Opinion
B319712
05-30-2023
CEDARS-SINAI MEDICAL CENTER, Plaintiff and Appellant, v. HEALTH NET OF CALIFORNIA, INC., Defendant and Respondent.
Hooper, Lundy, & Bookman, Lloyd A. Bookman, Devin M. Senelick, Paul L. Garcia and Erin R. Sclar, for Plaintiff and Appellant. Morgan, Lewis &Bockius, Thomas M. Peterson, Molly Moriarty Lane, Mark W. Allen and David S. Yates, for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC723897, Terry A. Green, Judge. Affirmed.
Hooper, Lundy, & Bookman, Lloyd A. Bookman, Devin M. Senelick, Paul L. Garcia and Erin R. Sclar, for Plaintiff and Appellant.
Morgan, Lewis &Bockius, Thomas M. Peterson, Molly Moriarty Lane, Mark W. Allen and David S. Yates, for Defendant and Respondent.
MORI, J.
Plaintiff and appellant Cedars-Sinai Medical Center (Cedars) provided emergency and poststabilization services to Medi-Cal beneficiaries enrolled in the managed care plans of defendant-respondent Health Net of California (Health Net or defendant). Cedars is not within defendant's network of contracted providers, and Cedars subsequently filed suit against Health Net seeking its full-billed charges or the reasonable and customary value of the services provided for the poststabilization care it rendered to Health Net members.
The trial court sustained Health Net's demurrer to the complaint, concluding that: (1) Under Dignity Health v. Local Initiative Health Care Authority of Los Angeles County (2020) 44 Cal.App.5th 144, 152 (Dignity Health), an out-ofnetwork provider is only entitled to reimbursement for poststabilization services at state-set "All Patient Refined Diagnosis Related Group" or "APR-DRG" rates; and (2) the state law holding announced in Dignity Health is not preempted by federal law.
We agree, as set forth in Dignity Health, that the California Legislature has made clear its intention to apply the APR-DRG rates in the poststabilization context. Further, Cedars has failed to overcome the strong presumption against preemption in the Medicaid context which, by its very nature, is a cooperative state and federal effort.
We accordingly affirm the judgment.
PROCEDURAL AND FACTUAL SUMMARY
We summarize the allegations from the first amended complaint, the operative pleading for purposes of this appeal.
Cedars is a California licensed hospital providing acute inpatient and outpatient services in the city and county of Los Angeles. Health Net offers managed care health plans to residents of California, including those who participate in California's Medi-Cal program. Cedars has no contract with Health Net establishing rates for services provided to MediCal recipients enrolled in Health Net's managed care plans. As such, Cedars is "out-of-network" as to these plans. (See Dignity Health, supra, 44 Cal.App.5th at 150; Coast Plaza Drs. Hosp. v. Blue Cross of Cal. (2009) 173 Cal.App.4th 1179, 1183.) However, Cedars provided poststabilization services to Health Net members who presented through its emergency department.
B. First Amended Complaint
Cedars's first amended complaint (FAC), the operative pleading, alleged that Cedars provided services to Health Net Medi-Cal plan members after the conditions that brought them to the hospital's emergency department had been stabilized. Cedars alleged that Health Net did not transfer these stabilized plan members to in-network providers that have contracts with Health Net and instead either implicitly or expressly authorized Cedars to provide poststabilization services to them. Cedars alleged that Health Net was required to pay for the reasonable and customary value of the services rendered, which was either "(i) equal to [Cedars's] billed charges for the services at issue, or (ii) a rate to be determined at trial." Cedars alternatively alleged that even if the state-set APR-DRG rates were applicable, Health Net failed to pay, or underpaid, claims for services.
The FAC specifically alleged the following causes of action: (1) breach of implied-in-law contract (causes of action one through three); (2) breach of implied-in-fact contract (causes of action four through six); (3) common counts for services rendered (causes of action seven through nine); (4) violation of the Unfair Competition Law, Business &Professions Code section 17200 (tenth cause of action); and (5) declaratory relief (eleventh cause of action). Each contract cause of action was pled three times to accommodate three theories advanced by Cedars.
The first, fourth, and seventh causes of action alleged that Dignity Health was wrongly decided because it erroneously determined that out-of-network poststabilization services under Medi-Cal are to be paid at the state-set APR-DRG rates. The second, fifth, and eighth causes of action alleged that federal law preempts this application of the APR-DRG rate. The third, sixth, and ninth causes of action alleged that Health Net paid or underpaid under the APR-DRG rates. The tenth and eleventh causes of action (for unfair business practices and declaratory relief) were not tied to any specific theory but, as derivative claims, were dependent on the contract claims.
