1

Filed 8/10/20

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

----

OAK VALLEY HOSPITAL DISTRICT,

Plaintiff and Respondent,

v.

STATE DEPARTMENT OF HEALTH CARE 

SERVICES,

Defendant and Appellant.

C085869, C085882, &

C085883

(Super. Ct. Nos. 34-2016-

80002320-CU-WM-GDS, 34-

2016-80002307-CU-WMGDS, & 34-2016-80002437-

CU-WM-GDS)

RIDGECREST REGIONAL HOSPITAL,

Plaintiff and Respondent,

v.

STATE DEPARTMENT OF HEALTH CARE 

SERVICES,

Defendant and Appellant.

C086335

(Super. Ct. No. 34-2016-

80002471-CU-WM-GDS)

APPEAL from a judgment of the Superior Court of Sacramento County, Michael 

P. Kenny, Judge. Affirmed.
2

Xavier Becerra, Attorney General, Julie Weng-Gutierrez, Assistant Attorney 

General, Ismael A. Castro and Brenda A. Ray, Deputy Attorneys General for Defendant 

and Appellant.

Douglas S. Cumming; Davis Wright Tremaine and Jordan B. Keville for Plaintiff 

and Respondent.

These four consolidated appeals present the question of whether medical providers 

who provide services under California’s Medi-Cal program are entitled to reimbursement 

for the costs of providing in-house medical services for their own employees through 

“nonqualifying” self-insurance programs.1 Nonqualifying self-insurance programs are 

those that do not meet all the requirements of section 2162.7 in the Centers for Medicare 

and Medicaid Services’ Publication 15-1 (Centers for Medicare and Medicaid Services, 

The Provider Reimbursement Manual, § 2162.7, p. 21-42.7 (rev. 406, 08-98); hereafter 

Provider Reimbursement Manual).2 Even for nonqualifying self-insurance programs, 

however, the Provider Reimbursement Manual allows providers to claim reimbursement 

for reasonable costs on a “claim-paid” basis. (§ 2162.7, par. A, p. 21-42.7 (rev. 406, 08-

98).) 

Here, Oak Valley Hospital District (Oak Valley) and Ridgecrest Regional Hospital 

(Ridgecrest) have self-insurance programs providing health benefits to their employees. 

1 These consolidated appeals comprise Oak Valley Hospital District v. Department 

of Health Care Services (C085869) (relating to the audit of the fiscal year ending June 

30, 2008) (Oak Valley I); Oak Valley Hospital District v. Department of Health Care 

Services (C085882) (relating to the audit of the fiscal year ending June 30, 2010) (Oak 

Valley II); Oak Valley Hospital District v. Department of Health Care Services

(C085883) (relating to the audit of the fiscal year ending June 30, 2012) (Oak Valley III); 

and Ridgecrest Regional Hospital v. Department of Health Care Services (C086335) 

(Ridgecrest) (relating to the audit of fiscal periods ending on Jan. 31, 2010, & Jan. 31, 

2011).

2 Undesignated section citations are to the Provider Reimbursement Manual.
3

Claims for in-house medical services to their employees were included in cost reports 

submitted to the State Department of Health Care Services (DHS). DHS allowed the 

costs when Oak Valley and Ridgecrest employees received medical services from outside

providers but denied costs when the medical services were provided in-house. Oak 

Valley and Ridgecrest sought formal hearings on the denials of their costs for these inhouse medical services. In each of the cases, DHS determined claims paid to Oak Valley 

and Ridgecrest out of their self-insurance plan for in-house medical services rendered to 

their employees are not allowable costs. Oak Valley and Ridgecrest then petitioned the 

trial court for writs of administrative mandate. The trial court granted the writ petitions 

on grounds that costs of in-house medical services are reimbursable so long as they are 

“ ‘reasonable’ ” as defined by the Provider Reimbursement Manual. DHS has timely

appealed in each case.

In Oak Valley I, DHS contends the trial court erred because (1) Oak Valley’s selfinsurance program does not meet the requirements for a qualified plan under section 

2162.7, (2) the costs claimed by Oak Valley are not reasonable because they represent 

charges that exceed actual costs, and (3) the claimed costs are also not reasonable 

because they run afoul of related party principles. The issues and arguments in Oak 

Valley II and Oak Valley III are substantively the same as in Oak Valley I, but relate to 

later fiscal periods. Oak Valley II adds the contention that DHS properly denied the inhouse medical services costs on the bases of sections 332, 332.1, and 2144.4. Ridgecrest

presents substantively the same legal issues and arguments as the Oak Valley cases, but 

as they relate to Ridgecrest Regional Hospital.

We conclude Oak Valley’s and Ridgecrest’s self-insurance programs do not meet 

the requirements of a qualified plan under section 2162.7. However, neither medical 

provider ever claimed they operated qualified plans. We reject DHS’s contention that 

Oak Valley and Ridgecrest costs relating to in-house medical services for their employees 

are inherently unreasonable. Oak Valley and Ridgecrest incur actual costs in providing 
4

in-house medical services for their employees in the form of time expended by medical 

professionals, supplies required for treatment, and facilities within which treatment can 

take place. To the extent DHS argues the cost reports are not per se unreasonable, but 

unreasonable under the circumstances of the actual treatments of Oak Valley and 

Ridgecrest employees, we determine the evidence in the record supports the trial court’s 

findings that expert testimony established Oak Valley and Ridgecrest incur actual 

expenses in providing in-house medical services for their employees that are not 

otherwise reimbursed.

We reject DHS’s assertions regarding violation of related party principles for 

failure to develop the argument. Moreover, DHS did not raise the related party argument 

during the administrative or trial court hearings in these cases. We discern nothing in 

sections 332, 332.1, and 2144.4 that supports DHS’s categorical denial of in-house 

treatment costs. Sections 332 and 332.1 are inapposite because they apply to 

circumstances in which the patient is billed directly, whereas this case involves the 

question of reimbursement for hospital self-insurance plans that are not fully qualified 

under section 2162.7. Section 2144.4 states that fringe benefits, such as unrecovered 

costs for in-house treatment of employees, are allowable costs. Finally, we decline to 

address DHS’s assertion it calculated costs correctly in Ridgecrest, for failure to set forth 

the facts in the light most favorable to the judgment. Contrary to appellant’s burden on 

appeal, DHS sets forth a statement of facts in which it ignores the majority of the 

testimony introduced during the administrative hearing. Accordingly, we affirm the trial 

court’s granting of the petitions for writs of administrative mandate.

