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Dignity Health v. Local Initiative Health Care Authority of Los Angeles County

California Court of Appeals, Second District, First Division

January 9, 2020

DIGNITY HEALTH et al., Plaintiffs and Appellants,
v.
LOCAL INITIATIVE HEALTH CARE AUTHORITY OF LOS ANGELES COUNTY, Defendant and Respondent.

          APPEAL from a judgment of the Superior Court of Los Angeles No. BC583522, Michael Johnson, Judge. Affirmed.

          Jones Day, James Poth and Erica L. Reilley for Plaintiffs and Appellants.

          Daponde Simpson Rowe, Michael J. Daponde, Eunice C. Majam-Simpson, and David P. McDonough for Defendant and Respondent.

          King & 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 Appellants.

          Hooper, Lundy & Bookman, Lloyd A. Bookman and Paul L. Garcia for California Hospital Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

          Xavier 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.

          Fred J. Hiestand for California Association of Health Plans and Local Health Plans of California as Amici Curiae on behalf of Defendant and Respondent.

          BENDIX, J.

         Plaintiffs 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.

         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[1] 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.

         We 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.

         PROCEDURAL BACKGROUND

         Defendant 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.

         Plaintiffs 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.[2] 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.

         Based 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.

         Following 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.

         Defendant 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.

         The 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.

         The 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.

         The trial court further agreed with defendant that Health and Safety Code sections 1262.8 and 1371.4 do not create private rights of action.[3]

         The trial court entered judgment in favor of defendant. Plaintiffs timely appealed.

         OVERVIEW OF MEDI-CAL

         1. Medi-Cal

         “Medi-Cal 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 (Marquez)).

         “Medicaid 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.)

         “The 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).)

         Medi-Cal 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 service. (Ibid.)

         In the 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.)

         2. Emergency and poststabilization services under Medi-Cal

         Under 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).)[4]

         Once 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).)

         Should 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.[5] (42 C.F.R. §§ 422.113(c)(2)(i), (iii), 438.114(e).)

         3.APR-DRG rates

         In 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 ...


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