Opinion
B325070
12-28-2023
PASADENA HOSPITAL ASSOCIATION, LTD., Plaintiff and Appellant, v. MICHELLE BAASS, as Director, etc., Defendant and Respondent.
Davis Wright Tremaine, Jordan B. Keville; Athene Law, Long X. Do and Felicia Y. Sze for Plaintiff and Appellant. Hooper, Lundy & Bookman and Lloyd A. Bookman for California Hospital Association, Dignity Health and Dignity Community Care, and Adventist Health System/West as Amicus Curiae on behalf of Plaintiff and Appellant. Rob Bonta, Attorney General, Cheryl L. Feiner, Assistant Attorney General, Gregory D. Brown and Jacquelyn Y. Young, Deputy Attorneys General, for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. 21STCP03538 James C. Chalfant, Judge. Affirmed.
Davis Wright Tremaine, Jordan B. Keville; Athene Law, Long X. Do and Felicia Y. Sze for Plaintiff and Appellant.
Hooper, Lundy & Bookman and Lloyd A. Bookman for California Hospital Association, Dignity Health and Dignity Community Care, and Adventist Health System/West as Amicus Curiae on behalf of Plaintiff and Appellant.
Rob Bonta, Attorney General, Cheryl L. Feiner, Assistant Attorney General, Gregory D. Brown and Jacquelyn Y. Young, Deputy Attorneys General, for Defendant and Respondent.
WEINGART, J.
At the center of this case is a single line in a 2009 federal statute that provides incentives for hospitals to use electronic health records (EHR) when treating Medicaid patients. Under the program, the federal government provides funding to state health authorities, including California's Department of Health Care Services (DHCS, or the department), which in turn reimburse hospitals for a portion of their EHR spending. The reimbursement rates at issue in this matter are based on the proportion of care a hospital provides to Medicaid patients, and that proportion is determined in part by "the number of inpatient-bed-days (as established by the Secretary [of the United States Department of Health and Human Services (HHS)]) which are attributable to individuals who are receiving medical assistance under" Medicaid. (42 U.S.C. § 1396b(t)(5)(C).) The parties here disagree as to whether this number includes all beddays attributable to patients enrolled in Medicaid or is limited to only those bed-days for which the hospital received payment from the state's Medicaid program.
California's Medicaid program is Medi-Cal. The Legislature placed Medi-Cal under the supervision of DHCS. (Welf. & Inst. Code, §§ 10740, 14063.) Michelle Baass is the respondent in this case in her capacity as director of DHCS.
Plaintiff and appellant Pasadena Hospital Association, Ltd., which does business as Huntington Hospital (Huntington, or the hospital), argues the calculation should include bed-days for which Medi-Cal did not pay. In 2011, it included the unpaid bed-days in its application to DHCS for payment of EHR incentives under the statute, and the department paid the hospital accordingly. In 2016, the Office of Inspector General (OIG) for HHS issued a report stating that California had overpaid hospitals that included unpaid inpatient-bed-days in their calculations. DHCS initiated an audit in 2016 and concluded that it had overpaid Huntington $667,625 because of the inclusion of unpaid bed-days. The hospital challenged the ruling, and a state administrative law judge (ALJ) issued a proposed decision finding that, although DHCS was correct on the merits, it was barred from collecting the amount because of laches. The chief ALJ rejected the proposed decision and issued a final decision denying the hospital's appeal.
Huntington filed a petition for a writ of mandate, which the superior court denied. Huntington now challenges that ruling. It argues that DHCS's interpretation of the statute was incorrect. In addition, it contends that DHCS lacks authority to audit payments under the Medicaid EHR Incentive Program, and that the doctrine of laches bars the department from seeking to reverse payments it made several years earlier.
We affirm. First, we agree with Huntington that the phrase "individuals who are receiving medical assistance under" Medicaid (42 U.S.C. § 1396b(t)(5)(C)) refers to patients enrolled in Medicaid programs generally, not specifically those whose inpatient treatment was paid by a Medicaid program. Nevertheless, we conclude that the statute, by referring to "the number of inpatient-bed-days (as established by the Secretary)" (ibid.) can be reasonably interpreted as delegating to the Secretary of HHS the authority to decide how to measure the number of inpatient-bed-days attributable to Medicaid patients. We hold that the Centers for Medicare &Medicaid Services (CMS), a federal agency under the HHS, acted reasonably within the discretion Congress granted it in deciding to exclude unpaid inpatient-bed-days from the calculation of Medicaid patients. We also conclude that DHCS had the authority to conduct the audit, and that it did not delay unreasonably in doing so.
FACTS AND PROCEEDINGS BELOW
A. The HITECH Act
As part of the American Recovery and Reinvestment Act of 2009, Congress passed the Health Information Technology for Economic and Clinical Health Act (the HITECH Act or the Act; Pub. L. No. 111-5 (Feb. 17, 2009) 123 Stat. 115), which contained provisions designed to encourage hospitals and other health care providers to invest in information technology. The Act contained two sections relevant to this case: one related to Medicare and one related to Medicaid. Section 4102 of the Act (codified at 42 U.S.C. § 1395ww(n)) required the federal government to defray a portion of a hospital's EHR expenses over the course of several years based on the hospital's "Medicare share," which can be understood roughly as the percentage of a hospital's patient load attributable to Medicare patients. Section 4201 of the Act (codified in relevant part at 42 U.S.C. § 1396b(t)) did the same for the hospital's Medicaid patients. Because "Medicaid is a cooperative federal-state program" (Douglas v. Independent Living Center of Southern California, Inc. (2012) 565 U.S. 606, 610 [132 S.Ct. 1204, 182 L.Ed.2d 101]) administered primarily by each state government subject to federal rules and with federal financial support (see Harris v. McRae (1980) 448 U.S. 297, 308 [100 S.Ct. 2671, 65 L.Ed.2d 784]), the Medicaid share was to be paid by each state's Medicaid program, which in turn would receive reimbursement from the federal government.
