California Court of Appeals, Second District, First Division
from a judgment of the Superior Court of Los Angeles No.
BC583522, Michael Johnson, Judge. Affirmed.
Day, James Poth and Erica L. Reilley for Plaintiffs and
Daponde Simpson Rowe, Michael J. Daponde, Eunice C.
Majam-Simpson, and David P. McDonough for Defendant and
& Spalding, Glenn Solomon, Daron Tooch, and Vinay Kohli
for Miller Children's & Women's Hospital of Long
Beach, Pomona Valley Hospital Medical Center, Valley
Children's Hospital, NorthBay Medical Center, Long Beach
Medical Center, Lucille Salter Packard Children's
Hospital at Stanford, Stanford Health Care, Orange Coast
Medical Center, El Camino Hospital, and Saddleback Medical
Center as Amici Curiae on behalf of Plaintiffs and
Hooper, Lundy & Bookman, Lloyd A. Bookman and Paul L.
Garcia for California Hospital Association as Amicus Curiae
on behalf of Plaintiffs and Appellants.
Becerra, Attorney General, Jennifer M. Kim, Gregory D. Brown,
and Sarah M. Barnes, Deputy Attorneys General for California
Department of Health Care Services as Amicus Curiae on behalf
of Defendant and Respondent.
J. Hiestand for California Association of Health Plans and
Local Health Plans of California as Amici Curiae on behalf of
Defendant and Respondent.
and appellants Dignity Health and Northridge Hospital Medical
Center (Northridge Hospital; collectively, plaintiffs) appeal
from a grant of summary judgment in favor of defendant and
respondent Local Initiative Health Care Authority of Los
Angeles County dba L.A. Care Health Plan (defendant).
Defendant is a managed care health plan that provides health
care coverage to low-income individuals under Medi-Cal, the
state's Medicaid program. Northridge Hospital, which
Dignity Health operates, is not within defendant's
network of contracted providers. The question presented in
this case is what amount defendant must compensate plaintiffs
for poststabilization services-medically necessary inpatient
care following stabilization of an emergency-that defendant
expressly or implicitly authorized Northridge Hospital to
provide to patients enrolled with defendant.
contends, and the trial court found, state and federal law
mandate that out-of-network poststabilization services under
Medi-Cal be paid at state-set rates known as “All
Patient Refined Diagnosis Related Group” or
“APR-DRG” rates. Plaintiffs disagree, arguing
that Welfare and Institutions Code section 14105.28,
subdivision (b)(1)(B) specifically exempts “managed
care inpatient days” from services subject to the APR
DRG rates, and that Northridge Hospital's inpatient
treatment of defendant's managed care enrollees
constituted “managed care inpatient days.”
Plaintiffs further contend that federal law is silent as to
any payment rate for out-of-network poststabilization
services under Medicaid. Plaintiffs thus claim they are
entitled to their full billed rates.
conclude that the legislative history of section 14105.28,
along with the statement of legislative intent within the
statute itself, indicate that the Legislature intended the
APR DRG rates to apply to out-of-network inpatient
poststabilization services under Medi-Cal. Consistent with
the Legislature's intent, we thus interpret the phrase
“managed care inpatient days” to refer to
services provided pursuant to a managed care contract, that
is, in-network services. Accordingly, we affirm the judgment.
We do not decide whether federal law compels the same result.
is a publicly funded Medi-Cal managed care health plan
established by the County of Los Angeles. For the time period
at issue in this case, defendant did not have a written
contract with plaintiff Northridge Hospital for the provision
of inpatient services; thus, Northridge Hospital was
“out-of-network, ” i.e., not part of
defendant's network of healthcare providers. Plaintiff
Dignity Health operates Northridge Hospital.
filed an action against defendant alleging that defendant had
expressly or implicitly authorized Northridge Hospital to
provide inpatient poststabilization services to Medi Cal
beneficiaries enrolled with defendant. Plaintiffs alleged
defendant therefore was financially responsible for those
services. Plaintiffs alleged defendant had not paid
Northridge Hospital's full billed charges, however,
instead paying the lower APR-DRG rates set by the state.