BACKGROUND

Medi-Cal Reimbursements to Health Care Providers

In Oroville Hospital v. Department of Health Services (2006) 146 Cal.App.4th 468 

(Oroville Hospital), this court explained: “Medicaid is a program through which the 

federal government provides financial assistance to qualified participating states for 
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furnishing medical assistance to the poor. (42 U.S.C. § 1396 et seq.; Children’s Hospital 

& Medical Center v. Bontá (2002) 97 Cal.App.4th 740, 747.) California participates in 

Medicaid through the Medi-Cal program. (Welf. & Inst. Code, § 14000 et seq.; 

Children’s Hospital & Medical Center v. Bontá, supra, 97 Cal.App.4th at p. 747.) DHS 

administers the Medi-Cal program pursuant to the Medi-Cal Act and DHS’s regulations. 

(Welf. & Inst. Code, § 14000 et seq.; Cal. Code Regs., tit. 22, § 50000 et seq.)” (Id. at 

pp. 471-472.) “DHS is required to reimburse Medi-Cal providers of hospital services for 

their Medi-Cal costs. ([Welf. & Inst. Code,] § 14170; Cal. Code Regs., tit. 22, § 51536.) 

. . . Hospitals [providing Medi-Cal services] are to be reimbursed for their ‘[a]llowable 

costs determined in accordance with applicable Medicare standards and principles of 

reimbursement.’ (Cal. Code Regs., tit. 22, § 51536, subd. (a)(2), italics added;

[citation].)” (Redding Medical Center v. Bonta (2004) 115 Cal.App.4th 1031, 1035.)

Consistent with Medicare standards, Medi-Cal providers such as Oak Valley and 

Ridgecrest may seek reimbursement for self-insured programs in which they provide 

medical benefit to their own employees. (§ 2144.4, p. 21-31 (rev. 375, 12-93) [including 

a provider’s “unrecovered cost of medical services rendered to employees” among fringe 

benefits includable in a provider’s costs].) To this end, the Provider Reimbursement 

Manual informs providers: “You may believe that it is more prudent to maintain a total 

self-insurance program (i.e., the assumption by you of the risk of loss) independently or 

as part of a group or pool rather than to obtain protection through purchased insurance 

coverage.” (§ 2162.3, p. 21-42.6 (rev. 444, 03-11).) 

If a provider’s self-insurance program qualifies under section 2162.7, 

contributions into the program fund are reimbursable. (§ 2162.3, p. 21-42.6 (rev. 444, 

03-11) [“If such a program meets the conditions specified in §2162.7, payments into such 

funds are allowable costs”].) However, if a provider’s self-insurance program does not 

qualify under section 2162.7, contributions into the program fund are not reimbursable. 

The Provider Reimbursement Manual states: “If a provider enters into an agreement with 
6

an unrelated party that does not provide for the shifting of risk to the unrelated party, 

such an agreement shall be considered self-insurance. For example, any agreement 

designed to provide administrative services only shall be considered self-insurance and

must meet the requirements specified below. If administrative services agreements do 

not meet these requirements [for a qualifying plan as defined in section 2162.7], any 

amounts funded as part of the agreement will not be allowed. Payments from the fund, 

however, will be treated on a claim-paid basis as specified in §2162.3.” (§ 2162.7, 

par. A, p. 21-42.7 (rev. 406, 08-98), italics added.)

Regardless of whether the medical provider has a qualified or nonqualified selfinsurance program, “[a]ll payments to providers of services must be based on the 

reasonable cost of services covered under title XVIII of the Act and related to the care of 

beneficiaries . . . . Reasonable cost includes all necessary and proper costs incurred in 

rendering the services, subject to principles relating to specific items of revenue and 

cost.” (§ 2100, p. 21-2.5 (rev. 454, 09-12), italics added.) Section 2102.1 elaborates on 

this principle and states, in pertinent part, that “[i]t is the intent of the program that 

providers are reimbursed the actual costs of providing high quality care, regardless of 

how widely they may vary from provider to provider, except where a particular 

institution’s costs are found to be substantially out of line with other institutions in the 

same area which are similar in size, scope of services, utilization, and other relevant 

factors.” (§ 2102.1, p. 21-2.5 (rev. 454, 09-12).)

Oak Valley and Ridgecrest Nonqualifying Self-insurance Plans

Oak Valley and Ridgecrest are acute care hospitals that provide Medi-Cal services. 

Both hospitals provide health benefits to their employees through self-insurance 

programs that do not qualify under section 2162.7. Employees of Oak Valley and 

Ridgecrest who participated in the plans could obtain medical services in house or from 

third party providers. Claims for employee treatments were submitted to the selfinsurance plans’ third party administrators. The third party administrators reviewed the 
7

claims, determined whether they were payable, and if payable would draw the money 

from a bank account funded by the medical providers to pay approved claims.

Consistent with Medi-Cal rules, Oak Valley and Ridgecrest submitted cost reports 

to DHS. As noted above, Oak Valley I relates to the fiscal year ending June 30, 2008, 

Oak Valley II relates to the fiscal year ending June 30, 2010, Oak Valley III relates to the 

fiscal year ending June 30, 2012, and Ridgecrest relates to those ending on January 31, 

2010, and January 31, 2011. These cost reports submitted to DHS included as allowable 

costs claims paid for the medical services rendered to Oak Valley’s and Ridgecrest’s 

employees under the nonqualifying self-insurance programs.

DHS audited the cost reports and, as relevant to these appeals, eliminated all 

claims paid under the self-insurance program for in-house medical services for Oak 

Valley and Ridgecrest employees. Oak Valley and Ridgecrest pursued informal hearings 

regarding the outcome of DHS’s audits. When DHS confirmed its denial of in-house 

medical treatment expenses under the self-insurance plans, Oak Valley and Ridgecrest 

requested formal hearings.

Formal Administrative Hearings

On July 21, 2015, a formal administrative hearing was conducted in Oak Valley I. 

We recount in some detail the proceedings of the formal administrative hearing in Oak 

Valley I because it established the evidence and contentions of the parties at the 

administrative level in a manner consistent with the approach in these consolidated 

cases.

3 

3 The record in Oak Valley II contains additional evidence and argument regarding 

whether Provider Reimbursement Manual sections 332, 332.1, and 2144.4 apply to Oak 

Valley’s in-house medical treatment costs as unrecovered costs. We recount the record 

relating to these sections of the Provider Reimbursement Manual in parts IV and V, 

below. In part VI, below, we address the administrative record as it relates to Ridgecrest.
8

During the Oak Valley I administrative proceeding, DHS introduced the testimony 

of Adrian Peña. Peña testified he was the DHS auditor who reviewed the Oak Valley 

cost report for the fiscal period that ended on June 30, 2008. Peña explained that he 

disallowed Oak Valley’s claim for in-house medical services for its own employees under 

its nonqualifying self-insurance program. In Peña’s view, “there’s no actual cost incurred 

in that case [of in-house medical treatment for employees] because there’s no money out 

of pocket.” However, when Oak Valley’s employees sought medical treatment from 

third parties under the same self-insurance plans, the claims were allowed.