"With that under your belt, you might be ready to absorb the relevant statutory language (but don't bet on it)." (Becerra v. Empire Health Foundation, for Valley Hospital Medical Center (2022) 597 U.S. 424, 430 [142 S.Ct. 2354, 213 L.Ed.2d 685] (Empire).) The HITECH Act created complex formulas for determining what share of a hospital's EHR spending can be attributed to Medicare and Medicaid. The Medicare share is defined as a fraction, "(i) the numerator of which is the sum . . . of
"(I) the estimated number of inpatient-bed-days (as established by the Secretary) which are attributable to individuals with respect to whom payment may be made under part A; and
"(II) the estimated number of inpatient-bed-days (as so established) which are attributable to individuals who are enrolled with a Medicare Advantage organization under part C; and
"(ii) the denominator of which is the product of
"(I) the estimated total number of inpatient-bed-days with respect to the eligible hospital during such period; and
"(II) the estimated total amount of the eligible hospital's charges during such period, not including any charges that are attributable to charity care (as such term is used for purposes of hospital cost reporting under this subchapter), divided by the estimated total amount of the hospital's charges during such period." (42 U.S.C. § 1395ww(n)(2)(D)(i) &(ii).)
The Medicaid share applies the same formula, "except that there shall be substituted for the numerator under [the Medicare share formula] the amount that is equal to the number of inpatient-bed-days (as established by the Secretary) which are attributable to individuals who are receiving medical assistance under this subchapter and who are not described in section 1395ww(n)(2)(D)(i) of this title. In computing inpatient-bed-days under the previous sentence, the Secretary shall take into account inpatient-bed-days attributable to inpatient-bed-days that are paid for individuals enrolled in a Medicaid managed care plan ...." (42 U.S.C. § 1396b(t)(5)(C), italics added.)
B. Regulatory Guidance and Huntington's Application
In 2010, CMS issued a final rule implementing the Act. (75 Fed.Reg. 44314.) The regulation for calculating the Medicaid share stated that hospitals should use "The estimated number of inpatient-bed-days which are attributable to Medicaid individuals" (id. at p. 44580, enacting 42 C.F.R. § 495.310(i)(2)(i)(A)), but did not define the term "Medicaid individuals." In the preamble to the regulation, CMS addressed the issue directly, stating in a response to a public comment on the rule that "the EHR incentive payment calculation requires the inclusion of only paid inpatient-bed days." (75 Fed.Reg. at p. 44500.) CMS did not explain elsewhere in the regulation the reasoning behind this conclusion.
In September 2011, DHCS submitted its plan to implement the HITECH Act, and CMS approved the plan. To assist hospitals in inputting their Medicaid patient data for purposes of calculating the Medicaid share, DHCS produced a Microsoft Excel-based workbook for hospitals to follow. According to Huntington, the workbook instructed hospitals to include data that encompassed "Medicaid eligible days for which no payment was received" as part of their calculation.
The appellate record includes printouts from the workbook, but we have been unable to verify exactly how the workbook encouraged hospitals to include data from unpaid Medicaid patient stays. Our understanding, based on testimony at the administrative hearing and the attorneys' representations at oral argument, is that the workbook instructed hospitals to import certain Medicaid data from other sources, and the relevant data included unpaid stays. Neither party gave a full account of the circumstances that would lead to a Medicaid patient's stay being unpaid. At a minimum, we understand it includes situations in which a patient "exhausted his [Medicaid] coverage for inpatient hospital care" or "exceeded his day limit in a . . . hospital." (Cabell Huntington Hosp., Inc. v. Shalala (4th Cir. 1996) 101 F.3d 984, 989.)
Huntington followed the instructions and reported 22,456 inpatient-bed-days attributable to Medicaid patients. DHCS accepted Huntington's figures and, in December 2011, determined that the hospital was entitled to an aggregate payment of $3,201,969, payable in installments over the following four years.
In 2012, CMS issued further guidance on the calculation of the Medicaid share in the form of a frequently asked question and answer. (FAQ 7649, available at https://www.cms.gov/regulations-and-guidance/legislation/ehrincentiveprograms/downloads/faq_medica id.pdf [as of Dec. 27, 2023] (FAQ 7649).) The document asks, "May a hospital include zero pay Medicaid eligible days in the Medicaid hospital Promoting Interoperability Program payment calculation?" and responds as follows: "No, zero pay Medicaid eligible days must be excluded from the Medicaid hospital incentive calculation...." (Ibid.)
The FAQ document does not include a publication date, but Huntington alleges it was made public no earlier than October 2012, and DHCS does not dispute this point.
In support of this answer, CMS explained that "Section 1903(t)(5)(C) of the [HITECH] Act requires the Medicaid share to be calculated 'in the same manner as the Medicare share.' In all ways possible, the Medicaid hospital incentive calculation is similar to Medicare, based on this language. Medicare retrieves data for the calculation exclusively from the Medicare cost report. Although Medicaid offers additional flexibility in data sources, the data parameters for Medicaid are the same as Medicare. This is cited in the Stage 1 final rule where CMS said: 'The statute requires us to calculate the Medicaid share "in the same manner" as the Medicare share under section 1886(n)(2)(D) of the Act and such substitute service days would not be considered "in the same manner." Thus, we proposed that for purposes of the Medicaid formula, we would count only those days that would count as inpatient bed-days for Medicare purposes under section 1886(n)(2)(D) of the Act.' In the CMS Stage 1 final rule, CMS also made clear: '[T]he EHR hospital incentive payment calculation requires the inclusion of only paid inpatient-beddays.' [(]75 Fed.Reg. at 44500.[)] Given this, a joint FAQ was published (FAQ # 3471) that mirrored cost report data sources for the calculation. Per the cost report instructions, all acute inpatient days must be paid. [In pulling data for calculation purposes], Medicare is . . . using only the paid managed care days. Medicare does not include unpaid days as acute inpatient days, so following the same manner for Medicaid means using only paid days as well. Additionally, [section] 1903(t)(5)(C) states that the Secretary establishes how the 'inpatient bed-days' used in the Medicaid numerator are counted. The statute specifically says that the Medicaid share has as its numerator 'the amount that is equal to the number of inpatient-bed-days (as established by the Secretary) which are attributable to individuals who are receiving medical assistance under this title.' By using only paid inpatient Medicaid days, the Secretary has 'established' how she counts the number of inpatient bed days per statutory authority." (FAQ 7649.)