on defendant's alleged failure to pay the full billed
charges, plaintiffs asserted causes of action for breach of
implied contract, violation of Health and Safety Code section
1262.8, and declaratory relief. Plaintiffs also asserted a
cause of action under Health and Safety Code section 1371.4,
alleging defendant had failed to pay state-mandated rates for
outpatient and emergency services provided by Northridge
Hospital to patients enrolled with defendant.
discovery, plaintiffs moved for summary adjudication on their
causes of action for breach of implied contract, violation of
Health and Safety Code section 1262.8, and declaratory
relief, seeking a ruling that defendant had a
“duty” to pay plaintiffs' full billed rates
for poststabilization services rather than the APR-DRG rates.
Plaintiffs argued that section 14105.28 expressly excluded
“managed care inpatient days” from the APR DRG
rates, and that Northridge Hospital's poststabilization
care of defendant's managed care enrollees fell within
that exclusion. Plaintiffs concluded that absent application
of the APR-DRG rates, defendant had to pay them their full
billed charges for these poststabilization services.
countered with its own motion for summary judgment. Defendant
argued that federal law mandates that out-of-network
hospitals accept state-set rates for poststabilization
services under Medicaid, which in California are the APR-DRG
rates. Defendant further argued that the Department of Health
Care Services (DHCS), the state agency overseeing Medi-Cal,
has interpreted section 14105.28 to apply the APR-DRG rates
to out-of-network poststabilization services provided to
managed care patients, and that the legislative history of
the APR-DRG methodology supports DHCS's interpretation.
Defendant also contended that Health and Safety Code sections
1262.8 and 1371.4 do not create private rights of action.
trial court granted defendant's motion and denied
plaintiffs' motion. The trial court concluded that the
interplay of three federal regulations-42 C.F.R. part
422.113, 42 C.F.R. part 422.214, and 42 C.F.R. part
438.114-mandates that Medicaid managed care plans pay
state-set rates, such as the APR-DRG rates, for
out-of-network poststabilization services.
trial court rejected plaintiffs' interpretation that the
exclusion for “managed care inpatient days” in
section 14105.28 applies to out-of-network services. The
trial court found that DHCS's contrary interpretation
that “managed care inpatient days” excludes only
in-network services from the APR-DRG rates was
“entitled to considerable weight.” The trial
court also found DHCS's interpretation “makes
sense” because in-network services already were subject
to contracted terms and thus there was no need to regulate
them through the APR-DRG rates.
trial court further agreed with defendant that Health and
Safety Code sections 1262.8 and 1371.4 do not create private
rights of action.
trial court entered judgment in favor of defendant.
Plaintiffs timely appealed.
is California's program under the joint federal-state
program known as Medicaid.” (Marquez v. State Dept.
of Health Care Services (2015) 240 Cal.App.4th 87, 93
provides federal financial assistance to participating states
to support the provision of health care services to certain
categories of low-income individuals and families, including
the aged, blind, and disabled, as well as pregnant women and
others.” (Marquez, supra, 240
Cal.App.4th at p. 93.) State participation in Medicaid is
voluntary, but if a state chooses to participate, it must
comply with federal requirements and administer its Medicaid
program through a plan approved by the federal Centers for
Medicare and Medicaid Services (CMS). (Olszewski v.
Scripps Health (2003) 30 Cal.4th 798, 809
(Olszewski); Marquez, at pp. 93-94.) DHCS
is the state agency in charge of the Medi-Cal program.
(Marquez, at p. 94.)
