Opinion
Statement of the Case and Facts
Under the Medi-Cal program, the amount hospitals are reimbursed for inpatient services provided to Medi-Cal recipients is limited by formulas set forth in the regulations implementing the program. Pursuant to statute and regulations, during the years 1989 and 1990, appellant received interim payments for inpatient services rendered to
Appellant was informed in August 1993 that the department had determined its liability for the years 1989 and 1990 to be $705,459.72 and $531,542.07, respectively. Appellant filed a request for an administrative adjustment. The department did not respond and by letter of December 3, 1993, appellant requested an administrative hearing. Settlement discussions led to agreement on some of the disputed issues and a reduction of appellant’s MIRL liabilities, and the matter proceeded to an administrative hearing.
At the hearing, appellant argued its high costs for 1989 and 1990 resulted primarily from three factors: Because it was a noncontracting hospital in a closed area its Medi-Cal intake was of emergency or otherwise acutely distressed patients; its operation of a “level two” trauma center increased its intake of acute patients requiring more intensive services; and changes in county policy caused an increase in its population of gravely disabled or dangerous psychiatric patients.
According to evidence presented at the administrative hearing, for MediCal purposes appellant was a noncontracting hospital in a closed area, meaning it could treat Medi-Cal patients only as emergencies and was required to transfer them after they were stabilized. The contract-based reimbursement system for Medi-Cal came into existence in about 1983. In 1985, appellant decided to upgrade its facility, which then operated a certified emergency room, to become a level two trauma center. The main difference between a certified emergency room and a level two trauma center is in the availability of personnel and services: A level two trauma center is required to have an in-house trauma surgeon and anesthesiologist 24 hours a day, an orthopedic and neurosurgeon standing by and available within 30 minutes, and an operating room on hold 24 hours a day. In January 1987, appellant entered into a contract with Alameda County to provide services as a trauma center and began operations as such. Once the trauma center was operational, all trauma patients from southern Alameda County were brought to Eden Hospital; previously, appellant had received ambulances from a smaller area.
Appellant offered involuntary psychiatric treatment during the 1980’s. Prior to late 1987/1988, involuntary psychiatric patients would be taken to the nearest basic emergency room and subsequently transferred if the facility did not have the capability to handle them. In late 1987/1988, the county changed its protocols to require these patients be taken only to facilities designated to handle these patients under Welfare and Institutions Code section 5150. This increased the number of involuntary psychiatric patients received by appellant. In late 1989 or early 1990, appellant increased its number of psychiatric beds from 17 to 33, with a corresponding decrease in the number of pediatric or medical-surgical beds.
Margaret Green, a registered nurse who had been the vice-president and senior vice-president for patient care services at Eden Hospital since 1980, testified that because appellant had never had a Medi-Cal contract, it received Medi-Cal patients as emergencies and was required to attempt to transfer them once they were stable. Green testified that the intensity of services required in the “golden hour” immediately after injury—the critical period in terms of survival rates—was very high. Once the patient was sufficiently stabilized for transfer, the intensity of services required in the receiving institution would be significantly lower than in the prestabilization period. Green testified that in the period after appellant became a trauma center, there was much more violent trauma than when it had done its feasibility study, as well as a higher incidence of unemployed, uninsured patients. Green also testified that there was an increase in severity of psychiatric patients received by appellant in 1989,
On cross-examination, Green acknowledged that the costs associated with becoming a trauma center—the on-site surgeon, anesthesiologist and equipment—were not new in 1989 as compared with 1988. Green testified that appellant averaged three to four trauma patients per twenty-four-hour period.
Dr. Brian Walker, who was the medical director of appellant’s trauma service from 1985 to 1991, testified that with respect to the 15 most expensive Medi-Cal cases for each of 1989 and 1990, the care given was appropriate, necessary and efficient, no unnecessary or medically inappropriate procedures were performed, and there were no unnecessary hospitalizations. Among the problems appellant faced with these patients, according to Walker, was the unavailability of beds at other facilities even after patients were sufficiently stable for transfer. With psychiatric patients, the situation was complicated by the need for the hospital to pursue conservatorship proceedings. Walker acknowledged that this need for conservatorship proceedings for involuntary psychiatric patients had existed in the years before 1989. Walker testified that after the institution of the trauma center, both the volume and the acuity of patients’ injuries increased. He further testified that the intensity of services required for trauma patients is greatest in the first day or so after injury.