Cedars sought compensation for "millions of dollars in valuable health care services" it provided to patients enrolled in Health Net's managed care Medi-Cal plans.
C. Health Net's Demurrer to FAC
Health Net demurred to the FAC contending that: (1) the Dignity Health decision controlled the outcome of the case; (2) federal law did not preempt the state from requiring Cedars to accept the APR-DRG rates for out-of-network poststabilization care; and (3) that Cedars's claims concerning its Underpaid/Unpaid Claims were insufficiently pled.
Health Net also demurred to Cedars's original complaint but the parties stipulated to stay the case pending the court of appeal decision in Dignity Health.
D. Trial Court Ruling
On January 22, 2021, the trial court sustained Health Net's demurrer without leave to amend as to the causes of action under the first and second theories but overruled the demurrer as to the causes of action under the third theory. The trial court ruled that it was bound by the holding in Dignity Health and there was no conflict between federal and state law. The court found, however, that the pleading was sufficient as to the underpaid/unpaid claims.
Cedars sought writ review of the trial court's order, which we denied on June 9, 2021. (Cedars-Sinai v. Superior Court of Los Angeles County (June 9, 2021, B312406).)
We take judicial notice of that writ petition and our disposition. (Evid. Code, §§ 451, subd. (a), 452, subd. (a) & 459.)
On January 14, 2022, Cedars voluntarily dismissed its entire action with prejudice. The superior court clerk entered Cedars's dismissal on January 19, 2022, and this appeal was noticed on March 7, 2022 - within sixty days of the dismissal.
"Ordinarily, a plaintiffs voluntary dismissal is deemed to be nonappealable on the theory that dismissal of the action is a ministerial action of the clerk, not a judicial act." (Stewart v. Colonial Western Agency, Inc. (2001) 87 Cal.App.4th 1006, 1012.) "However, appellate courts treat a voluntary dismissal with prejudice as an appealable order if it was entered after an adverse ruling by the trial court in order to expedite an appeal of the ruling." (Ibid.; see also Austin v. Valverde (2012) 211 Cal.App.4th 546, 550-551 ["'[M]any courts have allowed appeals by plaintiffs who dismissed their complaints after an adverse ruling by the trial court, on the theory the dismissals were not really voluntary, but only done to expedite an appeal'"].) We find the latter exception applicable in this case and therefore proceed to the merits of this appeal. (Id. at pp. 550-552; cf. Gutkin v. University of Southern California (2002) 101 Cal.App.4th 967, 974-975.)
DISCUSSION
A. Standard of Review
Cedars brings this appeal on two grounds: First, the holding in Dignity Health, interpreting Welfare and Institutions Code section 14105.28 to conclude that APR-DRG rates apply to out-of-network services for hospital stabilization care, should be reconsidered and second, the trial court erred in holding that federal law does not preempt the application of APR-DRG rates to out-of-network providers. These are questions of law subject to our de novo review on appeal. (City of Torrance v. Southern California Edison Co. (2021) 61 Cal.App.5th 1071, 1084 [statutory interpretation]; Hood v. Santa Barbara Bank &Trust (2006) 143 Cal.App.4th 526, 535- 536 [federal preemption].) Furthermore, a ruling sustaining a demurrer is reviewed de novo. (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 836.)
B. Medicaid and Medi-Cal Law
1. The Basic Structure
In 1965, Congress established Medicaid by enacting Title XIX of the Social Security Act. (42 U.S.C. § 1396 et seq.; Medicaid Act). (Life Care Centers of America v. CalOptima (2005) 133 Cal.App.4th 1169, 1174; Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 809 (Olszewski).) Medicaid is a cooperative federal-state program that provides medical care to individuals "'whose income and resources are insufficient to meet the costs of necessary medical services.'" (Santa Rosa Memorial Hospital, Inc. v. Kent (2018) 25 Cal.App.5th 811, 815 (Santa Rosa).)
