Family Health Ctrs. of San Diego v. State Dep't of Health Care Servs., C090618

CourtCalifornia Court of Appeals
Writing for the CourtKRAUSE, J.
Citation71 Cal.App.5th 88,285 Cal.Rptr.3d 801
Decision Date07 October 2021
Docket NumberC090618
Parties FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.

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.

285 Cal.Rptr.3d 803
71 Cal.App.5th 91

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, defendant State 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

71 Cal.App.5th 92

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

285 Cal.Rptr.3d 804

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. (See Legacy 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).)

71 Cal.App.5th 93

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 also Community 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

285 Cal.Rptr.3d 805

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);

71 Cal.App.5th 94

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) ; see Three 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...

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3 practice notes
  • Wisner v. Dignity Health, C094051
    • United States
    • California Court of Appeals
    • October 18, 2022
    ...for a court to resolve, not a question for a jury. (Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 97.) Under settled canons of statutory construction, in construing a statute we ascertain the legislative intent to effectuate the law's pu......
  • Wisner v. Dignity Health, C094051
    • United States
    • California Court of Appeals
    • October 18, 2022
    ...for a court to resolve, not a question for a jury. (Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 97.) Under settled canons of statutory construction, in construing a statute we ascertain the legislative intent to effectuate the law's pu......
  • Heldman v. Heldman (In re Heldman), B304072
    • United States
    • California Court of Appeals
    • May 16, 2022
    ...to move to disqualify prosecutor in trial court]; Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 98 ["'"'[I]t is fundamental that a reviewing court will ordinarily not consider claims made for the first time on appeal which could have bee......
3 cases
  • Wisner v. Dignity Health, C094051
    • United States
    • California Court of Appeals
    • October 18, 2022
    ...for a court to resolve, not a question for a jury. (Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 97.) Under settled canons of statutory construction, in construing a statute we ascertain the legislative intent to effectuate the law's pu......
  • Wisner v. Dignity Health, C094051
    • United States
    • California Court of Appeals
    • October 18, 2022
    ...for a court to resolve, not a question for a jury. (Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 97.) Under settled canons of statutory construction, in construing a statute we ascertain the legislative intent to effectuate the law's pu......
  • Heldman v. Heldman (In re Heldman), B304072
    • United States
    • California Court of Appeals
    • May 16, 2022
    ...to move to disqualify prosecutor in trial court]; Family Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 98 ["'"'[I]t is fundamental that a reviewing court will ordinarily not consider claims made for the first time on appeal which could have bee......

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