Court Opinion

ID: 2734361
Source: CourtListenerOpinion
Date Created: 2014-09-19 00:02:18.176978+00
Date Added: 2024-06-11T13:26:42.142812
License: Public Domain

Filed 9/18/14 Clinica De Salud Del Valle etc. v. Douglas CA3
                                           NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                                      THIRD APPELLATE DISTRICT
                                                     (Sacramento)
                                                            ----

CLINICA DE SALUD DEL VALLE DE SALINAS,                                                       C071171

                   Plaintiff and Appellant,                                         (Super. Ct. No.
                                                                              34201180000919CUWMGDS)
         v.

TOBY DOUGLAS, as Director, etc.,

                   Defendant and Respondent.

         State law requires health providers to follow rigid billing procedures for Medi-
Cal reimbursement claims or risk forfeiture. (Welf. & Ins. Code, §§ 14018.5,
14087.325, subd. (e)(1); 22 Cal. Code Regs. § 51008.) Although prior to 2003 the
Department of Health Services (Department) failed to follow the law, it notified
health providers that beginning on May 1, 2003, it would begin enforcing the law’s

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billing mandate and no longer accept a reconciliation procedure that did not utilize the
claims processing system contractor, Electronic Data Systems (EDS). Clinica de Salud
del Valle de Salinas (Clinica), a federally qualified health center, failed to submit its bills
to EDS and the Department disallowed its reimbursement claims for $1.1 million.
       The sole question on appeal is whether the Department’s decision to commence
enforcement of the law constitutes a regulation that must be adopted pursuant to the
Administrative Procedure Act (APA; Gov. Code, § 11340 et seq.). We agree with the
administrative law judge and the trial court that the Department’s decision represents the
only tenable interpretation of the governing statutory and regulatory scheme, and because
it is a mere restatement of the law, it does not constitute an unlawful underground
regulation. We affirm the judgment denying Clinica’s petition for a writ of mandate to
compel the Department to reverse its decision and grant Clinica’s appeal of the
reimbursement denials.
                   STATUTORY AND FACTUAL BACKGROUND
The Statutory and Regulatory Scheme
       There is only one statute and one regulation at issue. Welfare and
Institutions Code section 14087.325, subdivision (e)(1) provides, in relevant part:
“The department shall administer a program to ensure that total payments to federally
qualified health centers and rural health clinics operating as managed care subcontractors
pursuant to subdivision (d) comply with applicable federal law . . . . Under the
department’s program, federally qualified health centers and rural health clinics
subcontracting with local initiatives, commercial plans, county organized health
systems, and geographic managed care program health plans shall seek supplemental
reimbursement from the department through a per visit fee-for-service billing
system utilizing the state’s Medi-Cal fee-for-service claims processing system
contractor.”

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       California Code of Regulations, title 22, section 51008, subdivision (a) requires
that “bills for service . . . be received by the fiscal intermediary, or otherwise as
designated by the Director, not later than the sixth month following the month of service
and shall be in the form prescribed by the Director.”
Federally Qualified Health Plans and Medi-Cal Reimbursement
       As the trial court succinctly explained, in 1989 Congress created favorable
reimbursement provisions for federally qualified health centers (FQHC) to increase
access to medical care for medically underserved populations. Because California
elected to participate in the federal Medicaid program through its Medi-Cal program, it
must reimburse FQHC’s 100 percent of their reasonable costs for furnishing care.
       As allowed by federal law, California contracts with managed care organizations
(MCO) to provide services to Medi-Cal beneficiaries. MCO’s then contract with
FQHC’s. Under the 1997 federal Balanced Budget Act, states are required to make up
any difference between the amounts paid by the MCO’s and the amount necessary to
fully reimburse the FQHC’s for their reasonable costs. In 2000, however, Congress
phased out cost-based reimbursement and created a prospective payment system.
Nevertheless, it retained the requirement that states using MCO’s must make
supplemental payments to FQHC’s to ensure that the FQHC receives its full rate for the
provision of services.
Clinica’s Billing
       Clinica is an FQHC. Before 1999 it submitted its bills to EDS, the
Department’s fiscal intermediary. After entering into a managed care contract with
Central Coast Alliance for Health (CCAH) on October 1, 1999, it routinely billed CCAH
for the visits at issue here and sent reconciliation forms to the Department for
supplemental payments. The Department would annually audit Clinica’s costs and
instruct EDS to pay Clinica the supplemental reimbursement needed to cover the gap