"'Under this system of "cooperative federalism," [citation] if a State agrees to establish a Medicaid plan... the Federal Government agrees to pay a specified percentage of "the total amount expended. as medical assistance under the State plan."'" (Olszewski, supra, 30 Cal.4th at p. 809.) A state that chooses to participate in Medicaid "must comply with federal requirements and administer its Medicaid program through a plan approved by the federal Centers for Medicare and Medicaid Services (CMS)." (Dignity Health, supra, 44 Cal.App.5th at p. 152.) In California, the State Department of Health Care Services (DHCS) is the state agency in charge of the Medi-Cal program. (Marquez v. State Dept. of Health Care Services (2015) 240 Cal.App.4th 87, 94 (Marquez).)
The Secretary of Health and Human Services has been given "'exceptionally broad authority to prescribe standards for applying certain sections of the Act,'" and the Secretary, in turn, has delegated rulemaking power to CMS. (Olszewski, supra, 30 Cal.4th at p. 810 & fn. 5.)
2. Emergency and Poststabilization Services under Medicaid and Medi-Cal
Under both federal and state law, a hospital with an emergency department must treat a patient with an emergency medical condition regardless of the patient's insurance status or ability to pay. (Dignity Health, supra, 44 Cal.App.5th at p. 152.)
"If the patient is enrolled in a managed care plan, whether through the Medi-Cal program or otherwise, state law requires the plan to reimburse the hospital for the emergency services even if the hospital is not within the plan's network of providers." (Dignity Health, supra, 44 Cal.App.5th at pp. 152-153.) Federal law similarly requires Medicaid managed care plans to compensate out-of-network hospitals for emergency services provided to beneficiaries enrolled in the plans. (Id. at p. 153.) Once the emergency condition is stabilized, any resulting medically necessary care provided thereafter is referred to as poststabilization care. (Ibid.)
"Unlike emergency services . . . a managed care plan is not automatically required to reimburse an out-of-network hospital for poststabilization services, and may instead require the out-of-network hospital to obtain the plan's prior authorization." (Dignity Health, supra, 44 Cal.App.5th at p. 153.) However, if an out-of-network hospital requests such authorization, "the plan must within 30 minutes either authorize the poststabilization care or inform the out-ofnetwork hospital that the plan will transfer the patient to another hospital. [Citation.] If the plan fails to notify the out-of-network hospital of its decision within 30 minutes, 'the poststabilization care shall be deemed authorized,' and the hospital is entitled to reimbursement from the plan." (Id. at p. 153.) Federal regulations establish similar requirements specific to Medicaid, providing that Medicaid managed care plans are financially responsible for poststabilization services "they expressly have authorized, or have implicitly authorized by failing to respond to the hospital's authorization request within one hour." (Ibid.)
3. Medi-Cal Fee Structures: Fee-for-Services and Managed Care
Medi-Cal beneficiaries in the fee-for-service system may obtain services "from any provider that participates in Medi-Cal, is willing to treat the beneficiary, and is willing to accept reimbursement from DHCS at a set amount for the services provided." (Marquez, supra, 240 Cal.App.4th at p. 94.) Under this system, the state reimburses health care providers directly for each covered service. (Ibid.)
In the managed care system, "DHCS contracts with health maintenance organizations (HMOs) and other managed care plans [such as defendant] to provide health coverage to Medi-Cal beneficiaries, and the plans are paid a predetermined amount for each beneficiary per month, whether or not the beneficiary actually receives services. The beneficiary then obtains medical services from a provider within the managed care plan's network." (Marquez, supra, 240 Cal.App.4th at p. 94.)
Although a state plan must specify comprehensively the methods and standards used by the state agency to set payment rates, federal law does not require a particular methodology or form of reimbursement. (Santa Rosa, supra, 25 Cal.App.5th at pp. 815-816.) "'Each State participating in Medicaid has unique, local interests that come to bear. The Secretary must be free to consider, for each State, the most appropriate way for that State to demonstrate compliance.'" (Id. at p. 816, quoting Managed Pharmacy Care v. Sebelius (9th Cir. 2013) 716 F.3d 1235, 1249.)
"'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. [citation] '[I]n practice[,] hospitals were reimbursed for whatever cost they had incurred. There was little incentive to contain cost or produce needed services efficiently.' [¶] Federal law no longer mandates reimbursement of costs. [citation] Federal law now requires 'a (Fn. is continued on the nextpage.)