C. Audit Procedures
To participate in the EHR reimbursement program for Medicaid, each state was required to "demonstrate to the satisfaction of the Secretary" of HHS that it "is using the funds provided for the purposes of administering payments under this subsection, including tracking of meaningful use by Medicaid providers," and that it "is conducting adequate oversight of the program." (42 U.S.C. § 1396b(t)(9)(A), (B).) California law passed in the wake of the HITECH Act directed DHCS to develop an information technology plan that would, among other requirements, "Establish the audit and appeals process." (Welf. &Inst. Code, § 14046.1, subd. (b)(5).) When Huntington submitted its application for EHR reimbursements under Medicaid in 2011, it signed a form stating, "I understand that the State of California may elect to verify and/or audit all information provided by me on behalf of my hospital, both prior to payment being issued and after payment has been made. [¶] . . . [¶] . . . I understand that any incentive payments found to have been made based on incorrect information or attestation may be recouped by the State." Huntington signed additional attestations acknowledging the possibility of an audit and recoupment in 2012, 2013 and 2014.
DHCS developed its audit strategy in consultation with CMS, which approved the plan on May 5, 2014. In September 2016, OIG issued a report titled, "California Made Incorrect Medicaid [EHR] Incentive Payments to Hospitals." OIG reviewed the payments made to 64 hospitals in California and concluded that the state had made incorrect payments to 61 of the hospitals, with a net overpayment of $22,043,234. As relevant here, the report found that 30 of the hospitals had erroneously included "unpaid Medicaid bed-days in the Medicaid-bed-days-only portion of the Medicaid share." In response to the OIG allegations, DHCS stated that further analysis and validation of the data was required.
In July 2016, just before the OIG report was released to the public, DHCS notified Huntington that it intended to audit the hospital's attestations. In June 2017, the department reported the findings of its audit. According to the report, Huntington should have reported 18,415 Medicaid inpatient-bed-days rather than 22,456, leading to an overpayment of $667,625. The parties later agreed that this calculation was incorrect, and that if one accepted CMS's position on unpaid inpatient-bed-days the alleged overpayment was $624,136.
Huntington appealed the audit's findings to the DHCS Office of Administrative Hearings and Appeals, arguing that it correctly included unpaid-bed-days in its application, that DHCS lacked authority to conduct the audit, and that laches barred DHCS from recovering any overpayment. The ALJ found "that while the [d]epartment had authority to conduct the audit and exclude unpaid-bed-days, recovery of the overpayment is barred by laches." A chief ALJ disagreed and issued a final opinion denying the appeal. In October 2021, the hospital filed a petition for a writ of mandate seeking to reverse the ALJ's final opinion, which the superior court denied. This appeal followed.
STANDARD OF REVIEW
Because the DHCS's denial of Huntington's appeal is "an adjudicatory or quasi-judicial decision [that] affects the rights of a specific individual or entity[,] . . . it is reviewed by administrative mandate under Code of Civil Procedure section 1094.5." (JKH Enterprises, Inc. v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046, 1056, fn. 9.) "The inquiry in such a case shall extend to the questions whether the respondent [agency] has proceeded without, or in excess of, jurisdiction; whether there was a fair trial; and whether there was any prejudicial abuse of discretion. Abuse of discretion is established if the respondent 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." (Code Civ. Proc., § 1094.5, subd. (b).)
In this case, the hospital does not contend that a fundamental vested right was involved. In this circumstance, an "appellate court reviews the administrative determination, not that of the superior court." (Schmitt v. City of Rialto (1985) 164 Cal.App.3d 494, 501.)"' "[T]he appellate court's function is identical to that of the trial court. It reviews the administrative record to determine whether the agency's findings were supported by substantial evidence, resolving all conflicts in the evidence and drawing all inferences in support of them." '" (County of Fresno v. Fresno Deputy Sheriff's Assn. (2020) 51 Cal.App.5th 282, 288.)" '[W]here the facts are undisputed, the reviewing court faces a question of law. "On questions of law arising in mandate proceedings, we exercise independent judgment."' [Citation.]" (Department of Health Care Services v. Office of Administrative Hearings (2016) 6 Cal.App.5th 120, 139140.)
To the extent this case involves a federal "agency's interpretation of a statute that is reflected in a regulation adopted through notice-and-comment rulemaking," we review that interpretation "using the two-step framework outlined in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.[ (1984)] 467 U.S. 837 [104 S.Ct. 2778, 81 L.Ed.2d 694] [(Chevron)]. [(]See United States v. Mead Corp.[ (2001)] 533 U.S. 218, 226[2]27 [121 S.Ct. 2164, 150 L.Ed.2d 292] . . . (requiring analysis under the Chevron framework for regulations adopted through notice-and-comment rulemaking).[)] 'First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." [(Chevron, supra, at pp. 842-843.)] The reviewing court employs 'traditional tools of statutory construction' to ascertain whether 'Congress had an intention on the precise question.' [(Id. at p. 843, fn. 9.)] But 'if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." [(Id. at p. 843.)] The agency's construction need not be the only possible permissible interpretation of the statute, nor must it be 'even the reading the court would have reached if the question initially had arisen in a judicial proceeding.' [(Id. at p. 843, fn. 11.)]" (Metropolitan Hosp. v. U.S. Dept. of Health (6th Cir. 2013) 712 F.3d 248, 254-255.) "Chevron's premise is that it is for agencies, not courts, to fill statutory gaps." (National Cable v. Brand X Internet (2005) 545 U.S. 967, 982 [125 S.Ct. 2688, 162 L.Ed.2d 820].)
