Hospital v. Bonta

Decision Date29 September 1999
Docket NumberNo. B124368.,B124368.
Citation75 Cal.App.4th 316,89 Cal.Rptr.2d 139
CourtCalifornia Court of Appeals Court of Appeals
PartiesFOUNTAIN VALLEY REGIONAL HOSPITAL AND MEDICAL CENTER, Plaintiff and Appellant, v. Diana BONTA, as Director, etc., Defendant and Respondent.

Hooper, Lundy & Bookman and Patric Hooper, Los Angeles, for Plaintiff and Appellant.

Bill Lockyer, Attorney General, Robert L. Mukai, Chief Assistant Attorney General, Charlton G. Holland, III, Senior Assistant Attorney General, John H. Sanders, Supervising Deputy Attorney General and Karen L. Fried, Deputy Attorney General, for Defendant and Respondent.

CROSKEY, Acting P.J.

Fountain Valley Regional Hospital and Medical Center, a California corporation ("Hospital"), appeals from a judgment which denied its petition for administrative mandamus relief (Code Civ. Proa, § 1094.5). Hospital sued the Director of the California State Department of Health Services ( "the Department") to prevent the Department from assessing Medi-Cal liabilities against Hospital (refunds of money previously paid to Hospital by the State) for fiscal years 1981, 1982 and 1983.1 The liabilities pertain to services previously rendered by Hospital to its Medi-Cal patients. These liabilities are in excess of $470,000, and were not assessed against Hospital until September 1994. Although Hospital admits that the money sought to be reclaimed by the Department consists of "mistaken payments made to [Hospital]," Hospital contends the Department's delay in assessing the liabilities is unreasonable and prejudicial, and therefore the doctrine of laches precludes the assessment.

The trial court ruled that while Hospital may indeed have a just claim of laches against the Department, Hospital would not prevail in this mandamus action because it had not presented evidence, at the administrative hearing which was held to try to resolve this matter, to support its laches claim. The court stated that Hospital had not "cite[d] the court to any portion of the administrative record which presents evidence of unreasonable delay and resulting prejudice. Instead, [Hospital] contended] that it did not have to produce such evidence because both such elements are presumed."

Although the trial court rejected Hospital's contention that the elements of laches are presumed from the facts of this case, we find Hospital's position is well taken. Whether Hospital demonstrated prejudice and unreasonable delay to the administrative law judge is not a controlling issue in this appeal. As discussed below, because Hospital may rely upon a limitations period "borrowed" from an analogous statute of limitations, and because the Department exceeded that period when it issued its 1994 notices claiming entitlement to a refund of money, a presumption arose that the delay in the issuance of those notices was unreasonable, and that Hospital had been prejudiced by that delay. Therefore, the Department has the burden of rebutting that presumption at the administrative hearing. If the Department cannot meet that burden of proof, it cannot recover on its refund claim.

We therefore reverse the judgment and direct the trial court to remand the case for further consideration by the administrative law judge, who shall determine whether the Department met its burden of proof at the administrative hearing.2

1. The Department's System for Reimbursing Hospitals Which Provide Services to Medi-Cal Patients

The Medi-Cal program provides a variety of health care services for its recipients, including inpatient hospital care. Throughout a fiscal year, the Department makes interim Medi-Cal reimbursement payments to a hospital (based on the hospital's historical rate of Medi-Cal reimbursement) so that the hospital has sufficient cash flow to continue to service Medi-Cal patients. Following the close of a hospital's fiscal year, the hospital presents a cost report to the Department which sets forth the actual cost of its Medi-Cal services. After a hospital submits its cost report to the Department, the Department uses the unaudited cost report to make a tentative settlement of money owed the hospital for its Medi-Cal services. If the interim payments made to the hospital appear to be exceeded by the amount which the cost report shows should be reimbursed to the hospital by the Department, the Department will make an additional payment to the hospital. When a final audit report and settlement (which determines the hospital's allowable Medi-Cal costs for services to Medi-Cal patients for the pertinent fiscal year) is made, the Department then determines the hospital's all-inclusive rate per discharge and its peer group limit (Cal.Code Regs., tit. 22, §§ 51536 & 51539), and arrives at a 'final reimbursement settlement" of the Medi-Cal reimbursement amount which was due the hospital for the relevant fiscal year. This sum represents the Department's total reimbursement liability. Thereafter, the hospital itself will be charged with a liability if the Department determines too much money was paid to the hospital, during a fiscal year, as reimbursement for the hospital's services to Medi-Cal patients. (Robert F. Kennedy Medical Center v. Belshé (1996) 13 Cal.4th 748, 753-754, 55 Cal.Rptr.2d 107, 919 P.2d 721 ["Kennedy Medical Center"].)

