Mission Community Hospital v. Kizer

• Decision Date: 08 March 1993
• Docket Number: No. B064852,B064852
• Citation: 13 Cal.App.4th 1683,17 Cal.Rptr.2d 303
• Court: California Court of Appeals Court of Appeals
• Parties: , 40 Soc.Sec.Rep.Ser. 217 MISSION COMMUNITY HOSPITAL, Plaintiff and Appellant, v. Kenneth W. KIZER, as Director, etc., Defendant and Respondent.

Page 303

17 Cal.Rptr.2d 303

13 Cal.App.4th 1683, 40 Soc.Sec.Rep.Ser. 217

MISSION COMMUNITY HOSPITAL, Plaintiff and Appellant, v. Kenneth W. KIZER, as Director, etc., Defendant and Respondent.

No. B064852.

Court of Appeal, Second District, Division 5, California.

March 8, 1993.

[13 Cal.App.4th 1684] Mitchell R. Miller, Encino, for plaintiff and appellant.

Daniel E. Lungren, Atty. Gen., Charlton Holland, III, Asst. Atty. Gen., John H. Sanders, Supervising Deputy Atty. Gen., and Jonathan R. Davis, Deputy Atty. Gen., for defendant and respondent.

GRIGNON, Associate Justice.

Appellant Mission Community Hospital appeals from a judgment denying appellant's petition for writ of administrative mandamus seeking to compel respondent State of California, Department of Health Services to accept appellant's amended 1985 Medi-Cal cost report. Appellant contends respondent had a mandatory duty to accept the amended cost report. Alternatively, appellant contends, if respondent had discretion to accept the amended cost report, respondent abused its discretion in failing to accept the amended cost report. We affirm.

FACTS AND PROCEDURAL BACKGROUND

Appellant is a participating hospital in California's Medi-Cal program. Health care providers participating in Medi-Cal are required to submit cost reports to respondent for the purpose of determining reasonable costs for services and establishing rates of payment. ¹ Respondent has established procedures for auditing participants' cost reports. Appellant submitted a cost report for its fiscal year 1984, ending on October 31. After an audit, respondent proposed certain adjustments to the cost report including adjustments to the return on equity. Through administrative procedures, appellant appealed the adjustments. After an informal administrative hearing held on October 11, 1988, appellant and respondent agreed to settle their disputes relating to the 1984 fiscal year. This agreement was subsequently reflected in a written settlement agreement, dated August 10, 1989, resulting in a positive adjustment to the 1984 ending equity and the return on equity capital. ² The settlement agreement recited that its purpose was to settle appellant's appeal of the 1984 audit adjustments and that it did not constitute a finding that the amended information was correct. ³

On August 14, 1986, appellant filed a timely cost report for its fiscal year 1985, ending on October 31. The 1985 cost report reflected an opening equity which did not take into account the positive adjustment in the 1984 ending equity to which appellant and respondent had formally agreed in August 1989. ⁴ Respondent issued its audit report for appellant's fiscal year 1985 on February 6, 1989. Respondent accepted the 1985 cost report as filed without audit.

On August 7, 1989, appellant requested that respondent reopen or amend appellant's 1985 cost report to reflect the 1984 positive adjustments. On October 2, 1989, respondent denied this request, as beyond the scope of the 1984 settlement and as untimely, in a letter which provided in part:

"The request to amend the return on equity computation is based upon a stipulated settlement agreement for the fiscal period ended October 31, 1984, which included an issue affecting ending equity capital. Stipulated agreements are applicable only to the period identified within the agreement. A review of the stipulated agreement indicates no reference to any required change for the cost report period ending October 31, 1985.

* * * * * *

"In addition to the above, it should be noted that the submitted cost report was accepted as filed. The data submitted by the provider in the cost report was accepted as true and correct. Generally, when a cost report is accepted as filed, the decision is based upon a review of numerous factors which impact Medi-Cal settlement. Those factors include prior audit history, Medicare audit findings, completeness of the cost report, materiality, etc.

"A cost report should be filed in a manner consistent with regulations and policy governing its preparation, and is intended to be final. The report when accepted as final is not the result of an audit. Therefore, if a reopening of the audit report is required, it would open the entire report up to audit as the data submitted would constitute an amendment to the filed cost report."

Appellant filed an administrative appeal. On October 27, 1989, respondent notified appellant it was not entitled to a hearing on its appeal. However, appellant would be given an opportunity to show cause why the issue of the amended cost report should be heard. After a show cause hearing was held on December 19, 1989, an administrative law judge denied the appeal. Respondent adopted the decision of the administrative law judge as its final decision on May 10, 1990, and so notified appellant on May 21, 1990.

