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Alameda County Medical Center v. Department of Health Care Services

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT Sacramento


June 28, 2011

ALAMEDA COUNTY MEDICAL CENTER, PLAINTIFF AND APPELLANT,
v.
DEPARTMENT OF HEALTH CARE SERVICES, DEFENDANT AND RESPONDENT.

Super. Ct. No. 34200880000078CUWMGDS

The opinion of the court was delivered by: Mauro ,j.

Alameda County Med. Center v. Dept. of health Care Services CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Alameda County Medical Center (Medical Center) requested Medi-Cal reimbursement from the California Department of Health Care Services (Department) for rent and other expenses paid in 2003 by a separate entity, the County of Alameda (County). The Department disallowed the request for reimbursement and the trial court subsequently denied Medical Center's petition for writ of administrative mandamus.

Medical Center contends on appeal that it is entitled to reimbursement for the rent County paid in 2003 because County controls Medical Center and hence County and Medical Center are "related parties" under the federal Medicaid rules.

The record supports the conclusion that County did not control Medical Center in 2003, that County and Medical Center were not related parties that year, and that Medical Center is not entitled to reimbursement for the rent paid by County during that time period. We will affirm the judgment denying the petition for writ of administrative mandamus.

BACKGROUND

"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.) 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.) [The Department] administers the Medi-Cal program pursuant to the Medi-Cal Act and [the Department's] regulations. (Welf. & Inst. Code, § 14000 et seq.; Cal. Code Regs., tit. 22, § 50000 et seq.)" (Oroville Hospital v. Department of Health Services (2006) 146 Cal.App.4th 468, 471-472 (Oroville Hospital).)

Although Medicare guidelines are not generally applicable to the Medi-Cal program (Redding Medical Center v. Bonta (1999) 75 Cal.App.4th 478, 484), the Department implements the Medicare guidelines as its own Medi-Cal regulations under California Code of Regulations, title 22, section 51536 (hospital inpatient services reimbursement), which states in subdivision (b)(4): "Allowable cost means the hospital's allowable Medi-Cal cost permitted by applicable Medicare standards and principles of reimbursement, 42 CFR, Part 405 [now part 413] and HIM-15 [now known as the Provider Reimbursement Manual Pub. 15-1]." (See Oroville Hospital, supra, 146 Cal.App.4th at p. 472; Redding Medical Center, supra, 75 Cal.App.4th at p. 484; Intercommunity Medical Center v. Belsh© (1995) 32 Cal.App.4th 1708, 1711.) The Department's relationship with Medi-Cal providers is in the nature of a contract. (Paramount Convalescent Center, Inc. v. Department of Health Care Services (1975) 15 Cal.3d 489, 495 (Paramount).) The terms of the contract include, and are limited by, the laws and regulations applicable to the Medi-Cal program, including federal Medicaid regulations. (Paramount, supra, 15 Cal.3d at p. 495.)

County has a duty to furnish medical assistance to indigent residents. (Welf. & Inst. Code, §§ 14000.2, 17000.) But in 1996, the Legislature and County concluded it would be beneficial for County to transfer governance of various federally qualified health facilities (the medical facilities) within the county to a new "hospital authority," an independent governing body established pursuant to Health and Safety Code section 101850.*fn1 The Legislature declared in section 101850 that due to the challenges arising from changes in the public and private health industries, County determined that a transfer of governance of the medical facilities to an independent hospital authority would improve the efficiency, effectiveness, and economy of community health services. (§ 101850, subd. (a)(1).) County also determined that an independent hospital authority exclusively dedicated to the management, administration and control of the medical facilities was the best way to meet County's commitment to the medically indigent, special needs, and general populations of Alameda County. (Ibid.)

Section 101850 defines "hospital authority" as a separate public agency (§ 101850, subd. (a)(2)(C)) with a separate "governing board" (§ 101850, subd. (a)(2)(B)) appointed by the board of supervisors. (§ 101850, subd. (c).) The hospital authority is a "legal" and "government" entity "separate and apart from the county" (§ 101850, subds. (b), (j)) and it "shall not be considered to be an agency, division, or department of the county." (§ 101850, subd. (j).) "The hospital authority shall not be governed by, nor be subject to, the charter of the county and shall not be subject to policies or operational rules of the county, including, but not limited to, those relating to personnel and procurement." (Ibid.) In addition, any contract executed between County and the hospital authority must provide that liabilities and obligations of the hospital authority are not those of the county (§ 101850, subds. (k)(1), (2) and (3)) and that the hospital authority must indemnify the county. (§ 101850, subd. (l)(1) and (2).)