On cross-examination, Peña acknowledged the distinction between in-house and 

third party medical treatment is not supported by section 2162.7:

“Q. Does section 2162.7 specifically make such a distinction [between claims 

paid for in-house treatment and those to third parties]?

“A. [Peña] No.”

Peña agreed that inclusion of a claim for treatment in a cost report to DHS did not 

cause the claim to be reimbursed or paid. Instead, claims for in-house medical services 

for employees are required for inclusion in Oak Valley’s cost report:

“Q. . . . When a provider prepares a cost report and they include the cost of 

treating patients in the cost report, does the act of including those costs in the cost report 

in and of itself cause claims to be generated, processed and paid?

“A. [Peña] No.

“Q. Isn’t it true that a hospital’s total costs of treating patients have to be included 

in the cost report to ensure proper cost finding?

“A. Yes.”

In Oak Valley I, DHS introduced no other testimony than that of Peña.

In support of its contentions, Oak Valley called Rodney Phillips as a witness. 

Phillips served as a reimbursement consultant for Oak Valley during the relevant audit 

period and is a certified public accountant. Phillips testified about the components of the 
9

costs associated with in-house medical services for Oak Valley employees. He noted that 

contractual adjustments were made to the in-house medical treatment claims to ensure 

there would be no request for profit through a markup but only the amount approved as 

reasonable by the third party administrator.

“Q. [Oak Valley’s counsel] [I]s Oak Valley seeking to include a markup in the 

cost which it is asking here for the Administrative Law Judge to recognize as allowable?

“A. No.

“Q. And what’s the basis for your opinion in that regard?

“A. The previous exhibits that we discussed regarding the contractual 

adjustments. 

“The fact that the contractual adjustments were not included tells us that what the 

Provider did claim was the amount of claims that were paid and processed by its thirdparty administrator and nothing more.”

Phillips also provided testimony touching on whether in fact Oak Valley had been 

doubly compensated for claims relating to in-house medical services for its employees. 

Phillips testified that “in this case [Oak Valley] ha[s] not attempted to recover more than 

the claims that were paid and processed. They were claimed only once. And that once 

was in their health plan expenditures, and it was based upon paid claims processed by the 

third-party administrator. [¶] I know of no other place where they attempted to claim 

those expenses.” In support, Oak Valley introduced evidence in the form of Worksheet 

A. Regarding this document, Phillips explained this evidence “established that the 

allowances are not included in Worksheet A. They never were claimed in the cost 

report.”

On this point, Phillips testified, “The cost of providing a health plan benefit to the 

employee is separate and distinct from the operating expenses of operating the equipment 

and the employee and the personnel.” “The additional information is the exhibits we’ve 

provided where we established that the contractual adjustments are not included on 
10

Worksheet A and have not been included in the cost report as an allowable cost.” For 

this reason, the hospital was not reimbursed twice for providing in-house medical care to 

its employees. In short, Oak Valley established that it did not, in fact, double claim inhouse medical treatment as an allowable cost. Instead, Phillips’s testimony showed Oak 

Valley ensured that its claim of in-house medical treatment was properly claimed only 

once.

Responding to Peña’s disallowance of the costs of providing in-house medical 

treatment, Phillips stated that the disallowance “essentially says by zeroing that out, it 

says the cost of care to those patients is zero; that the cost is zero. That’s simply false.”

The administrative law judge issued a proposed decision that rejected Oak 

Valley’s position. The proposed decision affirmed DHS’s categorical elimination of the 

cost of medical services provided in-house to Oak Valley employees even while allowing 

payment of costs for medical services for employees by outside providers of health care 

services. The administrative law judge reasoned that because payment for in-house 

medical services was paid “using monies drawn from a bank account funded by Oak 

Valley . . . that payment of the In-House Service claims did not represent a real cost 

because Oak Valley was simply reimbursing itself.” (Fn. omitted.)

The administrative law judge concluded payment of the self-insurance program’s 

bank account necessarily meant service claims did not represent an actual cost but mere 

reimbursement of itself. The administrative law judge reasoned: “Payment origin and 

destination were one and the same, and at all times Oak Valley retained ownership of the 

funds. . . . [T]he actual expenses incurred by Oak Valley in providing medical care to its 

employees were already included in the cost centers of the Oak Valley cost report where 

the services were rendered. To also allow the claim-paid costs for In-House Services 

would constitute an impermissible double expensing (referred to by witnesses as double 

reimbursement) of the costs.”
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Petitions for Writs of Administrative Mandamus

Oak Valley and Ridgecrest petitioned for administrative mandate. The trial 

court’s decision in Oak Valley I is representative in its reasoning and result on the 

common issues. In Oak Valley I, the trial court issued a writ of administrative mandate 

commanding DHS to set aside its decision. In issuing the writ, the trial court relied on 

the testimony of Phillips. The trial court explained, “Oak Valley is not reimbursed for 

the cost of providing a self-insured health plan by virtue of the fact that the total costs of 

treating all patients (including employees) are included in the cost centers.” Phillips 

provided evidence that DHS’s adjustment erred because Oak Valley was entitled to 

recover its in-house medical service costs under section 2162.7 because “it’s the only 

manner in which [Oak Valley] can claim [its] employee expenses related to their health 

insurance.”

The trial court also determined DHS erred in applying different standards of 

“reasonableness” to costs depending on whether the costs related to qualified or 

nonqualified plans. Thus, the trial court noted: “Both sections 2162.3 and 2162.7 

provide a method by which a Medi-Cal provider can seek reimbursement for the costs 

incurred in providing medical coverage to its employees via a self-insurance plan. If the 

plan is qualified, section 2162.3 states that ‘payments into such funds are allowable 

costs.’ When the plan is unqualified, section 2162.7, subdivision (A) states: ‘Payments 

from the fund . . . will be treated on a claim-paid basis as specified in § 2162.3.’ The 

Court finds it is unreasonable to interpret only one of these provisions as creating a 

‘predetermination of reasonableness’ and not the other. Further, both sections are subject 

to section 2102.[1]’s general reasonableness requirement.”