Withbert Payne, president of a health care reimbursement firm, testified, among other things, that while Medi-Cal patients had had shorter hospital stays than non-Medi-Cal patients in 1980 and 1981, in 1989 and 1990 the hospital stays of Medi-Cal patients were 41 and 20 percent longer, respectively, than those of non-Medi-Cal patients. Payne also performed a regression analysis, comparing actual discharge costs in 1989 and 1990 with what those costs should have been by extrapolation from 1980, 1981 and 1982 (when “base year type Medi-Cal patient[s]” were treated). He testified this analysis showed the costs for 1989 and 1990 were much higher than they should have been by extrapolation from the earlier years.
The department presented the testimony of Terry Childress, a research analyst whose duties included reviewing appeals and administrative adjustments requesting relief from the maximum inpatient reimbursement level. Childress noted that appellant had no MIRL liability for the years 1981 through 1986 or for 1988. Comparing data from 1988, 1989 and 1990, Childress found that the percentage of trauma discharges to total Medi-Cal discharges was lowest in 1989 and highest in 1990, while appellant’s liability—the amount exceeding covered trauma charges—was highest in 1989, in the middle in 1990, and zero in 1988. Childress concluded there was no correlation between the percentages of trauma patients and actual liabilities incurred by the hospital. With respect to Payne’s testimony regarding the length of Medi-Cal patients’ hospitalizations, offered by appellant to show it was treating more acute Medi-Cal patients in 1989 and 1990, Childress noted that in two of the years for which appellant had no MIRL liability, 1984 and 1986, its ratio of Medi-Cal length of stay to non-Medi-Cal length of stay was even higher than in 1989 and 1990.
After the hearing, appellant’s appeal was granted with respect to a matter not at issue here (the department was directed to modify its formula regarding patients with longer than average hospital stays) and otherwise denied. As a result of its administrative appeal, appellant’s liability was reduced to a total of $337,514 for the years 1989 and 1990. Appellant filed a petition for writ of administrative mandate (Code Civ. Proc., § 1094.5) on March 12, 1996, seeking to compel the
Appellant filed a timely notice of appeal on June 19, 1997.
Discussion
Under the federal Medicaid Act, states are required to reimburse hospitals at rates that are “reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities . . . .” (42 U.S.C. former § 1396a(a)(13)(A).) Prior to the enactment of this standard, states were required to reimburse the “reasonable cost” of hospital services, defined as “the cost of services actually incurred by a hospital provider and otherwise allowable under Medicare.” (Robert F. Kennedy Medical Center v. Belshé (1996)
Under the regulations implementing the Medi-Cal program, the maximum in patient reimbursement limit for hospital inpatient services is the lesser of “(1) [c]ustomary charges[,] HO (2) [ajllowable costs determined in accordance with applicable Medicare standards and principles of reimbursement[, and] HO (3) [a]ll-inclusive rate per discharge.” (Cal. Code Regs., tit. 22, § 51536, subd. (a).)
A hospital may request an administrative adjustment to the all-inclusive reimbursement rate and peer group limitation. (§§ 51536, subd. (j), 51539, subd. (d)(3)(A).) The issues that may be resolved through an administrative adjustment regarding the all-inclusive
In ruling on a petition for writ of administrative mandamus, the trial court reviews the administrative record to determine whether the agency’s decision is supported by substantial evidence. (Sierra Club v. California Coastal Com. (1993)
The administrative law judge found that appellant was a noncontracting hospital in a closed area and could treat Medi-Cal patients only on an emergency basis; that appellant operated a level two trauma center and expanded its 17-bed locked psychiatric unit to 33 beds in 1989; that a level two trauma center is required to have an anesthesiologist, a trauma surgeon and specially trained supporting staff on duty at all times and to have an immediately available operating room for trauma patients; and that during the years at issue, appellant “served Medi-Cal patients who were more acute than the average patient served by [appellant] and more acute than the average Medi-Cal patient.”
