Opinion
B301314
03-15-2021
DEANCO HEALTHCARE, LLC, dba MISSION COMMUNITY HOSPITAL, Plaintiff and Appellant, v. XAVIER BECERRA et al., Defendants and Respondents.
Garner Health Law Corporation and Craig B. Garner for Plaintiff and Appellant. Xavier Becerra, Attorney General, Thomas S. Patterson, Assistant Attorney General, Benjamin M. Glickman and Seth E. Goldstein, Deputy Attorneys General, for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BS173655) APPEAL from a judgment of the Superior Court of Los Angeles County, James C. Chalfant, Judge. Affirmed. Garner Health Law Corporation and Craig B. Garner for Plaintiff and Appellant. Xavier Becerra, Attorney General, Thomas S. Patterson, Assistant Attorney General, Benjamin M. Glickman and Seth E. Goldstein, Deputy Attorneys General, for Defendants and Respondents.
In September 2010, appellant Deanco Healthcare LLC (Deanco) received permission from respondent, the Attorney General of California (AG), who has supervisorial authority over such matters under the Nonprofit Hospital Transfer Statute (Corp. Code, §§ 5914-5925), to purchase Mission Community Hospital (Hospital) from a nonprofit corporation. The AG's approval was subject to specific conditions, one of which (Condition X) obligated the Hospital to continue providing a minimum amount of "charity care" services to the community it served for six years after Deanco's purchase. Another condition (Condition XI), which is at issue here, provided that, in the event the Hospital failed to meet this annual threshold amount of charity care, Deanco would be required to make up the deficiency by making monetary payments to a nonprofit public benefit corporation for the provision of direct medical care to residents in the community served by the Hospital. Deanco began operating the Hospital in October 2010.
California has had three Attorneys General during the times relevant here. For the sake of simplicity, we refer only to the current occupant of that office, Xavier Becerra.
Further undesignated statutory references are to the Corporations Code.
"Charity care costs," discussed in more detail below, refer to those costs incurred by hospitals, in connection with the provision of health care, in the form of "an allowance that is applied after the hospital's charges are imposed on the patient, due to the patient's determined financial inability to pay the charges." (Health & Saf. Code, § 127400, subd. (a).)
Meanwhile, in March 2010, six months before the AG's approval of the sale, Congress enacted what is colloquially known as "Obamacare," the Patient Protection and Affordable Care Act, Pub.L. 111-148 (March 23, 2010), 124 Stat. 119 (ACA). Its express purpose was to significantly reduce the number of uninsured and underinsured Americans.
Deanco finalized the purchase of the Hospital in July 2013. Thereafter, the amount of charity care provided by the Hospital declined drastically, resulting in Deanco's obligation to pay millions of dollars to a public benefit corporation providing direct medical care.
In 2017, Deanco requested that the AG decrease the charity care obligations of Condition XI by more than 52 percent. For Deanco to receive such a modification, the regulations implementing the Nonprofit Hospital Transfer Statute (Cal. Code Regs., tit. 11, § 999.5), required Deanco to show "a change in circumstances that could not have reasonably been foreseen at the time of the [AG]'s action." (Id., subd. (h)(1).) Deanco also had to demonstrate the efforts it had made to avoid the need for a modification. In its modification request, Deanco asserted that the decrease in its charity care work and the resultant increase in its compensating payments to a public benefit corporation were caused by the success of the ACA, which "no one could have anticipated" in September 2010 when the AG approved the sale and imposed Condition XI, and which could not have been avoided by Deanco. The AG denied Deanco's request without stating any reasons.
Further references to "section 999.5" are to the California Code of Regulations, title 11, section 999.5.
Deanco filed a petition for writ of mandate (Code Civ. Proc., § 1085) in the trial court challenging the AG's decision. The trial court denied the petition, finding (among other things) that the decrease in the number of uninsured and underinsured individuals caused by the ACA was not reasonably unforeseeable, and that Deanco's request for modification was deficient for failing to show the efforts Deanco had made to avoid the need for an amendment. In this appeal by Deanco from the trial court's ruling, we agree with the trial court, and affirm the judgment.