Section 101850 specifies that the hospital authority controls the medical facilities (§ 101850, subds. (a)(2)(C), (b), (d)), but such control is subject to the limits imposed by law, by the ordinances and bylaws adopted by County, and by the contracts entered into between County and the hospital authority. (§ 101850, subds. (b), (d), (e), (o).) The hospital authority has the power to acquire and possess property, to sue and be sued, to employ personnel and to contract for services. (§ 101850, subd. (q).) But the board of supervisors may terminate the hospital authority. (§ 101850, subd. (kk).)

Medical Center is the "hospital authority" authorized by section 101850. County entered into various contracts with Medical Center, including a master contract, a county services agreement, and a medical facilities lease. In the master contract, County reaffirmed the public interest in leasing the medical facilities to Medical Center in furtherance of the Legislature's intent in enacting section 101850 and the board of supervisors' intent in creating Medical Center as a public hospital authority. In the county services agreement, Medical Center agreed to provide medical services to county residents. And in the medical facilities lease, County expressly agreed to sublease the medical facilities to Medical Center. Specifically, although County leases the medical facilities from third-party property owners, paying the property owners rent in the amount of one million dollars per year, County did not pass that rental cost on to Medical Center. Instead, County subleased the medical facilities to Medical Center for one dollar per year.

Nonetheless, in cost reports for the fiscal year ending June 30, 2003, Medical Center made a claim to Department for Medi-Cal reimbursement of the rent, utilities and maintenance expenses paid by County to third parties. Rent was the primary expense. Medical Center asserted that its claim for expenses paid by County was appropriate because County and Medical Center were "related" parties with "common ownership or control." (42 C.F.R. § 413.17 (2010).) But Department's auditors disallowed Medical Center's claim for reimbursement of the expenses paid by County, concluding that Medical Center is an independent entity with independent control over its operations.

Medical Center appealed the auditor's determination disallowing the claim, and an administrative hearing was held before an administrative law judge (ALJ) on October 26, 2006. In addition to other evidence presented at the hearing, Medical Center's Assistant Ambulatory Health Care Services Administrator, Felicity Russell, testified. She acknowledged a dispute between County and Medical Center in which County wanted Medical Center to pay more rent in 2003 and other years. She also acknowledged that Medical Center refused to pay the additional rent. Russell testified:

"Q The County wanted to be reimbursed from you guys?

"A They were claiming we should do that.

"Q Did you?

"A We did not.

"Q You do not intend to, correct?

"A We do not intend to."

Ms. Russell added that a settlement was pending between County and Medical Center in which Medical Center would agree to assume financial responsibility for facility rental beginning July 1, 2005. But even under that settlement, Medical Center would not pay rent for the time period prior to July 1, 2005, including 2003.

Ms. Russell characterized the rent dispute as inconsequential, however, suggesting that the money comes from the "same pot" of funds. County provides about 35 or 40 percent of Medical Center's $250 million budget, pursuant to the contract with Medical Center for medical services to the county's indigent population. Ms. Russell said County has "considerable influence because of the large proportion of the budget which they supply."

Ms. Russell added that County has "immediate and ongoing influence on governance through the selection of our Board of Trustees and through their implemented power to remove members of the Board of Trustees when they feel that things are not going the way they want at the [medical facilities]." She noted that Medical Center bylaws were adopted and issued by County, that County appoints 9 of the 11 members of Medical Center's governing board of trustees, and that County has the power to remove trustees. She testified that in 2003, County removed Medical Center's chief executive officer from the board of trustees because County determined there was no accountability at the medical center.

The ALJ issued a proposed decision concluding that County and Medical Center were not "related parties" because County did not own or control Medical Center. The ALJ said "given the Legislature's intent and that the County could not 'control' [Medical Center] sufficiently enough to force it to pay the rent the County demanded," County and Medical Center were not "related parties" for purposes of Medi-Cal reimbursement, and the adjustment taken by the Medi-Cal auditor must be sustained. The ALJ considered it unnecessary to address the Department's argument that reimbursing Medical Center for rental expenses it did not pay would result in unjust enrichment. The Department adopted the ALJ's decision.

Medical Center filed a petition for writ of administrative mandamus in the trial court pursuant to Code of Civil Procedure section 1094.5. Based on the administrative record, the trial court denied the writ petition, concluding there was substantial evidence to support the Department's conclusion that County does not "control" Medical Center. Medical Center appeals the ensuing judgment.