4. APR-DRGPayment Methodology
In 2010, the California Legislature enacted Welfare and Institutions Code section 14105.28, to create a new fee-for-service methodology for inpatient hospital reimbursement known as diagnosis-related group payments. (Dignity Health, supra, 44 Cal.App.5th at pp. 153-154; § 14105.28, subd. (a) ["'It is the intent of the Legislature to design a new Medi-Cal inpatient hospital reimbursement methodology based on diagnosis-related groups'"].)
Undesignated statutory citations are to the Welfare and Institutions Code.
"Subdivision (b)(1)(A)(i) directs DHCS to 'develop and implement' the new payment methodology, 'subject to federal approval.' Subdivision (b)(1)(B) states that' [t]he diagnosis-related group-based payments shall apply to all claims, except claims for psychiatric inpatient days, rehabilitation inpatient days, managed care inpatient days, and swing bed stays for long-term care services, provided, however, that psychiatric and rehabilitation inpatient days shall be excluded regardless of whether the stay was in a distinct-part unit. The department may exclude or include other claims and services as may be determined during the development of the payment methodology. (Italics added.)'" (Dignity Health, supra, 44 Cal.App.5th at pp. 153-154.) substantive result,' not a particular methodology or form of reimbursement.'" (Santa Rosa, supra, 25 Cal.App.5th at p. 816.)
The APR-DRG methodology has been approved by the CMS, and Cedars does not argue otherwise. However, according to Cedars, the fact that section 14105.28 excludes "managed care inpatient days" means that Cedars's treatment of Health Net's managed care enrollees is not subject to the APR-DRG methodology. Cedars further argues that any interpretation to the contrary is preempted by federal law.
In its FAC, Cedars-Sinai acknowledged that "CMS has approved a wide range of payment methodologies for Medicaid [fee-for-service] base rates" and that "a majority of states, like California, have adopted payment methods based on diagnosis-related groups ('DRGs'), wherein hospitals are paid a fixed amount per discharge, with outlier payments for especially costly cases." The trial court in this case granted judicial notice of CMS's approval of California's Medicaid state plan including updated parameters for the APR-DRG payment parameters for state fiscal year 2019-2020.
C. State Law Claim
In Dignity Health, our colleagues in Division One held that APR-DRG rates apply to out-of-network services for hospital stabilization care and the exception to APR-DRG rates for "managed care inpatient days" set out in section 14105.28, does not exempt non-contract/out-of-network stays from these rates. (Dignity Health, supra, 44 Cal.App.5th at pp. 159-165.) In reaching this conclusion under state law, the court found it unnecessary to address the managed care plan's additional contention that federal regulations (through a complex series of cross-referencing and analogizing to Medicare) mandate that out-of-network providers of poststabilization services accept the fee-for-service rates set by the state. (Id. at pp. 158-159.) However, in light of the legislative backdrop for implementation of the APR-DRG rates, and the Legislature's stated intention to establish its fee rates in accordance with federal law in the emergency and poststabilization context, Dignity Health referenced both state and federal law throughout its discussion. We summarize some of that discussion below.
The plaintiff/hospital in Dignity Health countered that federal law is silent on the matter of what rate is to be paid for such services and, as such, necessarily leaves it to the states to make this determination. (Dignity Health, supra, 44 Cal.App.5th at pp. 158-159.) A group of hospitals filed an amicus curiae brief in support of plaintiff and added the preemption argument raised by Cedars-Sinai in this case - i.e. that a federal regulation prohibiting states from directing a managed care's expenditures prevents California from mandating that out-of-network poststabilization services be paid at the APR-DRG (or any other) rate. (Dignity Health, supra, 44 Cal.App.5th p. 166.) Because this argument was not raised or argued by the plaintiff on appeal, the court in Dignity Health declined to consider it. (Ibid.) We consider it in this appeal.
1. Payment Rules Prior to Imp fomentation of APR-DRG Rates
As explained in Dignity Health, prior to September 2008, California law did not set rates for out-of-network poststabilization care provided to Medi-Cal managed care patients. (Dignity Health, supra, 44 Cal.App.4th at p. 160.) Instead, "payment for these services . . . was determined under principles of quantum meruit." (Ibid.) Thus, for example, in Children's Hospital Central California v. Blue Cross of California (2014) 226 Cal.App.4th 1260 (Children's Hospital), the court held that out-of-network poststabilization services provided prior to September 2008 entitled the hospital to "'the reasonable and customary value'" of its poststabilization services pursuant to California Code of Regulations, title 28, section 1300.71, subdivision (a)(3)(B), which is a claims settlement regulation applying to medical services provided to enrollees in managed care plans in general, both Medi-Cal and otherwise. (Children's Hospital, supra, at p. 1271; see also Dignity Health, supra, 44 Cal.App.5th at pp. 160-161 [discussing and explaining Children's Hospital].) Children's Hospital held that the "reasonable and customary value" standard "embodies the concept of quantum meruit" and that the agency adopting the regulation, the Department of Managed Health Care, intended that "value disputes be resolved by the courts." (Id. at pp. 1273-1274.)