BACKGROUND
The Statutory and Regulatory Scheme
Under California law, the AG supervises charitable organizations and enforces the obligations of nonprofits and others that hold or control property in trust for charitable purposes. (§§ 5914-5925.) The AG supervises and scrutinizes transfers of nonprofit health facilities to preserve access to uncompensated healthcare for the poor, elderly, and disabled. A nonprofit corporation that operates a health facility must obtain the AG's written consent before entering into an agreement to sell a material amount of its assets to a for-profit corporation. (§ 5914, subd. (a)(1).)
The AG has the "discretion to consent to, give conditional consent to, or not consent to any agreement or transaction" based on any factor the AG deems relevant, including 10 factors specified by statute. (§§ 5917, subds. (a)-(j).) Those factors include whether the transaction would significantly impact "the availability or accessibility of health care services to the affected community," and whether the transaction is in the "public interest," (§§ 5917, subds. (h), (i); § 999.5, subds. (f)(8-9), (f)(12).) If the AG consents to an agreement or transaction, governing regulations require the continued provision by the hospital of existing levels of essential and emergent healthcare services for at least five years. (§ 999.5, subd. (f)(8)(C).) The regulations also require "for a period of at least five years that a minimum level of annual charity care costs be incurred" based on "the historic level of charity care" provided by the transferred hospital. (§ 999.5, subd. (f)(8)(B).)
When evaluating the proposed transaction, the AG considers relevant information provided by the applicant, typically retains a healthcare consultant to assess the likely impact of the transaction on the availability or accessibility of healthcare services to the affected community, and conducts one or more public meetings to receive public comment. (§§ 5916-5917; § 999.5, subds. (c)(2), (d), (e)(6), (e)(7).) The AG has 90 days to notify the applicant of his or her decision. (§ 5915.)
At any time after the AG approves a transaction or agreement, the acquiring entity may request modification of any condition imposed by the AG on the transaction or agreement. (See § 999.5, subd. (h)(1).) "The sole basis for such a request shall be a change in circumstances that could not have reasonably been foreseen at the time of the [AG]'s action." (§ 999.5, subd. (h)(1).) A request for modification must include (1) a description of the proposed amendment, (2) a description of the change in circumstance requiring the requested amendment, (3) a description of how the modified amendment is consistent with the AG's consent or conditional consent to the transaction, and (4) a description of efforts the requesting entity has undertaken to avoid the need for the amendment. (§ 999.5, subd. (h)(2).) Where, as here, the proposed amendment relates to operation of a health facility (such as required levels of charity care and continuation of essential services), the AG again must "consider the effect of the proposed amendments on the availability or accessibility of health care services to the affected community." (§ 999.5, subd. (h)(4).)
Hospital Charity Care and Patient Discounts in California
As accurately summarized by the trial court, "'[c]harity care' is the 'allowance for financially qualified patient[s]' which means 'with respect to services rendered to a financially qualified patient, an allowance that is applied after the hospital's charges are imposed on the patient, due to the patient's determined financial inability to pay the charges.' Health & Safety Code § 127400(a).
"Hospitals must have a patient discount payment policy and eligibility requirement[s] as follows:
"a. Each hospital must maintain an understandable written policy regarding discount payments for financially qualified patients as well as an understandable written charity care policy.
"b. Uninsured patients or patients with high medical costs who are at or below 350% of the federal poverty level remain eligible to apply for a discount.
"c. Each hospital's discount payment policy [must] clearly state eligibility criteria as well as include an extended payment plan to allow payment of any discount over a period of time.
"d. Hospitals must establish a written policy defining standards and practices for the collection of debt, and that when considering eligibility, hospitals refrain from targeting retirement or deferred compensation plans, the first $10,000 of a patent's monetary assets, or 50% of a patient's monetary assets after the $10,000 threshold.