The trial court made substantively the same decision in Oak Valley II and Oak 

Valley III as in Oak Valley I, as the same legal issues relate to later fiscal periods. The 

exception is that in Oak Valley II, the trial court additionally addressed DHS’s argument 

that in-house medical services are not allowable costs under sections 332, 332.1, and 
12

2144.4. The trial court’s decision in Ridgecrest is substantively the same as in the Oak 

Valley cases, except that it pertains to Ridgecrest Regional Hospital. No additional legal 

issues are presented in Ridgecrest that are not resolved by our conclusions in the Oak 

Valley cases.

DISCUSSION

I

Standard of Review

Under Code of Civil Procedure section 1094.5, subdivision (a), a writ of 

administrative mandate may issue for purposes of reviewing the validity of any final 

administrative order or decision for which a hearing was required. To this end, 

subdivision (b) of Code of Civil Procedure section 1094.5 provides that courts shall 

consider whether the administrative agency “has proceeded without, or in excess of, 

jurisdiction; whether there was a fair trial; and whether there was any prejudicial abuse of 

discretion.” That subdivision defines abuse of discretion as an action when an 

administrative agency “has not proceeded in the manner required by law, the order or 

decision is not supported by the findings, or the findings are not supported by the 

evidence.”

In reviewing claims of insufficient evidence in support of an agency’s decision, 

“the trial court, as here, is authorized by law to exercise its independent judgment on the 

evidence, ‘abuse of discretion is established if the court determines that the findings are 

not supported by the weight of the evidence.’ (Code Civ. Proc., § 1094.5, subd. (c).) In 

such a case our review on appeal is limited. We will sustain the trial court’s findings if 

they are supported by substantial evidence. (Kazensky v. City of Merced (1998) 65 

Cal.App.4th 44, 52; see Moran v. Board of Medical Examiners (1948) 32 Cal.2d 301, 

308-309.) In reviewing the evidence, we ‘resolve all conflicts in favor of the party 

prevailing in the superior court and must give that party the benefit of every reasonable 
13

inference in support of the judgment.’ (Kazensky, supra, at p. 52.)” (Kifle-Thompson v. 

State Bd. of Chiropractic Examiners (2012) 208 Cal.App.4th 518, 523 (Kifle).)

In the argument sections of its briefs, DHS contends it is entitled to reversal on 

grounds it is entitled to deference for its interpretation of Provider Reimbursement 

Manual sections. Although an agency may be entitled to deference in interpreting its own

regulations and policies, DHS is not the agency that promulgated the Provider 

Reimbursement Manual. Instead, the Provider Reimbursement Manual was issued by the 

Centers for Medicare and Medicaid Services. Thus, deference is owed only to the 

Secretary of the (federal) Department of Health and Human Services. (Community Care 

Foundation v. Thompson (D.D.C. 2006) 412 F.Supp.2d 18, 22 (Community Care) [“The 

high degree of deference due to the Secretary’s interpretation of Medicare regulations 

extends to the [Provider Reimbursement Manual] provisions, which are themselves 

interpretation of regulations”].) Neither party has presented us with the Secretary’s 

interpretation of the Provider Reimbursement Manual sections pertinent to these cases. 

And our research has not revealed any guidance by the Secretary on the sections in the 

Provider Reimbursement Manual relevant to these cases. Accordingly, we reject DHS’s 

claim that it is entitled to any deference to its reading of the Provider Reimbursement 

Manual.

APPEAL BY DHS IN OAK VALLEY I

II

Whether Oak Valley Self-insurance Meets the Requirements for a Qualified Plan

DHS argues that Oak Valley’s payments from its unqualified self-insurance funds 

are only allowable costs on a claims paid basis. DHS then elaborates that “payments into 

the self-insurance fund are not allowable costs, while payments funded by Oak Valley 

and paid from the fund by its third party vendor . . . may be allowable costs only on a 

claim-paid basis.”
14

Oak Valley has never disputed that it has a nonqualifying self-insurance plan or 

that the allowable costs are limited to claims paid. Moreover, there is no dispute that 

section 2162.7, paragraph A, of the Provider Reimbursement Manual allows “[p]ayments 

from the [self-insurance] fund” to be considered “on a claim-paid basis . . . .” (§ 2162.7, 

par. A, p. 21-42.7 (rev. 406, 08-98.)

A.

Whether In-house Treatment Costs are Categorically Nonallowable

The gravamen of DHS’s argument is not clearly articulated either in its heading or 

in the opening brief’s discussion. As we can best discern, it appears that DHS contends, 

as a matter of law, Oak Valley’s payments to itself necessarily represent charges that 

exceed the actual cost of providing services. This position would appear consistent with 

the testimony of Peña, DHS’s only witness at the administrative hearing. Peña testified 

he categorically disallowed Oak Valley claims for in-house medical services for its own 

employees under its nonqualifying self-insurance program. To the extent that this 

represents DHS’s position, we reject it.

The flaw in this position is illustrated by Peña’s assertion that in-house medical 

treatment by Oak Valley was a nonallowable cost, but third party medical treatment was 

an allowable cost. Peña himself acknowledged Provider Reimbursement Manual section 

2162.7 does not distinguish between claims paid for in-house medical treatment and 

those paid to third parties. On appeal, DHS also acknowledges that costs of third party 

commercial insurance are allowed.

We decline Oak Valley’s invitation to extend the holding of our decision in 

Oroville Hospital, supra, 146 Cal.App.4th 468, to the circumstances of this case. The 

question presented in Oroville Hospital was whether DHS erred in determining the 

hospital could not claim reimbursement in the absence of a recognized independent 

fiduciary. (Id. at pp. 473, 475.) This court held that section 2162.7 requires an 

independent fiduciary before claims may be paid. (Oroville Hospital, at pp. 475-476.) 
15

This court also rejected the hospital’s alternate argument that payment should be allowed 

nonetheless to avoid inconsistent treatment of payments for health care services. (Id. at 

p. 477.) This court noted the hospital’s “remedy is to ask the branch of government 

responsible for the rules to change them.” (Ibid.) Neither holding – that an independent 

fiduciary is required for a self-administered plan or that a policy of disparate treatment of 

different kinds of costs should be changed by the policy makers – requires extension to 

help us conclude section 2162.7 allows payment of in-house medical treatments of 

employees on a claim-paid basis.