DISCUSSION
A. DHCS Had Authority to Conduct the Audit
Huntington initially contends that DHCS lacked authority to conduct the audit, and that its findings are therefore invalid. It notes that the statute creating the Medicaid EHR incentive program (42 U.S.C. § 1396b(t)) does not mention post-payment review of the payments, nor do the accompanying regulations (42 C.F.R. § 495.310). In addition, Huntington argues that because the regulation implementing the program states that the Medicaid share is to be calculated by reference to "[t]he estimated number of acute-care inpatient-bed-days which are attributable to Medicaid individuals" (id., § 495.310(g)(2)(i)(A), italics added), there is no basis for DHCS to conduct an audit to determine the precise number of bed-days.
We disagree. Although the federal statute does not refer specifically to audits, it requires states, as a condition of receiving certain federal Medicaid funding, to "demonstrate to the satisfaction of the Secretary, that the State . . . [¶] . . . is using the funds provided for the purposes of administering payments under this subsection, including tracking of meaningful use by Medicaid providers[, and] [¶] . . . is conducting adequate oversight of the program under this subsection, including routine tracking of meaningful use attestations and reporting mechanisms." (42 U.S.C. § 1396b(t)(9)(A)-(B).) State law implementing the EHR program in California requires DHCS to create an information technology plan that, among other requirements, "[e]stablish[es] the audit and appeals processes." (Welf. &Inst. Code, § 14046.1, subd. (b)(5).) DHCS created such a plan, and CMS approved it. Thus, DHCS had authority under both federal and state law to conduct audits, and Huntington signed multiple documents notifying it that audits and recoupment of any incorrectly paid incentive payments were possible.
Nor are we persuaded that the use of the term "estimated" to refer to the "number of acute-care inpatient-bed-days which are attributable to Medicaid individuals" (42 C.F.R. § 495.310(g)(2)(i)(A)) forbids audits of hospitals' reports of the number of such bed-days. The term "estimated" may imply some flexibility in the determination of the number based on data source limitations or other issues, but it does not suggest that state officials were required to hand hospitals a blank check and had no authority to check the veracity of a hospital's reporting by means of an audit.
B. The Statute Is Ambiguous, and CMS's Interpretation of It Is Not Unreasonable
Huntington's primary contention is that DHCS's determination that it had overpaid Huntington was erroneous because it was based on an invalid interpretation of federal law. According to the hospital, the phrase "inpatient-bed-days (as established by the Secretary) which are attributable to individuals who are receiving medical assistance under this subchapter" (42 U.S.C. § 1396b(t)(5)(C)) unambiguously requires CMS to include all bed-days attributable to Medicaid patients, even those for which Medicaid did not pay. Huntington further argues that CMS's interpretations of the law are not entitled to deference because those interpretations conflict with the plain text of the statute. DHCS disagrees, arguing that the statute unambiguously excludes unpaid days from the calculation, and that to the extent it is ambiguous, we must defer to CMS's interpretation.
We conclude that the statute is ambiguous. Although we agree with the hospital that the term "individuals who are receiving medical assistance under this subchapter" refers to Medicaid enrollees generally, that is not the end of the inquiry. We must also give effect to the phrase "inpatient-bed-days (as established by the Secretary)," which can be reasonably interpreted as vesting discretion in the Secretary of HHS to decide which inpatient-bed-days should count when computing the number of Medicaid patients. CMS's decision to exclude unpaid Medicaid days from the count was a valid exercise of that discretion. Under Chevron, we must therefore defer to the agency's interpretation.
1. Chevron Step One
We divide our analysis of the key text of the statute into two parts. First, we consider the meaning of "attributable to individuals who are receiving medical assistance under this subchapter." (42 U.S.C. § 1396b(t)(5)(C).) We then move on to discuss "inpatient-bed-days (as established by the Secretary)." (Ibid.)
a. "[R]eceiving medical assistance under this subchapter"
All parties agree that title 42 United States Code section 1396b(t)(5)(C)'s use of the term "this subchapter" refers to the subchapter where the statute is codified, namely subchapter XIX of chapter 7 of title 42 of the United States Code, which governs the Medicaid program. Furthermore, the term" 'medical assistance'" is defined for purposes of subchapter XIX as "payment of part or all of the cost of the following care and services or the care and services themselves, or both . . . for individuals" who meet certain requirements set forth in the statute. (42 U.S.C. § 1396d(a).) "[I]npatient hospital services" are the first of 31 categories of "care and services" that meet the definition. (Id., § 1396d(a)(1).)
From here, the parties diverge. The hospital argues that because the statute defines "medical assistance" broadly, we must interpret "receiving medical assistance" equally broadly. In the hospital's view, any patient covered by Medicaid is "receiving medical assistance" regardless of payment. DHCS disagrees and argues that an "individual[ ] . . . receiving medical assistance" (bold and underscoring omitted) must be understood as a patient whose inpatient-bed-day is covered-meaning reimbursed and paid for-by Medicaid.
In parsing this portion of the statute, we agree with Huntington's interpretation. A consideration of the words of the statute" 'in their context and with a view to their place in the overall statutory scheme'" (Food and Drug Admin. v. Brown &Williamson Tobacco Corp. (2000) 529 U.S. 120, 133 [120 S.Ct. 1291, 146 L.Ed.2d 121]) leads to the conclusion that the phrase "receiving medical assistance under this subchapter" refers to Medicaid enrollees generally.
The phrase "receiving medical assistance" occurs numerous times within subchapter XIX, and an examination of those other uses elucidates its meaning in the HITECH Act. In Empire, supra, 597 U.S. 624, the United States Supreme Court examined an enactment by which Congress established disproportionate share (DSH) payments for hospitals that treat high proportions of needy patients. The details of the case are not relevant here, but the analytic method the court employed is. To determine the meaning of the phrase "entitled to [Medicare Part A] benefits" (42 U.S.C. § 1395ww(d)(5)(F)(vi)(I)) when calculating the fraction of Medicare patients under that statute, the court looked to other sections of the Medicare statute to examine how they used the phrase at issue. (See Empire, supra, at pp. 436-439.) We have done the same in this case and examined other uses of the phrase "receiving medical assistance" within subchapter XIX. That examination shows Congress frequently uses the phrase "receiving medical assistance" to refer to patients enrolled in a Medicaid plan or receiving Medicaid benefits generally. When Congress intends to use the phrase more narrowly, it adds explicit limiting terms.
