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

• Decision Date: 06 July 2021
• Docket Number: C089555
• Citation: 282 Cal.Rptr.3d 116,67 Cal.App.5th 356
• 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 Court of Appeals

67 Cal.App.5th 356

282 Cal.Rptr.3d 116

FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant,

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

C089555

Court of Appeal, Third District, California.

Filed July 6, 2021

As Modified on Denial of Rehearing July 27, 2021

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

Xavier Becerra and Rob Bonta, Attorneys General, Cheryl L. Feiner, Assistant Attorney General, Niromi W. Pfeiffer, Gregory D. Brown, Marianne A. Pansa, and Kevin L. Quade, Deputy Attorneys General, for Defendant and Respondent.

KRAUSE, J.

Plaintiff Family Health Centers of San Diego operates a federally qualified health center (FQHC) that provides various medical services to its patients, some of whom are Medi-Cal beneficiaries. Under section 330 of the Public Health Service Act ( 42 U.S.C. § 201 et seq. ), FQHC's like plaintiff also may provide additional health services, including (1) services designed to assist patients in establishing eligibility for and gaining access to federal and state assistance programs (such as Medi-Cal), (2) services that enable individuals to use the health center's services (including outreach, transportation, and interpreter services), and (3) education regarding the availability and proper use of health services. ( 42 U.S.C. §§ 254b(b)(1)(A)(iii)-(v).)

Section 330 of the Public Health Service Act authorizes grants to be made to FQHC's. ( 42 U.S.C. §§ 254b, 1395x(aa)(4).) In addition, FQHC's may seek reimbursement under Medi-Cal for certain expenses, including reasonable costs directly or indirectly related to patient care. Plaintiff appeals from the trial court's order denying its petition for writ of mandate seeking to compel the State Department of Health Care Services (DHCS) to reimburse plaintiff for money it expended for outreach services.

We reject plaintiff's contention that the trial court and the DHCS improperly construed and applied applicable guidelines in the Centers for Medicare & Medicaid Services Publication 15-1, The Provider Reimbursement Manual (PRM). We conclude that the monies spent by plaintiff were not an allowable cost because they were akin to advertising to increase patient utilization of plaintiff's services. We therefore will affirm the trial court's denial of the petition for writ of mandate.

BACKGROUND

1. Statutory background

The federal government provides financial assistance to states in order to provide medical care to low-income individuals through the Medicaid program. ( 42 U.S.C. § 1396 et seq. ) California has implemented the program through Medi- Cal. (Welf. & Inst. Code, § 14000 et seq. ; Robert F. Kennedy Medical Center v. Belshe (1996) 13 Cal.4th 748, 751, 55 Cal.Rptr.2d 107, 919 P.2d 721 ( Kennedy ).) The DHCS is the state agency designated to administer the Medi-Cal program. ( Welf. & Inst. Code, § 14203.)

"Pursuant to Medi-Cal, participating health care providers, such as hospitals, receive reimbursement directly from the [DHCS] for providing medical care to Medi-Cal beneficiaries." ( Simi Valley Adventist Hospital v. Bontà (2000) 81 Cal.App.4th 346, 348, 96 Cal.Rptr.2d 633.) Providers are reimbursed for their allowable costs, as determined under Medicare/Medicaid standards and principles of reimbursement set forth in the Code of Federal Regulations and the PRM. ( Oroville Hospital v. Department of Health Services (2006) 146 Cal.App.4th 468, 472, 52 Cal.Rptr.3d 695 ; see also Cal. Code Regs., tit. 22, § 51536, subds. (a)(2) & (b)(4) ; see also PRM; Community Care Foundation v. Thompson (2006) 412 F.Supp.2d 18, 22-23 [PRM provisions are interpretations of the Medicare regulations].) In general, to be reimbursable, claimed costs "must be based on the reasonable cost of [covered] services" and "related to the care of beneficiaries." ( 42 C.F.R. § 413.9(a) (2021) ; see also PRM § 2100 (rev. 454, 09-12) ["All payments to providers of services must be based on the reasonable cost of services covered under title XVIII of the Act and related to the care of beneficiaries"].) These federal regulations are incorporated into state law and apply to Medi-Cal providers such as plaintiff. ( Welf. & Inst. Code, § 14132.100, subds. (e)(1) & (i)(2)(B)(ii).)

Under the federal regulations, "[r]easonable cost includes all necessary and proper expenses incurred in furnishing services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, if the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services (that is, those items or services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amounts will not be allowable." ( 42 C.F.R. § 413.9(c)(3) (2021).) The regulations define necessary and proper costs as "costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities. They are usually costs that are common and accepted occurrences in the field of the provider's activity." ( 42 C.F.R. § 413.9(b)(2) (2021).)

