Family Health Centers etc. v. State Dept. of Health Care Services CA3
C089555
| Cal. Ct. App. | Jul 6, 2021Background
- Family Health Centers of San Diego (an FQHC) claimed $78,032 in 2013 payroll/benefit expenses for community outreach on its Medi‑Cal cost report; DHCS reclassified those amounts as nonreimbursable in a 2016 audit.
- Outreach activities involved nonclinical, targeted community work (street, schools, bars, parks) to promote awareness of clinics, counsel about eligibility, and schedule appointments; FHCSD tracked high ‘‘show’’ rates for referrals.
- FHCSD argued outreach is an allowable cost because it advances patient care, is required/recognized by HRSA grant materials and federal FQHC authorities, and fits within Medicare/Medicaid reasonable‑cost principles (42 C.F.R. § 413.9).
- The DHCS (and later an ALJ and the Chief ALJ) concluded the outreach was essentially patient‑recruitment/advertising and therefore nonallowable under the PRM advertising exclusion (PRM § 2136.2); the ALJ did not rely on documentation deficiencies.
- The trial court denied FHCSD’s writ petition; the Court of Appeal affirmed, holding outreach costs were akin to general advertising to increase utilization and thus nonreimbursable under federal cost principles and the PRM.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether outreach costs are "related to the care of beneficiaries" under 42 C.F.R. § 413.9 | Outreach informs indigent people about care and has a direct link to patient visits — therefore related to beneficiary care | Outreach primarily promotes and brings in new patients, not direct patient care | Costs not allowable: outreach served to increase utilization and thus not sufficiently "related to care" |
| Whether outreach costs are "reasonable" / "necessary and proper" under Medicare cost principles | Outreach is necessary and customary for serving vulnerable populations and thus reasonable | Even if beneficial, activities serving recruitment/advertising purposes are excluded as not related to patient care | Not "necessary and proper" for reimbursement because purpose/effect was patient recruitment/advertising |
| Whether PRM § 2136.2 advertising exclusion applies to FQHC outreach (PRM excludes advertising that seeks to increase patient utilization) | PRM predates FQHC outreach and was not meant to cover targeted, nonpublic advertising; FQHC outreach is distinct from general public advertising | PRM exclusion is applicable: FHCSD’s outreach promoted clinic presence/resources and increased utilization, so it falls within the exclusion | PRM advertising exclusion applies; outreach costs deemed akin to nonallowable patient‑recruitment advertising |
| Whether FQHC/HRSA grant requirements or federal guidance force reimbursement under Medi‑Cal | Outreach is required or endorsed by HRSA/FQHC program rules and federal letters, so Medi‑Cal should reimburse those costs | Grant requirements alone don’t convert a grant‑required activity into a Medicare/Medi‑Cal allowable cost; PRM and Medicare principles govern reimbursement | Grant/HRSA materials don’t override Medicare/Medi‑Cal cost principles; reimbursement not required solely because activity is grant‑mandated |
Key Cases Cited
- Robert F. Kennedy Medical Center v. Belshé, 13 Cal.4th 748 (discusses Medi‑Cal reimbursement methodology and interim/retroactive settlement process)
- Little Company of Mary Hospital v. Belshé, 53 Cal.App.4th 325 (procedure for Medi‑Cal tentative settlement and audit process)
- County of Kern v. State Dept. of Health Care Services, 180 Cal.App.4th 1504 (standard of review for administrative mandate challenging DHCS decisions)
- Hi‑Desert Medical Center v. Douglas, 239 Cal.App.4th 717 (de novo review for legal issues in administrative mandate matters)
- Oak Valley Hospital District v. State Dept. of Health Care Services, 53 Cal.App.5th 212 (agency deference limits where state agency interprets federal manuals/regulations)