Oak Valley Hosp. Dist. v. State Dep't of Health Care Servs.

• Decision Date: 10 August 2020
• Docket Number: C085869,C086335,C085883,C085882
• Citation: 53 Cal.App.5th 212,266 Cal.Rptr.3d 870
• Court: California Court of Appeals Court of Appeals
• Parties: OAK VALLEY HOSPITAL DISTRICT, Plaintiff and Respondent, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Appellant. Ridgecrest Regional Hospital, Plaintiff and Respondent, v. State Department of Health Care Services, Defendant and Appellant.

53 Cal.App.5th 212

266 Cal.Rptr.3d 870

OAK VALLEY HOSPITAL DISTRICT, Plaintiff and Respondent,

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

Ridgecrest Regional Hospital, Plaintiff and Respondent,

v.State Department of Health Care Services, Defendant and Appellant.

C085869

C085882

C085883

C086335

Court of Appeal, Third District, California.

Filed August 10, 2020

Xavier Becerra, Attorney General, Julie Weng-Gutierrez, Assistant Attorney General, Ismael A. Castro and Brenda A. Ray, Deputy Attorneys General for Defendant and Appellant.

Douglas S. Cumming, Folsom; Davis Wright Tremaine and Jordan B. Keville, Los Angeles, for Plaintiff and Respondent.

HOCH, J.

These four consolidated appeals present the question of whether medical providers who provide services under California's Medi-Cal program are entitled to reimbursement for the costs of providing in-house medical services for their own employees through "nonqualifying" self-insurance programs.¹ Nonqualifying self-insurance programs are those that do not meet all the requirements of section 2162.7 in the Centers for Medicare and Medicaid Services’ Publication 15-1 (Centers for Medicare and Medicaid Services, The Provider Reimbursement Manual, § 2162.7, p. 21-42.7 (rev. 406, 08-98); hereafter Provider Reimbursement Manual).² Even for nonqualifying self-insurance programs, however, the Provider Reimbursement Manual allows providers to claim reimbursement for reasonable costs on a "claim-paid" basis. (§ 2162.7, par. A, p. 21-42.7 (rev. 406, 08-98).)

Here, Oak Valley Hospital District (Oak Valley) and Ridgecrest Regional Hospital (Ridgecrest) have self-insurance programs providing health benefits to their employees. Claims for in-house medical services to their employees were included in cost reports submitted to the State Department of Health Care Services (DHS). DHS allowed the costs when Oak Valley and Ridgecrest employees received medical services from outside providers but denied costs when the medical services were provided in-house. Oak Valley and Ridgecrest sought formal hearings on the denials of their costs for these in-house medical services. In each of the cases, DHS determined claims paid to Oak Valley and Ridgecrest out of their self-insurance plan for in-house medical services rendered to their employees are not allowable costs. Oak Valley and Ridgecrest then petitioned the trial court for writs of administrative mandate. The trial court granted the writ petitions on grounds that costs of in-house medical services are reimbursable so long as they are " ‘reasonable’ " as defined by the Provider Reimbursement Manual. DHS has timely appealed in each case.

In Oak Valley I , DHS contends the trial court erred because (1) Oak Valley's self-insurance program does not meet the requirements for a qualified plan under section 2162.7, (2) the costs claimed by Oak Valley are not reasonable because they represent charges that exceed actual costs, and (3) the claimed costs are also not reasonable because they run afoul of related party principles. The issues and arguments in Oak Valley II and Oak Valley III are substantively the same as in Oak Valley I , but relate to later fiscal periods. Oak Valley II adds the contention that DHS properly denied the in-house medical services costs on the bases of sections 332, 332.1, and 2144.4. Ridgecrest presents substantively the same legal issues and arguments as the Oak Valley cases, but as they relate to Ridgecrest Regional Hospital.

We conclude Oak Valley's and Ridgecrest's self-insurance programs do not meet the requirements of a qualified plan under section 2162.7. However, neither medical provider ever claimed they operated qualified plans. We reject DHS's contention that Oak Valley and Ridgecrest costs relating to in-house medical services for their employees are inherently unreasonable. Oak Valley and Ridgecrest incur actual costs in providing in-house medical services for their employees in the form of time expended by medical professionals, supplies required for treatment, and facilities within which treatment can take place. To the extent DHS argues the cost reports are not per se unreasonable, but unreasonable under the circumstances of the actual treatments of Oak Valley and Ridgecrest employees, we determine the evidence in the record supports the trial court's findings that expert testimony established Oak Valley and Ridgecrest incur actual expenses in providing in-house medical services for their employees that are not otherwise reimbursed.