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between Clinica’s costs and its other reimbursements. Clinica no longer submitted bills
to EDS.
       The Department does not have the authority to adjudicate claims; EDS does.
When a claim is adjudicated, the fiscal intermediary determines whether or not a claim
should be paid, and the Department relies on adjudicated claims to reconcile an FQHC’s
costs and assure it is made whole.
       On April 24, 2003, the Department sent a document entitled “Medi-Cal Managed
Care Code 18 Billing Update Effective May 1, 2003” (update) to all of the FQHC’s in the
state. The update states, in part: “[Y]ou must bill EDS for the Medi-Cal managed care
visits throughout the year if you want the visits reconciled at the end of your clinic’s
fiscal year. The Department will not reconcile Medi-Cal managed care visits that have
not been billed and paid by EDS. . . .
       “This policy will take effect on May 1, 2003. If you are not already doing so, you
must begin billing the code 18 visits to EDS no later than May 1 in order to have them
reconciled at the end of your fiscal year.”
       The update also states: “This policy will not be retroactively applied. Any
Medi-Cal managed care visits not billed as a Code 18 visit to EDS prior to May 1, 2003
will be included in the clinic’s annual Code 18 reconciliation. As noted above, any visits
that occur after May 1, 2003 and are not billed and adjudicated by EDS will not be
included in the annual reconciliation.”
       Despite the update, Clinica continued to bill CCAH and did not submit its bills to
EDS. The Department audited Clinica’s billing information for fiscal years 2003 to 2006
but refused to pay Clinica for bills it did not submit to the fiscal intermediary. In total,
Clinica failed to properly bill for services in the amount of $1.1 million.
       Following unsuccessful administrative challenges to the Department’s
disallowance of the reimbursement claims, Clinica petitioned the trial court for a writ of
administrative mandamus, alleging that the update is an underground regulation. The

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trial court found the update is not a regulation because it represents the “ ‘only legally
tenable interpretation’ ” of the relevant statute and regulation governing billing
requirements. The petition was denied and Clinica appeals.
                                       DISCUSSION
       The APA defines “regulation” and dictates that a regulation cannot be enforced
unless it is adopted pursuant to a set of prescribed procedural steps. “ ‘Regulation’ means
every rule, regulation, order, or standard of general application or the amendment,
supplement, or revision or any rule, regulation, order, or standard adopted by any state
agency to implement, interpret, or make specific the law enforced or administered by it,
or to govern its procedure.” (Gov. Code, § 11342.600.) “No state agency shall issue,
utilize, enforce, or attempt to enforce any guideline, criterion, bulletin, manual,
instruction, order, standard of general application, or other rule, which is a regulation as
defined in Section 11342.600, unless . . . [it] has been adopted as a regulation . . . .”
(Gov. Code, § 11340.5, subd. (a).) Because no one disputes that the Department did not
promulgate the update as a regulation pursuant to the APA, the straightforward question
before us is whether the May update is a regulation that must be adopted pursuant to the
APA.
       Clinica insists the update is an underground regulation because it implements
and interprets the statute in two ways. First, in Clinica’s view, the update gives
specific meaning to the word “utilize” by directing FQHC’s to bill EDS. And
second, Clinica argues that the update imposes specific new consequences for not
submitting bills to EDS throughout the year by refusing to pay any supplemental
reimbursement.
       The Department counters that the APA’s procedural requirements do not
apply where an agency’s interpretation of a statute represents “the only legally
tenable interpretation of a provision of law.” (Gov. Code, § 11340.9, subd. (f).)
“[T]he exception for the lone ‘legally tenable’ reading of the law applies only in

