1. The Board authorize settlement of the above-entitled action in the amount of $4,200,000.00.
2. The Auditor-Controller be directed to accept payment to implement this settlement to be deposited in the Department of Health Services fund.
Enclosed is the settlement request and a summary of the facts of the case.
Return the executed, adopted copy to Frances Lunetta, Suite 648 Kenneth Hahn Hall of Administration, Extension 4-1754.
Very truly yours,
Barbara N. Uyeda, Chairperson
BNU/fsl Los Angeles County Claims Board
M E M O R A N D U M
October 3, 2000
TO: THE LOS ANGELES COUNTY CLAIMS BOARD
FROM: ANITA LEE
Foley & Lardner
LEELA A. KAPUR
Assistant County Counsel
Public Services Division
RE: County of Los Angeles v. Belshe
Superior Court, Case No. 2CV B110678
County of Los Angeles v. Belshe
Superior Court, Case No. 2CV B117336
INCIDENT: Fiscal Years 1988-89 through 1990-91
REQUESTED: $4,200,000 to be paid to the County
DEPARTMENT: Department of Health Services
CLAIMS BOARD ACTION:
Approve Disapprove Recommend to Board of
Supervisors for Approval
, Chief Administrative Office
BARBARA N. UYEDA
, County Counsel
LLOYD W. PELLMAN
MICHAEL L. GALINDO
on , 2000
This is a recommendation to accept the payment of $4.2 million to settle two lawsuits filed by the County against the State of California. Both disputes involve determination of the amount due to the County hospitals from the Medi-Cal program under the disproportionate share hospital payment program for the period of 1989-1991.
The issues in both cases turn principally on the appropriate interpretation of language in the Medi-Cal State plan and federal legislation. As such, the Countys success is dependent upon the court agreeing with the interpretation offered by the County.
SUMMARY OF FACTS
As background, in the 1980s, Congress recognized that certain hospitals treated unusually large numbers of poor and uninsured patients. While the hospitals (known as Disproportionate Share Hospitals or DSHs), received Medicaid for treating some of these patients, those payments were not enough to operate the facilities. Thus, Congress mandated that these hospitals were to receive an extra payment in addition to their regular Medicaid reimbursement. These payments were to be calculated utilizing a formula which took into account the number of days of service rendered to patients who were eligible for Medicaid.
To comply with this federal law, California amended its Medi-Cal program to provide for supplemental payments to DSHs based on days of care rendered to Medi-Cal patients. However, the guidelines for calculating the amount of supplemental payment excluded certain days of care rendered to Medi-Cal eligible individuals. Specifically, days of care rendered to certain newborns and to patients who, due to lack of available placement elsewhere, had to remain in the hospital ("administrative day patients") were to be disregarded. In addition to disregarding these patient days for purposes of calculating the amount of supplemental payments, the State also excluded those days from the days to which the supplemental payment rate was applied, although the State guidelines did not expressly call for such exclusion.
The County challenged the States exclusion of administrative and newborn days from the supplemental rate calculation and the days to which the supplemental rate was applied. This "Administrative/Well-baby days issue" was raised in the first of the two lawsuits proposed for settlement, Superior Court
No. 2CV-B110678. The State argued that its interpretation is valid and is entitled to deference. However, the County argued that the States interpretation of the
law is clearly erroneous and inconsistent with the mandates of Congress. The approximate amount at issue for the Administrative/Well-baby days issue is $4,400,000.
The County also challenged whether disproportionate share payments were owed for services provided before August 17, 1991 ("Retroactivity issue"). This challenge was based on the fact that on August 17, 1991, a revision was made to the Medi-Cal program which significantly altered the supplemental payment program. The State has taken the position that the new supplemental payment rules should be applied to all claims in the system, even those relating to services provided prior to August 17, 1991. The Countys position is that the old supplemental payment rules should be applied to claims relating to service provided prior to August 17, 1991. While the County raised the Retroactivity issue in the first lawsuit, it was also raised in the second lawsuit being proposed for settlement (Superior Court, Case No. 2CV-B117336) which was brought by several counties in addition to Los Angeles. The amount in dispute for the Retroactivity issue is approximately $2,474.000.
As delineated above, the total potential value of the two cases to the County is approximately $6,874,000.
STATUS OF CASE
All of the issues were raised during retrospective audits of the County hospitals Medi-Cal cost reports which were finalized in April, 1993. The County appealed the audit findings to the Superior Court. While the audits and the subsequent appeal technically involve only Fiscal Years 1988-89 and 1989-90, the State and the County have agreed by stipulation that the results of the appeal will apply also to Fiscal Year 1990-91.
The County prevailed before the Superior Court on the Administrative/Well-baby days issue but was not successful as to the Retroactivity issue. Both parties appealed the rulings adverse to them. Case No. B110678 has been fully briefed for appeal and, in response to a letter from the Court of Appeal, the County filed a supplemental briefing.
The Countys opening brief in Case No. 117336 has been filed, but the period for filing the remainder of the briefs has been stayed to permit consideration of this settlement proposal.
Additionally, the State would pay the County $2,000,000 for the Administrative/Well-baby days issue. The settlement would provide that the State would pay the County 90% of the amount in controversy on the Retroactivity issue resulting in a payment of approximately $2.2 million. The State has linked the two settlements, that is, the County cannot accept one and litigate the other.
The $2,000,000 being offered for the Administrative/Well-baby days equates to approximately 50% of the amount in controversy. While the County was successful on this issue at the trial court, there is a fairly strong potential that the appellate court may not agree with the trial courts reasoning. Specifically, the trial court disregarded certain aspects of the legislative history which are not entirely supportive of Countys position. Further, the Court of Appeals could apply a more deferential standard of review of the States interpretation than that applied by the lower court. Application of a more deferential standard potentially could result in a reversal of the lower courts ruling.
The receipt of 90% of the amount in controversy for the Retroactivity issue is a very acceptable settlement. While the Courts recent questions answered in the supplemental briefing seem to indicate a favorable view of the Countys position, the uncertainty of the outcome, the expense associated with further litigation, and the delay in receiving the money argue for relinquishing the 10%.
Given these risks and the fact that unless the County is willing to settle on the Administrative/Well-baby days issue, it cannot take advantage of the 90% offer on the Retroactivity issue, outside counsel recommends that the County settle the two lawsuits in the amount of approximately $4.2 million. County Counsel and the Department of Health Services concur with this recommendation.