Judge Mitchell L. Beckloff, Case 20STCP03700 2022-07-27 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 20STCP03700, Date: 2022-07-27 Tentative Ruling

Petitioner, Los Angeles Unified School District, seeks an order compelling Respondent, the California Department of Health Care Services (the Department), to set aside its audit adjustment and final decision for 2010 and 2011 settling Petitioner’s reimbursement for services provided to student Medi-Cal recipients. Petitioner further requests an order Respondent be required to accept Petitioner’s reimbursement calculations. Finally, Petitioner seeks an order requiring Respondent to adopt and implement audit procedures consistent with the Medicaid state plan amendment.

The Department operates California’s Medicaid program, known as Medi-Cal. Petitioner is enrolled as a local educational agency (LEA) service provider of the Department’s Medi-Cal Billing Option Program (MBOP). (FAP ¶ 2; Welf. & Inst. Code § 14132.06, subd. (a).) Under the MBOP, the Department makes payments to LEAs, such as Petitioner, for health-related services provided by qualified health service practitioners to Petitioner’s Medi-Cal eligible students, subject to the Department’s post-payment audits. As a MBOP participant, Petitioner is required submit a Cost and Reimbursement Comparison Schedule (CRCS) on an annual basis comparing Petitioner’s actual costs for services to the interim Medi-Cal advances that were paid by the Department for the preceding fiscal year.

Petitioner submitted CRCS forms calculating the amount of underpayment allegedly owed by the Department to Petitioner for fiscal year end (FYE) 2010 and the amount of overpayment allegedly owed to the Department from Petitioner for FYE 2011 under the MBOP program. (FAP ¶ 6.) Thereafter, the Department issued audits for Petitioner’s FYE 2010 CRCS and FYE 2011 CRCS adjusting the amount of underpayment to Petitioner to $69,076 for FYE 2010—instead of $1,771,167 as calculated by Petitioner—and the amount of overpayment to Petitioner to $2,733,563—instead of $58,434 as calculated by Petitioner—for FYE 2011. (FAP ¶¶ 9, 36, 39.) The 2010 and 2011 audit adjustments resulted in a net loss of $4,377,220 to Petitioner based on its calculations. (FAP ¶ 9.)

Petitioner challenged the audit adjustments by appealing them through the Department’s administrative appeals process. (FAP ¶ 10.) In June and December 2018, an administrative hearing occurred before an Administrative Law Judge (ALJ). (FAP ¶¶ 10, 40.) On February 28, 2020, the ALJ issued a proposed decision denying Petitioner’s appeal and upholding the Department’s audit adjustments in their entirety. (FAP ¶ 41.) The Department adopted the proposed decision as its final decision on May 15, 2020. (FAP ¶ 41.)

On June 25, 2021, Petitioner filed the petition[2] to overturn the Department’s May 15, 2020 decision based on allegations that “all the material findings and decisions in the Final Decision are factually and legally unsupported.” (FAP ¶ 42.) Through its petition, Petitioner seeks judicial review of the audit adjustments for FYE 2010 and 2011.

Under the federal Medicaid Act, the federal government reimburses participating states to help states provide health care services for the poor, elderly and disabled. (42 U.S.C. § 1396 et seq.) The Medicaid Act requires each participating state to adopt a state plan setting forth the nature and scope of the state’s Medicaid program. (42 U.S.C. § 1396a; 42 C.F.R. §§ 430.10, 431.10.)

California participates in Medicaid through its Medi-Cal program, and has designated the

Department as the single state agency responsible for the program’s administration. (Welf. & Inst. Code §§ 10740, 14000 et seq.; Cal. Code Regs., tit. 22, § 50004.) The Department is required to follow California’s Medicaid state plan (the State Plan) in administering the Medi-Cal program. (Cal. Code Regs., tit. 22, § 50004.)

The MBOP is an optional Medi-Cal program established to reimburse LEAs for health-related services provided by qualified health service practitioners to Medi-Cal-eligible students. (Welf. & Inst. Code, §§ 14115.8, 14132.06, 14132.06.)

