41 Cal.App.5th 163
Cal. Ct. App.2019Background
- Tulare County operates Tulare Pediatric Health Care Center, a federally qualified health center (FQHC) that participates in Medi‑Cal/Medicaid.
- Tulare contracted with Dr. Prem Kamboj to staff the clinic and paid him $106 per patient visit; the clinic reported total cost $167.85 per visit for prospective payment rate-setting.
- The State Department of Health Care Services audited the clinic (FY 2009–2010), demanded Kamboj’s records, made seven adjustments reducing "Physician Services Under Agreement" and lowered the Medi‑Cal per‑visit payment to $120.98.
- Tulare petitioned the superior court to set aside those audit adjustments and require the State to pay 100% of the clinic’s costs as required by 42 U.S.C. § 1396a(bb); the trial court granted relief.
- The Court of Appeal affirmed: federal law (and California law) requires the State to accept the clinic’s actual per‑visit contract payment as the center’s cost and to pay 100% of that cost; Medicare contractor‑cost reductions did not apply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 42 U.S.C. §1396a(bb)(4) requires payment of 100% of the FQHC’s costs per visit | §1396a(bb) mandates states pay 100% of the center’s costs; the center’s actual payment ($106/visit) is its cost | State contends "reasonable" cost principles allow reducing payments below the center’s contract payment; seeks deference based on CMS approval of State plan | Held: §1396a(bb) requires payment of 100% of the center’s costs; court independently construed the statute and affirmed relief to Tulare. |
| Whether the State may reduce payment by substituting the contractor’s underlying costs for the center’s contract payment | The contract payment is the center’s actual cost; related‑party exception does not apply here | State argued Medicare cost principles (42 C.F.R. pt. 413 and Provider Reimbursement Manual) permit using contractor’s costs instead of the center’s payment | Held: Rejection of substitution; part 413 either does not apply or supports paying the actual cost paid by the center; the related‑party exception is inapplicable. |
| Whether the court must defer to the State’s interpretation because CMS approved California’s State plan | Tulare: court should independently interpret federal law; CMS approval of the plan does not validate this specific application | State: CMS approval of the State plan supports deference to State’s interpretation and its audit adjustments | Held: Court refused to defer to the State; independent review applied. |
Key Cases Cited
- Armstrong v. Exceptional Child Ctr., 135 S. Ct. 1378 (U.S. 2015) (deference principles and federal Medicaid framework)
- Community Health Care Assn. of N.Y. v. Shah, 770 F.3d 129 (2d Cir. 2014) (context on Public Health Service Act grants and state reimbursement shortfalls)
- Three Lower Cntys. Cmty. Health Servs., Inc. v. Maryland, 498 F.3d 294 (4th Cir. 2007) (prospective payment system history for newer FQHCs)
- Orthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th Cir. 1997) (no deference to state agency interpretation of federal statute)
- Community Health Ctr. v. Wilson-Coker, 311 F.3d 132 (2d Cir. 2002) (deference owed to CMS interpretations of Medicaid law)
- Bonnell v. Medical Bd., 31 Cal.4th 1255 (Cal. 2003) (agency interpretation reviewed for clear error)
- Cassidy v. Cal. Bd. of Accountancy, 220 Cal.App.4th 620 (Cal. Ct. App. 2013) (independent review for pure statutory interpretation)
- Oroville Hosp. v. Dep’t of Health Servs., 146 Cal.App.4th 468 (Cal. Ct. App. 2006) (Medicare standards applied in hospital reimbursement context)