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Alameda County Medical Center v. Department of Health Care Services

June 28, 2011


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


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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.


"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 ...

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