We reject DHS's assertions regarding violation of related party principles for failure to develop the argument. Moreover, DHS did not raise the related party argument during the administrative or trial court hearings in these cases. We discern nothing in sections 332, 332.1, and 2144.4 that supports DHS's categorical denial of in-house treatment costs. Sections 332 and 332.1 are inapposite because they apply to circumstances in which the patient is billed directly, whereas this case involves the question of reimbursement for hospital self-insurance plans that are not fully qualified under section 2162.7. Section 2144.4 states that fringe benefits, such as unrecovered costs for in-house treatment of employees, are allowable costs. Finally, we decline to address DHS's assertion it calculated costs correctly in Ridgecrest , for failure to set forth the facts in the light most favorable to the judgment. Contrary to appellant's burden on appeal, DHS sets forth a statement of facts in which it ignores the majority of the testimony introduced during the administrative hearing. Accordingly, we affirm the trial court's granting of the petitions for writs of administrative mandate.

BACKGROUND

Medi-Cal Reimbursements to Health Care Providers

In Oroville Hospital v. Department of Health Services (2006) 146 Cal.App.4th 468, 52 Cal.Rptr.3d 695 ( Oroville Hospital ), this court explained: "Medicaid is a program through which the federal government provides financial assistance to qualified participating states for furnishing medical assistance to the poor. ( 42 U.S.C. § 1396 et seq. ; Children's Hospital & Medical Center v. Bontá (2002) 97 Cal.App.4th 740, 747, 118 Cal.Rptr.2d 629.) California participates in Medicaid through the Medi-Cal program. ( Welf. & Inst. Code, § 14000 et seq. ; Children's Hospital & Medical Center v. Bontá, supra , 97 Cal.App.4th at p. 747, 118 Cal.Rptr.2d 629.) DHS administers the Medi-Cal program pursuant to the Medi-Cal Act and DHS's regulations. ( Welf. & Inst. Code, § 14000 et seq. ; Cal. Code Regs., tit. 22, § 50000 et seq. )" ( Id. at pp. 471-472, 52 Cal.Rptr.3d 695.) "DHS is required to reimburse Medi-Cal providers of hospital services for their Medi-Cal costs. ( [Welf. & Inst. Code,] § 14170 ; Cal. Code Regs., tit. 22, § 51536.) ... Hospitals [providing Medi-Cal services] are to be reimbursed for their ‘[a]llowable costs determined in accordance with applicable Medicare standards and principles of reimbursement.’ ( Cal. Code Regs., tit. 22, § 51536, subd. (a)(2), italics added; [citation].)" ( Redding Medical Center v. Bonta (2004) 115 Cal.App.4th 1031, 1035, 9 Cal.Rptr.3d 759.)

Consistent with Medicare standards, Medi-Cal providers such as Oak Valley and Ridgecrest may seek reimbursement for self-insured programs in which they provide medical benefit to their own employees. (§ 2144.4, p. 21-31 (rev. 375, 12-93) [including a provider's "unrecovered cost of medical services rendered to employees" among fringe benefits includable in a provider's costs].) To this end, the Provider Reimbursement Manual informs providers: "You may believe that it is more prudent to maintain a total self-insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage." (§ 2162.3, p. 21-42.6 (rev. 444, 03-11).)

If a provider's self-insurance program qualifies under section 2162.7, contributions into the program fund are reimbursable. (§ 2162.3, p. 21-42.6 (rev. 444, 03-11) ["If such a program meets the conditions specified in § 2162.7, payments into such funds are allowable costs"].) However, if a provider's self-insurance program does not qualify under section 2162.7, contributions into the program fund are not reimbursable. The Provider Reimbursement Manual states: "If a provider enters into an agreement with an unrelated party that does not provide for the shifting of risk to the unrelated party, such an agreement shall be considered self-insurance. For example, any agreement designed to provide administrative services only shall be considered self-insurance and must meet the requirements specified below. If administrative services agreements do not meet these requirements [for a qualifying plan as defined in section 2162.7], any amounts funded as part of the agreement will not be allowed. Payments from the fund, however, will be treated on a claim-paid basis as specified in § 2162.3." (§ 2162.7, par. A, p. 21-42.7 (rev. 406, 08-98), italics added.)

Regardless of whether the medical provider has a qualified or nonqualified self-insurance program, "[a]ll 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 .... Reasonable cost includes all necessary and proper costs incurred in rendering the services , subject to principles relating to specific items of revenue and cost." (§ 2100, p. 21-2.5 (rev. 454, 09-12), italics added.) Section 2102.1 elaborates on this principle and states, in pertinent part, that "[i]t is the intent of the program that providers are reimbursed the actual costs of providing high quality care, regardless of how widely they may vary from provider to provider, except where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope...