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David John MOORE, a Minor, etc., et al., Plaintiffs and Appellants, v. KAISER FOUNDATION HEALTH PLAN, INC., Defendant; S. Kimberly Belshe, as Director, etc., Claimant and Respondent.
Minor David John Moore, a Medi-Cal beneficiary, sued Kaiser Foundation Health Plan, Inc., for medical negligence. The matter was not tried, but was settled for $975,000. The California Department of Health Services, which administers Medi-Cal (hereafter referred to as the Department or Medi-Cal), sought a lien against a portion of the settlement funds. The court below allowed the Medi-Cal lien. Plaintiff minor appeals this determination. We conclude that plaintiffs have not made a proper case on appeal, and we affirm.
FACTS AND PROCEDURAL BACKGROUND
The parties do not dispute that the minor, David John Moore, was born with an injury to his brain. Because his mother was a Medi-Cal beneficiary at the time of his birth, the minor also automatically became a Medi-Cal beneficiary.
Attorney Nathaniel J. Friedman, on behalf of the minor, filed a medical malpractice action against Kaiser Foundation Hospital, Kaiser Foundation Health Plan, Inc., and Southern California Permanente Medical Group (referred to collectively as Kaiser).1 The complaint alleged that Kaiser caused the minor's injuries.
Welfare and Institutions Code section 14124.70 et seq. governs actions against third parties for injuries to Medi-Cal beneficiaries. A Medi-Cal beneficiary who files an action against a third party, alleging the third party is liable for the beneficiary's injuries, must notify the Department within 30 days after filing suit. Neither plaintiffs nor Attorney Friedman complied with this requirement. No one notified the Department of the suit until March 2, 1995, nearly a year after the first amended complaint was filed.
Attorney Friedman telephoned the Department for the first time on March 2, 1995, demanding to know immediately the amount of the Medi-Cal lien. The Department on March 7, 1995, notified Attorney Friedman of the Department's Medi-Cal lien against judgment or settlement proceeds. Attorney Friedman responded on March 16, 1995,2 demanding immediate documentary proof of the amounts Medi-Cal had paid for the minor; otherwise, Attorney Friedman asserted he would be “unable to protect Medi-Cal's alleged interests” at an arbitration scheduled four days later. Attorney Friedman stated that unless Medi-Cal “promptly compl[ied] with this request, this office disavows any legal, ethical, or moral responsibility” to pay Medi-Cal's lien.
The Department initiated a request to Kaiser to provide documentation on the costs of services it had provided to the minor. On May 3, 1995, Kaiser (and other providers) supplied the requested information. The Department notified Attorney Friedman of the Medi-Cal lien amount by letter on May 5, 1995. The medical services totaled $59,555.88. With a statutory reduction, representing the Department's share of the beneficiary's attorney fees in prosecuting the third-party action, the Department's lien would be satisfied by a payment of $44,666.91. (Welf. & Inst.Code, § 14124.72.) 3
In the meantime, however, the minor's claim against Kaiser was settled for $975,000. The court filed an order approving the minor's compromise, dated March 28, 1995. The order included a provision that Kaiser (the tortfeasor as well as a Medi-Cal provider) would pay $17,500 to Medi-Cal. At the time Attorney Friedman negotiated the settlement, the Department had not yet determined the Medi-Cal lien amount.
On or about April 25, 1995, Attorney Rotenberg, who was identified as attorney of record for the minor's guardian ad litem, filed a petition to modify the court's order approving the minor's compromise; the petition for modification sought to create a special needs trust for the minor out of blocked funds held by the bank. On or about May 3, 1995, the Department found out about the petition to modify the order approving the minor's compromise. Until May 3, 1995, the Department had not been notified that the minor's claim had been settled.
On May 19, 1995, the Department filed an objection to the petition to modify the order approving the minor's compromise. The Department alleged it had been deprived of its right to satisfy the Medi-Cal lien; if the special needs trust were created as requested, the Medi-Cal lien might not be satisfied.
Attorney Rotenberg agreed to create the special needs trust with some of the blocked funds, and to reserve $65,000 in the blocked account to satisfy the Medi-Cal lien.