This changed in 2008, when the Legislature enacted (now former) section 14091.3. (Dignity Health, supra, 44 Cal.App.5th at p. 160, citing Stats. 2008, ch. 758, § 42.) Section 14091.3, subdivision (c) defined the payment amounts a hospital must accept for certain out-of-network services, including emergency and poststabilization services. (Dignity Health, at p. 160, fn. 14.)
As explained in Dignity Health, former section 14091.3 was enacted "'to comply with federal law limits on emergency care charges to Medicaid managed care plans'" and to ensure payment for "'poststabilization services following an emergency admission . . . [were] consistent with subdivision (e) of Section 438.114 of Title 42 of the Code of Federal Regulations.'" (Dignity Health, supra, 44 Cal.App.5th at pp. 161-162 &fns. 14-16.)
The federal law in reference to both emergency care and poststabilization care on these two points is as follows:
As to emergency care, "[i]n 2006, Congress amended title XIX to specify the payment amounts to which out-ofnetwork providers were entitled for emergency services" by providing that "out-of-network providers are compensated for the emergency care of managed care patients at the same rate the providers would receive under a fee-for-service system." (Dignity Health, supra, 44 Cal.App.5th at pp. 155156; citing 42 U.S.C. § 1396u-2(b)(2)(D) § 6085 (Feb. 8, 2006), 120 Stat. 4.).)
As to poststabilization care, Title XIX is silent on the rate of payment for poststabilization services, but CMS has promulgated one regulation pertaining to Medicaid poststabilization services, 42 Code of Federal Regulations part 438.114(e) which states, "Poststabilization care services are covered and paid for in accordance with provisions set forth at [42 Code of Federal Regulations] § 422.113(c) of this chapter. In applying those provisions, reference to 'MA organization' and 'financially responsible' must be read as reference to the entities responsible for Medicaid payment, as specified in paragraph (b) of this section, and payment rules governed by Title XIX of the Act and the States." (42 C.F.R. § 438.114(e); see also Dignity Health, supra, 44 Cal.App.5th at p. 156 &fn. 6.)
As explained in Dignity Health, the reference to "MA organization" and "financially responsible" in section 422.113(c) addresses the fact that section 422.113(c) is a Medicare regulation and "thus some substitution of terms is necessary to render it applicable in the Medicaid context." (Dignity Health, supra, 44 Cal.5th at p. 156.) Medicare rules require that providers accept fee-for-service rates for out-ofnetwork services. (Id. at p. 158.)
In 2016, the CMS commented that some had construed section 438.114(e) as literally requiring payment for out-ofnetwork services under Medicaid at the Medicare rates and clarified that section 422.113 "was only intended to require coverage of post-stabilization in accordance with the provisions at § 422.113(c) of this chapter but not to mandate a payment rate using Medicare standards." (81 Fed.Reg. at 27749 (May 6, 2016).) At the same time, CMS added the phrase "and payment rules governed by Title XIX of the Act and the States," and that language exists in the current version of section 438.114(e). (81 Fed. Reg 27877 (May 6, 2016); Dignity Health, supra, 44 Cal.5th at pp. 156-157, fns. 6 &9.)
The defendant in Dignity Health argued (and the trial court accepted) that under these regulations, poststabilization care for out-of-network providers must be paid at the fee-for-service rates, just as in the Medicare context. However, the plaintiff countered that such an interpretation required too much transposition of Medicare rules and argued instead that under the phrase "'payment rules governed by ... the States'" the matter is left to state regulation. (Dignity Health, supra, 44 Cal.App.5th at p. 159.)
Although the court in Dignity Health found it unnecessary to resolve this dispute, it noted that California in 2008 apparently interpreted the federal law in the same manner as defendant and that between 2008 and 2012, the DHCS issued annual "All Plan Letters" applying the same base fee-for-service rates for poststabilization services (with some specified exemptions) as it did for emergency services. (Dignity Health, supra, at pp. 161-162.)