DISCUSSION

I Before addressing the merits, we begin with a discussion of the appropriate standard of review on appeal. Medical Center contends the substantial evidence test is the appropriate standard of review. Medical Center adds that the "Court's inquiry extends to whether there was any prejudicial abuse of discretion," including whether the "findings are not supported by the evidence." Medical Center further explains that the court "may properly exercise some degree of independent judgment" and that ultimately, the "test for what constitutes substantial evidence is relevant evidence that a reasonable mind might accept to support a conclusion." In response, Department "agrees" with Medical Center "that the substantial evidence test is the proper standard of review."

Code of Civil Procedure section 1094.5 provides in pertinent part that the court's inquiry shall include whether the Department prejudicially abused its discretion. (Code Civ. Proc., § 1094.5, subd. (b).) The statute further provides that abuse of discretion is established if the Department did not proceed in the manner required by law, the order or decision is not supported by the findings, or the findings are not supported by the evidence. (Ibid.) Where it is claimed that the findings are not supported by the evidence, abuse of discretion is established if the court determines that the findings are not supported by substantial evidence in light of the whole record. (Code Civ. Proc., § 1094.5, subd. (c).)

In this case, however, the facts and the law are not in dispute. The dispute centers on the ultimate conclusion to be reached through application of the undisputed law to the undisputed facts. Although courts have sometimes treated such an "ultimate conclusion" dispute as a question of fact, the better (and controlling) rule is that such a dispute is reviewed de novo as a question of law. (S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349; Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 951; Yakov v. Board of Medical Examiners (1968) 68 Cal.2d 67, 74, fn. 7; Asimow, The Scope of Judicial Review of Decisions of California Administrative Agencies (1995) 42 UCLA L.Rev. 1157, 1213-1217.)

Notwithstanding our de novo review, it is appropriate to give some recognition in our analysis to the Department's expertise and specialization in making this type of administrative determination. (S.G. Borello & Sons, Inc., supra, 48 Cal.3d at p. 349; Asimow, The Scope of Judicial Review of Decisions of California Administrative Agencies, supra, 42 UCLA L.Rev. at pp. 1216-1220.)

II A provider may claim costs that have been paid by another entity if there is common ownership or control. (42 C.F.R. § 413.17(a) (2010).) The parties focus on "control" in this case. "Control exists if an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution." (42 C.F.R. § 413.17(b)(3) (2010).)

There are factors indicating that County has influence over Medical Center. County's board of supervisors appoints almost all of Medical Center's board of trustees, adopts its bylaws, determines the scope of Medical Center's mission, approves transfers of County property, retains some control over use of the premises, and may terminate Medical Center as an entity. (§ 101850, subds. (c), (d), (e), (n)(3), (o), (kk).) Evidence was presented that County removed Medical Center's chief executive officer from the board of trustees. And County did not initially expect Medical Center to pay rent for the medical facilities.

But many other factors support the conclusion that County does not control Medical Center. Medical Center is independent, separate and apart from County. (§ 101850, subds. (a)(1), (b), (j).) It is a governing body in which final authority and responsibility is vested for the conduct of the medical facilities. (§ 101850, subd. (f); Cal. Code Regs., tit. 22, § 70035.) It is not an agency, division or department of County, it is not governed by County, and it is not subject to the charter, policies or operational rules of County. (§ 101850, subd. (j).) Liability and obligations are not shared. (§ 101850, subd. (k).) When County demanded that Medical Center pay more rent, Medical Center successfully refused, and County could not "influence" Medical Center to pay more rent in 2003.

There is also information in the record indicating that Medical Center's independence benefits County. County determined that an independent hospital authority exclusively dedicated to the management, administration and control of the medical facilities was the best way to meet County's health care commitments. (§ 101850, subd. (a)(1).) County also wanted to establish an independent hospital authority that could contract out for services, reduce the use of civil service employees, and distance the board of supervisors from political decisions regarding the medical facilities.

The ALJ concluded that the rent dispute was "of critical importance" to the conclusion that County did not control Medical Center. The dispute over rent "became very emotional on both sides," and the fact that Medical Center "refused and prevailed on the payment of rent demanded from the County" convinced the ALJ that County did not control Medical Center.

On appeal, Medical Center argues the rent dispute "is most aptly characterized as an intra-family argument, akin to a child arguing with a parent over the amount of his or her allowance. As any parent knows, sometimes the child wins such arguments," and so the dispute should be disregarded, because "[a]s with the parent/child relationship, all the money to operate [Medical Center] comes from the same pot, regardless of how it is internally allocated." However, all the money to operate Medical Center did not come from County. Medical Center received about 35 or 40 percent of its revenue from County, not as an "allowance," but pursuant to the contract between County and Medical Center. The majority of Medical Center's revenue came from state, federal and other sources.

