CASA DESCANSO CONVALESCENT HOSPITAL v. STATE BOARD OF CONTROL (1980)

INTRODUCTION

Petitioner appeals from order of dismissal of first amended and supplemental petition for writ of mandate entered on a ruling sustaining a demurrer thereto without leave to amend. The sole ground of the ruling is that this is “not a proper case for 1094.5 mandate.”

Petitioner, a skilled nursing facility, sought review of the denial by the State Board of Control of its claim against the State Department of Health for moneys it alleges the Department owes it as a result of services provided by it to Medi-Cal recipients. Such services were rendered by petitioner without “prior authorization”¹ of the Department as required by regulation. Claiming that “prior authorization” was not obtained because of employee negligence, petitioner sought “retroactive authorization” for the services rendered. The request was denied on the ground that employee negligence did not fall within the exceptions set forth in the regulation.

Appellant was not satisfied with the decision of the State Board but, instead of filing the appropriate civil action for damages against the Department filed a petition for writ of mandate, and an amended and supplemental petition. Respondents responded by way of a demurrer and answer.

Thereafter, on June 26, 1979, the hearing on said demurrer was held and the court sustained the same without leave to amend and dismissed the petition. Petitioner, appellant herein, appeals from the dismissal order.

FACTS

Petitioner was licensed by the State Department of Health (Department) (statutory predecessor to the State Department of Health Services) pursuant to section 1250 et seq. of the Health and Safety Code to operate as a skilled nursing facility effective July 14, 1977. Additionally, petitioner, as of July 14, 1977, received a Medi-Cal Provider Agreement (Agreement). Said Agreement was an agreement between petitioner and the Department in which petitioner agreed, among other things, to provide services to eligible Medi-Cal beneficiaries and the Department, in addition to certifying petitioner to participate in said program, agreed to reimburse petitioner for the services rendered in accordance with the applicable statutes and regulations.

From July 14, 1977, to on or about April 1, 1978, petitioner allegedly provided services to Medi-Cal beneficiaries under the Agreement admittedly without receiving “prior authorization” from the Department to provide such services. This fact is crucial to the dispute herein since the applicable statutes and regulations mandate the obtaining of approval “prior authorization” of a Medi-Cal consultant as a condition preceding the rendering of such services in order for a provider such as petitioner to receive payment for said services from the Medi-Cal program.

On or about April 4, 1978, petitioner, citing employee negligence, requested “retroactive authorization” from the Medi-Cal consultant to provide the services in question. By letter dated April 14, 1978, the Los Angeles Medi-Cal field office, noting that petitioner's request did not comply with the conditions for “retroactive authorization,” as set forth in California Administrative Code, title 22, section 51003, subdivision (b), denied the request.

Thereafter, by letter dated May 8, 1978, petitioner through its attorney, appealed the decision of the field office to the Department of Health. By letters dated May 17, 1978, and June 7, 1978, the Department concurred with and affirmed the ruling of the Los Angeles Medi-Cal field office and informed petitioner that it had the right to a hearing on the Department's denial before the State Board of Control (State Board). Petitioner, thereafter, in a series of letters from June 12, 1978, through September 19, 1978, filed four additional appeals with the Department of Health and the Los Angeles Medi-Cal field office which were denied.

Petitioner had in the interim, however, on June 12, 1978, appealed the Department's initial determination to the State Board. Subsequent to the appeal but prior to the hearing before the State Board, petitioner in a letter dated September 7, 1978, submitted a “master list” of its various claims against the Department to the State Board which divided its claims into four categories; to wit; A. late submission; B. “prior authorization”; C. P.O.E. stickers; and D. Code 5 denial.

On November 21, 1978, a hearing was held before the State Board pursuant to petitioner's appeal. In a letter dated December 8, 1978, the State Board informed petitioner that at the hearing of November 21, 1978, all claims in category A, which were denominated the “late submissions” category were denied. Claims in this category totaled $32,576.09. The claims in categories B, C and D were approved; these claims totaled $41,408.08. Petitioner was further advised in said letter that the State review the individual claims and verify the amount of Medi-Cal charges properly owing. A review of the claims in question revealed that the proper amount due and owing was $22,932.23, and by letter dated May 25, 1979, the State Board advised petitioner that its claim had been approved in this amount.

ISSUES ON APPEAL

A. Whether the State Board of Control's decision is reviewable by the Superior Court by way of Code of Civil Procedure section 1094.5(a).