Section 14091.3 contained a sunset provision repealing itself as of January 1, 2011, unless a statute enacted before the sunset date deleted or extended that date; the Legislature subsequently extended the sunset date in 2010 and 2011. (Dignity Health, supra, 44 Cal.App.5th at pp. 161-1162; citing Former § 14091.3, subd. (f); Stats. 2010, ch. 717, § 147; Stats. 2011, ch. 3, § 92.)
The Legislature "last amended former section 14091.3 in 2012, in anticipation of the implementation of the APR-DRG rates pursuant to section 14105.28 and added subdivision (c)(2) to former section 14091.3 stating that' [t]he rates ... for emergency inpatient services and poststabilization services [listed in former section 14091.3] shall remain in effect only until [DHCS] implements the payment methodology based on diagnosis-related groups pursuant to Section 14105.28.'" (Dignity Health, supra, 44 Cal.App.5th at p. 162; quoting Stats. 2012, ch. 23, § 81.) A new subdivision (c)(3) further stated that, "'[u]pon implementation of' the APR-DRG methodology, 'any [out-ofnetwork] hospital ... shall accept as payment in full for inpatient hospital services, including both emergency inpatient services and poststabilization services related to an emergency medical condition, the payment amount established pursuant to the methodology developed under Section 14105.28.'" (Ibid.)
Finally, the Legislature amended former section 14091.3's sunset provision, now labeled subdivision (g), to state that section 14091.3 "'shall become inoperative on July 1, 2013, and, as of January 1, 2014, is repealed,' absent enactment of a statute deleting or extending those dates. DHCS implemented the APR-DRG methodology 'on or about July 1, 2013.'" (Dignity Health, supra, 44 Cal.App.5th at p. 162; DHCS, MMCD All Plan Letter No. 13-004, Feb. 12, 2013.) The Legislature took no further action regarding former section 14091.3, which under its own terms became inoperative on July 1, 2013, and repealed on January 1, 2014. (Dignity Health, supra, 44 Cal.App.5th at p. 162.)
The trial court in our case took judicial notice of the 2013 All Plan Letter issued by the DHCS.
2. Dignity Health Analysis
Based on this legislative backdrop, Dignity Health reasoned as follows: "The 2012 amendments to former section 14091.3 make clear the Legislature's intent to apply the APR-DRG rates to out-of-network inpatient poststabilization services in place of the rates implemented under former section 14091.3. The Legislature expressly so stated and amended former section 14091.3 to become inoperative on the same date DHCS implemented the APR-DRG rates. We must interpret section 14105.28 'consistent with the Legislature's apparent purpose and intention.' [citation] Thus, we conclude . . . that section 14105.28, subd. (b)(1)(B)'s exclusion of 'managed care inpatient days' from the APR-DRG rates excludes inpatient poststabilization care provided under a managed care contract, i.e., in-network care. In sum, out-of-network inpatient poststabilization care is subject to the APR-DRG rates." (Dignity Health, supra, 44 Cal.App.5th at p. 162.)
The court pointed out that its interpretation was also consistent with the statement of legislative intent in section 14105.28, subdivision (a) itself, which lists 10 goals the Legislature hoped to "'more effectively ensure[]'" through the APR-DRG methodology, including "'[improvement of fairness so that different hospitals receive similar payment for similar care and payments to hospitals are adjusted for significant cost factors that are outside the hospital's control'"; "' [e]ncouragement of administrative efficiency and minimizing administrative burdens on hospitals and the Medi-Cal program'"; and "'[simplification of the process for determining and making payments to the hospitals. '" (Dignity Health, supra, 44 Cal.App.5th at p. 163, quoting § 14105.28, subd. (a)(4), (5), (7).)
3. We Agree with Dignity Health
We agree with the court in Dignity Health that the Legislature expressed its intent to apply the APR-DRG rates to poststabilization rates provided by out-of-network hospitals and accordingly adopt its reasoning as our own. (Dignity Health, supra, 44 Cal.App.5th at pp. 162-165.)
In this appeal, Cedars challenges the Dignity Health decision by asserting some of the same arguments rejected in Dignity Health. First, Cedars argues that the plain meaning of section 14105.28's exclusion of "managed care inpatient days" is unambiguous and means that any poststabilization services to a Medi-Cal beneficiary enrolled in a managed care plan is excluded from the APR-DRG rate. However, the more plain and reasonable interpretation is that the term "managed care inpatient days" refers to services provided by hospitals that are within the network of a managed care plan. (Dignity Health, supra, 44 Cal.App.5th at p. 162.)
