Cal. Hosp. Ass'n v. Maxwell-Jolly

188 Cal.App.4th 559

115 Cal.Rptr.3d 572

2010 Daily Journal D.A.R. 14,597

CALIFORNIA HOSPITAL ASSOCIATION, Plaintiff and Appellant,

v.David MAXWELL-JOLLY, as Director, etc. et al., Defendants and Respondents.

No. A124098.

Court of Appeal, First District, Division 4, California.

Aug. 20, 2010.

As Modified on Denial of Rehearing Sept. 16, 2010.

Review Denied Nov. 23, 2010.

Hooper, Lundy & Bookman, Lloyd A. Bookman, Jordan B. Keville, Los Angeles, for Appellant.

Edmund G. Brown, Jr., Attorney General, Douglas M. Press, Senior Assistant Attorney General, Susan M. Carson, Supervising Deputy Attorney General, for Respondents.

REARDON, J.

*564 California Hospital Association (CHA), a trade association representing the interests of California hospitals, appeals from the denial of its petition for writ of mandate (Code Civ. Proc., § 1085), challenging the manner in which the Department of Health Care Services (the Department) has been paying hospitals that operate distinct part nursing facilities (DP/NF's) ¹ under California's Medicaid program, known as Medi-Cal. CHA claims the Department violated state and federal law, by imposing two separate limitations on the reimbursement rates for skilled nursing services rendered by DP/NF's to Medi-Cal beneficiaries. We reverse.

I. BACKGROUND

A. Statutory Framework

1. Federal Law

Medicaid is a cooperative federal-state program through which the federal government provides financial assistance to states so that they may furnish medical care to needy individuals. (42 U.S.C. § 1396; Wilder v. Virginia Hospital Assn. (1990) 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455; Mission Hospital Regional Medical Center v. Shewry (2008) 168 Cal.App.4th 460, 469, 85 Cal.Rptr.3d 639 ( Mission Hospital ).) Although state participation is voluntary, if a state chooses to participate, it must prepare and submit a plan for approval to the federal government, describing its Medicaid program. ( Wilder v. Virginia Hospital Assn., supra, at p. 502, 110 S.Ct. 2510; Mission Hospital, supra, at p. 469, 85 Cal.Rptr.3d 639; 42 C.F.R. § 430.10.) "The Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration, is the federal agency responsible for Medicaid." ( Mission Hospital, supra, 168 Cal.App.4th at p. 470, fn. 1, 85 Cal.Rptr.3d 639.)

Participating states are required to include in their plans reimbursement methods and standards for the medical services provided. (42 C.F.R. § 447.252(b); Mission Hospital, supra, 168 Cal.App.4th at p. 470, 85 Cal.Rptr.3d 639.) The Medicaid Act provides detailed requirements for state plans. (See 42 U.S.C. § 1396a(a)(1)-(71).) The provision at issue in the instant appeal is subsection (a)(30)(A) of section 1396a of title 42 of the United States Code (section 30(A)), which "imposes both procedural and substantive requirements on states when they set reimbursement rates for hospital services provided to Medicaid beneficiaries. Designed to guarantee beneficiaries both high quality of care and equal access to care, section (30)(A) requires the state plan to provide 'such methods and procedures' relating to payment for services under the state plan as may be necessary 'to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area....' (§ [ ](30) (A).)" ( Mission Hospital, supra, at p. 473, 85 Cal.Rptr.3d 639.)

Consequently, "any analysis of reimbursement rates on the statutory factors of efficiency, economy, quality, and access to care, must have the potential to influence the rate-setting process." ( California Pharmacists Ass'n. v. Maxwell-Jolly (9th Cir.2010) 596 F.3d 1098, 1109, cert. pending (U.S. Supreme Ct. No. 09-1158) (filed Mar. 24, 2010) ( California Pharmacists ) citing Independent Living Ctr., So. Cal. v. Maxwell-Jolly (9th Cir.2009) 572 F.3d 644, 652, fn. 9, cert. pending (U.S. Supreme Ct. No. 09-958) (filed Feb. 16, 2010) ( Independent Living ); see also Orthopaedic Hosp. v. Belshe (9th Cir.1997) 103 F.3d 1491, 1499 ( Orthopaedic Hospital ); Mission Hospital, supra, 168 Cal.App.4th at pp. 473-474, 85 Cal.Rptr.3d 639.) Additionally, "[i]t is not justifiable ... to reimburse providers substantially less than their costs for purely budgetary reasons. [Citations.]" ( Orthopaedic Hospital, supra, 103 F.3d at p. 1499, fn. 3.)