As relevant to the present appeal, the administrative law judge found appellant had not met its burden of proving it was entitled to an administrative adjustment based on changes in its population (due to its status as a noncontracting hospital in a closed area, its operation of the level two trauma center, and its admission of involuntary psychiatric
Turning to the latter point first, there is plainly substantial evidence to support the administrative determination. Under section 51536, subdivision (j)(2)(A), one of the items that “may be resolved through an administrative adjustment” is “[t]he addition of new and necessary services.” According to the evidence adduced at the hearing, the start-up costs for the trauma unit were incurred prior to its beginning operations in 1987 and the equipment, space, and staffing of the unit have not changed significantly since then. Similarly, while appellant added psychiatric beds in late 1989/early 1990 (with a corresponding decrease in pediatric or medical-surgical beds), it had offered treatment for involuntary psychiatric patients for many years before the years at issue here. Following the decision of a different administrative law judge in a prior appeal by appellant concerning 1987, the decision here concluded that the institution of a level two trauma center and addition of psychiatric beds were upgrades of existing services and not additions of new and necessary services. Appellant does not argue this conclusion is unsupported.
Appellant does argue that the trial court incorrectly interpreted section 51536 as requiring appellant to prove the services for which it requested MIRL relief were “new” as well as “necessary.” The regulation refers to “new” services in subdivision (j)(2)(A), which, as indicated above, states that one of the items that may be resolved through an administrative adjustment is the “addition of new and necessary services.” Subdivision (j)(3)(B), however, provides that a request for an administrative adjustment must “specifically and clearly identify the issue and total dollar amounts involved,” and that “[t]he hospital shall demonstrate at least one of the following: nn • • . [IQ 1. Costs for which additional reimbursement is being requested are necessary, proper, and consistent with efficient and economical delivery of covered patient care services.” Appellant takes the position that as long as it makes the showing required by subdivision (j)(3)(B), it need not also prove the services in question were “new.”
Appellant portrays the record of the trial court hearing as demonstrating the court believed appellant was required to show the services for which it sought relief were new as well as necessary. At the hearing, the trial court indicated appellant had proved the treatment given to particular patients during the years in question was medically necessary and efficient; appellant argued it was not required to prove the services were “new and necessary”; and the department argued appellant had failed to meet its burden of demonstrating “increased cost that would have been incurred by an efficient, economically-operated facility” associated with the expanded psychiatric facility or institution of a level two trauma center. At the end of the hearing, the court stated: “[I]f [the department’s attorney] is right, he wins. I mean, if the legal standard is as he says it is, he wins. If it’s as you say it is, then you’re right. You win on substantial evidence. This is a legal issue, however the law comes out, if there is substantial evidence to support ruling for you or for him.”
Appellant interprets the trial court as saying the department would win if the legal standard required a showing that the services for which appellant sought relief from the MIRL were “new.” If this interpretation is correct, the trial court was wrong. Subdivision (j)(2) of section 51536 lists five issues that may be resolved through an administrative adjustment, of which “[t]he addition of new and necessary services” is only one. The fifth enumerated issue, “[ojther items affecting hospital costs,” is broad enough to encompass many issues that have nothing to do with addition of “new” services.
The trial court’s written decision did not say anything about a requirement of proving
In addition to rejecting appellant’s “new and necessary” argument, the administrative law judge found appellant had not met its burden of proving it was entitled to an administrative adjustment based on changes in its population. This is really the heart of the appeal, as appellant does not attempt to show the psychiatric and trauma services were new. Appellant urges it treated difficult and expensive Medi-Cal patients because its status as a noncontract hospital in a closed area meant it did not treat routine Medi-Cal patients but only emergency ones; its trauma center drew trauma cases from all of southern Alameda County rather than the smaller geographical area from which it had received emergency cases before institution of the trauma center; it received more acute involuntary psychiatric patients due to a change in county protocol concerning the facility to which these patients should be taken; and these patients often could not be transferred to appropriate other facilities.
As to appellant’s first point, the administrative decision noted that the change in appellant’s patient pool due to its being a noncontract hospital occurred some years before 1989 and 1990. Specifically, the contract-based reimbursement system for Medi-Cal came into existence in about 1983, yet appellant had MIRL liabilities for only one year between this time and 1989 (1987), including no MIRL liability in 1988, when appellant incurred a comparable proportion of trauma costs. Similarly, with respect to the involuntary psychiatric patients, while the county protocols changed in late 1987/1988, and at least some of the problems resulting in long stays for involuntary psychiatric patients existed in the years before 1989, appellant had no MIRL liabilities in 1985, 1986 or 1988. As for the increase in trauma patients received at Eden, Childress testified there was no correlation between the percentages of trauma patients and actual liabilities incurred by the hospital. Childress’s comparison of data from 1988, 1989 and 1990, indicated the percentage of trauma discharges to total Medi-Cal discharges was lowest in 1989, when appellant’s MIRL liability was highest; the percentage of trauma discharges was highest in 1990, when the MIRL liability was in the middle; and the percentage of trauma discharges was in the middle in 1988, when appellant’s MIRL liability was zero. With respect to Payne’s testimony regarding the length of Medi-Cal patients’ hospitalizations, offered by appellant to show it was treating more acute Medi-Cal patients in 1989 and 1990, Childress noted that in two of the years for which appellant had no MIRL liability, 1984 and 1986, its ratio of Medi-Cal length of stay to non-Medi-Cal length of stay was even higher than in 1989 and 1990.