Under the LEA MBOP, the Department reimburses LEAs for providing health-related services to Medi-Cal beneficiaries, thereby drawing federal Medicaid funding for such services, “to the extent federal financial participation is available.” (Id., §§ 14115.8, 14132.06.) After a LEA provides eligible services to Medi-Cal students, the LEA bills the Department, through its fiscal intermediary, using a fee-for-service model. (Id., § 14115.) The Department makes payments to LEAs, subject to the Department’s post-payment audits. (Id., § 14132.06.)

The federal government reimburses a percentage of the total amount expended for providing the LEA MBOP services; this percentage is referred to as the Federal Medical Assistance Percentage (FMAP). The FMAP can fluctuate from year to year. (See 42 U.S.C. § 1903, subd. (a).) LEAs that elect to participate in the MBOP are required to report their costs by submitting and certifying a CRCS to the Department on an annual basis. (Cal. Code Regs., tit. 22, § 51270.)

The Department audits reports prepared by LEAs such as Petitioner. (Welf. & Inst. Code,

§ 14170, subd. (a)(1).) The Department is also required to recover any overpayments made to providers, including, but not limited to, payments determined to be for services not documented; false or incorrect claims or cost reports; or violation of any other Medi-Cal regulation where overpayment has occurred. (Cal. Code Regs., tit. 22, § 51458.1, subds. 10 (a)(3), (a)(4), (a)(13).)

In 2001, the Legislature enacted a statute, which was the origin for the LEA reimbursement methodology at issue in this dispute. The Legislature made clear its intention "that schools shall be reimbursed for all eligible services that they provided that are not precluded by federal requirements." (Welf. & Inst. Code, § 14115.8, subd. (a)(1).)

It is undisputed that the applicable methodology to determine the MBOP reimbursement is in State Plan Amendment (SPA) 03-024 as issued by the Department. The parties’ dispute turns on the interpretation and application of SPA 03-024.

Initially, a LEA pays the costs for the Medi-Cal services provided. Through the MBOP, the LEA receives interim payments based on a flat fee for the services provided. (AR 8210-8211.) After the conclusion of the fiscal year, the second phase of reimbursement calculates those costs of a LEA eligible for federal Medicaid reimbursement by calculating the LEA’s net costs for providing LEA services, i.e., costs not paid by other federal funds received by the LEA. (AR 008211.)

This proceeding focuses on the calculation of the second phase of reimbursement.

SPA 03-024 contains a four-step reimbursement methodology to determine the MBOP reimbursements. (AR 7841-7869.) The dispute here centers on the second step.

Step One: Determine the total net personnel costs, consisting of salaries, benefits, and other costs such as materials, supplies and contractor costs, necessary for the provision of health services by practitioner type. This step excludes any personnel costs funded by federal funds other than Medicaid. (AR 3763, 7866.)

Step Two: “Total personnel costs by practitioner type ([from Step One]) will be multiplied by the percent of hours worked by corresponding practitioners to provide LEA Medi-Cal services to calculate the Medi-Cal direct cost of providing LEA services by practitioner type. The percent of hours worked will be based on the number of units paid by Medi-Cal for each LEA service multiplied by the time worked by practitioners to provide one unit of service (numerator), divided by the total annual hours each practitioner type were required to work (denominator). The time worked by practitioners to provide one unit of service will include face-to-face as well as preparatory and follow-up time.” (AR 7867, emphasis added.)

Step Three: Multiply the LEA’s direct cost [as determined through Step Two] by one plus the LEA’s approved indirect cost rate to calculate the total Medi-Cal cost services provided by the LEA. (AR 7867.)

Step Four: Multiply the total Medi-Cal cost of providing the LEA services [as determined by Step Three] by the applicable FMAP rate. (AR 7867.)

To obtain reimbursement through the MBOP, a LEA must submit a CRCS. The CRCS compares the LEA’s actual annual costs for services with the interim Medi-Cal advances paid to the LEA by the Department. (AR 7866, 8199.) Worksheets corresponding to the four steps of reimbursement in SPA 03-024 assist with the annual reconciliation. (AR 8201-8202.)