The clearest example comes from title 42 United States Code section 1396a(a), which sets out requirements for states in establishing their Medicaid plans. Under the statute, the state must allow for a possible agreement with the state agency administering its school lunch plan "to ensure that . . . [¶] . . . a child receiving medical assistance under the State plan under this subchapter whose family income does not exceed 133 percent of the poverty line . . . may be certified as eligible for free lunches under the Richard B. Russell National School Lunch Act." (42 U.S.C. § 1396a(a)(7)(B)(i).) It would be absurd to imagine that Congress meant to provide free school lunches only to children receiving medical treatment or payment for medical treatment on any given day. The only reasonable interpretation is that Congress used the phrase "receiving medical assistance under the [s]tate plan under this subchapter" as a longwinded synonym for "enrolled in the state's Medicaid program," and to provide school lunches for children so enrolled.
Here and in subsequent citations, we have italicized the term "receiving medical assistance."
Similarly, a statutory section addressing payment for COVID-19 vaccines states that "medical assistance shall be made available . . . for vaccines . . . for any individual who is eligible for and receiving medical assistance under the State plan or under a waiver of such plan." (42 U.S.C. § 1396a(a)(10)(G).) Once again, the intention seems clear: to provide vaccine coverage to those enrolled in a state's Medicaid plan, and not only to those actively receiving treatment or payment for treatment for some other condition.
We need not belabor the point by discussing additional examples. Suffice it to say that in numerous instances, Congress uses the phrase "receiving medical assistance" to refer to Medicaid enrollees generally.
Other examples of such uses occur in the following places in subchapter XIX: Title 42 United States Code sections 1396a(e)(4), 1396b(g)(2), 1396n(1)(4)(D)(ii)(II), 1396o(c)(1), 1396o(j)(2), 1396o-1(b)(3)(A)(v), 1396o-1(b)(3)(A)(vi), 1396o-1(b)(3)(B)(viii), 1396o-1(b)(3)(B)(ix), 1396r(f)(7)(A), 1396u-7(a)(2)(B)(x). This interpretation is also consistent with the court's reasoning in Cabell Huntington Hosp., Inc. v. Shalala, supra, 101 F.3d 984, another case dealing with DSH payments to hospitals. In that case, the court had to decide whether a patient was "eligible for medical assistance" under Medicaid (42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)) even if Medicaid did not pay for the patient's particular hospital stay. The court concluded that, "As long as he continues to meet the income, resource, and status requirements, a Medicaid patient who has exceeded his day limit in a West Virginia hospital, for example, is still eligible for payment of a number of the other twenty-four categories of medical services like outpatient hospital services, rural health clinic services, and X-rays." (Cabell Huntington Hosp., supra, at p. 989.) By the same logic, even if a patient does not receive financial support from Medicaid for a particular hospital stay, they may nevertheless continue to "receive medical assistance" in other categories.
We recognize that subchapter XIX sometimes uses the phrase "receiving medical assistance" more narrowly, but in each case of which we are aware, the statute states the limitation explicitly. In a section measuring the per capita expenditures on prescription drugs, the statute states, "The gross per capita [M]edicaid expenditures for prescription drugs for 2003 under this subparagraph is equal to the expenditures, including dispensing fees, for the [s]tate under this subchapter during 2003 for covered outpatient drugs, determined per full-benefit-dual-eligible-individual for such individuals not receiving medical assistance for such drugs through a [M]edicaid managed care plan." (42 U.S.C. § 1396u-5(c)(3)(B)(i), underscoring added.) Here, the phrase "receiving medical assistance" must refer only to payment for drugs, not to enrollment in a plan. A section establishing rules for hospice care similarly provides that "[i]n the case of an individual . . . [¶] . . . who is residing in a nursing facility or intermediate care facility for the mentally retarded and is receiving medical assistance for services in such facility under the plan." (42 U.S.C. § 1396d(o)(3,) underscoring added.) Finally, a section providing for treatment of elderly and disabled patients with home and community-based services explains that states need not comply with certain requirements when amending their plans to allow for such services, but if the state elects to do so, it "shall not be construed to apply to the provision of services to an individual receiving medical assistance in an institutionalized setting." (42 U.S.C. § 1396n(i)(3), underscoring added.) In this instance, "receiving medical assistance" must refer to specific care or payment for the care, not just to enrollment in Medicaid.
The formula for calculating the Medicaid share for EHR incentive payments contains no such explicit limitation following the phrase "patients receiving medical assistance under this subdivision." We must therefore conclude that Congress intended for it to be interpreted in the same manner as elsewhere in subchapter XIX, as a synonym for "patients enrolled in a Medicaid program."
b. "[I]npatient-bed-days (as established by the Secretary)"
The analysis above tells only part of the story. To determine whether the language from the EHR Medicaid formula is ambiguous, we must also interpret the first part of the phrase: "inpatient-bed-days (as established by the Secretary) which are attributable to ...." (42 U.S.C. § 1396b(t)(5)(C).)
Both sides agree that the phrase "(as established by the Secretary)" is "an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation" (Chevron, supra, 467 U.S. at pp. 843-844), and neither party denies that, to the extent an agency acts pursuant to an express delegation, its interpretation is "given controlling weight unless [it is] arbitrary, capricious, or manifestly contrary to the statute." (Id. at p. 844, fn. omitted.) The parties disagree, however, as to the scope of the delegation in this case.
