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Sierra Medical Services Alliance v. Douglas

California Court of Appeals, Second District, Second Division
Mar 22, 2011
No. B220443 (Cal. Ct. App. Mar. 22, 2011)

Opinion

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County Ct. No. BS114671. David P. Yaffe, Judge.

Hawkins Parnell Thackston & Young, Edward R. Ulloa and Kevin R. Warren for Plaintiffs and Appellants.

Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Douglas M. Press, Assistant Attorney General, Jennifer M. Kim, Richard T. Waldow, Leslie P. McElroy and Gala E. Dunn, Deputy Attorneys General, for Defendants and Respondents.

Elbert W. Muncy, Jr., as Amicus Curiae on behalf of California Ambulance Association.


DOI TODD, J.

Plaintiffs and appellants Sierra Medical Services Alliance, Riggs Ambulance Services and Care Flight are medical transportation providers who brought a petition for writ of mandate seeking to compel respondents the State of California Department of Health Care Services and its director Toby Douglas (collectively Department) to comply with regulatory provisions governing the setting of Medi-Cal reimbursement rates paid to those providers. The trial court denied the petition, finding that the Department had fulfilled its ministerial duties in setting the rates and there was no basis to compel the Department to exercise its discretion to adjust the rates.

We affirm. The Department owed no ministerial duty to comply with the rate-setting process in the absence of a discretionary decision to modify rates. Moreover, appellants failed to establish that the Department abused its discretion or disregarded federal law in setting or modifying rates in the past. For these reasons, the Department’s actions did not deprive appellants of any constitutionally-protected right.

FACTUAL AND PROCEDURAL BACKGROUND

Statutory and Regulatory Scheme Governing Medi-Cal Reimbursement of Medical Transport.

Enacted in 1965, the Medicaid Act (42 U.S.C. §§ 1396a-1396v) authorizes the provision of federal grants to states for medical assistance to specified low income individuals and their families. The program is jointly funded by the federal and state governments, and administered by the states, which make direct payment to the individuals or entities furnishing medical services. To receive matching federal funding for those services, states must agree to comply with the applicable Medicaid law. (Orthopaedic Hosp. v. Belshe (9th Cir. 1997) 103 F.3d 1491, 1493 (Orthopaedic); California Assn. for Health Services at Home v. State Dept. of Health Services (2007) 148 Cal.App.4th 696, 700 (CAHSH).)

“Although state participation is voluntary, if a state chooses to participate, it must prepare and submit a plan for approval to the federal government, describing its Medicaid program. [Citation.]” (California Hospital Assn. v. Maxwell-Jolly (2010) 188 Cal.App.4th 559, 564; see 42 U.S.C. § 1396a(a).) “Federal regulations describe the state plan as a ‘comprehensive written statement submitted by the agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of title XIX, the regulations in this Chapter IV, and other applicable official issuances of the Department. The State plan contains all information necessary for CMS [Centers for Medicare & Medicaid Services] to determine whether the plan can be approved to serve as a basis for Federal financial participation (FFP) in the State program.’ (42 C.F.R. § 430.10 (2005).)” (CAHSH, supra, 148 Cal.App.4th at p. 701.) Among other requirements, federal law mandates that a state plan must “‘provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan....’” (Ibid.)

California has opted to participate in the federal Medicaid program through the state Medi-Cal program, and the Department is the agency that administers the Medi-Cal program in accordance with California’s state plan (State Plan). (Cal. Code Regs., tit. 22, § 50004; CAHSH, supra, 148 Cal.App.4th at pp. 700–701.) Medical transportation services are among the numerous medical services covered by the State Plan “when transport by ordinary means is medically contraindicated and the transportation is required for covered medical care, subject to limitation. [¶] Only the lowest cost type of medical transportation adequate for the patient’s needs is covered.” With respect to the level of reimbursement provided for medical transportation services, attachment 4.19-B to the State Plan “provides that the methodology for establishing payment rates is to develop an evidentiary base or rate study resulting in the determination of a proposed rate, to present the proposed rate at a public hearing to gather public input, to determine the payment rate based on both the evidentiary base and the public input, and to establish the payment rate through the adoption of regulations.” (CAHSH, supra, at p. 701.)

In accordance with the State Plan, Medi-Cal reimbursement rates for various medical services are provided in title 22, sections 51501 through 51557 of the California Code of Regulations. (Orthopaedic, supra, 103 F.3d at p. 1493.) More specifically, Medi-Cal reimbursement rates for medical transportation services are set forth in title 22, section 51527 of the California Code of Regulations (Section 51527). That regulation was originally filed in 1966, but repealed in 1967. (Cal. Reg. Notice Register 67, No. 16, p. 249.) It provided: “reasonable costs shall be paid subject to maximums which may be established by the State.” (Cal. Reg. Notice Register 67, No. 15, p. 249.) In 1974, Section 51527 first identified the maximum reimbursement rates for ambulance transportation and other medical transportation. (Cal. Reg. Notice Register 74, No. 26, pp. 1300.14.4-1300.15.) The Department amended Section 51527 several times over the next few years, resulting in upward adjustments of the reimbursement rates. (See generally, Cal. Reg. Notice Register 81, No. 52, pp. 1300.19-1300.20.)

In 1983, the Department proposed another amendment to Section 51527, one purpose being to incorporate common billing codes. Prior to that amendment, a public hearing was held on December 20, 1983, at which time three individuals representing medical service transport providers testified and expressed their concerns. The Department also received written comments from interested parties not present at the hearing. Medical service transport providers wrote letters to the Department inquiring and expressing opinions about the proposed rates and the reimbursement process.

Though the parties characterize the Department’s 1983 actions as the promulgation of Section 51527 which initially set medical transportation reimbursement rates, the resulting changes to Section 51527 were merely further amendments to the regulation. The Department was unable to locate any rulemaking files for Section 51527 preceding 1983.

As a result of the comments, California Code of Regulations, title 22, section 51323(b) was amended in 1984 to add the underlined provision: “Authorization shall be granted or Medi-Cal reimbursement shall be approved only for the lowest cost type of medical transportation that is adequate for the patient’s medical needs, and is available at the time transportation is required.” In turn, Section 51527 was amended to specify the maximum reimbursement rates for a number of discrete services. In the Department’s final statement of reasons supporting the amendment, the staff noted that concern was expressed regarding the reimbursement rate. In response, Department staff wrote that the maximum reimbursement rates specified in Section 51527 “do not differ from existing rates; however, new billing codes are being added for use for nonemergency medical transportation services not requiring prior authorization.”

Since the 1984 amendment to Section 51527, the Department has proposed multiple additional amendments. Each time, the Department has held public hearings and received evidence in connection with the proposed amendments. Any amendments proposing rates changes have involved rate increases. In particular, on the basis of a proposal to the Legislature from the California Ambulance Association (CAA), the 1998 amendments provided for a 47.8 percent increase in the emergency base rate and a 55.5 percent increase in the nonemergency base rate for ambulance services. The following year, in consideration of both the amount allocated by the Budget Act of 1999 and a request from the CAA that any rate increase be applied to response-to-call rates and mileage rates, the Department approved an 11.7 percent rate increase for those services. The 1992 amendments added an air ambulance provider category and, in 1993, the Department assigned specific maximum reimbursement rates for that category of transport. The reimbursement rates provided in Section 51527 have remained unchanged since 2000.

Petition for Writ of Mandate.

Appellants are two ambulance service providers and one emergency medical helicopter service provider in Northern California. Appellant Sierra Medical Services Alliance (SMSA) is the exclusive provider for emergency and non-emergency ambulance services in Lassen County. Appellant Riggs Ambulance Services (Riggs) is the exclusive provider for emergency and non-emergency ambulance services in Merced County. Appellant Care Flight, a division of Regional Emergency Medical Services Authority, provides emergency medical helicopter services throughout northern California and other northwest states.

In order to become a Medi-Cal service provider, an individual or entity must submit an application packet for enrollment that is then evaluated by the Department for approval. (See generally Welf. & Inst. Code, § 14043.26 et seq.; Cal. Code Regs., tit. 22, § 51000 et seq.) As part of the packet, the provider must sign a “Medi-Cal Provider Agreement, ” which includes as one of its conditions that the “‘provider agrees that payment received from [the Department] in accordance with Medi-Cal fee structures shall constitute payment in full....’” Riggs first enrolled in the Medi-Cal program as a provider in January 1979 and Care Flight enrolled June 1992. The Department located no records indicating that SMSA has ever enrolled in the Medi-Cal program.

According to appellants, they lost hundreds of thousands of dollars between 2005 and 2008 because the reimbursement rates in Section 51527 were well below the average actual cost of each transport they provided to Medi-Cal recipients. In May 2008, appellants filed a verified petition for writ of mandate seeking “to halt Respondents’ continuing implementation of regulations that force Respondents [sic] to provide services to Medi-Cal beneficiaries at a significant loss, and to compel Respondents to comply with the state and federal laws that require a fair rate setting process for Medi-Cal service providers and the setting of medical transportation services rates that are consistent with the cost of providing such services to Medi-Cal beneficiaries.” More specifically, appellants alleged that the Department had never complied with State Plan provisions requiring the development of an evidentiary base or rate study, the receipt of input on rates at a public hearing and the determination of payment rates for emergency medical transportation services based on the two foregoing requirements. Appellants further alleged that the Department’s conduct amounted to a constitutional deprivation of due process and equal protection. Appellants sought the issuance of a preemptory writ of mandate declaring that the current reimbursement rate violated state and federal law and prohibiting the Department from setting new rates without complying with the State Plan; more generally they also sought damages, declaratory and injunctive relief.

The trial court overruled the Department’s demurrer to the petition. The Department answered the petition in October 2008, denying most of the allegations and asserting multiple affirmative defenses. Thereafter, the Department moved for a protective order, seeking to preclude the taking of a deposition and the production of certain documents on the grounds that the information sought was either privileged or unlikely to lead to the discovery of admissible evidence. Appellants opposed the motion. The trial court initially deferred ruling on the motion, informing the parties that it could not rule until it had been provided with the answers to several questions concerning the relationship between appellants and the Department and the nature of the dispute. Simultaneously, the parties filed supplemental briefs.

In March 2009, the trial court granted the motion. In a minute order, the trial court explained the bases for the ruling, first summarizing the applicable law: “Discovery is generally not allowed in cases in which judicial review is limited to an examination of the record of proceedings before the administrative agency whose decision is being challenged. Where the decision being challenged is the promulgation of a regulation, the administrative decision is deemed to be quasi-legislative, and extra-record evidence is generally not admissible in mandamus actions challenging quasi-legislative administrative decisions.” The trial court rejected appellants’ contention that the mandamus proceeding involved a ministerial, rather than a quasi-legislative, decision “because petitioners fail to show that rates of reimbursement can be or are set without any exercise of discretion.” The trial court further found the requested discovery not reasonably calculated to lead to the discovery of admissible evidence because appellants failed to show they were denied the right to participate in the administrative rate determination.

The parties thereafter submitted briefing and evidence in support of and in opposition to the petition for writ of mandate. Appellants maintained that there was no evidence in the administrative record—comprised of the record-making file for Section 51527 from 1983 to the present—showing that a rate study or a public hearing was conducted prior to the setting of the rates set forth in Section 51527. In June 2009, the trial court directed the Department to submit supplemental briefing; to provide copies of rate studies used by the Department to establish Medi-Cal reimbursement rates for ambulance services in Lassen and Merced Counties during the fiscal years from 2005 to 2008; to identify the place, date, and time of any public hearing to gather input for the same rates during the same time period; and to identify all documents containing information about costs incurred by ambulance service providers that were used to establish those rates.

In response, the Department asserted that the requested information was irrelevant—and, in fact, nonexistent—since there had been no reimbursement rate changes between 2005 and 2008. Nonetheless, it submitted the declaration of Linda Machado, chief of the professional provider unit within the Department’s rate development branch, who asserted that the evidentiary base for the reimbursement rates was contained in the administrative record-making file for Section 51527 and its amendments, which was already before the court. Appellants argued that the Department’s response was inadequate to show compliance with the State Plan’s requirements.

At the conclusion of a hearing in September 2009, the trial court denied the petition. It ruled that appellants were not entitled to relief because the Department was not under any legal duty to conduct rate studies. Rather, attachment 4.19-B allowed the state the option of relying on an “evidentiary base” to establish reimbursement rates, and by continuing to provide medical transport services, appellants “have furnished respondent with a sound evidentiary basis for not raising the rates of reimbursement because the rates presently prescribed are sufficient to attract providers of the services, namely petitioners.” The trial court further observed that the Department did not fail to comply with attachment 4.19-B’s public hearing provision, as nothing in the State Plan required public hearings to be held in the absence of a proposed change in the maximum reimbursement rate. Finally, the trial court determined that “[p]etitioners have failed to prove that respondent is under any duty required by law to implement the regulation in a way that guarantees petitioners a reasonable profit on their services.”

The trial court thereafter entered a judgment in favor of the Department denying the petition for writ of mandate, and this appeal followed.

DISCUSSION

Though phrased in myriad different ways, appellants’ argument is singular: They contend that the Medi-Cal medical transportation reimbursement rates run afoul of the State Plan’s requirement that such rates be determined on the basis of an evidentiary base or rate study, and for that reason the trial court erred in refusing to declare Section 51527 invalid and direct the Department to comply with the State Plan. We find no merit to their argument.

I. Applicable Legal Principles and Standard of Review.

Appellants brought their petition for writ of mandate pursuant to Code of Civil Procedure section 1085. (See City of Arcadia v. State Water Resources Control Board (2010) 191 Cal.App.4th 156, 170 [“When an administrative agency establishes regulations to implement state policy its action is subject to review by traditional mandamus” under Code Civ. Proc., § 1085].) Section 1085 “seeks to enforce a mandatory and ministerial duty to act on the part of an administrative agency or its officers. Appellants therefore had to show: (1) a clear, present, and usually ministerial duty to act; and (2) that they had a clear, present and beneficial right to have that duty performed.” (Los Angeles County Prof. Peace Officers’ Assn. v. County of Los Angeles (2004) 115 Cal.App.4th 866, 869.) “A ministerial act has been described as ‘an act that a public officer is required to perform in a prescribed manner in obedience to the mandate of legal authority and without regard to his [or her] own judgment or opinion concerning such act’s propriety or impropriety, when a given set of facts exists.’ [Citation.]” (Morris v. Harper (2001) 94 Cal.App.4th 52, 62; accord, County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 593.)

“A writ of mandate may be issued by any court to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins, as a duty resulting from an office, trust, or station, or to compel the admission of a party to the use and enjoyment of a right or office to which the party is entitled, and from which the party is unlawfully precluded by that inferior tribunal, corporation, board, or person.” (Code Civ. Proc., § 1085, subd. (a).) Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.

“The remedy may not be invoked to control an exercise of discretion, i.e., to compel an official to exercise discretion in a particular way.” (Ridgecrest Charter School v. Sierra Sands Unified School Dist. (2005) 130 Cal.App.4th 986, 1002; see also Unnamed Physician v. Board of Trustees (2001) 93 Cal.App.4th 607, 618 [“Mandate will not issue to compel action unless it is shown the duty to do the thing asked for is plain and unmixed with discretionary power or the exercise of judgment”].)

Under limited circumstances, a court may review an agency’s discretionary act and it will “‘uphold the agency action unless the action is arbitrary, capricious, or lacking in evidentiary support. A court must ensure that an agency has adequately considered all relevant factors, and has demonstrated a rational connection between those factors, the choice made, and the purposes of the enabling statute.’ [Citation.]” (McGill v. Regents of University of California (1996) 44 Cal.App.4th 1776, 1786; see Khan v. Los Angeles City Employees’ Retirement System (2010) 187 Cal.App.4th 98, 106 [“nonadjudicatory acts ‘are accorded the most deferential level of judicial scrutiny’”] (Khan).) The question of whether an agency’s action was arbitrary or capricious is a question of law. (Shapell Industries, Inc. v. Governing Board (1991) 1 Cal.App.4th 218, 233.) Essentially, the trial and appellate courts perform the same function, and we review the matter without reference to the trial court’s determination. (Khan, supra, at p. 105; McGill v. Regents of University of California, supra, at p. 1786; Shapell Industries, Inc. v. Governing Board, supra, at p. 233.)