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situations where the law ‘can reasonably be read only one way’ [citation], such that
the agency’s actions or decisions in applying the law are essentially rote, ministerial, or
otherwise patently compelled by, or repetitive of, the statute’s plain language.”
(Morning Star Co. v. State Bd. of Equalization (2006) 38 Cal.4th 324, 336-337
(Morning Star); see Gov. Code, § 11340.9, subd. (f).) The Department contends the
“only legally tenable” exception applies here because the update is simply a restatement
of the law.
       In a clear and well-reasoned opinion, the trial court agreed. The court explained:
“The Decision at issue here concluded that the Update is not a regulation because it
merely restates the unambiguous requirement that FQHCs shall seek supplemental
reimbursement by ‘utilizing the state’s Medi-Cal fee-for-service claims processing
contractor.’ The court agrees.
       “Even if the language of Welfare and Institutions Code section 14087.325(e)(1) is
arguably ambiguous about whether FQHCs must submit claims for supplemental
reimbursement to EDS, [fn. omitted] any ambiguity is resolved by California Code of
Regulations, title 22, section 51008, which requires that ‘bills for service provided
pursuant to the Medi-Cal Program . . . be received by the fiscal intermediary, or
otherwise as designated by the Director, not later than the sixth month following the
month of service . . . in the form prescribed by the Director.’ ([Cal. Code Regs., tit. 22,]
§ 51008.)
       “Clinica contends that this regulation, like the statute, is ambiguous because it
only provides that bills shall be received by the fiscal intermediary, and does not specify
who shall submit the bills to the fiscal intermediary. The court finds no such ambiguity.
The regulation is plainly directed to the provider. It is the provider which submits bills
for Medi-Cal services. Implicit in the requirement that bills must be received by the
fiscal intermediary is that the bills must be submitted by the provider. [¶] . . . [¶]

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       “In sum, Welfare and Institutions Code section 14087.325 and California Code of
Regulations, title 22, section 51008 require claims for supplemental reimbursement to be
submitted to the Department’s fiscal intermediary. Thus, the Update does not ‘interpret’
or ‘embellish’ the statutory and regulatory scheme; it simply applies it. An agency does
not create an underground regulation merely by enforcing existing legal requirements.”
       We agree. We reject Clinica’s strained semantic argument that a direct
comparison of the update with the plain language of the statute and regulation shows that
the update does not simply restate the law, but provides specific instructions not included
in either. Clinica’s “direct comparison” points out that whereas the statute requires it to
“utilize” the fiscal intermediary, the update requires it to “bill” the fiscal intermediary,
and where the regulation states that the bills for service must be “received” by the fiscal
intermediary within six months, the update requires the provider to do the billing.
Clinica’s argument implies that if a state agency uses slightly different words to convey
the same essential meaning, it risks creating an underground regulation by embellishing
the statute. Not so.
       The only tenable meaning of “utilizing” the fiscal intermediary in the context of
Medi-Cal billing and reimbursement is to bill the intermediary as the Department
properly concluded. And while the regulation refers to the passive act of “receiving” by
the fiscal intermediary, the only tenable meaning is that the provider must bill the
intermediary so that the bills can be received within the requisite time frame. The
Department did not embellish the law; rather, it read the law in the only way it could
reasonably be read and was “ ‘essentially[] a reiteration’ ” of the statutory and regulatory
scheme. (Englemann v. State Bd. of Education (1991) 2 Cal.App.4th 47, 62.)
       Excelsior College v. Board of Registered Nursing (2006) 136 Cal.App.4th 1218
(Excelsior) is factually and legally analogous. For more than 20 years, the California
Board of Registered Nursing had recognized a New York college’s distance learning
program as equivalent to the minimum requirements of accredited programs in

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California. (Id. at p. 1226.) Thus, Excelsior graduates could apply for licensure in
California. (Id. at p. 1224.) The board, however, changed course and notified Excelsior
of the following decision: “ ‘Excelsior College graduates, like other out-of-state
graduates, must meet the requirements set forth in California Business and Professions
Code Section 2736(a)(2) and California Code of Regulations Section 1426, including the
requirement of supervised clinical practice concurrent with theory, in order to be eligible
for examination and licensure as a California registered nurse. This eligibility
requirement applies to students who enrolled at Excelsior on or after December 6,
2003.’ ” (Excelsior, at p. 1227.) In short, because the distance-learning program did not
provide sufficient clinical experience, the Board no longer deemed it equivalent to the
accredited programs in California.
       The parallels to the case before us are striking. In both cases, the law did not
change. The agencies simply had ignored or overlooked it. The agencies were accused
of relying on underground regulations, that is, regulations that did not comply with the
APA, when they changed their policies and decided to follow the law. In Excelsior that
meant changing what equivalency meant; here, it meant changing the billing procedures.
But neither change in policy was based on a reinterpretation of the language of the
pertinent statutory and regulatory scheme. Rather, the change in policy was corrective;
that is to say, the agency decided to enforce the plain meaning of the applicable law. In
both cases, the trial courts found the state agency had not adopted an underground
regulation by merely announcing that it intended to enforce the law in the future. Indeed,
in both cases the state agencies announced a future date when they would begin enforcing
the respective statutes. In Excelsior we concluded, “The Board has not created an
underground regulation merely by enforcing the actual language of the statute.”
(Excelsior, supra, 136 Cal.App.4th at p. 1239.)
       Naturally, those who benefit from an agency’s relaxed enforcement of a statute
resist change. Graduates of Excelsior College balked at having to obtain additional