2. State Law

"California participates in the federal Medicaid program through the Medi-Cal program. (Welf. & Inst.Code, § 14000 et seq.; Cal.Code Regs., tit. 22, § 50000 et seq.)" ( Mission Hospital, supra, 168 Cal.App.4th at p. 474, 85 Cal.Rptr.3d 639.) The Department (defendant herein) is the state agency charged with administering Medi-Cal in accordance with the state plan. (Cal.Code Regs., tit. 22, § 50004, subd. (b)(1).) At the time the instant litigation was commenced, Sandra Shewry was the Department's director.

*566 The Department reimburses California DP/NF's for services rendered to Medi-Cal patients based on prospectively determined per diem rates, consisting of the lesser of the facility's projected costs or a prospectively determined median rate per day. (Cal.Code Regs., tit. 22, § 51511, subd. (a)(2).)

B. Facts and Procedural History

In September 1995, the Department submitted a state plan amendment, SPA 95-017, to CMS, which set forth a revised reimbursement methodology. The plan amendment intended to reduce the DP/NF's reimbursement rate in the 1995-1996 rate year by changing the methodology to exclude, from the median calculation, those participating providers whose Medi-Cal patient days accounted for less than 20 percent of their total patient days (exclusion methodology or 20 percent exclusion). Although CMS notified the Department that it would not approve the amendment, according to the mandamus petition, the Department issued an emergency regulation the following month, which, in effect, incorporated the unapproved methodology for calculating the median rate for DP/NF's into the regulation.

On April 23, 1996, CHA filed the first of three actions challenging the new regulation and the exclusion methodology based on the Department's failure to comply with state and federal law. ( California Healthcare Assn v. Belshe, Case No. 977772, San Francisco Superior Court ( CHA I ).) On June 16, 1999, the San Francisco Superior Court agreed with CHA, ruling that the exclusion methodology, utilized by the Department for calculating the reimbursement rates for 1995-1996, violated the then existing Boren Amendment (former 42 U.S.C. § 1396a(a)(13)(A)), which required state plans to provide for payment of services through the use of rates that were " 'reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities....' " The trial court issued a writ of mandate and judgment in favor of CHA.

As a result of the Department's subsequent state plan amendment, SPA 96-011, which similarly attempted to apply the 20 percent exclusion methodology for calculating DP/NF reimbursement rates for 1996-1997, CHA filed its second action. ( California Healthcare Assn. v. Bontá, Case No. 312880, San Francisco Superior Court ( CHA II ).) Following a brief trial, the trial court concluded that the Department was collaterally estopped under CHA I from defending the validity of the methodology used in the 1996-1997 rate year. On July 9, 2002, the trial court entered judgment for CHA and issued a writ of mandate against the Department.

*567 Then, on March 11, 2003, the Legislature enacted Assembly Bill No. 1762, adding section 14105.06 to the Welfare and Institutions Code, which provides that, notwithstanding any other provisions of law, "the Medi-Cal reimbursement rates in effect on August 1, 2003, shall remain in effect through July 31, 2005" (rate freeze methodology) for, among other facilities, DP/NF's. The Department thereafter submitted another state plan amendment, SPA 03-027, to CMS to incorporate the freeze into the state plan. CMS subsequently approved the rate freeze.

In November 2003, CHA filed the current and third action. On June 7, 2006, CHA filed an amended petition for writ of mandate (the petition), challenging the utilization of the 20 percent exclusion methodology for the rate years following the last state court judgment, from 2001 through 2006. CHA alleges that, despite the fact that the trial court has twice found the 20 percent exclusion methodology to be unsupported, arbitrary and capricious, the Department has continued to use the same inapt methodology, which has dubiously remained part of title 22 of the California Code of Regulations section 51511. CHA further alleges that for the 2004-2005 rate year, the Department also arbitrarily imposed a freeze on DP/NF reimbursement rates. CHA argues that the rate freeze was imposed for purely budgetary reasons without consideration of the costs hospitals incurred in providing DP/NF services to Medi-Cal beneficiaries. According to the petition, "[p]rior to enacting the relevant statute and amending the state plan, no studies or analyses were conducted by the Legislature or [the Department] to determine whether the DP/NF rates resulting from the reimbursement freeze would be consistent with efficiency, economy[,] and quality of care[,] or with the cost[s] of providing the services impacted by the rate reduction."

Denying the petition for a writ of mandate, the trial court ruled on November 14, 2008, that CHA failed to establish a beneficial interest in seeking writ relief, and that section 30(A) did not impose any ministerial duties on the Department. The court found in favor of the Department and the instant appeal followed.

II. DISCUSSION

A. Standard of Review

This appeal involves the denial of a traditional writ of mandamus under Code of Civil Procedure...