursable cost center, which had the effect of disallowing a proportionate share of the clinics’ administrative overhead costs.Family Health filed an administrative appeal to dispute the audit adjustments, but, after a formal hearing, its appeal was denied.Family Health then filed a petition for a writ of mandate challenging the administrative decision, which also was denied.

Family Health appeals the trial court's judgment denying its petition.Family Health contends that the Department did not establish a proper basis for reclassifying the costs to a nonreimbursable cost center, and that the decision to reclassify the costs was not supported by substantial evidence.Family Health separately argues that a significant subset of the costs should not have been included in the nonreimbursable cost center because they were not costs at all.We affirm the judgment denying the petition.

BACKGROUND

A.Legal background

The federal Medicaid program is a cooperative federal-state assistance program designed to expand access to medical care for low income persons.( Department of Health Services v. Superior Court(1991)232 Cal.App.3d 776, 778, 283 Cal.Rptr. 546;42 U.S.C. § 1396 et seq. )Through the program, the federal government provides financial assistance to states so that they may reimburse health care providers who furnish necessary medical services to qualified indigent persons.( Robert F. Kennedy Medical Center v. Belshé(1996)13 Cal.4th 748, 751, 55 Cal.Rptr.2d 107, 919 P.2d 721;Three Lower Counties Community Health Services, Inc. v. State of Maryland(4th Cir.2007)498 F.3d 294, 297( Three Lower Counties ).)California participates in the Medicaid program through its California Medical Assistance Program, or "Medi- Cal."(Welf. & Inst. Code, § 14000 et seq.;Robert F. Kennedy Medical Center, supra , 13 Cal.4th at p. 751, 55 Cal.Rptr.2d 107, 919 P.2d 721.)The Department is the state agency responsible for administering California's Medi-Cal program in compliance with the state Medicaid plan and applicable federal and state Medicaid laws and regulations.( Redding Medical Center v. Bontá(1999)75 Cal.App.4th 478, 480, 89 Cal.Rptr.2d 348( Redding );Welf. & Inst. Code, § 14203;Cal. Code Regs., tit. 22, § 50004;42 U.S.C. § 1396a(a)(5);42 C.F.R. §§ 431.1,431.10 (2021).)

Among the services covered under the Medi-Cal program are those provided by FQHC's, community-based health care providers that receive federal grant funding for furnishing primary and specialty care services in medically underserved areas.( Three Lower Counties, supra , 498 F.3d at p. 297;Welf. & Inst. Code, § 14132.100, subd. (a);42 U.S.C. §§ 254b,1396a(a)(15) & (bb),1396d(a)(2)(C) & (l )(2).)The state is required to reimburse FQHC's for their covered Medi-Cal services.( 42 U.S.C. § 1396a(bb).)Thus, FQHC's in California have two potential sources of compensation: federal grants for providing services not covered by Medi-Cal to medically underserved communities, and state reimbursements for providing covered services to qualified Medi-Cal beneficiaries.(SeeLegacy Cmty. Health Servs. v. Smith(5th Cir.2018)881 F.3d 358, 363;Cmty. Health Care Assn. of N.Y. v. Shah(2d Cir.2014)770 F.3d 129, 136;Alameda Health Sys. v. Ctrs. for Medicare & Medicaid Servs.(N.D.Cal.2017)287 F.Supp.3d 896, 902;42 U.S.C. § 254b(k)(3)(F);42 C.F.R. §§ 413.5,413.9(b)(2021).)

The Medi-Cal program uses a prospective "per-visit" rate to reimburse FQHC's for services provided to qualified Medi-Cal beneficiaries.( Welf. & Inst. Code, § 14132.100, subd. (c).)An average "per-visit" rate is determined by dividing the FQHC's total "allowable" costs by the number of patient visits.¹( Three Lower Counties, supra , 498 F.3d at p. 298;42 U.S.C. § 1396a(bb).)The FQHC's reimbursement is then calculated by multiplying the actual number of patient "visits" by the fixed per-visit rate.( Three Lower Counties , at p. 298;Welf. & Inst. Code, § 14132.100, subds. (c) & (g).)