In a mandate proceeding brought pursuant to section 1085, appellants as petitioners bear the burden of proof and they must establish either that they were entitled to the performance of a ministerial duty by the Department (Branciforte Heights, LLC v. City of Santa Cruz (2006) 138 Cal.App.4th 914, 933), or that the Department’s “decision was arbitrary, capricious, entirely lacking in evidentiary support, unlawful, or procedurally unfair. [Citations.]” (Khan, supra, 187 Cal.App.4th at p. 106.)

II. Appellants Failed to Meet Their Burden to Show They Were Entitled to the Relief Sought by Their Petition.

A. Appellants Failed to Show Non-Compliance with a Ministerial Duty to Which They Had a Beneficial Right.

Appellants sought a declaration that Section 51527 was invalid because the Department had failed to comply with the State Plan in establishing the reimbursement rates set forth in that regulation. (See CAHSH, supra, 148 Cal.App.4th at p. 705 [“An action in ordinary mandamus is proper where, as here, the claim is that an agency has failed to act as required by law”].) On appeal, they maintain their position that attachment 4.19-B to the State Plan imposes a ministerial duty on the Department to rely on an evidentiary base or conduct a rate study in setting the reimbursement rates. Accordingly, they contend that the trial court should have granted their petition for writ of mandate because the evidence showed that the Department did not perform its duty. We disagree.

Attachment 4.19-B provides in relevant part: “The methodology utilized by the State Agency in establishing payment rates will be as follows: [¶] (a) The development of an evidentiary base or rate study resulting in the determination of a proposed rate. [¶] (b) To the extent required by State or Federal law or regulations, the presentation of the proposed rate at public hearing to gather public input to the rate determination process. [¶] (c) The determination of a payment rate based on an evidentiary base, including pertinent input from the public. [¶] (d) The establishment of the payment rate through the State Agency’s adoption of regulations specifying such rate....”

Although appellants have provided only the 2003 version of attachment 4.19-B, the provision has been in existence since before 1982, at which time it was amended to add subdivision (e) which currently provides: “Notwithstanding any other provisions of this Attachment to the State Plan pertinent to the methods and levels of reimbursement to providers, rates may be adjusted when required by state statute provided that applicable requirements of 42 CFR Part 447 are met.” (See California Ass’n of Bioanalysts v. Rank (C.D.Cal. 1983) 577 F.Supp. 1342, 1346, fn. 4.)

As noted earlier, to obtain issuance of a writ of mandamus under section 1085, appellants had the burden to show that the Department failed to act on a clear ministerial duty to do so, and that appellants had a clear right to such performance. (Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 842.) “A ministerial act is one which a public officer is required to perform in a prescribed manner in obedience to the mandate of legal authority, without regard to his own judgment or opinion. [Citation.]” (Id. at p. 843.) Here, even assuming that the act of relying on an evidentiary base or conducting a rate study may be classified as ministerial, the application of those provisions of attachment 4.19-B is expressly contingent on a discretionary decision—that is, the establishment of a reimbursement rate. While attachment 4.19-B sets forth the methodology to be used by the Department in “establishing payment rates, ” neither the attachment itself nor any other State Plan provision directs the Department when, how often or under what circumstances to establish reimbursement rates. Indeed, the evidence was undisputed that the medical ground transport rates had not been modified since 2000, and the air ambulance rates had not been modified since 1992. Accordingly, in the absence of the Department’s exercise of judgment in making the determination to establish new rates, the requirements of attachment 4.19-B do not come into play.

The court in National Association of Chain Drug Stores et al. v. Schwarzenegger (C.D.Cal. 2009) 678 F.Supp.2d 995 (Chain Drug Stores) employed a similar analysis in rejecting the plaintiffs’ claim that the Department’s rate reduction violated federal law. There, drug store and pharmacist associations sought to enjoin the Department from implementing a four percent reduction in the reimbursement rate for certain drug products, contending that the reductions violated the “‘quality of care’ and ‘equal access’ provisions of § 30(A) of the Medicaid Act.” (Id. at p. 996.) Though the manner of calculating the rate as specified in the State Plan had remained unchanged, the rate decreased as a result of a class action settlement that affected the pricing of one of the rate formula’s components. (Id. at p. 997.) The plaintiffs contended that the new rate brought the reimbursement rate below the breakeven cost for many prescription drugs. (Id. at p. 1000.)

Affirming the denial of a preliminary injunction, the Ninth Circuit first outlined the duties imposed by federal law on a state seeking to modify its reimbursement rates. It then distinguished the circumstances before it from previous cases in which it had enjoined the implementation of state-mandated rate reductions, explaining: “In the instant case, the State has not affirmatively acted to create a new, or modified, ‘method or procedure’ for establishing reimbursement rates to provider pharmacies, thus triggering its duties under § 30(a) and relevant regulations. Rather, the Department is making payments pursuant to a preexisting formula codified in Cal. Welf. & Inst. Code § 14105.45(b)(2).” (Chain Drug Stores, supra, 678 F.Supp.2d at p. 1000.) The court concluded that the plaintiffs were not entitled to relief because the state had not changed the manner in which it established reimbursement rates; it further observed that neither a State Plan amendment nor a cost study was necessary to implement the rate reduction. (Id. at pp. 1000–1001 & fn. 10.) Here, similarly, because the Department did not exercise its discretion to establish new rates, any ministerial duty connected to relying on an evidentiary base or conducting a rate study was not triggered. As aptly stated in CAHSH, supra, 148 Cal.App.4th at page 708: “[I]t is not a function of the writ of mandamus in this setting to compel the setting of rates, regardless of plaintiffs’ showing of inadequacy. It is only when the state has performed that function that a challenge to any determination by the state may be made.”

