Rcj Medical Services, Inc. v. Bonta', B143160.

CourtCalifornia Court of Appeals
Citation111 Cal.Rptr.2d 223,91 Cal.App.4th 986
Decision Date23 August 2001
Docket NumberNo. B143160.,B143160.
PartiesRCJ MEDICAL SERVICES, INC., Plaintiff and Respondent, v. Diana BONTA', as Director, etc., Defendant and Appellant.
111 Cal.Rptr.2d 223
91 Cal.App.4th 986
RCJ MEDICAL SERVICES, INC., Plaintiff and Respondent,
Diana BONTA', as Director, etc., Defendant and Appellant.
No. B143160.
Court of Appeal, Second District, Division 5.
August 23, 2001.
Rehearing Denied August 30, 2001.
Review Denied December 12, 2001.

[111 Cal.Rptr.2d 225]

[91 Cal.App.4th 992]

Bill Lockyer, Attorney General, Charlton G. Holland, III, Senior Assistant Attorney General, John H. Sanders, Lead Supervising Deputy Attorney General; and Patricia L. Nagler, Deputy Attorney General, for Defendant and Appellant.

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



This case involves a postpayment audit of a Medi-Cal provider's claims. Such audits are required under both federal and state law. (42 C.F.R. §§ 447.45(f)(2), 456.3; Welf. & Inst.Code, § 14170, subd. (a)(1).) No Medi-Cal payments were withheld from the provider.

The California Department of Health Services (DHS) administers Medi-Cal, the federal Medicaid program in California. The DHS contracted with the California Controller's office (the Controller) to audit Medi-Cal payments to providers. The Health Care Financing Administration (HCFA), part of the United States Department

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of Health and Human Services, is the federal agency responsible for administering the Medicaid program. On December 17, 1999, the HCFA, a federal agency, specifically approved in writing the DHS's delegation of audit authority to the Controller.

This appeal is from a judgment granting a peremptory writ of administrative mandate directed at defendant, the Director of the DHS. The peremptory writ of mandate requires the DHS to set aside its final decision in the administrative appeal of RCJ Medical Services, Inc. (RCJ), "insofar as it relies upon the audit findings of the State Controller. . . ." RCJ contends federal Medicaid law, and specifically the single state agency requirement, precludes the DHS's delegation of audit authority to the Controller.1 The question in this case is whether the HCFA's December 17, 1999, written approval of the DHS's delegation of audit responsibility to the Controller is based on a reasonable construction of the federal statutory single state

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agency provision and the implementing regulation. We defer to the HCFA's construction of the federal law that it administers as reflected in its action of December 17, 1999. Accordingly, we reverse.


In 1965, Congress enacted Title XIX of the Social Security Act (the Medicaid Act) to provide medical assistance to needy persons. (42 U.S.C. § 1396 et seq.) The purpose of the act was to provide a nationwide program of medical assistance for low-income families and individuals. (Schweiker v. Hogan (1982) 457 U.S. 569, 571, 102 S.Ct. 2597, 73 L.Ed.2d 227; West Virginia University Hospitals, Inc. v. Casey (3rd Cir.1989) 885 F.2d 11, 15, affd. (1991) 499 U.S. 83, 111 S.Ct. 1138, 113 L.Ed.2d 68.)

A. The Medi-Cal Program and the Single State Agency Requirement

The Second Circuit Court of Appeals described the joint federal-state operation of the Medicaid program and the single state agency requirement in Bethphage Lutheran Service, Inc. v. Weicker (2nd Cir.1992) 965 F.2d 1239, 1240 as follows: "Medicaid, 42 U.S.C. § 1396 et seq., is a cooperative federal-state program through which the federal government provides financial assistance to the states so that the states may furnish medical, rehabilitation, and other services to certain low-income persons. Participation in Medicaid is voluntary, but participating states must comply with certain requirements imposed by the Medicaid Act and regulations promulgated by the Secretary of Health and Human Services (`the Secretary'). For a state to qualify for federal assistance, the Secretary, customarily acting through the Health Care Finance Administration (`HCFA'), must approve a State Plan for medical assistance, 42 U.S.C. § 1396a(a), that contains a comprehensive statement describing the nature and the scope of the state's program. 42 C.F.R. § 430.10 (1989). The plan must designate a single state agency to supervise or administer the State Plan. 42 U.S.C. § 1396a(a)(5)." (Accord, West Virginia University Hospitals., Inc. v. Casey, supra, 885 F.2d at p. 15.)

1. The Federal Single State Agency Statute

The single state agency requirement is set forth in a federal statute. Pursuant to

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title 42 of the United States Code, section 1396a(a)(5)2, a state participating in the federal Medicaid program must establish a state plan that meets stated requirements. Among other things, the state plan must "provide

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for the establishment or designation of a single State agency to administer or to supervise the administration of the plan. . . ."3 (Italics added.)