The first step of the four-step reconciliation process uses CRCS Worksheet A.1/B.1 to capture net personnel costs. The worksheet requires LEAs to report all salaries, benefits, and other expenditures for all practitioners who provided Medi-Cal services. From that figure, personnel costs funded by federal revenues other than Medicaid are excluded and removed. (AR 3763.)

CRCS Worksheet A-3/B-3 addresses the second step of the four-step reconciliation process. The worksheet calculates the percentage of hours providers spent providing LEA services. The worksheet starts with the number of full-time equivalent (FTE) employees who provided LEA services in Column A. The worksheet instructs, “If [the] LEA receives federal funding for practitioners that are providing reimbursable LEA [MBOP] services, and their time is dedicated, in full or in part, to that federal program, exclude these FTEs (or portion of FTEs) from Column A.” (AR 3767.) The total hours required to work by all of non-federally funded FTEs are captured in Column C (number of FTE employee practitioners multiplied by the annual hours each FTE employee is required to work). (AR 3767.) The percentage of time for each FTE employee providing LEA services is derived by dividing the number of hours reimbursed by the Department by the total number of hours worked by the FTE employee. (AR 3767.)

From 2006 to 2009, the CRCS required LEAs to calculate eligible personnel costs by reporting the non-federally funded salary expenditures for specified practitioner types. (AR 1338, 1350-1351.) Therefore, Worksheet A in the 2006 to 2009 CRCS form instructed: “Do not report any salary expenditures, or portion of expenditures, that are funded by Federal revenues.” (AR 1338, 1351.) Worksheet A-3/B-3 in the 2006 to 2009 CRCS forms instructed LEAs to exclude FTE employees funded by and dedicated to federal programs other than Medicaid. (AR 1343, 1357.)

In the summer of 2011, the Department modified the 2010 CRCS instructions (Original 2010 CRCS Instructions). The Original 2010 CRCS instructions changed the manner of reporting for LEAs’ personnel costs. (AR 1368-1369.) The Original 2010 CRCS Instructions removed the language in Worksheet A-3/B-3 instructing LEAs to “remove the federal portion of” their FTE employees but continued to calculate net personnel costs “by subtracting the federal revenues from the total personnel costs reported for each practitioner type.” (AR 1369.)

After discovering some reporting issues under the Original 2010 Instructions, the Department revised the CRCS instructions and advised LEAs to remove federally funded FTE employees (or portions of FTE employees), among other changes (the Revised 2010 CRCS Instructions). (AR 1412-1421.) In Worksheet A-3/B-3, the Revised 2010 CRCS Instructions again included language allowing LEAs to exclude FTE employees funded by and dedicated to other federal programs (consistent with reporting in prior years’ CRCS forms) and removed the requirement that the FTE employee count be measured against gross salaries for all practitioners (first included in the Original 2010 CRCS Instructions). (AR 1415, 1420, 3767.) The instructions for the FYE 2011 CRCS are substantively identical to the Revised 2010 CRCS Instructions. (AR 4803.)

On November 13, 2012, Petitioner timely submitted a revised CRCS form for FYE 2010 (the 2010 CRCS), under the Revised 2010 CRCS Instructions. (AR 3760-3772.) According to the 2010 CRCS as submitted to the Department by Petitioner, the Department underpaid (under reimbursed) $1,771,166.95 for LEA services for FYE 2010. (AR 3760.)

Petitioner completed Worksheet A.1/B.1 (AR 3763) and Worksheet A-3/B-3 (AR 3767) to prepare the 2010 CRCS. On Worksheet A-3/B-3, Petitioner excluded from the FTE employees and practitioner hour counts those practitioners whose personnel costs were funded by federal revenues other than Medicaid. Petitioner had also excluded those costs from Worksheet A.1/B.1. (AR 3767.)

The Department audited the 2010 CRCS. The Department’s audit resulted in proposed audit adjustments including adding federally funded practitioner FTE employee hours back into the total hours required to work, for purposes of CRCS Worksheet A-3/B-3, Column C. (AR 1593, 1595, 1597, 1599, 1604-1605.)