Medical Center also argues that section 101850 merely pays "lip service" to the independence of Medical Center as a hospital authority, while reserving to County the power to "impose a death sentence" by extinguishing the hospital authority at any time, for any reason. Medical Center argues the "death sentence" and other statutory controls retained by County, such as control over seismic retrofitting of the hospital buildings, must trump the "lip service" of independence. We do not agree with Medical Center that the express statutory references in section 101850 constitute "lip service," and the principles of statutory construction do not permit such an interpretation of the statute.

In addition, Medical Center cites Medical Center of Independence v. Harris (8th Cir. 1980) 628 F.2d 1113 for the proposition that one entity's power to appoint even a minority (six out of 14) of the members of the other entity's board was found sufficient to treat the parties as "related." However, as stated in the federal Provider Reimbursement Manual (PRM): "The facts and circumstances in each case must be examined to ascertain whether legal or effective control does, in fact, exist. Since a determination reached in a specific case represents a conclusion based on the entire body of facts and circumstances involved, such determination should not be used as a precedent in other cases unless the facts and circumstances are substantially the same." (PRM § 1004.3.) Other than the power to appoint board members, Medical Center does not claim the facts and circumstances of the federal case are substantially the same as the instant case.

Medical Center further argues the trial court "seem[ed] to imply" that it might have reached a different conclusion had it not been bound by the substantial evidence standard. But as we have explained, our review is de novo.

The undisputed facts and law in this case support the conclusion that County did not control Medical Center in 2003, that County and Medical Center were not related parties that year, and that Medical Center is not entitled to reimbursement for the rent paid by County during that time period.

This case is limited to a claim for expenses incurred in 2003. There is some evidence that circumstances between County and Medical Center may have changed since that time (such as a possible settlement agreement for payment of rent). We express no opinion beyond the limited scope of this decision.

DISPOSITION

The judgment denying the petition for writ of administrative mandamus is affirmed. Department shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1)-(2).)

I concur: RAYE , P.J.

I concur in the result and the detailed layout of the relations of the parties. However, I find the truncated discussion of the interpretative question incomplete.

As the majority opinion states: "Alameda County Medical Center (Medical Center) requested Medi-Cal reimbursement from the California Department of Health Care Services (Department) for rent and other expenses paid in 2003 by a separate entity, the County of Alameda (County). The Department disallowed the request for reimbursement" based on its interpretation of the federal Medicare regulations, in particular 42 Code of Federal Regulations part 413.17(a)(2010), which is incorporated in a contract between the parties that governs the provision of indigent medical services in Alameda County.

The federal regulation states that a provider may claim costs that have been paid by another entity if there is common ownership and control by one entity of the other. "Control exists if an . . . organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an[other] organization or institution." (42 C.F.R. § 413.17(b)(3)(2010).) Accordingly, the issue here is whether the County had common ownership or control of the Medical Center.

The majority opinion says that "the facts and the law are not in dispute. The dispute centers on the ultimate conclusion to be reached through application of the undisputed law to the undisputed facts." (Maj.Opn. at p. 9.) With that much I agree.

The majority opinion then states that the "controlling[] rule is that such a dispute is reviewed de novo as a question of law," (maj. opn. at p. 10) which it assumes places the construction in the judicial forum, although it notes that "it is appropriate to give some recognition . . . to the Department's expertise and specialization in making this type of administrative determination." (Ibid.) That is the point of my concern. By what legal means do we draw that line? The majority offer no answer.

At issue is the meaning of "common ownership or control" and that turns on the application of the phrase to the undisputed facts of the case. As the parties tender the case, there are two plausible applications of the phrase to the undisputed facts. That constitutes an ambiguity requiring resolution by this court.

The County's Board of Supervisors is not the owner of the Medical Center. But it does have the potential to "control" the Medical Center through its appointment of almost all of the members of its board, the adoption of its bylaws, the determination of the scope of its mission, the power to terminate it as an entity, and the provision of a significant portion of its support.

However, for reasons amply set forth in the majority opinion, resolution of the ambiguity favors the Department. In so concluding we have no occasion to defer to the Department's resolution of the ambiguity since that issue arises only where there is a conflict between the administrative agency and the court in the construction of the operative phrase. It would make no sense to defer to the Department in the construction of a regulation with which we agree.

BLEASE ,J.


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