Pacific Coast Medical Enterprises v. Department of Benefit Payments

• Decision Date: 24 February 1983
• Citation: 189 Cal.Rptr. 558,140 Cal.App.3d 197
• Parties: , 1 Soc.Sec.Rep.Ser. 1029 PACIFIC COAST MEDICAL ENTERPRISES, dba Community Hospital of Los Angeles, a corporation, Plaintiff and Respondent, v. DEPARTMENT OF BENEFIT PAYMENTS, State of California, et al., Defendants and Appellants. Civ. 65040.
• Court: California Court of Appeals Court of Appeals

Page 558

189 Cal.Rptr. 558

140 Cal.App.3d 197, 1 Soc.Sec.Rep.Ser. 1029

PACIFIC COAST MEDICAL ENTERPRISES, dba Community Hospital of Los Angeles, a corporation, Plaintiff and Respondent, v. DEPARTMENT OF BENEFIT PAYMENTS, State of California, et al., Defendants and Appellants.

Civ. 65040.

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

Feb. 24, 1983.

Hearing Denied May 19, 1983.

George Deukmejian, Atty. Gen., B. Motz, Deputy Atty. Gen., for defendants and appellants.

Memel, Jacobs, Pierno & Gersh and A. Chenen, Los Angeles, for plaintiff and respondent.

FEINERMAN, Presiding Justice.

Defendant, the Department of Benefit Payments of the State of California, predecessor to the Department of Health Services (Department), appeals from a judgment in favor of plaintiff, Pacific Coast Medical Enterprises (PCME). PCME, a provider of health care services to Medi-Cal beneficiaries, sought reimbursement from the Department for costs incurred in supplying those services. Among the costs for which PCME sought reimbursement from the Department was a reasonable return on the amount of equity capital (for goodwill and other intangible assets) it had invested in a recently purchased hospital, Community Hospital of Los Angeles (CHLA). The Department denied reimbursement for that element of claimed costs for the fiscal years ending June 30, 1970, 1971 and 1972. PCME timely appealed the audit adjustments for the 1970 and 1971 costs reports. It did not file an appeal from the audit adjustments made with respect to the 1972 costs report and it did not notify the Department of its intention to appeal regarding the 1972 costs report until about March 1975, well after the deadline for filing an appeal.

On March 1, 1977, a hearing was held concerning the 1970 and 1971 appeals before an administrative law judge (ALJ) of the Office of Administrative Hearings. The ALJ rejected PCME's valuation of the goodwill of CHLA for reimbursement purposes. The Department adopted the ALJ's proposed decision.

PCME, claiming that a petition for writ of mandate pursuant to Code of Civil Procedure section 1094.5 was an inappropriate remedy, filed a complaint for damages and declaratory relief in the superior court. PCME sought to obtain reimbursement based on a valuation of goodwill in the amount of $4,900,000. The Department demurred to PCME's complaint on the ground that administrative mandamus was the appropriate method of review. The trial court overruled the demurrer and the parties submitted the case based on the administrative record and certain stipulations, exhibits and declarations. In effect, a trial de novo was had based on the administrative record. In its Findings of Fact and Conclusions of Law, the trial court noted that it would have reached the same result under the substantial evidence test. The Department appears to concede that said finding by the trial court renders moot any contention that the wrong vehicle was utilized to obtain a judicial resolution of the parties' dispute. We believe this concession was not in the Department's "enlightened self interest" as will be explained hereinafter.

After its review of the administrative record, the trial court found that the consideration paid by PCME for CHLA was $7,000,000 and that the value of goodwill was reimbursable as part of PCME's return on equity capital and was to be calculated as the excess of the total amount paid for the hospital ($7 million) over the fair market value of the tangible assets of the hospital ($2,090,000). The trial court determined that the amount of goodwill PCME was entitled to receive reimbursement on was $4,910,000. The trial court further determined that its decision was applicable to all years subsequent to the fiscal years ending June 30, 1970 and 1971, including June 30, 1972, based on the principle of res judicata and held that PCME was entitled to interest on all amounts owed by appellant based on the rates set forth in Medicare regulations.

Before we discuss the issues raised by the parties herein, we want to make it clear that we believe the trial court erred in overruling the Department's demurrer to PCME's complaint. The issue is a key one here because the standard for review on appeal in a matter of this kind is dependent upon the standard of review utilized at the trial level.

We have concluded that the appropriate vehicle for review of the Department's decision in the trial court was a petition for writ of mandate pursuant to Code of Civil Procedure section 1094.5. Administrative mandamus is available to review a decision by an agency as the result of a proceeding in which, by law: 1. a hearing is required to be given; 2. evidence is required to be taken; and 3. discretion in the determination of facts is vested in the agency. These requirements are met with respect to the type of adjudication made by the Department in this case and as to which PCME sought review. (See Welf. & Inst. Code § 14171; 22 Cal.Admin.Code §§ 51022-51046.)