B. Whether petitioner was arbitrarily deprived of his property without due process of law.

DISCUSSION

A brief explanation of the subject matter underlying this action is of significance. The merits of this action relate to the “prior authorization” requirement of the Medi-Cal program.

“Prior authorization” is one of several utilization control methods employed by the Department to insure that only necessary, appropriate and quality medical care is provided to Medi-Cal beneficiaries.

Title XIX of the Social Security Act (also known as Medicaid), enacted by Congress in 1965, authorized the Secretary of Health, Education, and Welfare to make payments to states whose medical assistance programs meet the requirements of the statute. (42 U.S.C.A., § 1396 et seq.) The Medi-Cal program, found in chapters 7 and 8 of part 3 of division 9 of the Welfare and Institutions Code (§ 14000 et seq.) was enacted by the California Legislature to qualify California for the federal Medicaid program. (Morris v. Williams (1967) 67 Cal.2d 733, 738, 63 Cal.Rptr. 689, 433 P.2d 697.)

In most cases, the health care services or treatment is only covered if the provider has obtained the “prior authorization”² of the Department, e. g., and of central concern herein, California Administrative Code, title 22, section 51335, provides that skilled nursing services are covered “only after prior authorization has been obtained from the designated Medi-Cal consultant․” (This regulation mirrors the requirement set forth statutorily in Welfare and Institutions Code sections 14132, subdivision (c), and 14133, subdivision (a).) The authorization granted is usually for a limited period of time, and reauthorization is required if the provision of services extends beyond the expiration date. (Cal.Admin.Code, tit. 22, §§ 51003, subd. (c); 51327, subd. (a)(2); 51334, subd. (b); 51335, subd. (c).)

It is within the operation of the Medi-Cal program, as described herein, that the present case arose.

A. Administrative decisions and orders subject to review pursuant to a Code of Civil Procedure section 1094.5 mandate actions are set forth expressly under subdivision (a) of said section, which states: “Where the writ is issued for the purpose of inquiring into the validity of any final administrative order or decision made as the result of a proceeding in which by law a hearing is required to be given, evidence is required to be taken and discretion in the determination of facts is vested in the inferior tribunal, corporation, board or officer, the case shall be heard by the court sitting without a jury. All or part of the record of the proceedings before the inferior tribunal, corporation, board or officer may be filed with the petition, may be filed with respondent's points and authorities or may be ordered to be filed by the court. If the expense of preparing all or any part of the record has been borne by the prevailing party, such expense shall be taxable at costs.”

Additionally, the Supreme Court of this state has ruled that a strict reading of the requisite requirements of subdivision (a) is appropriate when determining whether an administrative action is reviewable under said Code of Civil Procedure section 1094.5. (Keeler v. Superior Court (1956) 46 Cal.2d 596, 297 P.2d 967.) In addressing this specific question in Keeler, the Supreme Court, at pages 598-599, 297 P.2d at page 969, stated: “The respondents contend that the scope of the superior court's review is not limited by section 1094.5. That section provided in subdivision (a) that where ‘the writ is issued for the purpose of inquiring into the validity of any final administrative order or decision made as the result of a proceeding in which by law a hearing is required to be given, evidence is required to be taken and discretion in the determination of facts is vested in the inferior tribunal’ proceedings shall be conducted in the manner there specified. Subdivision (b), on which the petitioner relies as a limitation on the authority of the reviewing court, begins with the expression: ‘The inquiry in such a case ․’ The other subdivisions also make it apparent that the whole or any part of the section is applicable only when the conditions set forth in subdivision (a) are present․”

With respect to the action of the State Board rejecting appellant's claim herein, the requirements of Code of Civil Procedure section 1094.5, subdivision (a), are not met in that the State Board is not required to take evidence in passing upon claims against the State of California. Government Code section 912.8 sets forth the procedure whereby the State Board acts on claims against the State of California. That section provides, in pertinent part, as follows: “In the case of claims against the State, the board shall act on claims in accordance with such procedure as the board, by rule, may prescribe. It may hear evidence for and against them and, with the approval of the Governor, report to the Legislature such facts and recommendations concerning them as it deems proper․”

Thus, the prevailing statute expressly states that the State Board may hear evidence relative to a claim. Although the use of the word “may” does not conclusively mean that the statute is permissive and discretionary, as opposed to mandatory, it should be given its ordinary meaning and construed as permissive save certain special circumstances. In this regard, the rule in California was enunciated by the Supreme Court early in Roberts v. Duffy (1914) 167 Cal. 629, on and has been followed consistently. The court in Roberts, at page 638, 140 P. 260, at page 263, states: “The rule is that ‘may’ used in legislation is to be given its common and ordinary meaning and to be construed as permissive or conferring discretion. It is only to be construed as mandatory when it appears from the terms of the statute in which it is used that it was the clear policy and intent of the legislature to impose a duty, and not simply to confer a discretionary power, and when the public or third persons have a claim de jure to have the power exercised, that it is to be construed in a mandatory sense. [Citation.]” (See also, Santa Cruz R. P. Co. v. Heaton (1894) 105 Cal. 162, 38 P. 693; People ex rel. City of Bellflower v. Bellflower County Water Dist. (1966) 247 Cal.App.2d 344, 55 Cal.Rptr. 584.)