Appellant argues on appeal that the administrative decision did not cite any evidence indicating inefficient treatment of the 1989 and 1990 patients and mentioned only the “claimed weakness of the least important evidence propounded by [appellant], a cost
The essence of appellant’s argument on appeal is that because it produced unrebutted evidence that the services rendered to the most expensive patients treated in 1989 and 1990 were medically necessary, reasonable, and did not involve unnecessary procedures or hospitalizations, it is entitled to full reimbursement for its costs. As explained in Robert F. Kennedy Medical Center v. Belshé, supra, 13 Cal.4th at pages 751-752, however, federal law requires that states reimburse hospitals only for “costs that would have been incurred by an efficient and economically operated facility, even if a provider’s actual costs were greater.” This standard was adopted to replace the previously existing requirement that providers be reimbursed for “reasonable” costs in “an effort to contain spiraling Medicaid costs for hospital services.” (Id., at p. 751.) In keeping with the current standard, section 51536, subdivision (j)(3)(B), requires a hospital to show not only that its costs were necessary and proper, but that they were “consistent with efficient and economical delivery of covered patient care services.”
In the present case, appellant presented unrebutted evidence that the care provided to the 30 most expensive patients in 1989 and 1990 was medically necessary and appropriate according to the standard of care applicable to the hospital, and that no unnecessary procedures or hospitalizations occurred. Dr. Walker also testified the care given was “efficient,” testimony which appellant takes to satisfy the requirement that it demonstrate its costs were “consistent with efficient and economical delivery” of services. Walker’s testimony, however, was both conclusory and ambiguous: His references to “efficiency” were never explicitly tied to financial costs as opposed to efficiency in the manner services were provided.
Moreover, in order to obtain an administrative adjustment, appellant was required to do more than satisfy section 51536, subdivision (j)(3)(B), alone. As a preliminary matter, appellant was required to show some “item[] affecting hospital costs” (or other factor enumerated in section 51536, subdivision (j)(2)) accounted for its increased costs in 1989 and 1990. This is apparent from the structure of the regulation, which first identifies the issues that may be addressed by
The judgment is affirmed.
Haerle, J., and Lambden, J., concurred.
Appellant’s petition for review by the Supreme Court was denied October 14, 1998.
Notes
The length of stay ratio was 72 percent in 1984, 42 percent in 1986, 8 percent in 1989 and 41 percent in 1990.
Appellant suggests in its reply brief that Childress acknowledged his own testimony did not “evidence[ ] anything.” What Childress actually said is that he did not believe appellant’s length of stay data “evidences anything.”
All further undesignated section references will be to the California Code of Regulations, title 22.
During a given year, hospitals receive interim payments “based upon the hospital provider’s historical rates of Medi-Cal reimbursement for costs.” (Robert F. Kennedy Medical Center v. Belshé, supra,
The length of stay ratio was 72 percent in 1984, 42 percent in 1986, 8 percent in 1989 and 41 percent in 1990.
Walker testified he did not find evidence of “unnecessary care or inefficient care” given to one patient about whom he testified; that the care to two others was “medically necessary, appropriately provided” and “appropriate and necessary;” and that the care given to the 30 patients generally was “appropriate care, it was necessary care, and it was provided in a timely and efficient manner.”
Similarly, appellant failed to show the department’s denial of its request for an administrative adjustment violated federal law, which at all times relevant to this case required state plans for medical assistance to provide payment for hospital services “which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities.” (42 U.S.C. former § 1396a(a)(13)(A).)
AppeIlant relies upon Whispering Pines Mobile Home Park, Ltd. v. City of Scotts Valley (1986)
Appellant also suggests the substantial evidence test does not apply at all to this case, because the administrative law judge made no finding adverse to appellant’s claim that the services rendered were medically necessary and efficient and an administrative decision may not be upheld on grounds upon which it did not rely. With regard to the latter point, appellant cites Vista Hill Foundation, Inc. v. Heckler (9th Cir. 1985)