On November 4, 2015, the Department explained to Petitioner to exclude federally funded FTE employees from the total hours required to work formula, Petitioner would have to provide documentation proving each excluded hour by a federal funded (other than Medicaid) practitioner could not have been spent by the practitioner providing Medi-Cal services. (AR 1612-1614.)

On November 12, 2015, the Department adopted Adjustment No. 2 in its final audit report, determining it underpaid Petitioner $69,076.00 for FYE 2010. (AR 1620-1639.)

On January 9, 2015, Petitioner submitted its CRCS for FYE 2011 (the 2011 CRCS). (AR 4795-4821.) According to the 2011 CRCS submitted to the Department by Petitioner, the Department overpaid (over reimbursed) Petitioner over-reimbursed by $58,434.01 for LEA services for FYE 2011. (AR 4795.)

For the 2011 CRCS, Petitioner used the approach for completing Worksheets A.1/B.1 and A-3/B-3 as Petitioner did for the 2010 CRCS. (AR 4803.)

Petitioner also contacted the Department for guidance in reporting hours for its Trained Health Care Aides (THCAs). (AR 3552-3553.) Many of Petitioner’s THCAs were fully federally funded, and the 2011 CRCS was calculated Petitioner’s cost of providing services as exceeding Petitioner’s net personnel costs. (AR 3552-3553.) The Department did not provide the requested guidance, and instead advised Petitioner to submit its 2011 CRCS with all THCAs included so appropriate adjustments could be made during the audit. (Ibid.) Petitioner therefore included the THCA is its 2011 CRCS. (AR 4803.)

The Department audited the 2011 CRCS. The Department’s audit resulted in proposed adjustments including increasing Petitioner’s reported FTE employees in CRCS Worksheet A-3/B-3 to match the gross salaries reported on Worksheet A.1/B.1. The Department also required documentation to exclude hours of practitioners who were federally funded other than through Medicaid as it had required with its FYE 2010 audit. (AR 2604-2607, 2615-2617, 2633.)

On July 19, 2016, the Department adopted Adjustment No. 1 in its final audit report, determining it overpaid (over reimbursed) Petitioner $2,733,563.00 for FYE 2011. (AR 2604.)

Petitioner appealed the Department’s audit adjustments to the 2010 CRCS and 2011 CRCS in a consolidated appeal conducted through the Department’s administrative appeal process. (AR 8208.)

In June and December 2018, an ALJ conducted an administrative hearing. (AR Ex. 1-7.) Health Program Auditor Olga Barajas, the auditor who conducted the Department’s audit of Petitioner’s CRCS FYE 2010 and 2011, testified on behalf of the Department. (AR 1-653.) Martin Alvarez, Andrea Coleman, Hansine Fisher, and Timothy Rosnick testified on behalf of Petitioner. (AR 669-1274.)

On February 28, 2020, the ALJ denied Petitioner’s appeal and upheld the Department’s audit adjustments in their entirety. (AR 8196-8242.) The ALJ concluded: (1) the Department was authorized by law to increase Petitioner’s total hours required to work; (2) Petitioner improperly excluded federally funded practitioners’ total hours required to work; and (3) Petitioner failed to produce required documentation to demonstrate that its federally funded practitioners’ time was dedicated to other federal program. (AR 8241.)

On May 15, 2020, the Department adopted the ALJ’s decision as its Final Decision. (AR 8195-8243.)

Under Code of Civil Procedure section 1094.5, subdivision (b), the issues for review of an administrative decision are: whether the respondent has proceeded without jurisdiction, whether there was a fair trial, and whether there was a prejudicial abuse of discretion. An abuse of discretion is established if the respondent has not proceeded in the manner required by law, the decision is not supported by the findings, or the findings are not supported by the evidence. (Code Civ. Proc., § 1094.5, subd. (b).)

There are two possible forms of review: (1) independent judgment; or (2) substantial evidence. (Id., subd. (c).) Code of Civil Procedure section 1094.5 does not specify which cases are subject to independent review, leaving that issue to the courts. (Fukuda v. City of Angels (1999) 20 Cal.4th 805, 811 (Fukuda).) In cases reviewing decisions which affect a vested, fundamental right, the trial court exercises independent judgment on the evidence. (Bixby v. Pierno (1971) 4 Cal.3d 130, 143.) In all other cases, the court determines whether the findings are supported by substantial evidence in light of the whole record. (See Code Civ. Proc., § 1094.5, subd. (c).)