In Government Code section 912.8, not only does the language therein fail to indicate an intent that the word “may” be read to require the taking of evidence, the contrary is true. The language of the preceding sentence to the effect that “the board shall act on claims in accordance with such procedure as the board, by rule, may prescribe” would indicate that the Legislature intended to give the State Board wide discretion in its processing of claims. It is thus wholly consistent that the word “may” in the next sentence should likewise be given its ordinary meaning and be viewed as conferring additional discretionary authority. Additionally, respondent cannot be said to have a right as a matter of law relative to taking of evidence by the State Board.

The foregoing is given additional support by the Supreme Court in County of San Luis Obispo v. Gage (1903) 139 Cal. 398, stated, at page 403, 73 P. 174, at page 176: “It is the duty of the State Board of Examiners in passing upon a claim against the state to consider all the facts appearing upon the face of the claim and otherwise brought to the attention of the board. It is not necessary that the board should go through the form of a trial, with the formal introduction of evidence, as in the case of a court trying a cause between the parties․”

The State Board of Control adopted regulations for the conduct of hearings as follows: “(b) At the hearing, and in the discretion of the Board, oral testimony and written instruments may be introduced …” (Cal.Admin.Code, tit. 2, § 632.9, subd. (b).)

Thus, neither the applicable statute nor the regulation requires taking of evidence at a hearing. In the absence of either of these requirements, administrative mandamus will not lie. (Keeler v. Superior Court (1956) 46 Cal.2d 596, 599, 297 P.2d 967.)

Beyond the foregoing, from a practical standpoint, rejections of claims by the State Board cannot be properly reviewed in a Code of Civil Procedure section 1094.5 mandate action. That section's requirement of a hearing where evidence is required to be taken is necessary to afford a meaningful review of an administrative decision by superior court and avoids the exact situation which developed in this action. There was no administrative record before the trial court or this court for the reason that none exists. Without an administrative record, it is impossible for a court to make the appropriate determinations under said Code of Civil Procedure section 1094.5, e. g., are the findings supported by the evidence? Further, it obviously would render the State Board inoperable if it were required to hold a formal hearing and produce an administrative record on every claim that is presented to it.

As noted in County of San Luis Obispo v. Gage, supra, (1903) 139 Cal. 398, 73 P. 174, the State Board should only and, in practical fact, can only consider all facts appearing on the face of a claim. If the same is rejected, the Legislature anticipated that a civil suit for damages against the underlying state entity would follow. (Gov.Code, § 900 et seq.) It is inappropriate to allow the rejection of a claim by the State Board to be challenged by a Code of Civil Procedure section 1094.5 mandate action.

The Board of Control need not review claims such as this at all. Government Code section 912.4, subdivision (c), specifically allows a claim to be deemed rejected without any action whatsoever. Failure to act cannot be an abuse of discretion because that option is legislatively given the Board. “If the board fails or refuses to act on a claim within the time prescribed by this section, the claim shall be deemed to have been rejected by the board on the last day of the period within which the board was required to act on the claim․” (Gov.Code, § 912.4, subd. (c).)

Therefore, not only is there no evidentiary hearing required before the Board acts on a claim, there is no requirement for any action whatsoever.

Even if administrative mandamus did lie, petitioner, appellant herein has not shown compliance with the rules applicable to administrative as well as to ordinary mandamus, i. e., proof there is no available adequate remedy at law. (Tivens v. Assessment Appeals Bd. (1973) 31 Cal.App.3d 945, 107 Cal.Rptr. 679.)

B. Petitioner maintains that his original claim was in the amount of $73,984.17. That after a hearing was held its claims were approved in the amount of $41,408.08; and that thereafter without any further hearing this amount was reduced to the sum of $22,932.23. This conduct by the respondents, the petitioner contends constitutes an arbitrary taking of property without due process of law. Here, the Board of Control after a hearing approved certain categories of claims generally and further ordered the Department of Health to verify the individual claims. Upon conclusion of the audit, the Department found that only $22,932.23 was owing to Casa Descanso Convalescent Hospital.