The single state agency requirement originally appeared in the Social Security Act of 1935 with reference to the Title I Old-Age Assistance Program. (Act of Aug. 14, 1935, ch. 531, § 2, 49 Stat. 620.) The single state agency language was incorporated into Title XIX when the Medicaid program was enacted in 1965. (Pub.L. No. 89-97, 1965 U.S.Code Cong. & Admin. News, at pp. 305, 371; Sobky v. Smoley (E.D.Cal.1994) 855 F.Supp. 1123, 1145.) The purposes of the single state agency requirement have been described in various ways. In Rolland v. Cellucci (D.Mass. 1999) 52 F.Supp.2d 231, 243, the district court held: "The single state agency mandate arose out of Congress' desire to minimize the improper denial of benefits and to ensure a certain level of services and quality of care. Morgan v. Cohen, 665 F.Supp. 1164, 1177 (E.D.Pa.1987). The mandate accomplishes these goals by limiting the authority to make administrative decisions to a single state agency. 42 C.F.R. § 431.10(e)(1)(ii). . . . [T]he `single state agency' requirement derives from a desire to focus accountability for plan operation, Hillburn by Hillburn v. Maker, 795 F.2d 252, 261 (2d Cir.1986); 42 U.S.C. § 1396a(a)(5); 42 C.F.R. §§ 431.1 and 431.10. . . ." In Sobky v. Smoley, supra, 855 F.Supp. at page 1145, Judge David F. Levi wrote, "The legislative history of the 1965 Medicaid Act's single state agency requirement U.S.C. § 1396a(a)(5)— maintains this concentration on administrative efficiency." (Accord, Hillburn by Hillburn v. Maker, supra, 795 F.2d at pp. 260-261.) Judge Levi concluded after House and Senate amendments were factored into the competing evidence of legislative intent that Congress's adoption of the single state agency was because, "administrative efficiency appears to have been the overriding purpose. . . ." (Sobky v. Smoley, supra, 855 F.Supp. at p. 1145.) In Fulkerson v. Commissioner, Maine Dept. of Human Services (D.Maine 1992) 802 F.Supp. 529, 538, the district court held: "It appears that the reason for this requirement was to assure `that the States will not administer the provisions for services in a way which adversely affects the availability or the quality of the care to be provided'

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and `to avoid a lack of accountability for the appropriate operation of the program.' Hillburn v. Maher[, supra,] 795 F.2d [at p.] 261[ ] (quoting in part S.Rep. No. 404, 89th Cong., 1st Sess.

111 Cal.Rptr.2d 228

(1965), reprinted in 1965 U.S.Code Cong. & Admin.News 1943, 2016-17), cert, denied, 479 U.S. 1046, 107 S.Ct. 910, 93 L.Ed.2d 859 (1987)."

2. The Federal Single State Agency Regulation

The HCFA regulation implementing the single state agency requirement is found at title 42, Code of Federal Regulations, part 431.10(e) (44 Fed.Reg. 17930 (March 23, 1979)) which states: "(e) Authority of the single State agency. In order for an agency to qualify as the Medicaid agency—[K] (1) The agency must not delegate, to other than its own officials, authority to—Ƃ (i) Exercise administrative discretion in the administration or supervision of the plan, or [¶] (ii) Issue policies, rules, and regulations on program matters, [¶] (2) The authority of the agency must not be impaired if any of its rules, regulations, or decisions are subject to review, clearance, or similar action by other offices or agencies of the State. [¶] (3) If other State or local agencies or offices perform services for the Medicaid agency, they must not have the authority to change or disapprove any administrative decision of that agency, or otherwise substitute their judgment for that of the Medicaid agency with respect to the application of policies, rules, and regulations issued by the Medicaid agency." (Italics added; e.g. Reynolds v. Giuliani (S.D.N.Y.2000) 118 F.Supp.2d 352, 358; Meachem v. Wing (S.D.N.Y. 1999) 77 F.Supp.2d 431, 444-45.)

The federal single state agency regulation (42 C.F.R. § 431.10(e)) was first published in the Federal Register in 1971. (36 Fed. Reg. 3861-3862 (Feb. 27, 1971).) It was originally promulgated, however, in a supplement to a federal handbook issued upon enactment of the Medicaid Act—the United States Department of Health, Education, and Welfare, Welfare Administration, Bureau of Family Services, Handbook of Public Assistance Administration ("Handbook"), Supplement D—Medical Assistance Programs Under Title XIX of the Social Security Act, D 2130 (June 17, 1966) ("Supplement D"). The purpose of the Handbook was described as follows: "The Handbook of Public Assistance Administration is issued by the Bureau of Family Services and is the official medium for issuance of interpretations and instructions concerning requirements of the public assistance titles of the Social Security Act and recommendations for the administration of State public assistance programs. The Handbook is prepared for use by State agencies and staff of the Federal agency in carrying out their responsibilities for administering the public assistance programs in accordance with the Federal Act." (Handbook, supra, Introduction (June...

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