While Petitioner does not address the standard of review, the Department advises substantial evidence review is appropriate here. The court agrees. The matter is purely economic and does not affect a fundamental vested right. (Pacific Coast Medical Enterprises v. Department of Benefit Payments (1983) 140 Cal.App.3d 197, 207.)

Substantial evidence is relevant evidence that a reasonable mind might accept as adequate to support a conclusion (California Youth Authority v. State Personnel Board (2002) 104 Cal.App.4th 575, 584-85), or evidence of ponderable legal significance which is reasonable in nature, credible and of solid value. (Mohilef v. Janovici (1996) 51 Cal.App.4th 267, 305 n. 28.) “Courts may reverse an [administrative] decision only if, based on the evidence before the agency, a reasonable person could not reach the conclusion reached by the agency.” (Sierra Club v. California Coastal Com. (1993) 12 Cal.App.4th 602, 610.) This perspective is deferential to the agency. (Doe v. Regents of the University of California (2016) 5 Cal.App.5th 1055, 1074 [“[The court] must accept all evidence which supports the successful party, disregard the contrary evidence, and draw all reasonable inferences to uphold the [administrative decision].”])

Petitioner bears the burden of proof to demonstrate, by citation to the administrative record, that the evidence does not support the administrative findings. (See Steele v. Los Angeles County Civil Service Commission (1958) 166 Cal.App.2d 129, 137; Alford v. Pierno (1972) 27 Cal.App.3d 682, 691.)

Additionally, “‘[o]n questions of law arising in mandate proceedings, [the court] exercise[s] independent judgment.’” (Christensen v. Lightbourne (2017) 15 Cal.App.5th 1239, 1251.) Thus, the interpretation of relevant statutes or regulations is pursuant to the court’s independent judgment.

The dispute between the parties centers on the interpretation of the second step of the four-part annual reconciliation process. Set out in its component parts, Step Two provides:

“Total personnel costs by practitioner type (from [Step One]) will be multiplied by the percent of hours worked by corresponding practitioners to provide LEA Medi-Cal services to calculate the Medi-Cal direct cost of providing LEA services by practitioner type.

The percent of hours worked will be based on the number of units paid by Medi-Cal for each LEA service multiplied by the time worked by practitioners to provide one unit of service (numerator), divided by the total annual hours each practitioner type were required to work (denominator).

The time worked by practitioners to provide one unit of service will include face-to-face as well as preparatory and follow-up time.” (AR 7867, emphasis added.)

Petitioner contends the hours expended by practitioners who are funded by other federal sources are not included anywhere in the calculation. Such practitioners are excluded in Step One and are thereafter not included in the reconciliation process.

More specifically, Petitioner argues the proper interpretation of Step Two necessarily requires the court to examine Step One because Step Two expressly incorporates the Step One calculation. Petitioner notes the four-step process must be read and considered as one—not four disjunctive parts. Petitioner contends Step One excludes practitioner costs funded by federal revenues other than Medicaid, and Step Two does the same. Petitioner asserts the same practitioners are at issue; they are the “corresponding practitioners” noted in Step Two. Petitioner also argues that a proper interpretation of Step Two must be consistent with its overall purpose to enable LEAs to obtain the maximum Medicaid federal financial participation. (Welf. & Inst. Code, § 14115.8, subd. (a)(1).)

The Department contends practitioners who are funded by other federal sources are included in the denominator in the second step of the process. That is, although such practitioners are initially omitted from Worksheet A.1/B.1, their hours are included in the calculation of “the total annual hours each practitioner type were required to work (denominator).” (AR 7867.)

The Department argues that “total annual hours for each practitioner type” means what it says—“all hours” including those of federally funded practitioners. In the Department’s view, “total annual hours each practitioner type were required to work” is unambiguous. The Department also argues legislative intent supports its position. The Legislature intended to ensure LEAs are reimbursed for eligible services only.

