PARAMOUNT CONVALESCENT CENTER INC v. DEPARTMENT OF HEALTH CARE SERVICES (1974)

This is an appeal from a judgment which granted a writ of mandate commanding the Department of Health Care Services to grant Paramount Convalescent Center, Inc., a hearing on the question whether Paramount meets the standards prescribed by law for continuing participation in the Medi-Cal program as a provider of nursing services.

On December 29, 1972, Paramount Convalescent Center, Inc., filed a verified petition for writ of mandate (Code Civ.Proc. § 1084 et seq.) in the California superior court. Named as defendants were the Department of Health Care Services,¹ the Department of Public Health and the Department of Public Social Services. The Department of Finance was designated as real party in interest.

The petition alleged: the Department of Health Care Services is charged with administering the Medi-Cal program (Welf. & Inst.Code § 14000 et seq.); since November 1, 1968, petitioner has been licensed by the State of California as a 59-bed nursing home, and has been a participating provider of nursing home services under the Medi-Cal program; at present petitioner has 46 patients, of whom approximately 41 are beneficiaries under the Medi-Cal program; in July 1972 representatives of the Department of Public Health inspected petitioner's nursing home and noted 20 deficiencies in its operation, indicating failure to meet the standards for participation in the Medi-Cal program as set forth in Title 22, Division 3, § 51215 of the California Administrative Code, and Title 45, §§ 249.10 and 249.33, of the Code of Federal Regulations; a second inspection was made in September 1972, disclosing 41 such deficiencies; petitioner was advised of the deficiencies and told that if they were not corrected, the Department of Health Care services would not enter into another Medi-Cal nursing home participation agreement with petitioner after their current provider agreement expired; on October 23, 1972, petitioner forwarded to the Department a plan for correction of the deficiencies; on October 30th the Department informed petitioner that the plan was unacceptable; on November 15, 1972, the Department notified petitioner that because the current provider agreement had expired on October 31, 1972, petitioner would not be paid for care it had provided after that date to Medi-Cal beneficiaries at its facility; on November 21, 1972, petitioner sent the Department a telegram demanding a hearing prior to termination of payments; on November 22nd the Department again inspected petitioner's facility, and on November 28th sent petitioner a letter enumerating 20 deficiencies found during that inspection; on November 29, 1972, petitioner and the Department held a meeting at which petitioner submitted a plan for correction of the deficiencies.

It was further alleged: on December 21, 1972, defendants ceased making payments to petitioner under the Medi-Cal program, and the Department of Health Care Services has refused to enter into another provider agreement with petitioner; the Department has no authority to refuse to enter into such an agreement unless it affords petitioner a hearing on the question whether petitioner is qualified to continue participation in the Medi-Cal program; if the Department's refusal is allowed to stand, petitioner will be without funds to operate its convalescent hospital, and may lose the real and personal property comprising the hospital.

Petitioner sought alternative and peremptory writs of mandate commanding the Department to set aside its decision, and to enter into a Medi-Cal nursing home participation agreement with petitioner.

An alternative writ was issued. Defendants/respondents Department of Public Health and Department of Health Care Services filed a return by way of answer. The answer admitted: the Department of Health Care Services is the agency of the State of California charged with administering the Medi-Cal program; petitioner is licensed by the Department of Public Health as a nursing home; petitioner's participation in the Medi-Cal program is based on certification for a period of one year or less, and is in the nature of a contract, not a license; the Department of Health Care Services entered into a series of Medi-Cal nursing home participation agreements with petitioner; the last of these agreements expired November 30, 1972. It was further admitted that the inspections of petitioner's facility had taken place as alleged, and that petitioner met with the Department on November 29, 1972, to discuss the deficiencies discovered during the inspections. The remaining allegations of the petition were denied. As an affirmative defense, the answer alleged, among other affirmative defenses, that: participation in the Medi-Cal program is by contract; accordingly, upon the expiration of its contract petitioner had no right to continued participation, and was not entitled to a hearing prior to the Department's decision not to contract further with petitioner.

A hearing was had on the return to the alternative writ of mandate. Findings of fact and conclusions of law were signed and filed. The trial court found as facts:² petitioner is licensed by the Department of Public Health as a nursing home; under the Medi-Cal program, providers of health care services are eligible for compensation only if there is in effect a written agreement evidencing that the Department of Health Care Services has found the provider meets the qualification standards set forth in the applicable statutes and regulations; such provider agreements are for varying terms, not exceeding one year; petitioner and the Department of Health Care Services entered into a series of such agreements, the last of which expired November 30, 1972; on the ground petitioner failed to meet the standards prescribed by law, the Department advised petitioner that it would not enter into another agreement with petitioner after expiration, on November 30, 1972, of the current agreement; petitioner has denied that it fails to meet the standards prescribed by law, and has demanded of the Department a hearing; the Department has refused to grant a hearing.

