Oroville Hosp. v. Dept. of Health Services

• Decision Date: 12 December 2006
• Docket Number: No. C049827.,C049827.
• Citation: 146 Cal.App.4th 468,52 Cal.Rptr.3d 695
• Court: California Court of Appeals Court of Appeals
• Parties: OROVILLE HOSPITAL, Plaintiff and Appellant, v. DEPARTMENT OF HEALTH SERVICES, Defendant and Respondent.

52 Cal.Rptr.3d 695

146 Cal.App.4th 468

OROVILLE HOSPITAL, Plaintiff and Appellant, v. DEPARTMENT OF HEALTH SERVICES, Defendant and Respondent.

No. C049827.

Court of Appeal, Third District.

December 12, 2006.

Certified for Partial Publication.^*

As Modified Jan. 3, 2007.

Hooper, Lundy & Bookman, Inc., Craig J. Cannizzo, Felicia Y Sze, San Francisco; and Douglas S. Cumming, Lincoln, for Plaintiff and Appellant.

Bill Lockyer, Attorney General, Thomas R. Yanger, Senior Assistant Attorney General, Paul Reynaga, and Barbara Haukedalen, Deputy Attorneys General, for Defendant and Respondent.

SCOTLAND, P.J.

Under California's Medi-Cal program, a health care provider who furnishes medical assistance to the poor may seek reimbursement from the government for certain expenses, including the cost of employee health care benefits. If the provider is self-insured for such employee benefits, they are allowable costs only if the self-insurance program meets specific requirements.

Oroville Hospital (Oroville) appeals from the trial court's order denying its petition for writ of mandate, seeking to compel the California Department of Health Services (DHS) to reimburse Oroville for money it expended for employee health care.

In the published portions of this opinion, we reject Oroville's contention that the trial court and DHS improperly construed and applied pertinent guidelines found in the Provider Reimbursement Manual. As we will explain, the money that Oroville spent for its employee health care was not an allowable cost because Oroville's self-insurance program did not comply with requirements of the regulatory scheme, in that Oroville did not maintain the fund with an independent fiduciary. Consequently, Oroville was entitled only to partial reimbursement for such costs as "deductibles" under the scheme.

In the unpublished parts of this opinion, we reject Oroville's other claims of error. Accordingly, we shall affirm the judgment.

FACTS

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. Bonta' (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. Bonta', 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. & InstCode, § 14000 et seq.; Cal. Code Regs., tit. 22, § 50000 et seq.)

Oroville provides services to Medi-Cal beneficiaries and is reimbursed for its allowable costs, including indirect costs such as certain employee health benefit payments. (42 C.F.R. § 413.9(c)(3) (2006).) Allowable costs are determined in accordance with Medicare standards and principles of reimbursement as set forth in the Code of Federal Regulations and in HIM-15. (Cal.Code Regs, tit. 22, § 51536(b)(4).) H1M-15, which is issued by the United States Department of Health and Human Services, became HCFA Pub. 15-1. It is now CMS Pub. 15-1 and is known as the Provider Reimbursement Manual (PRM). (Shalala v. Guernsey Mem. Hosp. (1995) 514 U.S. 87, 90, 115 S.Ct. 1232, 1234, 131 L.Ed.2d 106, 113; Mercy Home Health v. Leavitt (3d Cir.2006) 436 F.3d 370, 373.)

The PRM provides that commercial health care insurance is an allowable cost, as are contributions to a self-insurance fund if the self-insurance program meets specific requirements. (PRM §§ 2162, subd. A, 2162.4, 2162.7; further section references are to the PRM unless otherwise specified.) The PRM also allows reimbursement for a combination of purchased insurance and self-insurance. (§ 2162, subd. A.)

Section 2162.4 states in relevant part: "You may believe it appropriate to self insure some of the risk independently or as part of a group or pool and purchase insurance for the remainder of the risk. Where you decide to fund all or some of the risk covered through self-insurance, payments into a fiduciary fund are allowable costs if you or the pool sets up a program which meets the conditions specified in § 2162.7...."