Therefore, we agree with the trial court that Provider Reimbursement Manual

section 2162.7 does not provide for the categorical denial of costs for in-house treatment 

under a nonqualifying self-insurance plan. Section 2162.7, paragraph A, states only that 

payments “will be treated on a claim-paid basis” without distinguishing between in-house 

and third party treatment. (§ 2162.7, par. A, p. 21-42.7 (rev. 406, 08-98.) The only 

categorical prohibition on costs is section 2102.1’s requirement that any allowable costs 

meet the standard of reasonableness. The trial court correctly determined the Provider 

Reimbursement Manual does not categorically bar reimbursement for costs of Oak 

Valley’s in-house medical services for its employees.

B.

Whether Oak Valley’s Paid Claims for In-house Treatment are Unreasonable

Again, the exact point of DHS’s argument is difficult to discern. DHS’s argument 

heading asserts that “Oak Valley’s paid claims for services rendered in-house to its 

employees are not reasonable costs.” This argument might either be legal in nature (in 

that costs are unreasonable as a matter of law) or factual in nature (in that the in-house 

treatment costs claimed by Oak Valley were unreasonable as a matter of fact). To the 

extent the argument is one of law, we have already concluded in part II A. that section 

2162.7 of the Provider Reimbursement Manual does not categorically disallow in-house 

treatment costs so long as they meet the standard of reasonableness. To the extent DHS
16

argues the actual costs claimed by Oak Valley were unreasonable under the factual 

circumstances, we reject the argument as unsupported by the record.

DHS asserts that “the claims paid to Oak Valley for services rendered to its 

employees in-house were for payment of billed charges, not actual costs to Oak Valley, in 

that the actual costs were already included in the cost report in the various cost centers 

where the employees were treated.” We note DHS also states that “[t]he parties agree 

that Oak Valley may have incurred costs in treating its employees in-house.” Thus, it 

appears DHS understands that Oak Valley incurred some costs in providing in-house 

treatment, but asserts those costs did not meet the test of reasonableness. 

More importantly for purposes of this appeal, DHS did not present testimony or 

evidence to support this newly-raised factual theory that the actual costs were already 

included in the cost reports. At the administrative hearing, Peña testified only that inhouse costs were inherently unreasonable. To the contrary, Oak Valley did present 

evidence that Oak Valley incurs actual costs when it provides in-house medical treatment 

to its employees and that these costs are not otherwise reimbursed. In considering the 

evidence, we resolve all conflicts in favor of Oak Valley because it prevailed in the 

superior court and give Oak Valley the benefit of every reasonable inference in support of 

the judgment. (Kifle, supra, 208 Cal.App.4th at p. 523.) We conclude the record 

supports the trial court’s finding it was “persuaded by Phillips’[s] testimony that Oak 

Valley incurs an actual expense in providing self-insured medical coverage to its 

employees as a fringe benefit that is not reimbursed by Oak Valley including the cost of 

treating all of its patients in the cost center sections of the Cost Report.”4

4 During the administrative hearings in the other cases in these consolidated cases, 

Phillips’s testimony provides substantial evidence in support of the trial court’s findings 

that Oak Valley and Ridgecrest have actual expenses they may claim for in-house 

medical services provided to their employees.
17

DHS next asserts that “health coverage plans offered to employees is a fringe 

benefit and employee fringe benefits are allowable cost. . . . However no such 

documentation was provided.” In support of this assertion, DHS does not provide a

record citation. This does not meet the appellant’s burden and the assertion is deemed 

forfeited. (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246.) 

DHS asserts that if it “were to allow the claims paid by [the third party 

administrator] to Oak Valley for treating its employees in-house, Oak Valley would 

receive reimbursement from the Medi-Cal program for those services in excess of its 

actual costs.” We reject this assertion on the same grounds. Again, the lack of record 

citation in support of this factual assertion forfeits the claim. (Nwosu v. Uba, supra, 122 

Cal.App.4th at p. 1246.) DHS did not introduce evidence at the administrative hearing on 

this point. Further, the trial court found, on the basis of testimony by Phillips, that Oak 

Valley was not receiving reimbursement in excess of the actual costs of its in-house 

medical services for Oak Valley’s employees.

Finally, we note the evidence in the record supports the trial court’s finding DHS

did not prove Oak Valley received double compensation for its in-house medical services 

for employees. During the administrative hearing, Phillips explained that contractual 

adjustments included on a worksheet have not been included in the cost report as an 

allowable cost. Thus, Oak Valley was not reimbursed twice for the same costs. As this 

court has previously observed, “A single witness’[s] testimony may be sufficient to 

satisfy the substantial evidence test” for review of evidence presented at an administrative 

hearing. (Mickelson Concrete Co. v. Contractors’ State License Bd. (1979) 95 

Cal.App.3d 631, 634.) Under the standard of review applying to this case, we conclude 

the evidence in the record supported the trial court’s finding that DHS did not prove that 

Oak Valley claimed or received double compensation for in-house medical treatment of 

its employees.
18

III

Whether Oak Valley’s Payment Conflicted with Related Party Principles

DHS asserts that “Oak Valley’s payments to itself contradict related party 

principles which prohibit providers from claiming profit and artificially inflating costs 

which may be generated from a less than arm’s-length transaction.” (Fn. omitted, italics 

added.) DHS’s opening brief does not discuss the standard for independence of a third

party administrator or what facts might support the argument that Oak Valley’s third

party administrator was not independent. For lack of development, this argument is 

forfeited. (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52 (Allen) [“We are 

not required to examine undeveloped claims or to supply arguments for the litigants”].)

Moreover, DHS did not raise the issue of whether the Stanislaus Foundation for 

Medical Care was an independent third party administrator of Oak Valley’s selfinsurance plan during the administrative hearing. The issue also was not tendered during 

the trial court’s hearing on Oak Valley’s writ petition. However, “[t]he general rule is 

that contentions not raised in the trial court may not be raised for the first time on 

appeal.” (Wilson v. State Personnel Bd. (1976) 58 Cal.App.3d 865, 883.) DHS has not 

developed the record to allow our review of the assertion that the Stanislaus Foundation 

for Medical Care is not sufficiently independent of Oak Valley to serve as a third party 

administrator for the self-insurance program.

Accordingly, we affirm the trial court’s issuance of the writ of administrative 

mandate in Oak Valley I.

APPEALS BY DHS IN OAK VALLEY II AND OAK VALLEY III

As we noted in footnote 1, the appeals in Oak Valley I, Oak Valley II, and Oak 

Valley III differ in the fiscal periods upon which they focus. Comparing DHS’s briefing 

in Oak Valley I to the briefing in Oak Valley II and Oak Valley III, the briefs are nearly 

identical in the substance of the arguments presented in Oak Valley I, with two additional 

arguments discussed below. First, DHS argues the trial court erred in rejecting DHS’s 
19

calculations of Oak Valley’s unrecovered costs in the Oak Valley II and Oak Valley III. 