The first sentence of Step Two focuses on the total personnel costs by practitioner type after such costs have been calculated in Step One of the four-step reimbursement process. Those total personnel costs exclude FTE employees (and portions of FTE employees) funded with federal funds other than Medicaid. Those hours excluded are not reimbursable and are therefore not in issue. The issue is of the remaining hours (the Step One result) what percentage of those hours are for reimbursable for LEA services. The first sentence of Step Two says just that—of the personnel costs in Step One, what amount of time was spent by “corresponding practitioners”—those with time for which reimbursement is sought—on LEA Medi-Cal services. The inquiry is how to allocate the time for those for whom reimbursement is sought (Step One results) between reimbursable LEA services and non-reimbursable services.

As argued by Petitioner (and disputed by the Department), the four-part reconciliation process must be read together. The parts do not operate in isolation. (See McLaughlin v. State Bd. of Educ. (1999) 75 Cal.App.4th 196, 211 [statutes not read in isolation but considered in statutory scheme].) The parts of the process must be harmonized.

The Department offers no rationale for including practitioners funded by federal funds other than Medicaid for which Medi-Cal reimbursement is not sought who are excluded at Step One into the reconciliation analysis at Step Two. Such practitioners are not relevant to determining the direct cost of providing LEA services.

The Department’s argument on the issue is brief. The Department argues Petitioner’s interpretation improperly attempts “to combine two separate and distinct steps” into the analysis “which is not permitted under the plain language” of the provision. (Opposition Brief 14:1-2.) The Department’s argument ignores that each step of the four-step reconciliation process builds on the one before it. For example, Step Two specifically incorporates the results of Step One into it, and the three sentences that are Step Two cannot be read independently from one another. The Department’s argument also ignores Step Two’s reference to “corresponding practitioners.” In addition, the provisions first reference to “practitioner type” is modified by “from [Step One]” of the reconciliation process such that the second reference to “practitioner type” in describing the denominator should be identical.

The court finds the Department’s interpretation is not entitled to deference under Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 8.) The plain language of the provision does not support the Department’s interpretation. Further, there is no rationale for including hours excluded at Step One in the reconciliation process. As noted, the issue is of those practitioners for whom no federal funding is provided (other than Medi-Cal), how much of their time is reimbursable for LEA services. Hours that have been excluded are irrelevant in allocating reimbursement from non-reimbursable services.

Finally, the court finds the Department’s position on legislative intent unpersuasive. The court recognizes the Legislature has permitted the Department to adopt “utilization controls and standards . . . .” (Welf. & Inst. Code § 14132.06, subd. (a)(1).) Nonetheless, the Legislature also intended for LEAs to obtain reimbursement “for all eligible services that they provide that are not precluded by federal requirements.” (Id. at § 14115.8, subd. (a)(1).) The Department’s interpretation of Step Two severely reduces federal Medi-Cal reimbursement. By increasing the denominator by hours for which no reimbursement is sought, the Department minimizes the percentage of time spent providing LEA services. The Department does not effectively respond to the mathematical reality of minimizing reimbursements to LEAs. (See Opposition 16:5-9 [“Petitioner contends that the Department’s methodology purportedly causes dilution of its costs. The Department addressed Petitioner’s dilution hypotheticals at the hearing, and ALJ Felix correctly determined that this argument is without merit.” [Citations.]”])

The Department erred in its audit of Petitioner’s 2010 CRCS and 2011 CRCS. The Department misinterpreted Step Two of SPA 03-024 and decreased the amount of reimbursement to which the Department was entitled for providing LEA services. Given the Department’s error, the court cannot find the Department’s audits are supported by substantial evidence. The court also need not address the Department’s documentation requirement to exclude certain practitioners’ hours from the reconciliation process.

Based on the foregoing, the Department’s audit results are set aside. The petition is granted.

[1] The operative pleading is LAUSD’s First Amended Petition for Writ of Mandate and Declaratory Relief (FAP) filed June 25, 2021.

[2] Petitioner commenced this proceeding by filing its initial petition on November 6, 2020. The court sustained a demurrer to the initial petition which led to the FAP.