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clinical experience to obtain licensure in California, and Clinica balks at having to change
its billing procedures or forfeit reimbursement. But we reject the notion that a state
agency cannot remedy its failure to follow the law without triggering the APA. We agree
with our colleagues in Excelsior and the trial court below in concluding that a decision,
perhaps belated, to enforce the unambiguous meaning of a statute and/or regulation is not
a reinterpretation of the law and does not constitute an underground regulation.
       Neither Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557 nor
Morning Star, supra, 38 Cal.4th 324 dictates a different result. The statutes in those
cases could not be reasonably read to allow for only one interpretation. Quite to the
contrary, the statutes gave the state agencies considerable discretion to determine the
scope of wage orders in Tidewater (14 Cal.4th at p. 572) and hazardous materials in
Morning Star (38 Cal.4th at p. 338), and their interpretations of the law were not
“palpably unreasonable” (ibid.).
       Let us be clear. We agree with Clinca’s premise that the update imposed a very
different billing procedure from the one to which Clinica had become accustomed as well
as a costly consequence–forfeiture of its right to reimbursement, a consequence the
Department had failed to enforce for many years. But the gravity of the changes is not at
issue. The issue is not whether a state agency changes course, but whether the change is
spurred by a reasonable reinterpretation of an unambiguous statute. If, as here and in
Excelsior, a clear statute was ignored, the change in policy to enforce it does not mean
that the agency has created an underground regulation. We conclude that the only
tenable reading of Welfare and Institutions Code section 14087.325, subdivision (e)(1)
and California Code of Regulations, title 22, section 15008, subdivision (a) is the one the
update encapsulates: that is, that in order for FQHC’s to obtain supplemental
reimbursement through reconciliation, they must utilize the financial intermediary, i.e.,
EDS, and that means they must submit the bills to EDS throughout the year. The fact

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that the Department had failed to comply with the plain meaning of the statute does not
render it ambiguous or excuse Clinica for its subsequent noncompliance.
       We recognize that the consequence for Clinica’s failure to bill EDS is harsh,
despite the valuable services it provided to children. This is not an equitable action,
however, but a legal one. The issues, as Clinica aptly points out, as to whether the update
constitutes an underground regulation and whether the update is the only tenable
interpretation of the statute or regulation present pure questions of law subject to our
independent review. (Clovis Unified School Dist. v. Chiang (2010) 188 Cal.App.4th 794,
798.) We have concluded, as did the trial court and the administrative law judge, that the
language of the statute and regulation is not ambiguous and that Clinica’s strained
reading of “utilized” and “received” must be rejected.
       We further note that passage of Welfare and Institutions Code section 14018.5,
allowing forfeiture of Medi-Cal reimbursement, reflects the Legislature’s “disapproval of
judicial efforts to circumvent management controls on Medi-Cal reimbursement.” (Life
Care Centers of America v. CalOptima (2005) 133 Cal.App.4th 1169, 1182.) By
enacting section 14018.5, the Legislature abrogated two Court of Appeal opinions that
required the Department to reimburse providers for services rendered to Medi-Cal
patients despite their failure to file timely claims. (See Valley View Home of Beaumont,
Inc. v. Department of Health Services (1983) 146 Cal.App.3d 161 and Lauderdale
Associates v. Department of Health Services (1998) 67 Cal.App.4th 117 [both superseded
by statute as stated in Life Care Centers, supra, 133 Cal.App.4th at p. 1182].) We must
apply the Legislature’s restrictions on Medi-Cal reimbursement and the controls it
established to assure the financial integrity of the billing system. The Legislature has
determined that FQHC’s must utilize a financial intermediary or forfeit their right to
supplemental reimbursement. Because the law is clear and unambiguous and the
Department has decided to enforce the only tenable reading of the law, we must affirm
the judgment denying Clinica’s petition for a writ of mandate.

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                                 DISPOSITION
     The judgment is affirmed.

                                               RAYE   , P. J.

We concur:

        ROBIE           , J.

        MAURO           , J.

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