Crestwood Behavioral Health, Inc. v. Baass ( 2023 )

Filed 5/1/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
CRESTWOOD BEHAVIORAL HEALTH, INC., C094882
Plaintiff and Appellant, (Super. Ct. No.
34201980003129CUWMGDS)
v.
MICHELLE BAASS, as Director, etc., et al.,
Defendants and Respondents.
ROYALE HEALTH CARE CENTER, INC., C095532
Plaintiff and Appellant, (Super. Ct. No.
34201980003351CUWMGDS)
v.
MICHELLE BAASS, as Director, etc., et al.,
Defendants and Respondents.
WEST ANAHEIM EXTENDED CARE et al., C095533
Plaintiffs and Appellants, (Super. Ct. No.
34201980003238CUWMGDS)
v.
MICHELLE BAASS, as Director, etc., et al.,
Defendants and Respondents.
1
APPEALS from judgments of the Superior Court of Sacramento County, Laurie
M. Earl, Judge. Affirmed.
Hooper, Lundy & Bookman, Stanton J. Stock, Alicia W. Macklin, Sansan Lin,
Jeffrey Lin and Mark E. Regan for Plaintiffs and Appellants.
Rob Bonta, Attorney General, Cheryl L. Feiner, Senior Assistant Attorney
General, Gregory D. Brown and Christine M. Murphy, Deputy Attorneys General, for
Defendants and Respondents.
Appellants Crestwood Behavior Health, Inc. (Crestwood), West Anaheim
Extended Care and Extended Care Hospital of Westminster (West Anaheim), and Royale
Health Care Center dba South Coast Post Acute (South Coast) (together, appellants)
operate skilled nursing facilities serving beneficiaries of the California Medical
Assistance Program (Medi-Cal). Respondent Department of Health Care Services (the
Department) administers Medi-Cal. (Santa Rosa Memorial Hospital, Inc. v. Kent (2018)
25 Cal.App.5th 811, 815-816; Welf. & Inst. Code, §§ 14000-14198.2; Cal. Code Regs.,
tit. 22, § 50004.)1 As relevant here, the Department also administers the “Skilled Nursing
Facility Quality and Accountability Supplemental Payment System” (QASP), which
authorizes supplemental payments, over and above Medi-Cal reimbursement rates, to
skilled nursing facilities meeting certain performance standards. (§ 14126.022.)
These consolidated appeals challenge the Department’s method for calculating
QASP payments. Appellants argue they have not received all the QASP payments to
which they are entitled and blame the alleged underpayment to the Department’s practice
of excluding certain Medi-Cal days—known as “special treatment program days” or
“STP days”—from its calculations. They seek writs of mandate directing the Department
to include STP days in the calculation of QASP payments.
1 Undesignated statutory references are to the Welfare and Institutions Code.
2
We conclude, as did the trial court, that appellants have failed to identify an
appropriate basis for writ relief. Section 14170, subdivision (a)(1), on which they
currently rely, does not impose a mandatory or ministerial duty on the Department that
could support the issuance of a writ of mandate. And appellants have not shown any
abuse of discretion by the Department. Accordingly, we will affirm the judgments.
I. BACKGROUND
A. Statutory and Regulatory Framework
Medicaid is a cooperative federal-state program under which the federal
government and participating state governments share the costs of providing health care
services to qualified low-income persons. (County of Colusa v. Douglas (2014) 227
Cal.App.4th 1123, 1126; 42 U.S.C. § 1396 et seq.) “States are not required to participate
in Medicaid, but all of them do.” (Arkansas Dept. of Health and Human Servs. v.
Ahlborn (2006) 547 U.S. 268, 275.)
“Medicaid is jointly financed by the federal and state governments and is
administered by state governments through state ‘plans,’ which are approved by the
federal Secretary of Health and Human Services.” (B.K. ex rel. Tinsley v. Snyder (9th
Cir. 2019) 922 F.3d 957, 963; see also 42 U.S.C. § 1396a(b); California Hospital Assn. v.