"e. Hospitals [must] reimburse patients any amount actually paid in excess of the amount due under the law. Health & Safety Code § 127405."
Deanco's Purchase of the Hospital
In September 2010, the AG approved the sale of the Hospital by a nonprofit corporation to Deanco, a for-profit entity. The AG's approval was subject to satisfaction of, among other things, certain charity care conditions. Condition X required the provision of a minimum annual amount of charity care by the Hospital for six years following the completion of Deanco's purchase of the Hospital. Condition XI required that, in any year the Hospital fell short of satisfying its charity care obligation, Deanco must "pay an amount equal to the deficiency to a nonprofit public benefit corporation for direct medical care to residents in [the Hospital]'s primary service area for Medical/Surgical Services" based on a specified calculation.
Deanco began operating the Hospital in October 2010 and completed the purchase in July 2013. At the time of purchase, Deanco "confirm[ed] its commitment" to the AG's conditions, including Conditions X and XI.
The Affordable Care Act
Congress enacted the ACA in March 2010. The chief purpose of the ACA was to significantly reduce the number of uninsured and underinsured Americans. Among other things, to accomplish this goal the ACA created an individual mandate requiring individuals to purchase health insurance (see 42 U.S.C. § 5000A(b)(1)), expanded the scope of the state Medicaid programs (see Welf. & Inst. Code, § 15909.1, subd. (c)(1)) and created health insurance exchanges to facilitate individuals' ability to purchase health insurance (see 42 U.S.C. § 18031; Welf. & Inst. Code, § 15909.1, subds. (b), (c)(1)). The ACA has accomplished its goal and, as a result, the number of uninsured individuals has plummeted.
The individual mandate, which required most individuals to maintain a minimum amount of health insurance coverage or pay a monetary penalty (26 U.S.C. § 5000A(b)(1); 42 U.S.C. § 18091), was repealed by Congress in 2019 (26 U.S.C. § 5000A(c)). In response, California adopted a statewide individual mandate. (See Gov. Code, § 100700 et seq.; Gov. Code, 100800 et seq.; Health & Saf. Code, § 1345.5, Rev. & Tax. Code, § 61000 et seq.) Changes to the individual mandate are not relevant here.
An attendant result of the ACA's dramatic success has been that the Hospital was no longer able to find enough people to provide the threshold amount of medical services to uninsured or underinsured individuals in its community to satisfy the charity care obligations. As a result, Deanco was required, over the course of six years, to pay millions of dollars to a public benefit corporation for the provision of direct medical care to the community in order to make up the deficiency.
Deanco's Request to Modify its Charity Care Obligations
In September 2017, Deanco requested that the AG modify and reduce its charity care obligations. This request was premised on the "dramatic drop in California's uninsured rate" caused by the ACA, which Deanco alleged was unforeseeable and unavoidable through any efforts Deanco might make. The AG retained an independent expert to evaluate the effect of Deanco's request and convened a public meeting to permit interested individuals to comment on the requested modification. On April 13, 2018, the AG denied Deanco's request for modification without explanation.
In 2016, Deanco made a similar unsuccessful request to modify Condition XI. The AG's denial of the 2016 request is not at issue here.
Deanco's Mandate Petition
In May 2018, Deanco filed a petition for writ of mandate. (Code Civ. Proc., § 1085.) Deanco sought an order vacating the AG's 2018 denial of the requested modification. Deanco alleged that the AG abused its discretion and acted in an "unreasonable, arbitrary and capricious" manner by denying its 2017 request to reduce its charity care obligations. Among other things, Deanco claimed it was, in effect, being punished for the epic success of the ACA because the Hospital was no longer able to fulfill its charity care obligations and Deanco had to pay to make up the deficiency.