B. Appellants Failed to Show the Department’s Rate Establishment Was Arbitrary or Capricious.

While the general rule is that a petition for writ of mandate may not be used to compel a public agency to exercise its discretion in a particular manner, it may be used to challenge the Department’s exercise of discretion as arbitrary, capricious or unreasonable. (Lindell Co. v. Board of Permit Appeals (1943) 23 Cal.2d 303, 315–316; accord, County of Del Norte v. City of Crescent City (1999) 71 Cal.App.4th 965, 972 [mandate may lie to correct a discretionary act, “but only if the action taken is fraudulent or so palpably unreasonable and arbitrary as to reveal an abuse of discretion as a matter of law”].) As an alternative to their initial contention, appellants argue that the Department’s complete disregard of the State Plan in setting reimbursement rates constituted an abuse of discretion. Again, we disagree.

Appellants contend that the Department’s setting and amendment of the rates in Section 51527 was arbitrary and unreasonable because such actions were taken without complying with attachment 4.19-B’s threshold requirement that rates be established following the development of an evidentiary base or a rate study. They argue that the evidence offered by the Department was inadequate to establish either that the Department developed an evidentiary base to formulate the reimbursement rates or that it conducted a rate study for that purpose. Keeping in mind that it is appellants’—not the Department’s—burden to show entitlement to writ relief, we turn to the evidence offered concerning the Department’s promulgation and amendment of Section 51527. (Rivera v. Division of Industrial Welfare (1968) 265 Cal.App.2d 576, 594–595 [“He who assails the agency’s action, not its defender, has the burden of demonstrating invalidity. The burden of demonstrating absence of evidentiary support for the commission’s action is upon real parties in interest”].)

Preliminarily, we note that there is neither any evidence in the administrative record nor any suggestion by the Department that a rate study was conducted for the purpose of determining or amending the reimbursement rates in Section 51527. Thus, our review is confined to whether there is evidence showing the development of an “evidentiary base.” The phrase “evidentiary base” is not defined in either the State Plan or the California Code of Regulations. Accordingly, we construe that phrase giving the words their usual, ordinary and commonsense meaning. (California Teachers Assn. v. Governing Bd. of Hilmar Unified School Dist. (2002) 95 Cal.App.4th 183, 194.) In Rivera v. Division of Industrial Welfare, supra, 265 Cal.App.2d at page 595, the appellate court ordered the enforcement of three wage orders adopted by the Industrial Welfare Commission. In concluding there was sufficient evidence to support the commission’s compliance with the Labor Code’s wage standards, the court gave an expansive meaning to the phrase “evidentiary base, ” reasoning “that the evidentiary base for the commission’s action is judgmental as well as statistical. The policy and discretion allowed to the commission in setting minimum wage rates at or above the minimum level of adequacy permits it to recognize a range of determinants other than the employee’s minimum subsistence cost. These include such factors as general wage trends, productivity levels, availability of nonwage benefits, the effect on the labor market, the minimum’s relationship to the entire payroll, the economic condition of the employing industry and its capacity to adjust to the increased cost.” (Id. at p. 595.)

Here, similarly, the evidentiary base relied on by the Department was comprised of multiple determinants, including public input, specific requests by the CAA and the availability of transport providers at the regulatory rate. According to the administrative record, the amendments to Section 51527 from 1983 to the present were each preceded by a public hearing and the ability of the public to provide testimony and written comments to the Department. Each amendment to the reimbursement rates involved an increase to those rates. The administrative record further established that organizations representing medical transport providers gave input on which the Department relied in raising the reimbursement rates. For example, in determining how to allocate funds that the Legislature appropriated for medical transport in 1998, the Department wrote in its initial statement of reasons for the amendment that “[b]ased on a proposal to the Legislature earlier this year from the California Ambulance Association, the Department has decided to use this funding to increase the base rates for emergency and nonemergency ambulance trips (i.e., response to call rates) by an equal dollar amount. Based on current program expenditure data, the Department has determined that the funds appropriated by the Legislature will provide for a rate increase of $34.23 per trip.”

In 1999, the Department again considered a specific request from the CAA in amending Section 51527 to increase the reimbursement rates. According to the Department’s initial statement of reasons issued in connection with the fiscal year 1999-2000 provider rate increase (R-26-99E): “The California Ambulance Association has requested that the rate increase be applied to the response-to-call rates and mileage rates [identified by procedure codes]. Based on current program expenditures, the Department has determined that the funds appropriated by the Legislature are sufficient to provide a rate increase of 11.7 percent for these services. In consideration of the request from the California Ambulance Association, and in order to ensure access to basic ambulance transportation, the Department has decided to use these funds to increase rates for these services.” We cannot characterize the Department’s reliance on CAA requests and expenditure data as part of the evidentiary base for allocating rate increases as arbitrary, capricious or unreasonable.

We agree with the trial court that the fact of appellant’s continued participation in the Medi-Cal program can be understood as an additional component of the evidentiary base for the determination of the reimbursement rate. As initially adopted in 1966, Section 51527 provided that “[r]easonable costs shall be paid subject to maximums which may be established by the State.” (Cal. Reg. Notice Register 67, No. 15, p. 249.) In 1974, the Department first established the maximum reimbursement rates for ambulance transportation and other medical transportation. (Cal. Reg. Notice Register 74, No. 26, pp. 1300.14.4-1300.15.) The administrative record contains no evidence of the process employed in connection with the Department’s first maximum reimbursement rate setting in 1974. We “presume the decisions of the agency or public official which are subject to traditional mandamus review are correct.” (California Teachers Assn. v. Ingwerson (1996) 46 Cal.App.4th 860, 865; see also Mike Moore’s 24-Hour Towing v. City of San Diego (1996) 45 Cal.App.4th 1294, 1306 [“‘“There is also a presumption that the board ascertained the existence of necessary facts to support its action, and that the ‘necessary facts’ are those required by the applicable standards which guided the board”’”].) Given the absence of evidence to rebut presumptions favorable to the Department, we cannot conclude that appellants met their burden to show that the Department abused its discretion in initially setting the maximum reimbursement rates in Section 51527.