This time, Huntington proposes a narrow interpretation of the language, arguing that, "The parenthetical in question indicates only that the Secretary gets to define what constitutes an 'inpatient-bed-day' but does not impact the language in the relevant statute about what it means for a patient to be 'receiving medical assistance under' Medicaid." In other words, Huntington argues the latter portion of the statute referring to Medicaid enrollees generally trumps any language that might give the Secretary discretion to decide which Medicaid enrollees' inpatient-bed-days to include in the numerator. Thus, Huntington suggests the plain language reading must be essentially "the number of inpatient-bed-days (as established by the Secretary but only in terms of the type of bed and how many hours equals a day, and not with regard to any payment) attributable to individuals enrolled in Medicaid."
DHCS, on the other hand, insists we must give force to the statutory language vesting the Secretary with authority to define an inpatient-bed-day without Huntington's proposed limitations because the statutory language contains no such express limitations. Thus, DHCS argues the statutory plain meaning is essentially "inpatient-bed-days (which the Secretary has established to mean a bed-day paid by Medicaid) attributable to individuals enrolled in that program." DHCS further argues this plain meaning is consistent with the parallel calculation of the Medicare numerator, which includes only inpatient-bed-days paid by Medicare attributable to individuals enrolled in that program.
Technically, DHCS argues we should read the statutory language as "inpatient-bed-days (which the Secretary has established to mean a bed-day paid by Medicaid) attributable to patients whose care was paid by Medicaid." But as noted above, we reject DHCS's interpretation of "patients receiving medical assistance under this subdivision" as meaning patients whose care was actually paid by Medicaid and thus have substituted our construction of that phrase (that it means individuals enrolled in Medicaid) in the above.
We find both these readings plausible, and the statutory text therefore ambiguous. The parties do not dispute that the Secretary has discretion to define "inpatient-bed-days." They differ only over whether later language in title 42 United States Code section 1396b(t)(5) implicitly limits that discretion. An implicit limitation is by definition not express. And in the absence of anything express limiting the Secretary's definitional authority, we cannot say Congress has directly spoken to the precise question at issue such that Huntington's interpretation is the unambiguously expressed intent of Congress to the exclusion of DHCS's construction. (Metropolitan Hosp. v. U.S. Dept. of Health, supra, 712 F.3d at p. 254.)
2. Chevron Step Two
When, as here, there is an ambiguity in the scope of a delegation to an agency, we must defer to the agency's interpretation of that delegation, so long as it is reasonable. (City of Arlington, Tex. V. F.C.C. (2013) 569 U.S. 290, 298-301 [133 S.Ct. 1863, 185 L.Ed.2d 941].) "[T]he question in every case is, simply, whether the statutory text forecloses the agency's assertion of authority, or not." (Id. at p. 301.) In this case, CMS's determination that Congress delegated to it not merely the authority to define "inpatient-bed-day" in itself, but also to decide which inpatient-bed-days count toward the Medicare and Medicaid shares, is indeed reasonable. The question of how to determine which inpatient-bed-days should count toward the Medicaid and Medicare shares, subject to the limitations of the available data and the resources of the health care system, is a complex issue on which CMS might reasonably have expertise. CMS reasonably inferred that Congress delegated to it the authority to make that determination.
Huntington argues that CMS's decision to exclude unpaid Medicaid days is not a permissible interpretation of the statute. It argues that the only authoritative statement from CMS is a regulation defining the numerator of the Medicaid share as "The estimated number of inpatient-bed-days which are attributable to Medicaid individuals." (75 Fed.Reg. at p. 44580, enacting 42 C.F.R. § 495.310(i)(2)(i)(A).) According to Huntington, this regulation is inconsistent with CMS's statements in the preamble to the regulation and the subsequent FAQ that unpaid bed-days must be excluded from the calculation.
We agree that the text of a regulation takes precedence over its preamble, and to the extent that" 'the preamble to [a] rulemaking is inconsistent with the plain language of the regulation, it is invalid.'" (Texas Children's Hosp. v. Burwell (D.D.C. 2014) 76 F.Supp.3d 224, 237, quoting Barrick Goldstrike Mines, Inc. v. Whitman (D.D.C. 2003) 260 F.Supp.2d 28, 36.) But we see no inconsistency here. The regulation does not define the term "Medicaid individuals," and as far as we are aware, that term does not occur elsewhere in statutes or regulations. In the preamble to the regulation, in response to a public comment, CMS wrote that "the EHR incentive payment calculation requires the inclusion of only paid inpatient-bed days." (75 Fed.Reg. at p. 44500.) This statement does not contradict the regulation. Instead, it serves the ordinary function of a preamble, of" 'contribut[ing] to a general understanding of [the regulation].'" (National Wildlife Federation v. E.P.A. (D.C. Cir. 2002) 286 F.3d 554, 569.)
In the 2012 FAQ, CMS explained the reasoning behind its position. The agency stated that "[s]ection 1903(t)(5)(C) of the [HITECH] Act requires the Medicaid share to be calculated 'in the same manner as the Medicare share.' In all ways possible, the Medicaid hospital incentive calculation is similar to Medicare, based on this language." (FAQ No. 7649.) Because of limits on the data available, this meant excluding unpaid Medicaid patients from the calculation: "Medicare retrieves data for the calculation exclusively from the Medicare cost report." (Ibid.) Because data for unpaid hospital stays under Medicare was not available, it was necessary to exclude unpaid days from the Medicaid calculation too. CMS viewed this decision as an exercise of the Secretary's discretion under the statute. "The statute specifically says that the Medicaid share has as its numerator 'the amount that is equal to the number of inpatientbed-days (as established by the Secretary) which are attributable to individuals who are receiving medical assistance under this title.' By using only paid inpatient Medicaid days, the Secretary has 'established' how she counts the number of inpatient bed days per statutory authority." (Ibid.)
Huntington objects to the FAQ on the ground that it "created a substantive policy" without following the procedures required in the federal Administrative Procedures Act. We disagree. The FAQ merely clarified and explained a position CMS took in the text of the regulation and its preamble.
