ROBERT F. KENNEDY MEDICAL CENTER, Plaintiff and Appellant, v. KIMBERLY BELSHÉ, as Director, etc., Defendant and Respondent.
No. S042553
Supreme Court of California
Aug. 1, 1996
13 Cal.4th 748
OPINION
GEORGE, C. J.—Plaintiff Robert F. Kennedy Medical Center, a provider of hospital inpatient services under the California Medical Assistance Program (Medi-Cal), seeks a writ requiring the Director of the California Department of Health Services (Department) to rescind the Department‘s final settlement determining the amount of Medi-Cal reimbursement that is due plaintiff, because notice of the final settlement was issued more than three years after plaintiff submitted its cost reports for the years in question. Plaintiff contends that the provision in
We granted review to resolve a conflict between the decision reached by the Court of Appeal in the present case and the decision rendered by another division of the same Court of Appeal in Palmdale Hospital Medical Center v. Department of Health Services (1992) 8 Cal.App.4th 1306 [10 Cal.Rptr.2d 926] on this issue. For the reasons that follow, we conclude that
Accordingly, in the present case the Department complied with
The Medi-Cal program (
When originally enacted in 1965, the Medicaid Act required states to reimburse health care providers for the “reasonable cost” of hospital services rendered; the term “reasonable cost” was defined under federal standards to correspond to the cost of services actually incurred by a hospital provider and otherwise allowable under Medicare. (See Wilder v. Virginia Hospital Assn. (1990) 496 U.S. 498, 505, 507 [110 L.Ed.2d 455, 464, 465-466, 110 S.Ct. 2510]; California Hospital Ass‘n v. Obledo (9th Cir. 1979) 602 F.2d 1357, 1358;
In 1969, former section 14105 was amended to include, among other provisions, the following language: “Cost reports and other data submitted by providers to a state agency for the purpose of determining reasonable costs for services or establishing rates of payment shall be considered true and correct unless audited within eighteen (18) months after July 1, 1969, the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later.” (Stats. 1969, ch. 1274, § 1, pp. 2486-2487.)2 In 1973, section 14105 was amended again to extend the 18-month period governing the auditing process to 3 years. (Stats. 1973, ch. 856, § 1, p. 1548.) In 1977, the pertinent provisions of section 14105 were recodified as section 14170 (Stats. 1977, ch. 1046, § 6, pp. 3172-3173), discussed in detail, post.
In 1980 and 1981, in an effort to contain spiraling Medicaid costs for hospital services, Congress amended the Medicaid standard for hospital
In response to this change in Medicaid standards, the Department promulgated regulations imposing additional limits on the reimbursement available to a provider. The first, embodied in title 22 of the former California Administrative Code (now California Code of Regulations), section 51536 (enacted July 1, 1980), establishes a maximum reimbursement limit for hospital inpatient services, constituting the lesser of (1) customary charges, (2) allowable costs determined in accordance with applicable Medicare standards and principles of reimbursement, and (3) the “all-inclusive rate per discharge.” The “all-inclusive rate per discharge” established by section 51536 determines the maximum allowable average cost per Medi-Cal patient that is reimbursable. In calculating this maximum rate per patient treated, the provider is given full credit for certain costs, such as rents and property taxes (
The Department also promulgated California Administrative Code (now California Code of Regulations), title 22, section 51539 (issued November 1, 1982), which established a “peer group” limit prohibiting reimbursement at a rate per patient greater than the 60th percentile of the rate per discharge of the provider‘s “peer group,” established according to factors such as the size of the facility and the types of patients served. (
Under this methodology limiting total reimbursement, the Department retained the existing reasonable cost standard (in the form of the lesser of
In order to furnish hospitals with a cash flow sufficient to provide Medi-Cal services during a particular fiscal year, the Department is authorized to make interim payments based upon the hospital provider‘s historical rates of Medi-Cal reimbursement for costs. (
The Department then undertakes the calculations necessary to determine a final reimbursement settlement4 of Medi-Cal liabilities based upon the maximum inpatient reimbursement limit, incorporating the all-inclusive rate per discharge and the peer group limit, and utilizing the audited cost data as well as information from other sources. In this final settlement, the Department reconciles the amount of interim payments made with the maximum amount reimbursable under the regulations.