We also agree with the observation that the constitutional provisions that prevent state interference with contract obligations may provide another reason why the Legislature would choose to exempt in-network (i.e. under contract) days from application of the APR-DRG methodology. (Dignity Health, supra, 44 Cal.App.4th at p. 164.)
Second, Cedars argues that by permitting former section 14091.3 to sunset, the Legislature chose to abandon its intention to have the new APR-DRG rates apply to both out-of-network emergency and poststabilization services. However, "[t]o accept [Cedars's] interpretation of the Legislative history . . . would require us to conclude that the Legislature, having set specific payment rates for out-ofnetwork poststabilization services beginning in 2008, and having stated its intention to continue setting those rates under the new APR-DRG methodology, suddenly reversed course completely, not through any affirmative act but merely by allowing former section 14091.3 to sunset on its own terms." (Dignity Health, supra, 44 Cal.App.5th at p. 163.)
Third, Cedars asserts that "[s]ection 14105.28 should be interpreted to not apply to out-of-network days because if it did apply to out-of-network days, it could be unconstitutional." Cedars provides no supporting argument or authority for this position, and we therefore deem the argument forfeited. (See Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852 ["An appellant must provide an argument and legal authority to support his [or her] contentions"].)
Finally, and in light of the procedural posture of this case (i.e. Cedar's voluntary dismissal of the underpaid/unpaid claims), we add the following observation:
In its briefing before this court, Cedars repeatedly asserts that Health Net is paying only the "bargain basement" rate for services rendered and argues that adopting the holding in Dignity Health will leave Cedars without "adequate compensation" for patients who are often "vulnerable and have complex medical needs" However, in its FAC, Cedars acknowledged that the APR-DRG allows for "outlier payments for especially costly cases" and further noted that a state may make "supplemental payments" in addition to paying any "base" fee-for-service rates. Cedars then separately alleged that Health Net failed to pay the "full" Medi-Cal fee-for-service rate, which includes such supplemental payments. Given these non-litigated payment issues, Cedars's assumption in this appeal that application of the APR-DRG rates necessarily leads to "bargain basement" rates or "inadequate compensation," has not been substantiated.
We further note that the CMS approval letter of California's APR-DRG 2019-2020 rates includes various "policy adjustors" and "cost outlier payments." While section 14105.28 includes a wide range of factors to be considered in setting the APR-DRG rates.
Alternatively, Cedars argued in its FAC that in the absence of the APR-DRG rates, it was entitled to "the reasonable and customary value" of its services under California Code of Regulations, title 28, section 1300.71, subdivision (a)(3). However, it is not entirely clear that the "reasonable and customary value" under section 1300.71 is necessarily a different value than that set by the Medi-Cal fee schedule rates. (Cf. Allied Anesthesia Medical Group, Inc. v. Inland Empire Health Plan (2022) 80 Cal.App.5th 794, 811-812.)
In a similar vein, the court in Dignity Health questioned the assumption that if APR-DRG rates are applied to out-of-network poststabilization services, then a managed care plan would have no incentive to transfer a patient. The court noted "[i]t is conceivable a plan might have a contracted rate with an in-network hospital below the APR-DRG rates for particular services, or that there might be other reasons besides cost for the plan to transfer the patient." (Dignity Health, supra, 44 Cal.App.5th at p. 165.) The court ultimately concluded any such policy concerns were "for the Legislature to address." (Ibid.) To the extent the same policy issues are raised by Cedars here, we agree.
D. Preemption Claim
Cedars contends that if section 14105.28(b)(1)(B) does not exempt its poststabilization services from rate regulation as Dignity Health holds, the resulting rule of state law is preempted by federal law, specifically 42 C.F.R. § 438.6(c). We disagree.
1. Governing Principles
The supremacy clause of the United States Constitution vests Congress with the power to preempt state law. (Brown v. Mortensen (2011) 51 Cal.4th 1052, 1059 (Brown).) "A federal statute or regulation may preempt state law in three situations, commonly referred to as (1) express preemption, (2) field preemption, and (3) conflict preemption. "'"First, Congress can define explicitly the extent to which its enactments pre-empt state law." [Citations.] "Second, in the absence of explicit statutory language, state law is pre-empted where it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively." [Citations.] "Finally, state law is preempted to the extent that it actually conflicts with federal law."" (Olszewski, supra, 30 Cal.4th at p. 814.)