Second, DHS contends Oak Valley’s payments violate related party principles by Oak 

Valley “paying itself” for its in-house medical treatments of its employees.

IV

Whether DHS Properly Calculated Oak Valley’s Unrecovered Costs

In Oak Valley II and Oak Valley III, DHS additionally asserts that it “properly 

calculated Oak Valley’s unrecovered costs in rendering medical services to its employees 

in-house and adjusted Oak Valley’s per diem rate and cost-to-charge ratio.” DHS asserts 

that sections 332.1 and 2144.4 govern the method by which Oak Valley may seek

unrecovered costs. The resolution of DHS’s contentions turns on the correct 

interpretation of sections 332.1 and 2144.4. As we explain below, we conclude section 

332.1 is inapposite because it applies to circumstances in which the patient is billed 

directly, whereas this case involves the question of reimbursement for hospital selfinsurance plans that are not fully qualified under section 2162.7. Section 2144.4 states 

that fringe benefits are allowable costs, and includes a provider’s unrecovered cost of 

medical services rendered to employees as one of the examples of a fringe benefit. 

(§ 2144.4, par. 6, p. 21-31 (rev. 375, 12-93).) This section is not applicable because there 

is no unrecovered cost.

A.

Provider Reimbursement Manual 

As pertinent to the resolution of this issue, we recount the provisions of three 

sections in the Provider Reimbursement Manual. 

Section 2144.4 provides: “Fringe Benefits Includable as Provider’s Cost. —

Following are examples of fringe benefits: [¶] Provider contributions to certain deferred 

compensation plans (see §2140ff); [¶] Provider contributions to certain pension plans 

(see §2142ff); [¶] Paid vacation . . . . [¶] Provider-paid educational courses benefiting 

the employee’s interest; [¶] Provider’s unrecovered cost of meals (see §2145) and room 
20

and board furnished employees for the employees’ convenience; [¶] Provider’s 

unrecovered cost of medical services rendered to employees (see §332.1); and [¶] Cost 

of health and life insurance premiums paid or incurred by the provider if the benefits of 

the policy inure to the employee or his/her beneficiary.” (§ 2144.4, p. 21-31 (rev. 375, 

12-93), underscoring omitted, italics added.)

Due to its centrality to this issue, we quote the entirety of section 332.1: 

“Method for Including Unrecovered Cost.--The unrecovered cost of services

furnished to employees as fringe benefits may be included in allowable costs by treating 

the amount actually charged to the employees as a recovery of costs. Where the cost of 

the service exceeds the amount charged to the employee, the amount charged to the 

employee would be applied as a reduction in the costs of the particular department(s) 

rendering the services. If costs should be apportioned by the RCCAC Method, all 

charges related to employees’ services would be subtracted from the total charges used to 

apportion such costs, so that unrecovered costs relating to employees’ allowances would 

be apportioned between Medicare patients and other patients. Likewise, where an 

average cost per diem is used to apportion costs, the days applicable to the employees 

who received the allowances should be removed from the total days used to apportion 

costs.

“Where the amount charged to an employee exceeds the costs of the services 

provided, there is no unrecovered cost and, therefore, no cost of fringe benefit. In this 

case, the amount charged to the employee is not offset against the department costs and 

the charges for the services given to the employee are not deleted from the total charges. 

The services furnished to employees are treated the same as services furnished to any 

other patients.” (§ 332.1, p. 3-10 (rev. 280, 01-83), underscoring omitted.)
21

The following two examples are then provided in paragraphs A and B of section 

332.1:

A. Example (Where Departmental Costs are Equivalent to 90% of 

Charges).-

Gross Charges Costs

Other than Employees

Medicare---------------------------- $ 900

Non-Medicare---------------------- 1,800

$2,700

Employees 300

Total--------------------------------- $3,000 $2,700

Computation of employee fringe

benefit (30% discount):

To be collected--70% of $300 ($210)

Cost applicable to service

provided (90% x $300) 270

Unrecovered Cost--------------------- $ 60

Total charges-------------------------- $3,000 Total costs $2,700

Less: Employee charges-------------- 300 Employee payment 210

(Amount charged)

Adjusted charges---------------------- $2,700 Adjusted cost $2,490

Payment by Medicare--900/2700 x $2,490 = $830

The unrecovered cost of $60 remains in the departmental costs and is 

apportioned among the users of the department other than employees.
22

B. Example (Where Departmental Costs are Equivalent to 50% of 

Charges).--

Gross Charges Costs

Other than Employees

Medicare---------------- $ 900

Non-Medicare---------- 1,800

$2,700

Employees-------------------- 300

Total----------------------- $3,000 $1 500

Computation of employee

fringe benefit (30%

discount):

To be collected--70% of $300 ($210)

Cost applicable to service

provided (50% x $300) 150

Excess of amount charged

to employees over cost $ 60

Unrecovered Cost----------- None

Payment by Medicare

(900/3,000 x $1,500)-- $ 450

(§ 332.1, par. A, p. 3-10 (rev. 280, 01-83) & par. B, p. 3-11 (rev. 435, 03-08), italics 

added.)

Section 332 provides: “Allowances to Employees [¶] Allowances, or reduction 

in charges, granted to employees for medical services as fringe benefits related to their 

employment are not considered courtesy allowances. Employee allowances are usually 

given under employee hospitalization and personnel health programs. [¶] The 

allowances themselves are not costs since the costs of the services rendered are already 

included in the provider’s costs. However, any costs of the services not recovered by the 

provider from the charge assessed the employee are allowable costs.” (§ 332, p. 3-9

(rev. 280, 01-83).)
23

B.

Administrative Hearing Record

As in Oak Valley I, DHS introduced the testimony of Adrian Peña, who testified 

about Oak Valley’s approach to claiming costs for in-house medical treatments for its

employees under its self-insurance program. During the administrative hearing in Oak 

Valley II, DHS also elicited the testimony of Jose Juarez, the auditor who conducted the 

audit at issue in that case. Juarez testified that he disallowed the third party 

administrator’s payments to Oak Valley for in-house medical services for its employees. 

After eliminating the in-house treatment costs, he compared “the total amount of the 

charges related to employees treated in house to the amount in health benefit premiums 

the employees paid during the subject fiscal year to determine if the employees had 

received fringe benefit allowances or reductions in charges.” Juarez calculated that Oak 

Valley employees received almost $2.5 million in fringe benefit allowances.