On November 9, 1990, appellant filed this timely petition for writ of administrative mandamus pursuant to Code of Civil Procedure section 1094.5. Appellant alleged damages in the amount of $15,000 in additional Medi-Cal reimbursement owing. In its petition, appellant contended: (1) respondent is estopped from failing to correct the 1985 opening equity which resulted from respondent's error; (2) respondent's interpretation of its regulations is a change in policy which did not comply with the Administrative Procedure Act; (3) respondent denied appellant its substantive due process rights; (4) respondent's interpretation of its regulations is clearly erroneous; and (5) respondent erroneously applied the regulations to the facts of appellant's case. Respondent answered the petition. The petition was denied by judgment of the superior court and this appeal followed.

DISCUSSION

Statutory and Regulatory Framework

The Medi-Cal program is the California implementation of the federal Medicaid program which provides federal funds for state medical assistance programs. (Welf. & Inst.Code, § 14000 et seq.; Palmdale Hospital Medical Center v. Department of Health Services (1992) 8 Cal.App.4th 1306 1312, 10 Cal.Rptr.2d 926) Respondent is the state agency charged with administration of the Medi-Cal program. (Welf. & Inst.Code, § 10721; Cal.Code Regs., tit. 22, § 50004.)

Medi-Cal hospital providers submit to respondent annual cost reports of their expenses incurred in providing health care services to Medi-Cal recipients. Cost reports are used by respondent to determine a final settlement of that portion of a provider's costs related to Medi-Cal recipients and, thus, the amount of Medi-Cal reimbursement to which the provider is entitled. Respondent must either audit cost reports or accept them as filed within three years from the date of filing. (Welf. & Inst.Code, § 14170.) Section 14170 of the Welfare and Institutions Code (Stats.1990, ch. 1329, § 32, eff. September 26, 1990) provides in relevant part:

"Amounts paid for services provided to Medi-Cal beneficiaries shall be audited by the department in the manner and form prescribed by the department.... Cost reports and other data submitted by providers to a state agency for the purpose of determining reasonable costs for services or establishing rates of payment shall be considered true and correct unless audited or reviewed by the department within 18 months after July 1, 1969, the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later. Moreover, that cost report and other data for cost reporting periods beginning on January 1, 1972, and thereafter shall be considered true and correct unless audited or reviewed within three years after the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later."

Respondent is authorized to establish and has established appeal procedures for the audit process (Welf. & Inst.Code, § 14171; Cal.Code Regs., tit. 22, § 51016 et seq.). If a provider is dissatisfied with audit findings, the provider may appeal by filing a statement of disputed issues within 60 days of receipt of the written audit findings. (Cal.Code Regs., tit. 22, § 51022.) The first level of appeal may be an informal review before a hearing officer or auditor. (Cal.Code Regs., tit. 22, § 51023, subd. (a).) The results of the informal appeal are served on the provider in the form of a written report. (Cal.Code Regs., tit. 22, § 51023, subd. (e)(1).) The report is final unless the provider seeks a formal administrative hearing before an administrative law judge within 30 days of the issuance of the hearing officer's report. (Cal.Code Regs., tit. 22, §§ 51023, subd. (e)(2) and 51024.)

Amended cost reports may be filed for those fiscal years for which proceedings are still pending, that is, the cost report determination is not yet final. (Cal.Code Regs., tit. 22, § 51019, subd. (a).) ⁵

Federal Statutes and Regulations

Medicaid (42 U.S.C., § 1396 et seq. [Title XIX of the Social Security Act; "Grants to States For Medical Assistance Programs"] ) enables states to furnish medical assistance, rehabilitation, and other services to families with dependent children and to aged, blind or disabled individuals who cannot afford such services. The program is a " 'cooperative federal-state health benefits assistance program,' [citation] under which the federal government reimburses states at least half the cost of providing health care. The program is optional, but once a state decides to participate it must comply with the federal government's requirements, listed at 42 U.S.C., § 1396a." (Pottgieser v. Kizer (9th Cir.1990) 906 F.2d 1319, 1321; accord, Citizens Action League v. Kizer (9th Cir.1989) 887 F.2d 1003, 1005; cf. Palmdale Hospital Medical Center v. Department of Health Services, supra, 8 Cal.App.4th at p. 1312, 10 Cal.Rptr.2d 926.)

Medicare (42 U.S.C., § 1395 et seq. [Tit. XVIII of the Social Security Act; ...