"'"In all pre-emption cases, and particularly in those in which Congress has 'legislated ... in a field which the States have traditionally occupied,' ...we 'start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.'"'" (Brown, supra, 51 Cal.4th at p. 1060.) This presumption applies here, because public health and the costs of medical care are subjects traditionally regulated by the states. (Olszewski, supra, 30 Cal.4th at p. 815). This is so even though California enacted these statutes as part of its implementation of the federal Medicaid program. (Id. at pp. 815-816.)
In addition, where Congress has enacted legislation pursuant to its spending power, as it has here, Congress must "speak with a clear voice" in order for preemption to apply. (Pennhurst State School &Hosp. v. Halderman (1981) 451 U.S. 1, 17; Olszewski, supra, 30 Cal.4th at p. 817 ["In exercising its spending power, Congress must unambiguously state that it is imposing an obligation and clearly define the scope of that obligation"].)
"In light of this need for congressional clarity and the presumption against preemption, any ambiguity in the Medicaid statutes and regulations must be construed against preemption." (Olszewski, supra, 30 Cal.4th at p. 815.)
2. Analysis
In support of preemption, Cedars relies on the language in 42 C.F.R. § 438.6(c) which states, in part:
"(c) Delivery system and provider payment initiatives under MCO, PIHP, or PAHP contracts
(1) General rule. Except as specified in this paragraph (c), in paragraph (d) of this section, in a specific provision of Title XIX, or in another regulation implementing a Title XIX provision related to payments to providers, that is applicable to managed care programs, the State may not direct the MCO's, PIHP's or PAHP's expenditures under the contract."
(42 C.F.R. § 438.6(c)(1), emphasis added.)
Cedars argues that the term "'may not direct the [MCP's] . . . expenditures'" is "unambiguous" and means that "the state cannot regulate what [managed care plans] pays out." As such, if section 14105.28 is interpreted in a manner consistent with Dignity Health, "[t]he two authorities . . . cannot coexist, and there is conflict preemption." We disagree.
As aptly noted by the trial court, section 438.6 provides that when the state "signs a contract with a managed care provider . . . it cannot tell the [managed care] insurer how and when to spend its money" absent express provisions stating otherwise. However, the language cited in section 438.6 does not address or prevent the state from capping what providers like Cedars may charge for non-contracted services provided to Medi-Cal beneficiaries. As such, there is no conflict between these two laws. (Cf. Olszewski, supra, 30 Cal.4th at p. 826 [concluding federal Medicaid regulations preempted state lien provision because "federal law is not ambiguous and unequivocally prohibits California from authorizing provider recovery on liens against the entire judgment or settlement obtained by a Medicaid beneficiary from a third party tortfeasor"], italics added.)
Cedars also argues preemption applies because the federal Medicaid statutes and regulations are silent on the payment rate for out-of-network poststabilization services and "if Congress or CMS wanted to draft a statute or regulation that clearly and unambiguously requires a certain payment rate in Medicaid, Congress or CMS could have and would have." While these arguments may be relevant or persuasive in circumstances where Congress has clearly indicated an intent to occupy an entire field, they are inadequate to overcome the strong presumption against preemption in the context of Medicaid-related statutes and regulations. (Olszewski, supra, 30 Cal.4th at pp. 815-816.)
In sum, Cedars has failed to establish that section 14105.28, as interpreted in Dignity Health, is preempted by federal law.
As in Dignity Health, we need not here address whether the federal regulations (through references to Medicare provisions) mandate that states apply fee-for-service rates to out-of-network poststabilization care - one of several arguments advanced by Health Net to counter Cedars's preemption claims; cf. Dignity Health, supra, 44 Cal.App.5th at p. 158-159. In failing to identify any provisions that unambiguously prohibit the state from setting rates in the (out-of-network) poststabilization context, Cedars-Sinai has failed to meet its burden of establishing preemption. (Olszewski, supra, 30 Cal.4th at p. 826.)
DISPOSITION
The judgment is affirmed. Health Net shall recover its costs on appeal.
We concur: CURREY, Acting P.J. ZUKIN, J. [*]
[*] Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to Article VI, section 6, of the California Constitution.