Advertising costs are allowable if they are "incurred in connection with the provider's public relations activities [and are] primarily concerned with the presentation of a good public image and directly or indirectly related to patient care. Examples are: visiting hours information, conduct of management-employee relations, etc." (PRM § 2136.1 (rev. 267, 09-82).) However, "[c]osts of advertising to the general public which seeks to increase patient utilization of the provider's facilities are not allowable.... While it is the policy of the [relevant federal agencies] to promote the growth and expansion of needed provider facilities, general advertising to promote an increase in the patient utilization of services is not properly related to the care of patients." (PRM § 2136.2 (rev. 267, 09-82).)

"The method by which the [DHCS] reimburses [Medi-Cal providers] is explained in detail in [ Kennedy, supra , 13 Cal.4th 748, 55 Cal.Rptr.2d 107, 919 P.2d 721 ]. Briefly stated, [Medi-Cal providers] receive interim estimated payments of Medi-Cal reimbursement during each fiscal year, with retroactive adjustments occurring at the end of each fiscal year when actual costs are known. ( Cal. Code Regs., tit. 22, § 51536, subds. (c)(2) & (d).) Within four months of the end of each fiscal year, the [provider] submits a cost report based on actual costs. ( 42 C.F.R. § 413.24(f)(2) [ ].) The [DHCS] makes a tentative settlement based on the [provider's] unaudited cost report, making additional payments to the hospital if warranted. Following an audit which must be completed within three years ( Welf. & Inst. Code, § 14170, subd. (a)(1) ), the [DHCS] issues a final audit report and settlement." ( Little Company of Mary Hospital v. Belshé (1997) 53 Cal.App.4th 325, 327, 61 Cal.Rptr.2d 626, fn. omitted.)

"Consistent with [the] statutory authority [set forth in Welfare and Institutions Code section 14171 ], the regulations establish detailed appeal procedures applicable to the audit process, including an appeal from a final audit report. ( Cal. Code Regs., tit. 22, § 51016 et seq. )" ( Kennedy, supra , 13 Cal.4th at p. 758, 55 Cal.Rptr.2d 107, 919 P.2d 721.) A Medi-Cal provider may request a hearing regarding disputed audit findings by submitting a statement of disputed issues to the DHCS. ( Cal. Code Regs., tit. 22, § 51017.)

At the appeal hearing, the DHCS bears the burden of establishing by a preponderance of the evidence that its audit findings were correct. ( Cal. Code Regs., tit. 22, § 51037, subd. (i).) After the DHCS has made a prima facie case, the burden shifts to the provider to demonstrate by a preponderance of the evidence that its position is correct. (Ibid .)

2. Factual background

a. December 2016 audit and appeal

In December 2016, the DHCS audited plaintiff's 2013 cost report and reclassified as nonreimbursable $78,032 in salary and benefit expenses that were for community outreach. The audit report noted (1) there was insufficient documentation demonstrating that the expenses were related to services and supplies incident to an FQHC visit, and (2) the expenses were not a covered benefit under Welfare and Institutions Code section 14132.100. The report further noted the documentation was insufficient under 42 Code of Federal Regulations parts 413.9, 413.20, and 413.24 ; PRM sections 2102, 2300, 2304, and 2328; sections 1395x(s)(2)(A), 1395x(AA)(1)(A)-(1)(C), 1396d(a)(2)(C), and 1396(d)(1)(2) of title 42 of the United States Code ; and State Plan Amendments 09-001 and 09-015.

Plaintiff appealed the DHCS's determination in January 2017. After holding an informal hearing in March 2017, the hearing auditor upheld the adjustment in May 2017. The hearing auditor reasoned that Welfare and Institutions Code section 14132.100 defines the FQHC covered benefits reimbursable under the Medi-Cal program as physician services and services and supplies that meet the definition of being incident to an FQHC visit. The hearing auditor found that plaintiff had failed to demonstrate that its outreach encounters lead to an FQHC visit and a covered benefit under the Welfare and Institutions Code. In June 2017, plaintiff requested a formal hearing.

b. October 2017 hearing

During the October 2017 hearing, Jeff Cates, a health program auditor for the DHCS, testified first. At the time, Cates had worked for over 17 years at the DHCS and had conducted approximately 200 audits. He agreed with the report's conclusion and testified to the accuracy of the basis for reclassification of plaintiff's outreach costs as nonreimbursable. Cates had reviewed plaintiff's salary...