Deanco also alleged the charity care condition was preempted by federal law. Contemporaneously with its filing of this action, Deanco filed a federal lawsuit claiming that the charity care condition was preempted by federal law, including the ACA. The district court granted the AG's motion to dismiss (Deanco Healthcare, LLC v. Becerra (C.D. Cal. 2019) 365 F.Supp.3d 1029, 1039, and the Ninth Circuit affirmed. (Deanco Healthcare, LLC v. Becerra (9th Cir. 2020) 806 Fed.Appx. 581, 585.) Preemption is not at issue here.
The trial court denied the petition for several independent reasons. First, the trial court denied the petition on the merits, concluding the requested modification was unwarranted as there had been no unforeseen change. The court observed that "[t]he sole basis for a request for modification shall be a change in circumstances that could not have reasonably been foreseen at the time of the [AG]'s action." (§ 999.5, subd. (h)(1).) The court explained that "Deanco should have foreseen the ACA's effect in decreasing the number of uninsured individuals [because] [t]he ACA was enacted . . . several months before the [AG's] approval of Deanco's purchase of [MCH] and three years before Deanco purchased the Hospital." In light of the fact that "[t]he Congressional Budget Office expressly predicted a 32 million reduction in the number of uninsured persons as a result of the ACA's enactment, . . . 'the reduction in the number of uninsured individuals was not only foreseeable, it was foreseen.'"
Second, the trial court found Deanco had submitted an inadequate request for modification because it failed to explain the efforts, if any, it had undertaken to avoid the need for a modification. The trial court rejected Deanco's claims because "Deanco was required to support its modification request with a 'description of the efforts . . . to avoid the need for amendment.'" (§ 999.5, subd. (h)(2).) Despite this requirement, "Deanco failed to say more than a conclusion that 'the financial burden of maintaining pre-health care reform levels of charity care is also something [it] cannot avoid.'" Deanco was required to offer "more . . . than a mere conclusion that the charity care financial burden [could not] be avoided."
The court also found the writ petition was procedurally defective, and rejected Deanco's assertion that the AG abused its discretion by summarily denying its modification request. The court observed that the AG was "not statutorily required to provide any explanation for [his] decision."
The court also found Deanco's writ petition procedurally defective for the independent reason that it "fail[ed] to support its opening brief with facts and citations to the administrative record." The court explained that "Deanco's failure to present a full and fair statement of facts supported by citations to the record in its opening brief and its reliance on facts in a pleading which is inadmissible evidence, [meant] that the brief is procedurally defective and must be denied."
DISCUSSION
The Standard of Review
A "mandamus action under Code of Civil Procedure section 1085 permits judicial review of ministerial duties as well as quasi-legislative acts of public agencies. [Citation.] Mandamus lies to compel the performance of a clear, present, and ministerial duty where the petitioner has a beneficial right to performance of that duty. [Citation.]" (Carrancho v. California Air Resources Board (2003) 111 Cal.App.4th 1255, 1264-1265; American Federation of State, County & Municipal Employees v. Metropolitan Water Dist. (2005) 126 Cal.App.4th 247, 261.) Quasi-legislative actions of an administrative agency are generally reviewed by a proceeding in ordinary mandate, in which judicial review is confined to the question whether the classification is arbitrary, capricious, or without reasonable or rational basis. (County of Los Angeles v. City of Los Angeles (2013) 214 Cal.App.4th 643, 648-655 [when an agency's determination involves discretion, judicial review is limited to a determination whether the agency's action was arbitrary, capricious, or entirely lacking in evidentiary support].) In an appeal from a traditional mandate proceeding, the trial court's findings as to foundational factual matters are conclusive if supported by substantial evidence. Thereafter, the appellate court performs essentially the same function as the trial court—it determines, among other things, whether the agency's decision was arbitrary, capricious or entirely lacking in evidentiary support. (California Public Records Research, Inc. v. County of Alameda (2019) 37 Cal.App.5th 800, 806.)