Absent certain circumstances, section 14170 of the Welfare and Institutions Code (" § 14170") gives the Department three years to audit or review the accuracy of a hospital's cost report data after it is submitted by the hospital, and if this time limit is not met, the cost report data will be considered true and correct. (Kennedy Medical Center, supra, 13 Cal.4th at pp. 750, 760, 55 Cal.Rptr.2d 107, 919 P.2d 721.) However, the Department is not limited by this time constraint in its utilization of the cost report data to ultimately arrive at a final reimbursement settlement amount. (Ibid.)3

2. The Department's Final Reimbursement Settlements in the Instant Case

On January 10, 1985, the Department issued its final reimbursement settlement for Hospital's fiscal year ending October 31, 1981. On August 21, 1985, the Department issued its final reimbursement settlement for Hospital's fiscal year ending October 31, 1982. On October 10, 1989, the Department issued its final reimbursement settlement for Hospital's fiscal year ending October 31, 1983.4

Then, on September 16, 1994, nearly ten years after the issuance of its final reimbursement settlement for Hospital's fiscal year ending October 31, 1981, the Department issued revised final reimbursement settlements for that fiscal year and for fiscal years 1982 and 1983. The Department's stated reason for the revision was that the Department had discovered a calculation error in the final reimbursement settlements for those years. The revised final reimbursement settlements sought to recoup from Hospital a total of $1,265,440 of the reimbursement money the Department had paid to Hospital for those three fiscal years.

Hospital requested an administrative adjustment to the revised final reimbursement settlements, and in a letter to the Department asserted that the delay in producing truly final reimbursement settlements created "an unreasonable burden of proof for the Hospital to justify costs in excess of [its allowable peer group rate]." Moreover, explained Hospital, "[t]he principal firm which previously assisted [Hospital] in these matters has ceased to exist, pertinent documents and files were unavailable at the Hospital, and unobtainable from the State in a timely manner despite repeated requests."

In October 1996 the parties reached an administrative adjustment settlement whereby the Department would recoup $470,571 for the three fiscal years in question unless it was determined, by an administrative hearing, that a statute of limitations or the doctrine of laches prevents the Department from recouping the money. In February 1997 the administrative law judge ("ALJ") issued her proposed decision whereby Hospital would be denied relief. On the issue of laches, the ALJ stated Hospital had failed to show that the Department's revision of the final reimbursement settlements had caused Hospital "injury, surprise, prejudice, or substantial harm." The decision was adopted by the Department in March 1997.

Hospital filed this administrative mandamus action in September 1997. In its petition for relief, Hospital asserted that due in part to the passage of time, it was not able to present evidence to reduce its remaining liabilities below the $470,571 settlement figure. In March 1998, the court signed and filed its judgment in favor of the Department. Thereafter, Hospital filed this appeal.


This appeal raises the following issue. At the administrative hearing, who had the burden of proof on the question as to whether the Department is precluded by the doctrine of laches from assessing Medi-Cal liabilities against Hospital for fiscal years 1981, 1982 and 1983? Putting it in the context of the specific facts before us, was Hospital required to demonstrate that the Department unreasonably delayed its revision of the final reimbursement settlements, with resulting prejudice to Hospital? Or do the facts warrant the conclusion that unreasonable delay and prejudice are presumed in this case (because of the length of time which elapsed between the Department's issuance of its original final reimbursement settlements and its issuance of the revised final reimbursement settlements), and therefore the Department had the burden of rebutting that presumption?

1. Standard of Review

Resolution of this burden of proof issue turns on matters of law, not fact. Therefore, we exercise our independent judgment and review the trial court's decision de novo. (Evans v. Unemployment Ins. Appeals Bd. (1985) 39 Cal.3d 398, 407, 216 Cal.Rptr. 782, 703 P.2d 122.)

2. The Doctrine of Laches As Applied to Administrative Proceedings


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