At the time of the final settlement, the hospital provider already has received interim payments corresponding to its historical rates of reimbursement for costs, as well as payments pursuant to the tentative and final audit settlements, if warranted. The Department must determine whether these payments exceed the additional limits imposed by the all-inclusive rate per
II
This case concerns the determination of reimbursement owed to plaintiff for Medi-Cal services provided during the years ending December 31, 1982, December 31, 1983, and December 31, 1985.
Plaintiff timely filed its cost reports for the years in question, and the Department issued its final audit report and its final audit settlement for each of the years in question in 1984, 1987, and 1988, respectively, all within three years of issuance of the cost reports. On July 12, 1990, the Department issued a notice of final reimbursement settlement that applied the all-inclusive rate per discharge and peer group limits pursuant to California Code of Regulations, title 22, sections 51536 and 51539. Under the final settlement, the Department sought to recoup from plaintiff substantial overpayments of Medi-Cal reimbursement moneys that had been paid to plaintiff on an interim basis for each of the years in question.
Following an administrative adjustment to the final reimbursement settlement,5 plaintiff filed a request for an administrative hearing for each of the periods in question, asserting, among other claims, that the July 12, 1990, final settlement—incorporating the adjustments reducing reimbursement under California Code of Regulations, title 22, sections 51536 and 51539—was untimely because it was not issued within three years of plaintiff‘s submission of its cost reports for the years in question. This claim was premised upon plaintiff‘s position that the three-year time limitation set forth in
On appeal, the Court of Appeal reversed, concluding that under
We granted the Department‘s petition for review to resolve the conflict between the published decisions of the Court of Appeal.
III
Since the date of enactment of this three-year time limitation (originally in 1973, in former Welfare and Institutions Code section 14105),
In construing the significance of the three-year limitation period, our primary objective is to ascertain and effectuate the legislative intent, turning first to the statutory language, giving effect to the ordinary meaning of the words employed. (Burden v. Snowden (1992) 2 Cal.4th 556, 562 [7 Cal.Rptr.2d 531, 828 P.2d 672].) “Where the words of the statute are clear, we may not add to or alter them to accomplish a purpose that does not appear on the face of the statute or from its legislative history.” (Id. at p. 562; California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 698 [170 Cal.Rptr. 817, 621 P.2d 856].) As the Court of Appeal recognized in Palmdale Hospital Medical Center v. Department of Health Services, supra, 8 Cal.App.4th at pages 1313-1314, under the plain statutory language of section 14170, “the sole consequence of the Department‘s failure to audit or review a provider‘s cost report or other data within three years is that such information ‘shall be considered true and correct.’ [Citation.] Plainly, unless one of the statutory exceptions applies, the Department cannot question the information submitted by the provider once the three-year period has expired. That restriction, however, does not address the utilization of the cost data submitted in determining the actual amount of reimbursement a provider shall receive.” (Italics added.) In other words, the statute requires that any audit of a provider‘s cost reports be conducted within three years, but does not state that the determination of a provider‘s “reasonable costs” based upon the cost reports must be made within this three-year period, nor does it require that the final determination of the Department‘s reimbursement liability be made within this period.
Thus, the statutory language reflects an apparent legislative intent simply to require the Department to perform an audit within three years from the date of the filing of the provider‘s cost reports.
The legislative history of the statute further clarifies the limited scope of the three-year time requirement under
With the Department‘s promulgation of the cost-containment measures in California Code of Regulations, title 22, sections 51536 and 51539, the audited cost report data—relating primarily to the determination of allowable costs—became only one factor in the final determination of reimbursement liability. Reimbursement now is based upon the lesser of the customary charges or allowable costs determined in accordance with Medicare standards and principles of reimbursement, limited by the all-inclusive rate per discharge and the peer group limits. (
Thus, the cost report data submitted by the provider at the close of each year constitutes only a portion of the information necessary for the final determination of the provider‘s Medi-Cal reimbursement. We may not assume that the Legislature intended to circumscribe the new reimbursement determination procedures (under the cost-containment formulae) within the
A telling indication that the Legislature recognized the distinction between the audit process and the final determination of the amount of reimbursement liability is found in the administrative appeal provisions of section 14171. That statute (as originally enacted in 1977, and currently) provides that “[t]he director shall establish administrative appeal processes to review grievances or complaints arising from the findings of an audit or examination made pursuant to Section []. . . 14170.” (
Subsequent to the promulgation of California Code of Regulations, title 22, sections 51536 and 51539,
If, as plaintiff contends, the audit process that must be completed within three years under
Instead, in amending
By its terms, however,
Finally, as stated previously, the Department—the administrative agency charged with implementation of the Medi-Cal program—consistently has interpreted the three-year time requirement under
Plaintiff acknowledges that, because the final reimbursement settlement generally will give rise to a provider‘s liability for repayment of Medi-Cal moneys, the Department‘s delay in reaching a final reimbursement settlement does not result in the withholding of moneys from the provider. Instead, the provider generally will reap the benefit of the interest-free use of
For the foregoing reasons, we conclude the three-year time requirement under
Plaintiff finally contends that in the event the three-year time requirement under
Because the Court of Appeal held that the three-year time limitation under
IV
The judgment of the Court of Appeal, directing issuance of the writ of mandate sought by plaintiff, is reversed, and the matter is remanded to the Court of Appeal with directions to conduct further proceedings consistent with the views expressed in this opinion.