The FAQ shows that CMS's decision was not arbitrary, but rather represented a considered and reasonable exercise of the discretion explicitly granted the Secretary by Congress. Huntington objects that, although the formulas for calculating the Medicaid and Medicare shares are similar, the Medicare formula explicitly includes an element of cost absent from the Medicaid formula. It requires determining "the estimated number of inpatient-bed-days (as established by the Secretary) which are attributable to individuals with respect to whom payment may be made under part A." (42 U.S.C. § 1395ww(n)(2)(D)(i)(I), italics added). Huntington acknowledges this means "the Medicare [s]hare can only include paid inpatient bed days."
We disagree that simply because Congress used different terms of art when describing a different program that this distinction shows an unequivocal decision by Congress to differentiate the Medicaid calculation, to mandate that the Medicaid formula include unpaid inpatient-bed-days not covered by Medicaid, and sub rosa circumscribe the discretion provided to the Secretary despite considerations such as data limitations for cross-reference and audit purposes. CMS's decision to exclude both unpaid Medicare and Medicaid bed-days from the EHR calculation can be reasonably interpreted as an effort to bring the two calculations in harmony, and in our view the statutory scheme does not show a clear intent to require the use of divergent EHR incentive payment formulas. Nothing in the statutory scheme generally indicates Congress intended discrepant calculations, or to deprive CMS of the discretion it exercised to define "inpatient-bed-days" in both programs so that they utilized a similar calculation.
C. Laches Does Not Bar Recoupment of Overpayments
Huntington lastly contends that even if DHCS had authority to conduct the audit, and CMS's exclusion of unpaid bed-days was reasonable, DHCS should still be barred from collecting the excess payment from the hospital because it failed to act in a timely manner in conducting the audit. Huntington does not allege that a statute of limitations applies to DHCS's audit. Instead, it relies on the doctrine of laches.
Laches is an equitable doctrine independent of statutes of limitations that bars a party who has failed to act in a timely manner from obtaining relief. (13 Witkin, Summary of Cal. Law (11th ed. 2023) Equity, § 17.) "Under appropriate circumstances, the defense of laches may operate as a bar to a claim by a public administrative agency . . . if the requirements of unreasonable delay and resulting prejudice are met." (Robert F. Kennedy Medical Center v. Belshe (1996) 13 Cal.4th 748, 760, fn. 9.) "[B]ecause laches is an affirmative defense, . . . the defendant has the burden of proof [citation]." (Lent v. California Coastal Com. (2021) 62 Cal.App.5th 812, 837.) But "the element of prejudice may be 'presumed' if there exists a statute of limitations which is sufficiently analogous to the facts of the case, and the period of such statute of limitations has been exceeded by the public administrative agency in making its claim. In [this] situation, the limitations period is 'borrowed' from the analogous statute, and the burden of proof shifts to the administrative agency. To defeat a finding of laches the agency . . . must then (1) show that the delay involved in the case . . . was excusable, and (2) rebut the presumption that such delay resulted in prejudice to the opposing party." (Fountain Valley Regional Hospital &Medical Center v. Bonta (1999) 75 Cal.App.4th 316, 324 (Fountain Valley).) The issue of borrowing is a question of law, which we review de novo. (Id. at p. 323.)
"Whether or not . . . borrowing [of a statute of limitations] should occur depends upon the strength of the analogy" between the agency's enforcement action and an action at law. (Brown v. State Personnel Bd. (1985) 166 Cal.App.3d 1151, 1160.) In its appellate briefs, Huntington does not attempt to analogize DHCS's case against it to a legal cause of action. The amicus brief filed by the California Hospital Association and other health care providers fills this void, arguing that DHCS's audit and effort to recoup funds from Huntington "are analogous to a claim based on a book account, a liability created by statute (here the federal statute setting forth the meaningful use payments and the companion state statutes), and/or on a mistake by DHCS in instructing hospitals to include unpaid days and making payments based on data that included unpaid days," and advocating that we borrow the three- or four-year statute of limitations applicable to these claims. (See Code Civ. Proc., §§ 337, subd. (b) ["action to recover . . . upon a book account"], 338, subds. (a) ["liability created by statute"], (d) ["action for relief on the ground of fraud or mistake"].)
Neither Huntington nor amici, however, attempts to demonstrate the strength of the analogy, which Huntington, as the party seeking to apply the borrowing principle, has the burden to do. (See Highland Springs Conference &Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 282 ["The party asserting laches bears the burden of production and proof on each element of the defense"].) Some similarities between the legal causes of action and DHCS's audit are nevertheless apparent. A book account is defined as "a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith." (Code Civ. Proc., § 337a.) There must be records of the transactions between Huntington and DHCS that fit this definition. The excess EHR payments to the hospital were indeed based on a mistake, either by DHCS in failing to clarify which inpatient-bed-days could be included, or by the hospital in failing to exclude unpaid days in the first place. And Huntington's obligation to repay the excess amount is indeed based on the federal statute creating the EHR reimbursement program, and the California statutes implementing the program and giving DHCS the authority to conduct audits.
But there are also key distinctions. Most importantly, the relationship between Huntington and DHCS is not that of two parties in an ordinary civil dispute, where one party may bring a cause of action immediately upon learning that the other party owes it a debt. DHCS was administering a program funded by the federal government, and the federal government is not a party to this dispute. DHCS was bound by federal rules. It was required to audit the records of the hospitals seeking reimbursement, but it lacked authority to conduct those audits until 2014. Huntington signed attestations acknowledging potential recoupment, such that the debits and credits at issue were not final. In addition, neither DHCS's 2016 statement informing Huntington that it planned to conduct an audit nor the 2017 audit determination is perfectly analogous to the filing of a civil suit. If borrowing were to apply, it is not at all clear when the clock should start or stop running.