Maxwell-Jolly (2010) 188 Cal.App.4th 559, 564 [“Although state participation is
voluntary, if a state chooses to participate, it must prepare and submit a plan for approval
to the federal government, describing its Medicaid program”].) State plans must establish
payment rates for the various services provided under the plan. (42 U.S.C. §
1396a(a)(30); California Assn. for Health Services at Home v. State Dept. of Health
Services (2007) 148 Cal.App.4th 696, 701 [“The Medicaid Act requires each
participating state to adopt a state plan describing the policy and methods to be used to
set payment rates”].) Compliance with the state plan is mandatory. (42 U.S.C. §
1396a(a)(1); Mission Hospital Regional Medical Center v. Shewry (2008) 168
Cal.App.4th 460, 470 [“The state plan is mandatory”].)
3
California participates in the federal Medicaid program through Medi-Cal. (§
14000 et seq.; County of Colusa v. Douglas, supra, 227 Cal.App.4th at p. 1126;
Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 804.) The Department administers
Medi-Cal in accordance with California’s state plan (State Plan), which specifies the
methods and standards used to set reimbursement rates for services provided to Medi-Cal
beneficiaries. (Cal. Code Regs., tit. 22, § 50004; California Assn. for Health Services at
Home v. State Dept. of Health Services, supra, 148 Cal.App.4th at pp. 700-701; see also
42 C.F.R. § 447.252(b).)
1. Skilled Nursing Facilities and Special Treatment Program Services
Skilled nursing facilities provide 24-hour skilled nursing and supportive care to
patients who require such care on an extended basis. (Health & Saf. Code, § 1250, subd.
(c)(1).) Skilled nursing facilities may also operate “optional service units,” which
provide specific types of patient care. (Cal. Code Regs., tit. 22, § 72401, subd. (a).)
Optional service units may provide physical therapy, occupational therapy, speech
therapy, speech pathology, audiology, social work services, or special treatment program
(STP) services. (Cal. Code Regs., tit. 22, § 72401, subd. (b).) We are concerned here
with the last of these, STP services.
STP services are provided to patients who have chronic psychiatric impairments
and whose adaptive functioning is moderately impaired. (Cal. Code Regs., tit. 22, §
72443, subd. (a).) “Special treatment program services are those therapeutic services,
including prevocational preparation and prerelease planning, provided to mentally
disordered persons having special needs in one or more of the following general areas:
self-help skills, behavior adjustment, interpersonal relationships.” (Ibid.) Appellants
provide STP services at their skilled nursing facilities.
Skilled nursing facilities are licensed by the Department for specific numbers and
types of beds. For example, Crestwood Manor Modesto is licensed for 194 beds, 118 of
which are ordinary skilled nursing facility beds (SNF beds), and 76 of which are STP
4
beds. SNF beds and STP beds are not interchangeable. They are located in physically
separate and distinct parts of the skilled nursing facility, and patients are assigned to one
or the other, depending on their condition. Despite these distinctions, patients assigned to
STP beds receive the same baseline set of services as patients assigned to SNF beds.
(Cal. Code Regs., tit. 22, § 72301, subds. (a)-(b).) Thus, patients assigned to STP beds
receive both skilled nursing facility services and STP services.2 (Ibid.)
2. Reimbursement Rates and Rate Setting Audits
“ ‘The Medi-Cal program does not directly provide services; instead, it reimburses
participating health care plans and providers for covered services provided to Medi-Cal
beneficiaries.’ ” (Dignity Health v. Local Initiative Health Care Authority of Los Angeles
County (2020) 44 Cal.App.5th 144, 152.) Prior to 2004, providers received a fixed
amount per patient per day that provided “no incentive for quality care while reimbursing
[them] about $5[,]000 a year less than it costs to care for these residents.” (Assem. Floor
Analysis of Assem. Bill No. 1629 (2003-2004 Reg. Sess.) as amended Aug. 24, 2004, p.
6.) The Legislature adopted the Medi-Cal Long-Term Care Reimbursement Act
(Reimbursement Act) in September 2004. (See §§ 14126-14126.035.) The purpose of
the Reimbursement Act was to devise a Medi-Cal reimbursement methodology that
“more effectively ensures individual access to appropriate long-term care services,
promotes quality resident care, advances decent wages and benefits for nursing home
workers, supports provider compliance with all applicable state and federal requirements,
and encourages administrative efficiency.” (§ 14126.02, subd. (a).)