An FQHC's "allowable" costs are determined in accordance with applicable Medicare cost principles, as described in part 413 of title 42 of the Code of Federal Regulations, and as further interpreted by the Centers for Medicare & Medicaid Services Publication 15-1, The Provider Reimbursement Manual (hereafter, the "PRM").( Welf. & Inst. Code, § 14132.100, subds. (e)(1) & (i)(2)(B)(ii);Oroville Hospital v. Department of Health Services(2006)146 Cal.App.4th 468, 472, 52 Cal.Rptr.3d 695;see alsoCommunity Care Foundation v. Thompson(D.D.C.2006)412 F.Supp.2d 18, 22-23[PRM entitled to high degree of deference as interpretations of Medicare regulations].)

Medicare cost principles state that payments to providers must be based on the reasonable cost of covered services related to the care of beneficiaries.( 42 C.F.R. §§ 413.9(a), (b) & (c)(3)(2021);PRM §§ 2100, 2102.1, 2102.2, 2102.3, 2103(rev. 454, 09-12).)Reasonable cost includes all "necessary and proper" costs incurred in rendering services.( 42 C.F.R. §§ 413.5(a),413.9(a), (b) & (c)(3)(2021);PRM § 2100(rev. 454, 09-12).)Necessary and proper costs are those "that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities," and are "usually ... common and accepted occurrences in the field of the provider's activity."( 42 C.F.R. § 413.9(b)(2)(2021);PRM § 2102.2(rev. 454, 09-12).)Reasonable cost takes into account both direct and indirect costs, including, without limitation, administrative overhead.( 42 C.F.R. §§ 413.5(c),413.9(c)(3),413.102,413.134,413.153,413.157 (2021);PRM §§ 2102.2(rev. 454, 09-12), 2150 (rev. 315, 12-84), 2150.2 (rev. 315, 12-84).)

Cost reimbursement principles require providers to maintain and produce cost data, based on financial and statistical records that are current, accurate, and have sufficient detail to determine the costs payable under the program.( 42 C.F.R. §§ 413.20,413.24 (2021);PRM §§ 2300, 2304(rev. 336, 08-86);Redding, supra , 75 Cal.App.4th at p. 481, 89 Cal.Rptr.2d 348.)Standard accounting principles and reporting practices must be followed.( 42 C.F.R. § 413.20(a)(2021).)

It is the intent of the program to reimburse providers for all costs reasonably incurred in treating program beneficiaries—but only those costs.( 42 U.S.C. § 1396a(bb)(2);seeThree Lower Counties, supra , 498 F.3d at p. 298;Chase Brexton Health Services Inc. v. Maryland Dept. of Health & Mental Hygiene(D.Md.Dec. 15, 2006, No. MJG-03-1548)2006 WL 6593814, at *2.)The regulations seek to avoid cost shifting between program beneficiaries and nonbeneficiaries.( 42 C.F.R. §§ 413.5,413.9(b)(1),413.50(b)(2021);PRM § 2102.1(rev. 454, 09-12);Charter Peachford Hospital, Inc. v. Bowen(11th Cir.1986)803 F.2d 1541, 1544.)Thus, after determining what costs are allowable, the regulations require the total allowable costs to be apportioned between program beneficiaries and other patients so that the share borne by the program is based upon the services received by program beneficiaries.( Charter Peachford, supra , 803 F.2d at pp. 1544-1545;Visiting Nurse Assn. v. Thompson(E.D.N.Y.2004)378 F.Supp.2d 75, 81;42 C.F.R. §§ 413.50,413.53 (2021);PRM §§ 2200.1(rev. 406, 08-98), 2202.3 (rev. 245, 01-81).)

In general, cost data must be based on an approved method of cost finding, the process used to determine the total costs of services rendered through the assignment of direct costs and apportionment of indirect costs.( Redding, supra , 75 Cal.App.4th at p. 481, 89 Cal.Rptr.2d 348;42 C.F.R. § 413.24(b)(1)(2021);PRM §§ 2300, 2302.7, 2306, 2307(rev. 336, 08-86).)The federal regulations provide guidance on cost finding methods and principles.( 42 C.F.R. § 413.24(d)(2021).)

In this case, the Department applied the cost finding methodology described in subdivision (d)(7) of part 413.24 of title 42 of the Code of Federal Regulations, which provides, in relevant part: "The costs that a provider incurs to furnish services to free-standing entities with which it is associated are not allowable costs of that provider.Any costs of services furnished to a free-standing entity must be identified and eliminated from the allowable costs of the servicing provider, to prevent ... payment to that provider for those costs.This may be done...