In support of its argument that borrowing is appropriate, the hospital relies primarily on Fountain Valley, where the court held that the borrowing principle applied in a case involving an effort by DHCS to recover funds DHCS had paid to a hospital more than a decade earlier. (Fountain Valley, supra, 75 Cal.App.4th at p. 325.) The case involved Medi-Cal reimbursement payments, which DHCS pays throughout a year to ensure that a hospital has enough funds to continue serving Medi-Cal patients. (Id. at p. 320.) The department later audits the department's finances and either makes a final payment to the hospital or seeks reimbursement of the excess amount previously paid. (Ibid.) In 1994, DHCS realized that it had miscalculated its final determination as to the years 1981 through 1983 with respect to a certain hospital and demanded reimbursement of more than $1 million in funds it had paid the hospital those years. (Id. at p. 322.)
At the time of the case, DHCS was known as the Department of Health Services.
The court concluded that, "There are several statutes of limitation in the Code of Civil Procedure which are clearly applicable to the facts of this case. They are section 337, which provides for a four-year statute of limitations on a book account; section 338, subdivision (a), which provides for a three-year statute of limitations for '[a]n action upon a liability created by statute, other than a penalty or forfeiture'; and section 338, subdivision (d), which provides for a three-year statute of limitations for actions 'for relief on the ground of fraud or mistake.'" (Fountain Valley, supra, 75 Cal.App.4th at p. 325.) The court did not analyze how closely analogous these causes of action were to the DHCS action, but in the court's view, they were sufficiently similar to the department's efforts to revise its previously final settlement payments that the application of the borrowing principal was appropriate. (Ibid.) The court reasoned that, "At some point, there must be finality to the [d]epartment's 'final' reimbursement settlements. Otherwise, a hospital's financial planning and rational allocation of its resources will simply be impossible. Such a result is neither fair nor socially desirable. These considerations provide additional support for a rule that shifts the laches burden of proof to the [d]epartment when its own delay in revising a previously submitted 'final reimbursement settlement' exceeds an analogous statute of limitations period." (Id. at p. 326.) The court cautioned, however, that "Because this case involves revised final reimbursement settlements, our decision should not be construed to mean that statutory periods of limitation may be borrowed when a hospital claims that the doctrine of laches should be applied to a delay by the [d]epartment in rendering an original final reimbursement settlement." (Id. at p. 325, fn. 8.)
Despite the Fountain Valley court's statement explicitly limiting its decision to efforts by DHCS to revise its final reimbursement settlements, Huntington argues that the court's reasoning shows that borrowing is appropriate here. In the hospital's view, "there is nothing . . . fundamentally different about the type of audit activity at issue in Fountain Valley and the DHCS Medicaid EHR Incentive Program payment audits. In each situation, the [d]epartment made an initial determination of Medi-Cal payments owed to a provider and then, years after the fact, commenced an audit to review the appropriateness of those determinations."
We disagree. In our view, the key difference between this case and Fountain Valley is that in the latter case, the department had previously issued a final reimbursement determination. The hospital had every reason to believe its accounts for the years in question were settled, and to plan its future finances accordingly. In those circumstances, it was sensible to apply the borrowing principle and to shift the burden to DHCS to prove that the hospital had not been prejudiced by the department's extreme delay. In the current case, by contrast, DHCS had notified Huntington at the time it applied to participate in the EHR program that it was subject to a potential audit. The hospital had no reason to believe the payments it received represented a final determination of the amount owed.
Without the benefit of the borrowing principle and its presumption of prejudice, Huntington cannot carry its burden to show that DHCS delayed unreasonably, nor that the hospital suffered prejudice. Although the hospital submitted EHR documentation in 2011, DHCS did not gain the right to conduct audits until CMS approved its plan in 2014. The department notified Huntington of its intent to conduct an audit only two years later, presumably upon learning from CMS of the pending publication of its report on overpayments to California hospitals. From there, the audit took about one year to complete. This delay does not appear unreasonable. Once DHCS became aware of the potential overpayment, it acted quickly and made a final determination in only one year.
The hospital's claim that it suffered prejudice is similarly unavailing. Huntington presented testimony from an administrator who stated that if the hospital has to repay the additional EHR funds, the money "has to come from somewhere.... [W]e have a capital plan . . . that we wish to execute upon, but to the extent that we fall short in our . . . operations, . . . then something gets cut." Huntington has pointed to no additional evidence in the record to show it would suffer prejudice if required to repay the excess EHR funds apart from this summary description. This is not to minimize the difficulties the hospital faces from the loss of several hundred thousand dollars in funding. But this kind of difficulty occurs any time someone faces an unexpected bill or unfavorable judgment, and we cannot find prejudice from the mere fact the hospital has less money because it is liable for repayment.
There is no indication that the delay in conducting the audit caused a specific harm or difficulty that would not have been present had DHCS acted faster, or triggered additional potential lost revenues or costs beyond the repayment amount. Furthermore, Huntington signed attestations every time it applied for EHR funds indicating it understood that an audit was possible. It was therefore on notice that the funds it received might be adjusted later. In addition, CMS released the final rule on the Medicare and Medicaid EHR reimbursement program, including the preamble stating that unpaid Medicaid bed-days were ineligible for reimbursement, in 2010. (75 Fed.Reg. 44314.) It released the FAQ explaining the reasoning for its position in 2012. These statements should have put Huntington on notice long before 2016 that it might have received excess EHR reimbursements, and the hospital could have planned accordingly.
In reaching this determination, we do not mean to imply that either CMS or DHCS was blameless. CMS's initial regulations noted the exclusion of unpaid Medicaid days only in a preamble, not in the text of the final rule itself. It was only in 2012, after Huntington and many other hospitals had submitted their first applications for reimbursement, that CMS explained its position in detail in an FAQ document. DHCS exacerbated the situation by issuing a workbook that led hospitals to include unpaid Medicaid days in their EHR payment requests. The evidence in the record suggests that the department did not notice its error until CMS notified it five years later. The result in this appeal does not excuse either the federal or state agency, but merely indicates that their actions were not sufficiently severe to warrant a finding of laches.
DISPOSITION
The superior court's judgment denying the petition for a writ of mandate is affirmed. DHCS is awarded its costs on appeal.
We concur: ROTHSCHILD, P. J., CHANEY, J.