As conclusions of law, the court determined: petitioner has a significant interest in not being disqualified from continuing participation in the Medi-Cal program; such interest is protected by the requirements of due process of law; due process requires that petitioner be granted a hearing before being deprived of its interest unless extraordinary circumstances justify postponing the hearing; no such extraordinary circumstances are present here.

Judgment was entered ordering that a peremptory writ of mandate issue commanding defendants/respondents to grant petitioner a hearing on the question whether petitioner meets the standards prescribed by law for participation as a provider under the Medi-Cal program. The Department of Health Care Services, the Department of Public Health and the Department of Finance appeal from the judgment.³

The Medi-Cal act (Welf. & Inst.Code § 14000 et seq.) is California's medical assistance program enacted pursuant to the federal Medicare law (42 U.S.C. § 1395 et seq.) (See: Morris v. Williams, 67 Cal.2d 733, 738, 63 Cal.Rptr. 689, 433 P.2d 697 [1967]; California Medical Assn. v. Brian, 30 Cal.App.3d 637, 642, 106 Cal.Rptr. 555 [1973].) As authorized by Welf. & Inst.Code § 14124.5, subd. (a), the Department of Health Care Services has adopted regulations for the administration of the Medi-Cal act. These regulations are found in Title 22, Division 3, § 50001 et seq., of the California Administrative Code. Section 51215 of the regulations provides, in part: ‘(a) A skilled nursing facility shall . . . (12) Enter into a participation agreement with the Department that the facility is in compliance with the provisions of this section. The participation agreement with the Department shall remain in effect no longer than . . . one year . . . New agreements shall be authorized only upon determination by the Department that the skilled nursing facility continues to meet the standards set forth in this Section.'⁴

It is true, as appellants contend, that there is no federal or state statute or regulation which requires that the Department grant a hearing before refusing to enter into a new agreement with a participating provider whose current agreement has expired.⁵ Nevertheless, in light of the facts found by the trial court, we conclude that due process of law requires the Department to grant petitioner a hearing before refusing to enter into a new participation agreement.

The ‘root requirement’ of the due process clause of the Fourteenth Amendment is ‘that an individual be given an opportunity for a hearing before he is deprived of any significant property interest, except for extraordinary situations where some valid governmental interest is at stake that justifies postponing the hearing until after the event.’ (Boddie v. Connecticut, 401 U.S. 371, 379, 91 S.Ct. 780, 786, 28 L.Ed.2d 113, 119 [1971]. See also: Scott v. City of Indian Wells, 6 Cal.3d 541, 549, 99 Cal.Rptr. 745, 492 P.2d 1137 [1972].) Thus, the inquiry on this appeal is narrowed to a determination whether the renewal of petitioner's participation agreement is a ‘property interest’ protected by procedural due process.

Such an interest is defined in Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548, 561 (1972), where it is stated: ‘To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims. Property interests, of course, are not created by the Constitution. Rather they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law—rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.’ (Accord: Perry v. Sindermann, 408 U.S. 593, 601, 92 S.Ct. 2694, 33 L.Ed.2d 570, 580 [1972].)

The Medi-Cal regulations provide, at least by implication, that the Department may refuse to enter into a new participation agreement with a skilled nursing facility only upon a determination that the facility does not continue to meet the standards prescribed by law. (Cal.Admin.Code, Title 22, Division 3, § 51215, subd. (a)(12).) Thus, the regulations created in petitioner a property interest, viz., the right to continue participating in the Medi-Cal program as a provider of nursing home service so long as petitioner was qualified by law to participate. Before petitioner may be deprived of that right by the Department's refusal to enter into a new participation agreement, due process requires that petitioner be granted a hearing on the factual question whether petitioner is qualified to continue participating in the Medi-Cal program as a provider of service.

As to the nature of the required hearing, “a person aggrieved by the action of a government agency has a constitutional right to a trial-type hearing on issues of adjudicative fact.” (Coral Gables Convalescent Home, Inc. v. Richardson, 340 F.Supp. 646, 650 [S.D.Fla.1972].) The evidence used to prove the government's case must be disclosed to the individual so that he has an opportunity to show it is untrue (Greene v. McElroy, 360 U.S. 474, 496, 79 S.Ct. 1400, 3 L.Ed.2d 1377, 1391 [1959]), and he must be allowed to confront and cross-examine adverse witnesses. (Goldberg v. Kelly, 397 U.S. 254, 269, 90 S.Ct. 1011, 25 L.Ed.2d 287, 300 [1970].) Hence, petitioner is entitled to a hearing conducted in accordance with the provisions of Gov.Code § 11500 et seq.