Though the State Plan was in effect at that time (see Welf. & Inst. Code, § 14000, added by Stats. 1965, 2nd Ex. Sess., c. 4, p. 103, § 2, eff. Nov. 15, 1965, operative March 1, 1966), there is no indication in the record or the briefs whether at that time attachment 4.19-B contained the same requirements as it does presently.

Since 1974, the Department has periodically increased the reimbursement rates in Section 51527. (See generally, Cal. Code Regs., tit. 22, § 51527.) Notwithstanding appellants’ allegations to the contrary, the evidence below established that during this over 35-year period, a sufficient number of medical transport providers, including appellants, have continued to enter into Medi-Cal provider agreements through which they agree to accept the Section 51527 reimbursement rates and have accepted payment at the published rates. We reject appellants’ argument that their continued participation as a Medi-Cal provider cannot serve as part of an evidentiary base because their participation is involuntary. Rather, it is by their agreeing to become providers of emergency ambulance services—not because of their status as Medi-Cal providers—that appellants must accept patients regardless of ability to pay or method of payment. (See Health & Saf. Code, §§ 1317, subd. (d) & 1797; see generally, County of San Bernardino v. City of San Bernardino (1997) 15 Cal.4th 909, 914–918.) Accordingly, we agree with the trial court’s conclusion that appellants’ continuing to provide services at the specified rates furnished at least part of the evidentiary base supporting the reimbursement rates.

In order to carry their burden of proof, appellants must do more than show the Section 51527 rates do not cover their costs. While phrases such as “increases amounted to negligible amounts” and “miniscule rate increases” may challenge the adequacy of the reimbursement rates, appellants have failed to show that the Department has acted arbitrarily, capriciously or unreasonably in setting those rates. The amicus brief filed by the CAA confirms that appellants’ real challenge is premised on the quality rather than the absence of any evidentiary base, and that appellants’ litigation is an alternative means to attempt to achieve what they have been unable to achieve through lobbying efforts. In sum, the existence of an evidentiary base precludes any finding that the Department abused its discretion in determining and maintaining the Section 51527 reimbursement rates.

C. Appellants Failed to Show the Department’s Non-Compliance with Federal Law.

In another related contention, appellants claim that the Department’s failure to conduct a rate study or to consider their actual cost of providing services as part of an evidentiary base violated title 42 United States Code section 1396a(a)(30)(A) (Section (30)(A)). This argument, too, lacks merit.

By electing to participate in the Medicaid program, California has agreed to comply with the multiple state plan requirements set forth in title 42 United States Code section 11396a(a)(1) through (a)(70). (Chain Drug Stores, supra, 678 F.Supp.2d at p. 996.) Notwithstanding these requirements, the intent of Congress was to afford states considerable flexibility in developing procedures to administer their state plans. (Mission Hospital Regional Medical Center v. Shewry (2008) 168 Cal.App.4th 460, 486.) According to Section (30)(A), “California must provide ‘methods and procedures’ for the payment of care and services that (1) are ‘consistent with efficiency, economy, and quality of care, ’ and (2) ensure their availability to the Medicaid population to the same ‘extent as they are available to the general population in the geographic area.’ [Citation.]” (Chain Drug Stores, supra, at p. 996.) The Ninth Circuit has interpreted Section (30)(A) to require that the state “set hospital outpatient reimbursement rates that bear a reasonable relationship to efficient and economical hospitals’ costs of providing quality services, unless the Department shows some justification for rates that substantially deviate from such costs. To do this, the Department must rely on responsible cost studies, its own or others, ’ that provide reliable data as a basis for its rate setting.” (Dominguez v. Schwarzenegger (9th Cir. 2010) 596 F.3d 1087, 1093, quoting Orthopaedic, supra, 103 F.3d at p. 1496.) Appellants rely heavily on Orthopaedic, in which the court concluded that the Department acted arbitrarily and capriciously by failing to consider hospitals’ costs when it readopted existing rates. (Orthopaedic, supra, at p. 1500.)

Though it is not germane to our decision, we note that several courts have disagreed with the reasoning of Orthopaedic and concluded that Section (30)(A) requires only a reasonable result rather than any particular process. (See Independent Living Ctr., So. Cal. v. Maxwell-Jolly (9th Cir. 2009) 572 F.3d 644, 655 [citing cases].)

While appellants’ argument has some surface appeal, appellants have not directed us to any authority, nor have we located any, holding that Section (30)(A) applies in the absence of any action by the Department or Legislature that has the effect of establishing or changing reimbursement rates. (See, e.g., Dominguez v. Schwarzenegger, supra, 596 F.3d at p. 1093 [“we hold that before enacting legislation that has the effect of lowering payments to providers... the State must study the impact of that decision on the statutory factors set forth in § 30(A)”]; California Pharmacists Ass’n v. Jolly (C.D.Cal. 2009) 630 F.Supp.2d 1144, 1150 [“when the State of California seeks to modify reimbursement rates for health care services provided under the Medi-Cal program, it must consider efficiency, economy, and quality of care, as well as the effect of providers’ costs on those relevant statutory factors”]; California Hospital Assn. v. Maxwell-Jolly, supra, 188 Cal.App.4th at pp. 569–570 [“section 30(A) imposes certain duties on behalf of the Department when establishing reimbursement rates”].)