On October 27, 1995, the Department petitioned to withdraw funds from the blocked account for the Medi-Cal lien. The Department claimed $59,731.88 as Medi-Cal expenditures for the minor. The Department's approach to the claim would require that the amount of lien should be reduced by 25 percent to $44,798.91, to contribute the Department's share of the minor's attorney fees, under Welfare and Institutions Code section 14124.72, subdivision (d). Because the settlement already called for Kaiser to pay $17,500 to the Department for Medi-Cal expenses, the amount the Department sought from the blocked account was the balance of $27,298.91.
Attorney Friedman, acknowledging that Attorney Rotenberg had substituted in as counsel of record for the minor, nevertheless filed a declaration in opposition to the Department's petition to satisfy the Medi-Cal lien. The thrust of Attorney Friedman's objection was that a Medi-Cal lien applied only as to an injury for which a third party “was liable,” which Attorney Friedman interpreted to mean as, “was judicially adjudicated to be liable.” In other words, because the claim was settled without a judicial adjudication or express admission of fault, Kaiser was not “liable” for the minor's injuries. If the Department wished to establish a Medi-Cal lien, it would have to take over the elements of the plaintiff's case and prove Kaiser at fault with medical evidence.
The hearing on the Department's petition came on for hearing on November 8, 1995. Again, the thrust of Attorney Friedman's argument was that the Department was obliged to prove Kaiser at fault, and to prove that the charges for medical services, for which Medi-Cal claimed its lien, were reasonable.
The court granted the Department's petition, and ordered the minor's guardian ad litem to disburse the requested amount in satisfaction of the Medi-Cal lien.
Attorney Friedman, styling himself as “formerly the attorney for [the minor],” moved for reconsideration, under Code of Civil Procedure section 1008, of the court's order granting the lien motion.
After argument, the court denied the motion for reconsideration. Attorney Friedman filed a notice of appeal.
I. When the Department Provides Medi-Cal Coverage Through a Prepaid Health Plan the Department May Enforce a Lien Against a Beneficiary's Recovery Only for the Premiums It Has Paid
The Medi-Cal statutory scheme allows the director to recover certain sums from third parties who are liable for injuring Medi-Cal beneficiaries.4 The director may sue the third person or the third person's insurance company directly. (§ 14124.71, subd. (a).) If the director does so, Medi-Cal “shall have a right to recover from such person or carrier the reasonable value of benefits so provided.” (Ibid., italics added.)
If, on the other hand, the beneficiary initiates the action, § 14124.74, subdivision (a), provides the director with a lien on the recovery in “the amount of the director's expenditures for the benefit of the beneficiary under the Medi-Cal program, as provided in subdivision (d) of Section 14124.72․” (Italics added.) Section 14124.72, subdivision (d), provides that, when the action is prosecuted by the beneficiary alone, “the director's claim for reimbursement of the benefits provided to the beneficiary ” is reduced by 25 percent to reflect the director's assumed share of attorney fees incurred by the beneficiary. (§ 14124.72, subd. (d), italics added.) 5 Thus, any settlement the beneficiary negotiates is subject to the director's lien “for reimbursement of the benefits provided to the beneficiary under the Medi-Cal Program.” (§ 14124.72, subd. (c), italics added.)
The third-party liability provisions do not clearly indicate whether a different measure of recovery is intended when the Department initiates a suit, as opposed to when the beneficiary initiates a suit. The use of different language in various of these provisions raises the possibility that different measures were intended, but it is difficult to discern a legislative purpose in making the measures of recovery different when the Department participates in a third-party suit and when the beneficiary alone sues.6
In the ordinary case, when Medi-Cal has paid directly for the beneficiary's medical care, the “reasonable value of benefits ․ provided” (§ 14124.71, subd. (a)), “expenditures for the benefit of the beneficiary” (§ 14124.74, subd. (a)), and “reimbursement of the benefits provided to the beneficiary” (§ 14124.72, subds.(c),(d)), are all approximately the same. If the Department participates in suing the tortfeasor directly, the Department would be able to recover from any judgment the “reasonable value” of benefits “provided.” The amounts Medi-Cal actually pays for medical services presumably reflect reasonable values for services. If the beneficiary sued alone, the Department can assert a lien for the “amount of benefits provided” or “reimbursement of the benefits provided.” Again, in each case, the amounts actually paid or expended are set by procedures designed to determine a reasonable value for services and products. When the Department pays directly for the beneficiary's medical care, there appears to be no practical difference between actual expenditures and the reasonable value of medical benefits provided. The purpose behind the third-party liability provisions is also apparent: when a third-party tortfeasor causes the Department to pay out for needed medical care for an injured beneficiary, the Department should be able to recoup those payments from the tortfeasor. This measure of damages is the same whether the Department sues directly or whether it does not. Thus, despite unfortunate drafting of the third-party liability provisions, we discern no legislative intent to treat the recovery differently, except as expressly otherwise provided, when the Department sues directly and when the Department takes a lien on the recovery in a beneficiary suit.