The Reimbursement Act requires the Department to calculate reimbursement rates
for facilities participating in the Medi-Cal program based on their actual costs of
providing health care services to Medi-Cal beneficiaries. (§ 14126.02, subd (b) [directing
2As we shall discuss, skilled nursing facilities that provide STP services receive an
additional reimbursement amount known as the “STP patch.”
5
the Department to “implement a facility-specific rate[ ]setting system . . . that reflects the
costs and staffing levels associated with quality of care for residents in nursing
facilities”].) Skilled nursing facilities report their costs to the Department in annual cost
reports, which include information concerning the number of days of care that have been
provided to Medi-Cal beneficiaries (sometimes called “patient days” or “bed days”), and
the payor type for days of care provided (e.g., Medi-Cal, Medicare, private payor). (§
14126.023, subds. (i) and (j).) Reimbursement rates are set using information contained
in annual cost reports, and expressed as the amount received by each facility per patient
per day. (§ 14126.023, subds. (i) and (j).) For example, a facility with a reimbursement
rate of $100 would receive $100 for each day of care provided to a Medi-Cal
beneficiary.3
The Department audits annual cost reports as part of the rate setting process.
During an audit, the Department may review invoices and insurance plans to verify
reported expenses, or request patient census data to verify numbers of patient days. The
results of the audit are summarized in auditor’s work papers and shared with the audited
facility, which may propose adjustments or provide additional information, as
appropriate. The Department then issues a final audit report. The Department’s final
audit report reflects the facility’s total patient days, fee-for-service days, and managed
care days.4 The final audit report may also reflect STP days; however, STP days are not
audited. This point will become important later.
3Crestwood’s reimbursement rates during the relevant period ranged from $187 to $272
per day.
4 Medi-Cal reimburses participating health care plans and providers “using two systems:
fee-for service and managed care. [Citations.] [¶] Medi-Cal beneficiaries in the fee-for-
service system may obtain services ‘from any provider that participates in Medi-Cal, is
willing to treat the beneficiary, and is willing to accept reimbursement from [the
Department] at a set amount for the services provided.’ ” (Dignity Health v. Local
6
Skilled nursing facilities offering STP services receive an additional
reimbursement amount of $5.72 per patient day, known as the “STP patch.” (Cal. Code
Regs., tit. 22, § 51511.1.) Thus, returning to our earlier example, a skilled nursing
facility with a reimbursement rate of $100 would receive $105.72 for each day the
facility provided STP services to a Medi-Cal beneficiary. The State Plan describes the
STP patch as “[a] flat add-on rate determined to be the additional cost for facilities to
perform [STP] services.” The State Plan also clarifies that STP services “do[] not
constitute a separate level of care.”
3. The QASP Program
In 2010, the Legislature amended the Reimbursement Act by adding section
14126.022. (Stats. 2010, ch. 717, § 152, eff. Oct. 19, 2010.) Section 14126.022 directs
the Department to develop the QASP program, subject to approval by the federal Centers
for Medicare and Medicaid Services. (§ 14126.022, subd. (a)(1).) The purpose of the
QASP program is to “provide supplemental payments to skilled nursing facilities that
improve the quality and accountability of care rendered to residents in skilled nursing
facilities . . . and to penalize those facilities that do not meet measurable standards.” (§
14126.022, subd. (a)(2)(A).)
Supplemental payments are based on performance measures that include
immunization rates, facility acquired pressure ulcer incidence, the use of physical
restraints, compliance with requirements regarding nursing or direct care service hours
per patient day, resident and family satisfaction, and staff retention. (§ 14126.022, subd.
(i)(2)(A).) Section 14126.022 does not say how QASP payments are to be calculated or
Initiative Health Care Authority of Los Angeles County, supra, 44 Cal.App.5th at p. 152.)
“In the managed care system, ‘[the Department] contracts with health maintenance
organizations (HMOs) and other managed care plans . . . to provide health coverage to
Medi-Cal beneficiaries, and the plans are paid a predetermined amount for each
beneficiary per month, whether or not the beneficiary actually receives services.” (Ibid.)