Here, it is undisputed that the Department has not acted to modify the Section 51527 reimbursement rates for over ten years. Throughout that period, up to the present, the Department was not required to undertake any particular action to ensure compliance with Section (30)(A). To the extent that appellants’ argument is premised on any obligation the Department owed when it last modified the Section 51527 reimbursement rates in 1999, the administrative record shows that the Department expressly determined in its initial statement of reasons that the proposed rate increases were consistent with Section (30)(A). Under these circumstances, we decline to find that appellants have met their burden to establish the Department has not complied with Section (30)(A).

D. Appellants Failed to Show Any Deprivation of Their Constitutional Rights.

Our conclusion that the Department did not violate either the State Plan or federal law in connection with the Section 51527 reimbursement rates essentially disposes of appellants’ multiple constitutional claims. Nonetheless, we will briefly address each claim in turn.

Preliminarily, we observe that the availability of Medi-Cal reimbursement does not afford Medi-Cal providers with a constitutionally-protected property right. As stated in Lin v. State of California (2000) 78 Cal.App.4th 931, 935: “Due process rights only attach to recognized liberty or property interests. [Citation.] Providers of Medicare services or other related programs have no protected interest in continued participation in such programs. [Citation.] Any financial losses a physician may suffer from his or her exclusion from Medicare are ‘“not of constitutional significance for the establishment of a protectable property interest.”’ [Citation.]” (See also Hillsboro Properties v. City of Rohnert Park (2006) 138 Cal.App.4th 379, 391 [“A constitutional injury does not occur simply because a government regulation limits the value of property”].)

Appellants’ first claim is that by declining to set reimbursement rates at a level that, at a minimum, compensates appellants for their out-of-pocket expenses, the Department has taken appellants’ property without just compensation in violation of article I, section 19 of the California Constitution. Where an asserted taking does not deprive a plaintiff of all economically beneficial use of its property, courts examine several factors to determine whether an unlawful taking has occurred, including “‘“[t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations.” [Citation.] In addition, the “character of the governmental action”—for instance whether it amounts to a physical invasion or instead merely affects property interests through “some public program adjusting the benefits and burdens of economic life to promote the common good”—may be relevant in discerning whether a taking has occurred. [Citation.]’” (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 261.) Here, there has plainly been no unlawful taking, as appellants voluntarily participate in a public program and, thus, their expectations are governed by the Medi-Cal provider agreement’s provision limiting their right to reimbursement.

Nor do we find that the Department has deprived appellants of any procedural or substantive due process rights. On a procedural level, due process does not require any particular type of hearing, and “[i]n some instances, ‘due process may require only that the administrative agency comply with the statutory limitations on its authority.’ [Citation.]” (Bergeron v. Department of Health Services (1999) 71 Cal.App.4th 17, 24; cf. Orange County Cable Communications Co. v. City of San Clemente (1976) 59 Cal.App.3d 165, 171 [there is no constitutional requirement for an evidentiary hearing in connection with a request for a rate increase].) Here, in accordance with the requirements of attachment 4.19-B, the administrative record established that the Department held public hearings in connection with each relevant proposed modification to Section 51527. There is no merit to appellant’s contention that Bergeron v. Department of Health Services, supra, 71 Cal.App.4th 17 required the Department to do more. There, the Department withheld all payment of fees for services a dentist had provided to Medi-Cal beneficiaries, pending an investigation into her billing practices. The court held the Department owed no constitutional or statutory duty to conduct an administrative hearing prior to withholding the funds; a federal regulation’s notice and written response requirements afforded sufficient procedural due process. (Id. at pp. 23–25.)

Appellants have not been deprived of substantive due process. “Courts will not strike down a law on substantive due process grounds unless it ‘is manifestly unreasonable, arbitrary or capricious, and has no real or substantial relation to public health, safety, morals or general welfare.’ [Citation.]” (Hess Collection Winery v. Agricultural Labor Relations Bd. (2006) 140 Cal.App.4th 1584, 1599.) “‘[S]tatutes prescribing the terms upon which those conducting certain businesses may contract, or imposing terms if they do enter into agreements, are within the state’s competency’” are a proper exercise of the state’s power over public welfare. (Ibid. [finding that statute imposing collective bargaining agreement on an agricultural grower and agricultural employees did not implicate substantive due process rights]; see also Hillsboro Properties v. City of Rohnert Park, supra, 138 Cal.App.4th at p. 391 [rejecting claim that rent control regulation deprived a property owner of substantive due process].) The specification of maximum reimbursement rates in Section 51527 is not unreasonable, arbitrary or capricious, and bears a reasonable relationship to the administration of the Medi-Cal program.

Finally, we find no support in the record for appellants’ claim that they have been denied “equal protection of the laws” in violation of article I, section 7 of the California Constitution. A regulation that falls under the rubric of social and economic welfare legislation does not offend equal protection principles “as long as it is rationally related to the achievement of a legitimate state purpose.” (California Ass’n of Bioanalysts v. Rank, supra, 577 F.Supp.2d at p. 1352.) While courts inquire into the relationship between any classification and legislative goals, the classification “‘will not be set aside if any state of facts reasonably may be conceived to justify it.’ [Citations.]” (Ibid.; Hansen v. City of Buenaventura (1986) 42 Cal.3d 1172, 1190.)