In its opening brief, Deanco maintains the question "[w]hether the Superior Court should have reviewed the decision of the [AG] under Cal. Civ. Proc. Code § 1085 or § 1094.5?" must be resolved on appeal. However, Deanco has failed to develop this argument, which we deem forfeited. (See United Grand Corp. v. Malibu Hillbillies, LLC (2019) 36 Cal.App.5th 142, 153; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785 [where a party asserts a point but fails to support it with reasoned argument and citations to authority, the point may be deemed forfeited].)
The AG Did Not Abuse His Discretion
Deanco maintains that the AG abused his discretion in denying its request to modify Condition XI because the ACA's success in dramatically reducing "the number of uninsured individuals in California"—and the concomitant impact on Deanco's ability to meet its annual threshold of charity care costs for six fiscal years—"was simply not on any foreseeable radar" when the AG approved the sale of MCH to Deanco in September 2010. Deanco is wrong.
The sole basis upon which the AG could grant Deanco's request to modify the charity care condition was if there had been a change of circumstances that could not reasonably have been foreseen in September 2010, when the AG approved the sale of the Hospital to Deanco and imposed Condition XI. The ACA was enacted in March 2010, six months earlier. Deanco concedes that the principal purpose of the ACA was to "significantly reduc[e] the number of the uninsured" in the United States. (42 U.S.C. § 18091, subd. (2)(E), see also 42 U.S.C. § 18091, subd. (2)(D) [the ACA "achieves near-universal coverage"]; Nat. Fedn. of Indep. Business v. Sebelius (2012) 567 U.S. 519, 538 ["In 2010, Congress enacted the [ACA which] aims to increase the number of Americans covered by health insurance and decrease the cost of health care"].) Deanco also does not dispute that Congress fully anticipated that the ACA would significantly reduce the number of uninsured. Indeed, prior to enactment of the ACA, the Congressional Budget Office estimated that the number of uninsured individuals in the United States would be reduced by 32 million. As the trial court correctly concluded, "the reduction in the number of uninsured individuals was not only foreseeable, it was foreseen." Thus, Deanco failed to demonstrate "a change in circumstances that could not have reasonably been foreseen at the time of the [AG]'s action." (§ 999.5, subd. (h)(1).)
Deficiency of the Modification Request
The trial court also correctly found Deanco's modification request fatally deficient for failing to "support its modification request with a 'description of the efforts . . . to avoid the need for amendment."' (See § 999.5, subd. (h)(2).) A criterion for seeking modification of an AG-imposed term or condition, is that the applicant "shall include . . . a description of the efforts of the entity making the request to avoid the need for amendment." (§ 999.5, subd. (h)(2), italics added.) The record contains no evidence of the efforts Deanco undertook, if any, to avoid the need for the requested modification. Instead, Deanco advanced only the conclusory assertion that the ACA "is a force with which to be reckoned[,]" and the "financial burden of maintaining pre-health care reform levels of charity care [was] also something the Hospital [could not] avoid." That bare assertion is not a description of Deanco's efforts to avoid the need for amendment.
Finally, in the "Issues Presented" portion of its opening brief on appeal, Deanco asks whether the AG had "an obligation to provide [his] reason for denying Deanco's request to modify Condition XI?" Presumably Deanco believes the answer is yes, but has not developed this argument on appeal, and it is therefore forfeited. (See United Grand Corp. v. Malibu Hillbillies, LLC, supra, 36 Cal.App.5th at p. 153; Badie v. Bank of America, supra, 67 Cal.App.4th at pp. 784-785.) In any event, the statutory scheme imposes no duty on the AG to state reasons for a denial of a request for modification. (See Prime Healthcare Services, Inc. v. Harris (S.D. Cal. 2016) 216 F.Supp.3d 1096, 1119 [rejecting equal protection challenge by buyer of nonprofit hospital, in part, because no statute "require[s] the [AG] to provide reasons for her decision"].)
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
WILLHITE, J.
We concur:
MANELLA, P. J.
CURREY, J.