Testifying as a witness for Oak Valley, Phillips took a different view: “Section 

332.1 has no bearing whatsoever in this situation because section 332 involves discounts 

against charges in which the patient is billed directly. [¶] The [provider’s self-insurance] 

plan is not billed; the patient is billed directly. And the provider has given a discount to 

the employee, but the employee is obligated to pay the full amount of the charges if the 

discount isn’t allowed. [¶] So there’s a difference between a contract directly with an 

employee and a contract through a [third party administrator] in which the [third party 

administrator] pays and processes claims. There’s a stark difference. 332.1 is 

inappropriate.”

Phillips further testified that in this case, “the Department wishes to remove the 

claims, the paid claims themselves, and not the discount. The discount has not been 

claimed by the Provider. [¶] And 332 is clear in that a provider is not entitled to claim 

the discount, the discount being the difference between billed charges and amount paid. 

[¶] And the Department has assumed that . . . and I’m not sure of the reason behind it, 
24

but they’re reducing and eliminating the claims themselves, rather than the discount, 

which is what 332 permits a provider to do if in fact there is, quote, an unrecovered cost, 

which we’re not alleging there is.”

In its final decision, DHS followed the approach taken by Juarez to the accounting 

guidance of section 332.1. In determining which approach to take, DHS noted that “[a]ll 

of the interpretations, and the conclusions reached therefrom, of these complex regulatory 

provisions as presented by the three witnesses are found by this tribunal to be reasonable, 

non-arbitrary and fair.” DHS determined that its own “interpretation of sections 332 and 

332.1 . . . is entitled to . . . deference . . . .” DHS further reasoned that “other than the 

testimony of . . . Phillips, there is little support for [Oak Valley’s] conclusion that 

sections 332 and 332.1 apply only to discounts. The term ‘discount’ does not appear in 

either of these sections nor has [Oak Valley] offered any authority for its suggestion that 

sections 332 and 332.1 apply narrowly only to discounts.”

The trial court came to the opposite result in ruling on the Oak Valley II petition 

for administrative mandate. The trial court determined that the Provider Reimbursement 

Manual “provides that the cost of ‘health insurance premiums’ is an allowable cost ‘if the 

benefits of the policy inure to the employee.’ (. . . § 2144.4.)” The trial court concluded 

that DHS’s “application of section 332.1 . . . was also an abuse of discretion. Since Oak 

Valley’s in-house claims are reimbursable under section 2162.7, there is no ‘unrecovered 

cost’ associated with Oak Valley’s provision of self-insured medical coverage to its 

employees triggering the use of section 332.1.”

C.

Analysis

At the outset of our analysis, we reiterate our conclusion that the trial court 

correctly determined Provider Reimbursement Manual section 2162.7 does not allow for 

the categorical denial of costs for a medical provider’s in-house treatment under a 

nonqualifying self-insurance plan. (See part II, above.) Thus, the question presented by 
25

this issue is whether sections 332, 332.1, and 2144.4 provide a basis for categorically 

denying Oak Valley’s in-house medical treatments as includable costs. Oak Valley 

counters that section 332.1 is inapplicable because it applies only to instances in which 

employees are billed directly by insurance companies for medical services provided. In 

Oak Valley II, the trial court determined section 332.1 does not apply because there is no 

unrecovered cost under that section. In Oak Valley III, the trial court did not address 

section 332.1.

Section 2144.4 states that fringe benefits are “[i]ncludable as Provider’s Cost” and 

that the provider’s unrecovered cost in providing medical services for employees is such 

a fringe benefit. (§ 2144, p. 21-31 (rev. 375, 12-93), underscoring omitted.) Based on our 

conclusion that Oak Valley’s in-house medical claims for its employees are reimbursable 

under section 2162.7, there is no “unrecovered cost” associated with Oak Valley’s 

provision of self-insured medical coverage to its employees triggering the use of section 

332.1.

And even if these sections applied to Oak Valley’s nonqualifying self-insurance 

plan, sections 332, 332.1, and 2144.4 do not support DHS’s categorical denial of Oak 

Valley’s in-house treatment costs.

In construing sections 332, 332.1, and 2144.4, we reject DHS’s claim that its 

interpretation is entitled to deference. As we noted in part I, above, the sections at the 

heart of this issue were promulgated by the federal Centers for Medicare and Medicaid 

Services – not by DHS. Thus, DHS is not entitled to deference in its interpretation of 

regulations it did not originate. (Community Care, supra, 412 F.Supp.2d at p. 22.)

We also reject the reasoning in DHS’s final decision where it asserts that neither 

section 332 nor 332.1 contains the word “discount.” By quoting only the beginning 

portion of section 332.1, DHS’s final decision overlooked the fact that the section uses 

“discount” twice in providing examples of calculations for allowable costs. (§ 332.1, 

par. A, p. 3-10 (rev. 280, 01-83) & par. B, p. 3-11 (rev. 435, 03-08).) The examples of 
26

section 332.1 are instructive because they show the complexity of having three separate 

approaches to costs for essentially the same medical treatment but that vary according to 

whether the treatment was provided to (1) Medicare patients, (2) non-Medicare patients, 

or (3) the medical provider’s own employees. Section 332.1 further shows the 

calculation of includable costs becomes even more complex if the medical provider gives 

its employees a “discount” for in-house treatments.

Regarding discounts for in-house treatments of employees, section 332.1 clearly 

provides that the amount of the discount is not an allowable cost. Section 332.1’s first 

example – which posits a “30% discount” on a $300 service to an employee – lists only 

the non-discount portion of $210 under the “costs” column. (§ 332.1, par. A, p. 3-10 

(rev. 280, 01-83).) This $210 represents the amount charged to the employee who must 

pay only 70 percent of the $300 service. Once the employee has paid $210, the provider 

in the example is allowed to claim as a cost only $60 as an “allowable cost” for the 

“unrecovered cost of services furnished to employees as fringe benefits.” (§ 332.1, p. 3-

10 (rev. 280, 01-83).) This allowable cost reflects the following computation: The 

service that is “billed” as a $300 service costs the provider only 90 percent of that, i.e.,

$270. Of that $270 of actual cost, the employee pays $210. Subtracting the $210 

employee payment from the $270 actual cost, leaves $60 of unrecovered cost that the 

provider may claim as an allowable cost. As a result, the provider’s discount to the 

employee is not borne by anyone as an allowable cost.