Welfare and Institutions Code section 14171 provides for the establishment of an administrative appeal process to review grievances arising from audit findings with respect to a claim for provider costs. Subdivision (d) of that section provides, "The final decision of the director shall be reviewable in accordance with the provisions of Section 1094.5 of the Code of Civil Procedure within six months of the issuance of the director's final decision." Welfare and Institutions Code section 14171 was added in 1977 (Stats.1977, c. 1046, p. 3172, § 6) and became effective January 1, 1978. (Gov.Code § 9600, subd. (a).) PCME's complaint for damages, declaratory relief and permanent injunction was filed on July 25, 1978. PCME claimed in the trial court that section 14171 was not applicable to its appeal.

PCME originally appealed to the Department from the audit on its cost reports on or about January 22, 1975. In 1975, Welfare and Institutions Code section 14171 was nonexistent, as was the entire article 5.3 (§§ 14170-14177) relating to "Audit, Appeal and Recovery of Overpayments." In 1975, Welfare and Institutions Code section 14104.5 (added by Stats 1970, c. 1171, p. 2079, § 1) provided for the adoption of regulations covering procedures "for the review of a grievance or complaint concerning the processing or payment of money alleged by a provider of services to be payable by reason of any of the provisions of this chapter." It did not specifically relate to an appeal from the results of an audit. The section provided that if the provider was not satisfied with the Department's decision after review of his grievance or complaint, "he may not later than one year after receiving notice of such decision, present a claim for money against the state in accordance with" the provisions for claims against public entities contained in Government Code section 900 et seq. Finally, Welfare and Institutions Code section 14104.5 stated that "[t]he provisions of this section shall be the exclusive remedy available to the provider of services for moneys alleged to be payable by reason of the provisions of this chapter."

It was the trial court's belief that the 1977 addition to 14104.5, (Stats.1977, c. 1046, p. 3170, § 4) which provided, "This section shall not apply to those grievances or complaints arising from the findings of an audit or examination made by or on behalf of the Director of Benefit Payments pursuant to Sections 14102 and 14170, Article 5.3 (commencing with Section 14170) of this chapter shall govern such grievances or complaints," should not be applied retroactively in this case. The trial court erred in that regard, and that error was the basis of its erroneous decision overruling the Department's demurrer.

A statute which is procedural in nature may be given effect as to pending and future litigation even if the event underlying the cause of action occurred before the statute took effect. (Olson v. Hickman (1972) 25 Cal.App.3d 920, 922, 102 Cal.Rptr. 248; City of Sausalito v. County of Marin (1970) 12 Cal.App.3d 550, 557, 90 Cal.Rptr. 843.) "A statute is procedural when it neither creates a new cause of action nor deprives defendant of any defense on the merits." (Strauch v. Superior Court (1980) 107 Cal.App.3d 45, 49, 165 Cal.Rptr. 552.) Here the change in the applicable statutes merely provided a new remedy for the enforcement of existing rights and was procedural in nature. (Governing Board v. Commission on Professional Competence (1977) 72 Cal.App.3d 447, 461, 140 Cal.Rptr. 206.)

However, even if the 1977 change in Welfare and Institutions Code section 14104.5 and the addition of article 5.3 could not be said to be procedural in nature, application of these statutory changes in this case would not run afoul of the principle of presumed non-retroactivity of a statute. (See In re Marriage of Bouquet (1976) 16 Cal.3d 583, 587, 128 Cal.Rptr. 427, 546 P.2d 1371.) This is so because the statutory changes were enacted merely to conform to the long standing administrative procedure followed by the Department in the case of "provider audit appeals."

Health care providers such as doctors, dentists and skilled nursing facilities are reimbursed on a set dollar amount. (22 Cal.Admin.Code §§ 51501 et seq.) Reimbursement for services based on a set dollar amount lends itself to a simplified procedure which does not necessitate a hearing and the taking of evidence at the administrative level. The procedure originally set forth in Welfare and Institutions Code section 14104.5 culminating in a claim filed against the Board of Control and, ultimately, a suit for money against the state, is a completely adequate administrative remedy in such cases. ¹

However, at the time pertinent here, reimbursement for inpatient hospital services, such as was sought by PCME, was made on the basis of reasonable costs. (Then 22 Cal.Admin.Code § 51508, see Cal.Admin. Register 79, No. 31, pp. 1300.2.14--1300.5, now see...