The problem of interpretation is exacerbated, however, where, as here, the Department did not pay directly for the beneficiary's medical care, but enrolled the beneficiary in a prepaid health plan.
The Waxman-Duffy Prepaid Health Plan Act (Waxman-Duffy) (§ 14200 et seq.) is contained in a separate chapter of the Welfare and Institutions Code. Because the minor obtained Medi-Cal benefits under a prepaid health plan, we look to that chapter for guidance. Under Waxman-Duffy, the director only pays a monthly premium to a health care provider for health care coverage. (§ 14124.91.) As the director explained: “David Moore and his mother and guardian ad litem, Mary Ann Shriver, were Medi-Cal beneficiaries who chose to be covered under a prepaid health plan administered and provided by Kaiser Foundation. The Department has agreed to pay Kaiser for providing necessary medical goods and services to Medi-Cal beneficiaries who chose to be covered by Kaiser, such as David Moore's mother. For services rendered to such beneficiaries, Kaiser is paid by the Department a capitated rate or premium.”
The Waxman-Duffy chapter does not contain its own third-party liability provisions. Section 14205 of Waxman-Duffy, however, provides: “Except where the context otherwise requires, or where specific exceptions are authorized, all provisions of Chapter 7 (commencing with Section 14000) of this part shall be applicable to the provisions of this chapter and the violation of the provisions of this chapter or any rule or regulation adopted pursuant thereto shall be deemed to be a violation of Chapter 7.” Thus, except where the special provisions of Waxman-Duffy require otherwise, general Medi-Cal requirements may be applied in the prepaid health plan context. Although there are no reported cases interpreting section 14205, its fair import is that the principles of the Medi-Cal reimbursement program apply, modified as necessary to fit the prepaid health plan context. Since the prepaid health plan chapter does not contain any provisions for actions against third parties who injure Medi-Cal beneficiaries, it is appropriate to apply the third-party liability sections of the preceding chapter in the prepaid health plan context.
In doing so, we must take account of the fundamental difference between a reimbursement (fee for service) plan and coverage under a prepaid health plan. Under a reimbursement plan, the health care provider is paid for all or part of the cost of services rendered. (§§ 14075, 14081, 14085.5.) Under a prepaid health plan, the health care provider bears the risk of excessive utilization. Thus, any Kaiser member is charged a monthly premium whether he or she uses a Kaiser facility or not. If the Kaiser member becomes seriously ill, hospital and medical expenses will far exceed the monthly premium charged for that person. The Kaiser plan is thus based on the principle that all members will not need plan benefits in any single time period. Kaiser therefore is paid on a capitation, or per-member basis, and it assumes the utilization risk.
Under the prepaid plan scheme for Medi-Cal beneficiaries, the premiums and utilization risk are defined and limited so that Medi-Cal costs are contained and the health plan can provide an adequate quality of service. (§§ 14301, 14311, 14463.) The actuarially determined premium is the only amount that Medi-Cal pays for coverage. (§ 14301.) The total capitated premiums are less than the comparable fee-for-service charges. (§ 14499.74.)
The primary issue is the meaning of the third-party liability provisions for recovery of the “reasonable value” of “benefits ․ provided,” the “amount of the director's expenditures for the benefit of the beneficiary,” or the “reimbursement” of the “benefits provided” to the beneficiary, when the “benefits provided” to the beneficiary have consisted solely of the payment of monthly health care premiums to a prepaid health services plan. It is well settled that the director's lien is limited to the extent of the Medi-Cal benefits that have been provided. (Kizer v. Hirata (1993) 20 Cal.App.4th 841, 844, 25 Cal.Rptr.2d 19.)
