California Court Orders the State to Conduct a Review of Medicaid Rates Paid to Home Health Providers

30 March 2007 Publication

Legal News Alert: Health Care

On March 15, 2007, the California Court of Appeal issued its decision ordering the California Department of Health Services (DHS) to conduct annual reviews of the state’s Medicaid program (entitled Medi-Cal in California) reimbursement rates paid to providers of home health care services for the years 2001 to 2005.

The case involved a claim by plaintiffs, which included an association of home health care providers, that DHS failed to comply with federal Medicaid and state Medi-Cal laws by refusing, beginning in 2001, to raise or review Medi-Cal reimbursement rates paid to the providers of home health care services, which was required by the Medi-Cal program prior to December 31, 2005. The Medi-Cal law stated that the purpose of the annual review was to ensure that the Medi-Cal rates were in compliance with federal regulations which required that payments be consistent with efficiency, economy and quality of care, and be sufficient to enlist enough providers so that the care and services were available at least to the extent that such care and services were available to the general population.

DHS contended that the requirement for an annual review was deleted from the Medi-Cal program on December 31, 2005, and therefore was no longer applicable. DHS also argued that the plaintiffs did not have a private cause of action for DHS’ failure to comply with the Medi-Cal program or federal law, and that the plaintiffs did not have standing to challenge the Medi-Cal rates set by DHS. In particular, DHS alleged that since the plaintiffs did not have standing to bring the case under federal law, they had no private right of action under state law.  

The Court of Appeal rejected these arguments, and upheld the right of the plaintiffs to challenge DHS’ actions under state law, and ruled that the plaintiffs clearly had a right of action under California’s mandamus statute, irrespective of whether they had a right of action under federal law.

The Court of Appeal stated that “it is implicit in the purpose of the annual review” that if the annual review discloses that the rates are in violation of the federal regulations, DHS must establish new reimbursement rates through the methodology set forth in the Medi-Cal program. However, the court held that DHS must first carry out its duty of conducting annual rate reviews.

The court’s decision is important in recognizing the right of providers to challenge Medicaid payment rates on the ground that they do not comply with federal requirements. Although there are limitations on the ability of providers to bring such challenges in federal court, providers should consider whether a state court action would provide an alternative avenue to obtain judicial review of Medicaid rates.

The state has the right to request review of the Court of Appeal’s decision by the California Supreme Court. At this time, we do not know whether the state intends to request such a review.

If you have any questions about the foregoing or would like additional information, please contact the attorneys who handled this litigation (listed below) or the lawyer in the firm who generally handles your legal matters:

Robert C. Leventhal at 310.975.7734 or rleventhal@foley.com

Jeffrey R. Bates at 310.975.7814 or jbates@foley.com

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