Medi-Cal program does not directly provide services; instead,
it reimburses participating health care plans and providers
for covered services provided to Medi-Cal
beneficiaries.” (Marquez, supra, 240
Cal.App.4th at p. 94.) The Medi-Cal program provides
reimbursement using two systems: fee-for-service and managed
care. (Ibid., citing § 14016.5, subd. (b).)
beneficiaries in the fee-for-service system may obtain
services “from any provider that participates in
Medi-Cal, is willing to treat the beneficiary, and is willing
to accept reimbursement from DHCS at a set amount for the
services provided.” (Marquez, supra,
240 Cal.App.4th at p. 94.) Under this system, the state
reimburses health care providers directly for each covered
managed care system, “DHCS contracts with health
maintenance organizations (HMOs) and other managed care plans
[such as defendant] to provide health coverage to Medi-Cal
beneficiaries, and the plans are paid a predetermined amount
for each beneficiary per month, whether or not the
beneficiary actually receives services. (§§ 14204,
14301, subd. (a); see Cal. Code Regs., tit. 22, § 53800
et seq.) The beneficiary then obtains medical services from a
provider within the managed care plan's network.”
(Marquez, supra, 240 Cal.App.4th at p. 94.)
Emergency and poststabilization services under Medi-Cal
federal and state law, a hospital with an emergency
department must treat a patient with an emergency medical
condition regardless of the patient's insurance status or
ability to pay. (42 U.S.C. § 1395dd(b), (h); Health
& Saf. Code, § 1371; Children's Hospital
Central California v. Blue Cross of California (2014)
226 Cal.App.4th 1260, 1266 (Children's
Hospital).) If the patient is enrolled in a managed care
plan, whether through the Medi-Cal program or otherwise,
state law requires the plan to reimburse the hospital for the
emergency services even if the hospital is not within the
plan's network of providers. (Health & Saf. Code,
§ 1371.4, subd. (b); Children's Hospital,
at p. 1266.) Federal law similarly requires Medicaid managed
care plans to compensate out-of-network hospitals for
emergency services provided to beneficiaries enrolled in the
plans. (42 U.S.C. § 1396u-2(b)(2)(A)(i).)
the emergency condition is stabilized, any resulting
medically necessary care provided thereafter is referred to
as poststabilization care. (Health & Saf. Code, §
1262.8, subd. (l)(3).) Unlike emergency services, under state
law a managed care plan is not automatically required to
reimburse an out-of-network hospital for poststabilization
services, and may instead require the out-of-network hospital
to obtain the plan's prior authorization. (Health &
Saf. Code, § 1371.4, subd. (c); Children's
Hospital, supra, 226 Cal.App.4th at p. 1266.)
If a managed care plan requires authorization but the
out-of-network hospital fails to request it, the managed care
plan has no obligation to reimburse the out-of-network
hospital for providing poststabilization services to the
managed care plan's enrollee. (See Health & Saf.
Code, § 1262.8, subd. (f)(7).)
an out-of-network hospital request the authorization,
however, the plan must within 30 minutes either authorize the
poststabilization care or inform the out-of-network hospital
that the plan will transfer the patient to another hospital.
(Health & Saf. Code, § 1262.8, subd. (d)(1).) If the
plan fails to notify the out-of-network hospital of its
decision within 30 minutes, “the poststabilization care
shall be deemed authorized, ” and the hospital is
entitled to reimbursement from the plan. (Id., subd.
(d)(2).) Federal regulations establish similar requirements
specific to Medicaid, providing that Medicaid managed care
plans are financially responsible for poststabilization
services they expressly have authorized, or have implicitly
authorized by failing to respond to the hospital's
authorization request within one hour. (42 C.F.R.
§§ 422.113(c)(2)(i), (iii), 438.114(e).)
2010, the Legislature enacted section 14105.28, which states,
“It is the intent of the Legislature to design a new
Medi-Cal inpatient hospital reimbursement methodology based
on diagnosis-related groups....” (§ 14105.28,
subd. (a).) Subdivision (b)(1)(A)(i) directs DHCS to
“develop and implement” the new payment
methodology, “subject to federal approval.”
Subdivision (b)(1)(B) states that “[t]he
diagnosis-related group-based payments shall apply to all
claims, except claims for psychiatric inpatient days,
rehabilitation inpatient days, managed care inpatient
days, and swing bed stays for long-term care services,
provided, however, that psychiatric and rehabilitation
inpatient days shall be excluded regardless of ...