53 Cal.App.5th 212
Cal. Ct. App.2020Background
- Oak Valley Hospital District and Ridgecrest Regional Hospital (acute-care Medi-Cal providers) operated self-insured employee health plans that did not qualify under CMS Provider Reimbursement Manual §2162.7.
- Both hospitals included payments for in‑house medical services to their employees (paid through third‑party administrators drawing on provider‑funded accounts) in Medi‑Cal cost reports.
- DHS audited and disallowed all claims for in‑house employee treatment (while allowing payments to outside providers), concluding such self‑payments were not allowable costs.
- Administrative hearings produced conflicting testimony: DHS auditors (Peña, Juarez) treated in‑house payments as non‑costs; provider consultant Rodney Phillips testified the hospitals incurred actual, unreimbursed costs for in‑house care.
- Trial court granted writs of administrative mandate ordering DHS to allow the in‑house claims if reasonable; DHS appealed.
- The Court of Appeal affirmed, holding non‑qualifying plans may claim costs on a claim‑paid basis and the record supported the trial court’s factual findings that actual unreimbursed costs existed and were not categorically barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Are in‑house employee medical payments under a non‑qualifying self‑insurance plan categorically nonallowable? | Hospitals: §2162.7 does not categorically bar in‑house claims; non‑qualifying plans may seek claim‑paid reimbursement. | DHS: In‑house payments to self are not "real costs" and should be denied categorically. | Held: Rejected DHS; §2162.7 treats payments on a claim‑paid basis and does not distinguish in‑house vs third‑party claims; only general reasonableness rule applies. |
| 2) Were the specific in‑house claims unreasonable / double‑claimed (exceed actual cost)? | Hospitals: They incurred actual costs (time, supplies, facility) and did not double‑claim; cost reports did not include contractual adjustments. | DHS: Claimed billed charges, not actual costs, and argued providers would be over‑reimbursed or double compensated. | Held: Trial court findings that hospitals incurred unreimbursed actual costs are supported by substantial evidence; DHS failed to prove double compensation, and its factual assertions lacked administrative evidence. |
| 3) Do related‑party principles (arm's‑length/profit prohibition) bar these claims? | Hospitals: Not raised as a live administrative objection; third‑party administrators performed claims functions. | DHS: Payments to self violate related‑party principles and may inflate costs. | Held: Forfeited and undeveloped; DHS did not raise independence or related‑party issues at hearing or develop them on appeal, so claim rejected. |
| 4) Do PRM §§332, 332.1, 2144.4 (unrecovered cost/fringe‑benefit rules) require denial or different calculation of unrecovered costs? | Hospitals: §§332/332.1 apply to direct billing/discounts and do not apply where a plan/TPA pays claims; §2144.4 recognizes unrecovered employee medical cost as a fringe benefit. | DHS: Applied §332.1 methodology to remove in‑house claims and adjust per diem/cost‑to‑charge, asserting large fringe allowances existed. | Held: §§332/332.1 do not categorically prohibit claim‑paid recovery here; §332.1 examples show providers may claim actual unrecovered costs (not billed charges); DHS’s adjustments were not sustained on the record. |
Key Cases Cited
- Oroville Hospital v. Department of Health Services, 146 Cal.App.4th 468 (discusses §2162.7 and requirement of independent fiduciary for certain self‑insurance treatments)
- Kifle‑Thompson v. State Bd. of Chiropractic Examiners, 208 Cal.App.4th 518 (standards for appellate review of administrative writs)
- Community Care Foundation v. Thompson, 412 F.Supp.2d 18 (deference for CMS/Secretary interpretations of Provider Reimbursement Manual)
- Redding Medical Center v. Bonta, 115 Cal.App.4th 1031 (Medi‑Cal reimbursement must follow Medicare standards/principles)
- Foreman & Clark Corp. v. Fallon, 3 Cal.3d 875 (appellant’s duty to summarize facts fairly in favor of judgment)
- Mickelson Concrete Co. v. Contractors’ State License Board, 95 Cal.App.3d 631 (a single witness’s testimony can suffice as substantial evidence)