Oroville provided health benefits to its employees through a combination of commercial insurance and a reserve fund, which it refers to as self-insurance. On a monthly basis, it deposited money into its reserve fund, based on the total health care claim expenses from the prior year and on the number of employees. Oroville used money from the fund to pay health claims for services provided to its employees outside of its own facility. To supplement this program, Oroville purchased a commercial insurance policy for a specific "stop loss" limit of $100,000 and an annual aggregate limit of $3,800,000. In other words, the policy paid medical expenses exceeding $100,000 for an individual employee and expenses exceeding $3,800,000 for all employees during the entire year.

In its Medi-Cal cost report submitted to DHS, Oroville claimed $3,486,311 in health care costs for employees, including $1,870,088 paid to outside providers for services rendered.

DHS audited the report and determined that Oroville's reserve fund did not meet the self-insurance requirements of section 2162.7, which meant that Oroville was not entitled to reimbursement for the full amount claimed. Instead, DHS treated the amounts paid as insurance deductibles pursuant to section 2162.5 (which limits the reimbursable amount) and allowed reimbursement of only $893,496 for services from outside providers.

Oroville filed a request for a formal administrative hearing, asserting the costs were for reimbursable self-insurance, and DHS erred in determining the health care payments were deductibles.

Following a hearing, the Administrative Law Judge (ALJ) found that Oroville's reserve fund did not meet the requirements of section 2162.7 for a self-insurance program because the fund was maintained by Oroville, rather than an independent fiduciary, and annual certified statements prepared by an independent actuary, insurance company, or broker were not filed with an intermediary. The ALJ concluded the health care payments were deductibles within the meaning of section 2162.5. Thus, the ALJ sustained DHS's audit adjustment, but did so "with some reluctance" because Oroville's costs were not excessive and the reimbursement amount allowed by DHS was inadequate (in fact, it appeared that the cost for Oroville's method of insuring its employees was lower than the cost of commercial health care insurance or of a self-insurance program that meets the requirements of section 2162.7).

The ALJ's proposed decision was adopted as DHS's final decision.

Oroville filed a petition for writ of mandate in the superior court, challenging DHS's decision that the costs were deductibles. The court found that Oroville's "self-insurance" did not fit the requirements of the PRM for self-insurance, and that the health care expenses more closely resembled the payment of deductibles within the meaning of section 2162.5. Accordingly, it denied the petition for writ of mandate.

DISCUSSION

I

Oroville contends that DHS misinterpreted PRM section 2162.7 in disallowing reimbursement for money expended on outside provider services pursuant to Oroville's self-insurance plan.

PRM section 2162.7 states in pertinent part: "A. Definition of Self-Insurance.— Self-insurance is a means whereby a provider), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. [¶] 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 service agreements do not meet these requirements, 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."¹ (Italics added.)

The various requirements for a self-insurance plan are set forth in subdivisions B through E of section 2162.7. Pursuant to subdivision B, the provider must "establish);] a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator." In addition, "[t]he provider ... and fiduciary must enter into a written agreement which includes all of the following elements:" (1) the parties' legal responsibilities; (2) that the fiduciary has legal title to the fund and has responsibility for its administration and control; (3) that money will be withdrawn only for health care costs; (4) that upon termination from the Medicare program, the provider must obtain a determination of the adequacy of the fund balance; (5) that the fiduciary must prepare a financial statement annually; and (6) that income earned by the fund becomes part of the fund. (§ 2162.7, subd. B.)

Oroville does not dispute the determination by DHS, the ALJ, and the superior court that Oroville's self-insurance plan did not comply with the requirements of section 2162.7 because Oroville did not maintain a fund with an independent fiduciary. Nevertheless, Oroville argues that it is entitled to reimbursement pursuant to the "claim-paid" language of PRM section 2162.7 italicized above. Oroville misinterprets the language in question.

Subdivision B of section 2162.7 mandates that to qualify as a self-insurance plan, the provider (here, Oroville) must establish a fund with a recognized independent fiduciary and must enter into a written agreement including specific requirements concerning the administration of the fund. Subdivision A states in pertinent part: "If...