Kennard, J., Baxter, J., Werdegar, J., Chin, J., and Brown, J., concurred.
Subdivision (a) of Welfare and Institutions Code section 14170—unlabeled statutory references are to this code—provides:
“(1) Amounts paid for services provided to Medi-Cal beneficiaries shall be audited by the department in the manner and form prescribed by the department. The department shall maintain adequate controls to ensure responsibility and accountability for the expenditure of federal and state funds. Cost reports and other data submitted by providers to a state agency for the purpose of determining reasonable costs for services or establishing rates of payment shall be considered true and correct unless audited or reviewed by the department within 18 months after July 1, 1969, the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later. Moreover the cost reports and other data for cost reporting periods beginning on January 1, 1972, and thereafter shall be considered true and correct unless audited or reviewed within three years after the close of the period covered by the report, or after the date of submission of the original or amended report by the provider, whichever is later.
“(2) Nothing in this section shall be construed to limit the correction of cost reports or rates of payment when inaccuracies are determined to be the result of intent to defraud, or when a delay in the completion of an audit is the result of willful acts by the provider or inability to reach agreement on the terms of final settlement.”
The statute is not a model of clarity. Cost reports are submitted to the department, however, “for the purpose of determining reasonable costs for services or establishing rates of payment . . . .” (
Naturally, as the last step in the audit process, a final settlement cannot be reached until the audit findings have been made. (See
The majority impose a double standard regarding the parties’ obligations. The state as reimburser is to be indulged, while the hapless Medi-Cal provider is to tolerate whatever delays or other burdens the former may impose. The Court of Appeal reasonably questioned whether the Legislature intended a process whereby a hospital would be dunned for payments made years earlier. “In its multiyear inpatient reimbursement settlement dated July 1990,” the appellate court explained, “the Department sought to recoup more than $400,000 for services rendered by Kennedy to Medi-Cal patients seven years earlier, in 1982; more than $800,000 for services rendered six years earlier, in 1983; and more than $200,000 for services four years earlier, in 1985. Few businesses could operate successfully if [their] financial position were to remain so long unknown and imperiled.” (Italics deleted.) By contrast, the majority appear to believe that the Legislature meant for providers to sustain the burden of open-ended delays in calculating final reimbursement. This is a strange view of commercial reality.
Even as the majority conclude that the Legislature intended to subject Medi-Cal providers to a harsh regime, they themselves manifest an avuncularly tolerant view of the department‘s obligations toward those enterprises. They appear to believe that the agency cannot reasonably be expected to settle a provider‘s account in three years. To be sure, the calculations required for final settlement appear to be complex. But at least some data are regularly and periodically obtainable. For example, the department must consider changes in consumer and producer price indices in calculating the sums due the provider. (
Finally, to put a quicker end to this litigation and allow the Legislature to address any resulting difficulties for health care enterprises, I would decide the question whether the three-year statute of limitations contained in
In a suggestion that probably is meant to be palliative, the majority propose that a provider may present a defense of laches. But plaintiff may be understood already to have said, as it were, “Thanks but no thanks.” The record contains its observation that the “suggestion . . . that the doctrine of laches may provide a remedy for a provider when its final settlement is delayed must be rejected as impracticable and unrealistic. Under [that] reasoning, in order to close its books each fiscal year, a hospital would have to retain an attorney to speculate whether sufficient time has expired since the submission of the cost report and other data such that a court would find prejudice if the Department were to issue a new liability after three years.”
The statutory scheme is, as stated, less than clear. But it is most unlikely that the Legislature intended to give the department years, perhaps decades, to settle an account. I would affirm the judgment of the Court of Appeal.