While the Medi-Cal program reimburses for a great variety of health care services, there are certain limitations on the scope and duration of benefits. (Welf. & Inst.Code, § 14132.) Generally, covered services are those which are reasonable and necessary for prevention, diagnosis, or treatment of disease, injury, or illness. In order to insure that the services provided meet this criteria, the State Department of Health has promulgated detailed regulations which specify the coverage of the Medi-Cal program (see Cal.Admin.Code, tit. 22, ch. 3, art. 4, commencing at § 51301), and provide for audit procedures of claims as set forth herein.

Indeed it was proper for the State Board to require the State Department of Health to audit petitioner's individual claims in order to verify the amount of Medi-Cal charges properly owing in this case. Unfortunately, this program is known to have been abused in recent years.

At that point wherein the State Board requested the Department of Health to review the claims in order to verify the individual claims and the amounts of Medi-Cal charges properly owing, petitioner was in the audit stage. California Administrative Code, title 22, section 51016 at page 1242.1 provides at follows: “Upon conclusion of any audit or examination by or on behalf of the Department of Benefit Payments or its predecessors, of record or reports of a provider of health care services as defined herein, efforts will be made to resolve and reconcile all differences with the provider. When such differences cannot be resolved, the audit or examination findings shall not be final except as set forth in this Article.” California Administrative Code section 51018 further provides for an informal conference: “If a provider disputes any audit or examination findings, the provider may request within 30 calendar days of the mailing of a written notice of the audit or examination findings that the Department conduct an informal conference. The purpose of the informal conference shall be to attempt to resolve the issue or issues in dispute. If no such request is made, the audit or examination findings shall then be final.” It shall be noted that said section dictates that the informal conference shall be had as soon as reasonably possible and at a time and place mutually convenient to the provider and the Department. Here, the petitioner chose not to request the informal conference and the audit or examination findings became final.

Petitioner was not left without a remedy. It could file an action at law, asserting a claim for the full amount it claims is owing. Petitioner may request a jury trial. The right of cross-examination exists. The issue of “prior authorization” may be determined in the lawsuit. The decision to reject part or all of a claim is not an adjudication of petitioner's right to recover. The Board's partial rejection of appellant's claim did not constitute a taking of its property.

There is no difference between a claim for money, rejected by the state, county, or special district, and a claim against a private individual for money due and owing. In each case, the remedy is an action at law. In each case, a demand for payment and refusal, either express or implied, is a condition precedent.

Here, an action at law is clearly contemplated following claim rejection, whether by action or inaction of the State Board of Control. All issues relevant to appellant's right to payment for its services, including the constitutional questions raised, can be litigated in its lawsuit. The remedy is clearly available and unquestionably adequate. “While the use of administrative mandamus has been expanded beyond the perimeters originally described, we find no case where mere rejection of a bill for services rendered allows this extraordinary writ simply because the purported debtor happens to be a governmental body.” (Royal Convalescent Hospital, Inc., v. State Board of Control (1979) 99 Cal.App.3d 788, 794, 160 Cal.Rptr. 458, 461.)

DISPOSITION

The order dismissing petition for writ of mandate is affirmed.

FOOTNOTES

FOOTNOTE.  

1.  (Cal.Admin.Code, tit. 22, § 51335.) In practice, if a Medi-Cal beneficiary seeks services for which “prior authorization” is required, the health care provider applies to the Medi-Cal consultant for approval to provide the service contemplated. If coverage is denied, both the beneficiary and the health care provider may appeal the determination.

2.  In practice, if a Medi-Cal beneficiary seeks services for which “prior authorization” is required, the health care provider applies to the Medi-Cal consultant for approval to provide the service contemplated. (Cal.Admin.Code, tit. 22, § 51003.) (Of course, “prior authorization” is not required for emergency care.) (Cal.Admin.Code, tit. 22, § 51056.) If coverage is denied, both the beneficiary and the health care provider may appeal the determination. (Cal.Admin.Code, tit. 22, §§ 50951 et seq.; 51003, subd. (g).) Retroactive approval of requests for authorization is granted in certain situations. (Cal.Admin.Code, tit. 22, § 51003, subd. (b).)

SCHWARTZ, Associate Justice.* FN* Assigned by the Chairperson of the Judicial Council.

LILLIE, Acting P. J., and HANSON, J., concur.