7
awarded. These matters are instead left to the Department, subject to approval by the
federal government. (§ 14126.022, subd. (a).) The Department has developed
procedures for administering the QASP program, which are set forth in the State Plan.
The State Plan establishes a three-tiered scoring methodology for supplemental
payments under the QASP program. Skilled nursing facilities must meet certain
performance criteria, placing them in either the second or third tier, to qualify for
supplemental QASP payments. The Department sets a per diem rate for each tier, with
the third tier per diem rate equal to 1.5 times the second tier per diem rate.5 A skilled
nursing facility’s supplemental payment under the QASP program is calculated by
multiplying the applicable per diem rate by the “number of Medi-Cal bed days (including
Fee-For-Service and managed care days) for the audit period.” Thus, skilled nursing
facilities with a higher number of bed days receive higher QASP payments.
Here is where things get interesting. The State Plan provides: “The Department
will utilize audited Medi-Cal Fee-For-Service and managed care bed days for
determining payment amounts. The audited bed days are drawn from the audit reports
used to establish . . . Fee-For-Service per diem rates.” As mentioned above, the audit
reports used to establish reimbursement rates reflect the number of STP bed days
reported by each skilled nursing facility, but those days are not audited. Because they are
not audited, STP days are not included in the calculation of supplemental payments under
the QASP program. As a result, appellants say, they have missed out on millions of
dollars in QASP payments to which they would otherwise be entitled.
B. Petitions for Writ of Mandate
Appellants filed separate, though substantially similar, petitions for writ of
mandate against the Department and three former directors of the Department, Jennifer
5 Appellants’ skilled nursing facilities appear to have been assigned to the second and
third tiers during the relevant periods.
8
Kent, Richard Figueroa, Jr., and Bradley P. Gilbert. The petitions allege the Department
should have included STP days in calculating appellants’ QASP payments, and the
failure to do so undermines the legislative goal of incentivizing skilled nursing facilities
to offer high quality care to Medi-Cal beneficiaries. What’s more, the petitions say, the
practice of excluding STP days from QASP calculations disincentivizes skilled nursing
facilities from offering STP services at all. The petitions seek writs of mandate ordering
the Department to include STP days in the calculation and award of QASP payments.
The petitions do not challenge the State Plan.
The Department answered the first filed petition in the Crestwood action
(Sacramento Superior Court case No. 34-2019-800003129CUWMGDS) and demurred to
the petitions in the West Anaheim and South Coast actions (Sacramento Superior Court
case Nos. 34-2019-800003238CUWMGDS and 34-2020-800003351CUWMGDS,
respectively). The trial court ordered the cases related pursuant to California Rules of
Court, rule 3.300, and exercised discretion to postpone the hearing on the demurrers in
the West Anaheim and South Coast actions until after the hearing on the merits in the
Crestwood action.
The hearing on the merits in the Crestwood action took place in April 2021. The
trial court took the matter under submission and ultimately entered an order denying the
petition. The trial court entered judgment in the Department’s favor in June 2021.
With the Crestwood action resolved, the trial court next turned to the petitions in
the West Anaheim and South Coast actions. The trial court received and considered
supplemental briefing, and then sustained the demurrers to both petitions without leave to
amend. The trial court entered judgment in the Department’s favor in the West Anaheim
and South Coast actions in October and December 2021, respectively.
These appeals timely followed.
II. DISCUSSION
A. Standards of Review
9
We are tasked here with reviewing two types of orders. First, we must review the
order denying the petition for writ of mandate in the Crestwood action. Because
appellants’ arguments are almost entirely geared to the Crestwood action, we will focus
our discussion there as well. Second, we must review the orders sustaining the demurrers
to the petitions in the West Anaheim and South Coast actions. These orders receive scant
attention in appellants’ opening briefs, and we will likewise afford them only brief
consideration. We set forth the applicable standards of review below.
1. Writ of Mandate
A traditional writ of mandate lies “to compel the performance of an act which the
law specifically enjoins, as a duty resulting from an office, trust, or station.” (Code Civ.