For purposes of this case, the significance of the first example in section 332.1 is 

that the provider is allowed the entirety of its actual cost of $270 as an allowable cost –

reduced only by the amount that the employee himself or herself pays. In short, section 

332.1’s guidance and illustrative example show two overarching concepts: (1) the 

provider may recover its actual costs of in-house medical services for employees, but not 

the “billed” cost, and (2) the provider must reduce its actual costs when claiming 

allowable costs to the extent that the employee paid for any part of the service. 
27

Our conclusion is bolstered by section 2144.4 because it states that fringe benefits 

are “[i]ncludable as Provider’s Cost” and that unrecovered costs for in-house medical 

services for employees is such a fringe benefit. (§ 2144, p. 21-31 (rev. 375, 12-93), 

underscoring omitted.) Likewise, section 332 confirms that “any costs of the services not 

recovered by the provider from the charge assessed the employee are allowable costs.” 

(§ 332, p. 3-9 (rev. 280, 01-83), italics added.) In other words, both of these sections 

reiterate the principle that a provider may lay claim to unrecovered costs for in-house

medical treatments for employees.

We do not perceive anything in sections 332, 332.1, or 2144.4 that disallows Oak 

Valley from claiming costs incurred for in-house treatments of its employees under 

section 2162.7.

V

Whether Oak Valley Impermissibly Paid Itself for In-house Treatment Costs

In Oak Valley II and Oak Valley III, the introductions to DHS’s opening briefs 

identically assert that “Oak Valley’s payments to itself contradict related party principles 

which prohibit providers from claiming profit and artificially inflating costs which may 

be generated from a less than arm’s-length transaction . . . .” The assertion, however, 

remains undeveloped as an argument.

In Oak Valley II, the only subsequent mention of related party principles is the 

following sentence: “These claims also represent payments Oak Valley made to itself, 

which are governed by the related party principles of CMS Publication 15-1, section 

1000.” For lack of any explanation as to how Oak Valley’s payments violate related

party principles, the argument is deemed forfeited. (Allen, supra, 234 Cal.App.4th at 

p. 52.) Oak Valley III repeats the same sentence but also adds: “Oak Valley’s payments 

to itself are governed by the related party principles outlined in CMS Publication 15-1, 

section 1000, which prohibits providers such as Oak Valley from claiming profit.” This 
28

additional sentence in Oak Valley III does not sufficiently develop the argument such that 

it is cognizable on appeal. Therefore, it too is forfeited. (Allen, at p. 52.)

APPEAL BY DHS IN RIDGECREST

VI

DHS’s Legal Contentions in Ridgecrest

DHS’s briefing in Ridgecrest suffers the same ambiguities as those presented in 

the Oak Valley cases, namely that it is difficult to determine whether the arguments are 

presented as pure issues of law regarding the interpretation of Provider Reimbursement 

Manual sections, whether the arguments challenge the sufficiency of the evidence in 

support of the trial court’s findings in favor of Ridgecrest, or whether the arguments are 

intended as mixed questions of law and fact. 

Insofar as the contentions are legal in nature, the arguments advanced by DHS in 

Ridgecrest are substantively identical to those presented in the Oak Valley cases. DHS 

argues that Ridgecrest Regional Hospital (1) has a nonqualifying self-insurance fund for 

which allowable costs are only those on a claim-paid basis, (2) the costs claimed by Oak 

Valley are not reasonable because they “represent charges which exceed actual costs,” (3) 

the claimed costs are also not reasonable because they run afoul of “related party 

principles which prohibit providers from claiming profit and artificially inflating costs 

which may be generated from a less than arm’s-length transaction.”

These contentions by DHS mesh with those advanced in the Oak Valley cases. 

Because DHS does not offer any substantively different argument for reversal in 

Ridgecrest than in the Oak Valley cases, the arguments all succeed or fail on the same 

reasoning. On the basis of our rejection of DHS’s identical substantive legal arguments 

in the Oak Valley cases, we conclude DHS has not established legal error in Ridgecrest.
29

VII

DHS Calculation of Unrecovered Costs in Ridgecrest

In Ridgecrest, DHS additionally argues that it “properly allowed Ridgecrest’s 

unrecovered costs in rendering medical services to its employees in-house by adjusting 

Ridgecrest’s per diem rates and cost-to-charge ratios, removing days and charges related 

to Ridgecrest’s medical services rendered to its employees in-house.” This argument 

appears to be factual in nature because DHS claims that it properly adjusted Ridgecrest’s 

cost claims under the circumstances of this case. Based on the briefing, we deem this 

issue forfeited.

As this court has previously noted: “In every appeal, ‘the appellant has the duty to 

fairly summarize all of the facts in the light most favorable to the judgment. (Foreman & 

Clark Corp. v. Fallon [(1971)] 3 Cal.3d [875,] 881.) Further, the burden to provide a fair 

summary of the evidence “grows with the complexity of the record. [Citation.]” ’ ” 

(Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 739 (Myers), quoting 

Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1658.) When, as in this case, 

an appellant fails to fulfill this duty the claim is forfeited. (Foreman & Clark Corp. v. 

Fallon (1971) 3 Cal.3d 875, 881.)

DHS acknowledges that the trial court “relied heavily upon Ridgecrest’s 

accounting consultant, . . . Phillips, in finding Ridgecrest incurred actual costs, which 

were not reimbursed through the cost centers of its cost report.” (Italics added.)

However, DHS’s statement of facts does not mention Phillips or cite to any part of his 

testimony even though his testimony alone comprises more than a third of the transcript 

of the administrative hearing. DHS also omits any mention of Ridgecrest’s other witness, 

Danny Mower. In other words, DHS’s statement of facts ignores all of the testimony 

offered by Ridgecrest and relied upon by the trial court in rendering its decision. For

failure to set forth the evidence in the light most favorable to the judgment, this argument 

is forfeited.
30

We note that DHS does touch on Phillips’s testimony in its opening brief. 

However, DHS does so only to argue that the trial court misplaced its reliance on 

Phillips’s testimony. Thus, DHS points out considerations it believes Phillips did not 

properly take into account in his testimony. And it criticizes his testimony for lack of 

authority in support. This does not suffice to “ ‘fairly summarize all of the facts in the 

light most favorable to the judgment.’ ” (Myers, supra, 178 Cal.App.4th at p. 739.) 

We conclude DHS has not met its burden to summarize the facts in the light most 

favorable to the judgment. Therefore, this argument is forfeited.

DISPOSITION

The judgments are affirmed. Oak Valley Hospital District and Ridgecrest 

Regional Hospital shall recover their costs in these consolidated appeals. (Cal. Rules of 

Court, rule 8.278(a)(1) & (2).)

 /s/

HOCH, J.

We concur:

 /s/

MURRAY, Acting P. J.

 /s/

DUARTE, J.