The court in California Ass’n of Bioanalysts v. Rank, supra, 577 F.Supp.2d at page 1352, footnote 13, observed “that the federal courts consistently have upheld the constitutionality of Medicaid reimbursement schemes in the face of equal protection challenges. [Citations.]”

As a threshold matter, we have already rejected the primary factual basis for appellants’ claim, which is that they have been treated differently because the Department followed the State Plan’s requirements in setting reimbursement rates for other types of providers but failed to comply with the State Plan in connection with setting the reimbursement rates in Section 51527. We also reject appellants’ argument that equal protection is offended because the Department utilizes different reimbursement formulas for different types of providers. As explained in Alviso v. Sonoma County Sheriff’s Dept. (2010) 186 Cal.App.4th 198, 208: “‘In the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some “reasonable basis, ” it does not offend the Constitution simply because the classification “is not made with mathematical nicety or because in practice it results in some inequality.” [Citation.] “The problems of government are practical ones and may justify, if they do not require, rough accommodations—illogical, it may be, and unscientific.”’ [Citations.]” The Department has developed a complex reimbursement scheme that takes into account the varying methods of providing and measuring reimbursable services. (See Cal. Code Regs., tit. 22, § 50000 et seq.) For example, reimbursement for case management services—which is based on a compilation of 15-minute service periods and regional center costs—necessarily differs from reimbursement for medical transport services. Appellants have failed to show that the Department’s reimbursement methodologies lack a reasonable basis.

III. The Trial Court Properly Exercised Its Discretion in Limiting Discovery.

Appellant’s final challenge is to the trial court’s granting the Department’s motion for a protective order to preclude appellants from deposing the Department’s “person most qualified” and producing additional documents requested in the deposition notice. In a minute order, the trial court carefully outlined the reasons for its ruling. It first noted that evidence outside the administrative record is typically not considered in a mandamus action challenging the promulgation of a regulation, which involves a discretionary, quasi-legislative decision. It rejected appellants’ characterization of the mandamus proceeding as challenging a ministerial decision, finding that appellants failed to show the Section 51527 reimbursement rates had been or could be set without an exercise of discretion. It also concluded that the information sought by appellants should be included in the administrative record, given that appellants had made no showing they were deprived of an opportunity to participate in the administrative determinations to set and modify the reimbursement rates.

We review discovery orders under an abuse of discretion standard. (Save Open Space Santa Monica Mountains v. Superior Court (2000) 84 Cal.App.4th 235, 245.) Appellants bear the burden of establishing a clear abuse of discretion that resulted in a miscarriage of justice. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.) Moreover, a judgment will not be reversed on the basis of such an error unless prejudice is affirmatively demonstrated. (Cal. Const., art. VI, § 13; Code Civ. Proc., § 475.) Prejudice is not presumed and the burden is on appellants to show its existence. (Winfred D. v. Michelin North America, Inc. (2008) 165 Cal.App.4th 1011, 1038.)

Appellants’ central argument is that the trial court abused its discretion because the requested discovery was relevant to the Department’s ministerial duty to follow the mandate of attachment 4.19-B. But as we have already explained, any ministerial duty on the part of the Department was not triggered in the absence of an affirmative discretionary decision to modify rates. And to the extent the Department exercised any discretion in determining to modify reimbursement rates before 2000, review of those decisions was confined to the administrative record. (E.g., California Hospital Assn. v. Maxwell-Jolly, supra, 188 Cal.App.4th at p. 580 [“‘An unbroken line of cases holds that, in traditional mandamus actions challenging quasi-legislative administrative decisions, evidence outside the administrative record (extra-record evidence) is not admissible’”]; San Joaquin Local Agency Formation Com. v. Superior Court (2008) 162 Cal.App.4th 159, 167 [“Since extra-record evidence is generally not admissible in an action or proceeding to challenge a [quasi-legislative decision], discovery is usually not necessary”].) Because appellants’ deposition notice sought documents and other information beyond the scope of the administrative record, the trial court properly exercised its discretion in granting the Department’s protective order.

Moreover, we cannot discern how appellants suffered any prejudice from the granting of the order. On its own motion, the trial court directed the Department to provide additional information about the medical transport reimbursement rates for the 2005 through 2008 time period alleged in the petition. The Department responded with the declaration of Linda Machado, who averred that with the exception of one letter addressing air transport reimbursement rates which she provided, all documents related to the setting of rates in Section 51527 were in the rulemaking file which had already been produced as the administrative record. Appellants have made no showing that their deposition request would have garnered any information beyond the administrative record. Accordingly, they failed to meet their burden to show that they suffered any prejudice from the protective order. (See People v. Hustead (1999) 74 Cal.App.4th 410, 422–423 [party seeking discovery bears the burden of proving prejudice—that is, whether there is a reasonable probability that the outcome of the case would have been different had the information been disclosed].)

DISPOSITION

The judgment is affirmed. The Department is entitled to its costs on appeal.

We concur: BOREN, P. J., CHAVEZ, J.


Summaries of

Sierra Medical Services Alliance v. Douglas

California Court of Appeals, Second District, Second Division
Mar 22, 2011
No. B220443 (Cal. Ct. App. Mar. 22, 2011)
Case details for

Sierra Medical Services Alliance v. Douglas

Case Details

Full title:SIERRA MEDICAL SERVICES ALLIANCE et al., Plaintiffs and Appellants, v…

Court:California Court of Appeals, Second District, Second Division

Date published: Mar 22, 2011

Citations

No. B220443 (Cal. Ct. App. Mar. 22, 2011)