Applying the third-party liability provisions, through section 14205, we conclude that the context requires that the prepaid health plan premium be construed to be the amount that Medi-Cal has paid for the beneficiary's benefits and, consequently, it is the amount of the premium which must be repaid, or “reimbursed.” Any other construction ignores the differences between direct pay and prepaid plans. The director's lien for the reimbursement of benefits provided to a Medi-Cal beneficiary who is a member of a prepaid health services plan is thus limited to the amount of the premium that has been paid for coverage under the prepaid health services plan. There is simply no other sum that Medi-Cal has paid so that it can be “reimbursed.” The capitated rate or premium also represents, e.g., Kaiser's determination of the reasonable value of the coverage purchased. We note, again, that the evident purpose of the third-party liability provisions is to allow the Department to recoup from the tortfeasor any expenditures caused by the tortfeasor's injurious acts. In the prepaid health plan context, the only expenditures are the monthly premiums.7
Although Medi-Cal only paid monthly capitated premiums here, it calculated its lien as if it had actually paid for all of the services provided, when it did not do so. Instead of the monthly premium, it therefore attempted to collect the cost or value of the services. The lien amount was thus calculated at approximately $50,000 for Kaiser's services, even though it appears to be undisputed that Medi-Cal never paid Kaiser the $50,000 for which it was requesting reimbursement. As we have construed the reimbursement provisions in the prepaid health plan context, this was improper. Nevertheless, for the reasons which follow, we decline to disturb the judgment below.
The order granting the Department's Medi-Cal lien is affirmed. In view of this affirmance, Attorney Friedman's request for sanctions against the Department is denied. (Kizer v. Hirata, supra, 20 Cal.App.4th 841, 844, 25 Cal.Rptr.2d 19.)
1. The first amended complaint was filed on March 8, 1994.
2. The letter quoted was not signed by Attorney Friedman, but was assertedly written at his direction and contained Friedman's representations.
3. All further statutory references are to the Welfare and Institutions Code unless otherwise indicated.
4. “Beneficiaries” are defined as “any person who has received benefits or will be provided benefits under this chapter because of an injury for which another person may be liable.” (§ 14124.70, subd. (b).)
5. Section 14124.74, subdivision (b), provides in part that, “If the action or claim is prosecuted both by the beneficiary and the director,” after payment of the beneficiary's legal expenses, “the court ․ shall first apply out of the balance of the judgment or award an amount sufficient to reimburse the director the full amount of benefits paid on behalf of the beneficiary․” (Italics added.)The Department gets the “full” benefits it “paid” when it has participated in the lawsuit, because its lien is not reduced by 25 percent for its share of attorney fees, but the lien is apparently still limited, according to the literal language of the subdivision, to what the Department “paid.”
6. Except, of course, that the Department's recovery is reduced by 25 percent for the presumed costs of litigation when the beneficiary pursues the action alone, but a separate section specifically so provides.
7. We recognize that allowing the Department's recovery of all of the premiums paid presents some theoretical problems. It is difficult to assign any particular premium or portion of premium to particular services related to an injury caused by a third-party tortfeasor. For example, suppose the Department pays a capitated premium for a beneficiary for a particular month. In that month, the beneficiary may require medical services unrelated to an injury caused by a third-party tortfeasor, as well as services necessitated by the third party's tort. It could be argued that it is not possible to determine how much of the Department's actual expenditure (the premium) is due to the third party's tort. Can the Department recover only this amount? Suppose a beneficiary has not required any medical benefits for a number of months. Then the beneficiary is injured by a third party. In some months, the beneficiary needs treatment for the injury; in other months, the beneficiary may not need such services. Is the Department limited to recover only for the premiums in months when medical benefits are paid out, or does the Department's recovery also include all premiums in a period of treatment for the injury, even though the beneficiary receives no actual treatment in some months of that period?The statutory scheme makes no provision for such distinctions or for the proceedings required to parse capitated premiums in this manner. Perhaps none is needed if the Department is allowed simply to recover all the premiums it has paid. We do not reach these questions, but determine that allowing recovery of the premiums, however the details of that recovery may ultimately be defined, fairly interprets the relevant statutory provisions.
FOOTNOTE. See footnote *, ante.
WARD, Associate Justice.
HOLLENHORST, Acting P.J., and McDANIEL, J.***, concur.
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Docket No: No. E017575.
Decided: August 20, 1997
Court: Court of Appeal, Fourth District, Division 2, California.
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