The judgment is affirmed.

I would reverse the judgment. In order to understand the issue it is necessary to examine the text and purpose of the governing regulations.

Paramount operates a nursing home, which is called a ‘skilled nursing facility’ in the regulations. (22 Cal.Adm.Code, § 51121.)

The federal regulations provide:

‘(iv) The single State agency agreement with a facility for payments under the plan may not exceed a period of 1 year. Execution of a new agreement shall be contingent upon a determination of compliance with the provisions of subparagraph (1) of this paragraph except that: . . .’ (45 C.F.R., § 249.33(a)(2)(iv).)

The regulation goes on to say that if a home is in substantial compliance except for deficiencies, the State may enter into an agreement for six months, if there is a reasonable prospect that the deficiencies will be corrected, but no more than 2 successive 6 months agreements may be ‘executed.’

The state regulations conform to the federal requirement in this respect. 22 California Administrative Code, section 51215, subdivision (a)(12), provides: ‘The participation agreement with the Department shall remain in effect no longer than the period of certification established under (a)(12)(B) of this Section or one year whichever is less.’ Subsection (a)(12)(B) authorizes the 6 month certification for a home which has some deficiencies.

The words ‘contract’ and ‘agreement’ in our legal system mean free and mutual assent. (See Civ.Code, §§ 1549, 1565.) The federal requirement that an agreement ‘may not exceed a period of 1 year’ means that a state is forbidden to commit itself for longer than that period of time. The federal requirement is that ‘execution of a new agreement shall be contingent upon a determination of compliance . . .’ This can only mean that the state must, before agreeing to a second year, determine that the home is in compliance. The second year is clearly a new agreement. Unless the state freely and voluntarily assents, there can be no ‘new agreement.’

The federal authorization for a 6 months agreement in special circumstances makes no sense at all if it is necessary for the state to conduct an administrative hearing at the end of the first year in order to prove that there are deficiencies.

These regulations, read as a whole, reveal a purpose to require the state department to look out for the well-being of the patient. The state is required to impose strict conditions upon the facility, and to make a determination year by year that the facility is in compliance before the state executes a new agreement for the succeeding year. No one in our society is more helpless or more vulnerable to exploitation by a careless or venal contractor than an indigent patient in a state-contracted nursing home. Their only protection is that the state agency will bargain diligently on their behalf.

It is, of course, important to the nursing home to renew its contract—just as it is important to any lessor of real property, or any other supplier of goods and services under a contract for a fixed term—to obtain a renewal if the business is profitable. But there is no legal expectancy that a contract will be renewed after its expiration date. The federal regulations were drawn to require the state to keep the same bargaining position vis-a-vis nursing homes that it has regarding commercial suppliers of goods and services to the state for its own use.

The constitutional law cases dealing with licenses, franchises, tenured employment, and the like are not applicable. Those systems are created for an entirely different purpose. Nursing homes are already licensed under other laws, and such a license is a condition precedent to entering into a services contract with the Department.

Paramount may have a vested right to a renewal of its license, but not to extend the term of its contract with the state. Medi-Cal is not a welfare program for nursing homes.

FOOTNOTES

1.  Now the State Department of Health. (See: Welf. & Inst.Code & 14062.)

2.  The findings of fact recite that evidence was presented at the hearing. Since the record on appeal consists only of a clerk's transcript, it does not appear what that evidence was. However, the lack of evidence in the record is immaterial because appellants, for the purpose of this appeal, concede that the facts are undisputed.

3.  The judgment, by its terms, runs only against the defendants/respondents, not the real party in interest. It follows that the Department of Finance is not aggrieved by the judgment, and therefore has no right to appeal therefrom. (See: 6 Witkin, Part I, Cal. Procedure 2d ed., p. 4117, ‘Appeal’ § 118.) Accordingly, its purported appeal is dismissed.

4.  A state medical assistance plan must contain such a provision in order to qualify for receipt of federal funds made available to the states under the Medicare law. (See: 45 C.F.R. § 249.33, subd. (a)(2)(iv).)

5.  Welf. & Inst.Code § 14123 provides in part: ‘. . . (a) The director [Director of Health, formerly Director of Health Care Services] may suspend a provider of service from further participation under the medical assistance program for violation of the provisions of this chapter or any rule or regulation promulgated by the director pursuant to this chapter. Any such suspension may be for an indefinite or specified period of time and with or without conditions or may be imposed with the operation of the suspension stayed and probation granted. (b) The proceedings for suspension shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of. the Government Code [administrative adjudication]. . . .’The foregoing provision appears to afford a hearing to a provider of service only if he is threatened with suspension during the term of his participation agreement with the Department. Hence, it has no application in the instant case.

DUNN, Associate Justice.

KINGSLEY, J., concurs.