Proc., § 1085, subd. (a); Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432,
442 [“Mandamus will lie to compel a public official to perform an official act required by
law”].) To obtain relief, the petitioner must establish the existence of a public officer’s or
a public entity’s “clear, present, and ministerial duty where the petitioner has a beneficial
right to performance of that duty.” (California Assn. of Professional Scientists v.
Department of Finance (2011) 195 Cal.App.4th 1228, 1236 (Professional Scientists); see
County of Los Angeles v. City of Los Angeles (2013) 214 Cal.App.4th 643, 653.)
Writ relief may be available in two circumstances, both of which are relevant here.
(Glendale City Employees’ Assn., Inc. v. City of Glendale (1975) 15 Cal.3d 328, 344
[“mandamus may issue to compel the performance of a ministerial duty or to correct an
abuse of discretion”]; County of Los Angeles v. City of Los Angeles, supra, 214
Cal.App.4th at p. 653 [“Code of Civil Procedure section 1085 permits judicial review of
ministerial duties as well as quasi-legislative and legislative acts”].) First, “[a] court may
issue a writ of mandate to compel a public agency or officer to perform a mandatory
duty. [Citation.] ‘This type of writ petition “seeks to enforce a mandatory and
ministerial duty to act on the part of an administrative agency or its officers.” ’ [Citation.]
‘ “[T]he writ will not lie to control discretion conferred upon a public officer or agency.”
10
’ ” (Collins v. Thurmond (2019) 41 Cal.App.5th 879, 914.) Under this theory of relief,
“[m]andamus may issue . . . to compel an official both to exercise his discretion (if he is
required to do so) and to exercise it under a proper interpretation of the applicable law.”
(Common Cause v. Board of Supervisors, supra, 49 Cal.3d at p. 442.) “Often, the crucial
issue when the petitioner seeks such relief is whether the act that the petitioner seeks to
compel is a mandatory and ministerial duty, or, on the contrary, is a quasi-legislative and
discretionary act. ‘ “ ‘[I]n most cases, the appellate court must determine whether the
agency had a ministerial duty capable of direct enforcement or a quasi-legislative duty
entitled to a considerable degree of deference. This question is generally subject to de
novo review on appeal because it is one of statutory interpretation, a question of law for
the court.’ ” ’ ” (CV Amalgamated LLC v. City of Chula Vista (2022) 82 Cal.App.5th
265, 279 (CV Amalgamated).)
“Second, a court may issue a writ when a public agency has abused its discretion
in carrying out a discretionary function. ‘Although traditional mandamus will not lie to
compel the exercise of discretion in a particular manner, it is a proper remedy to
challenge agency discretionary action as an abuse of discretion.’ ” (CV Amalgamated,
supra, 82 Cal.App.5th at p. 279.) “ ‘When a court reviews a public entit[y’s] decision for
an abuse of discretion, the court may not substitute its judgment for that of the public
entity, and if reasonable minds may disagree as to the wisdom of the public entity’s
discretionary determination, that decision must be upheld. [Citation.] Thus, the judicial
inquiry . . . addresses whether the public entity’s action was arbitrary, capricious or
entirely without evidentiary support, and whether it failed to conform to procedures
required by law.’ ” (Id. at p. 280.)
“With respect to both theories of writ relief, ‘[w]hen an appellate court reviews a
trial court’s judgment on a petition for a traditional writ of mandate, it applies the
substantial evidence test to the trial court’s findings of fact and independently reviews the
trial court’s conclusions on questions of law, which include the interpretation of a statute
11
and its application to undisputed facts.’ ” (CV Amalgamated, supra, 82 Cal.App.5th at p.
280.)
2. Demurrer
On appeal from a judgment based on an order sustaining a demurrer, we assume
all the facts alleged in the complaint (or petition) are true. (Pineda v. Williams-Sonoma
Stores, Inc. (2011) 51 Cal.4th 524, 528.) We accept all properly pleaded material facts,
but not contentions, deductions, or conclusions of fact or law. (Evans v. City of Berkeley
(2006) 38 Cal.4th 1, 6.) We may also consider matters subject to judicial notice. (Ibid.)
We determine de novo whether the complaint (or petition) alleges facts sufficient to state
a cause of action under any legal theory. (Committee for Green Foothills v. Santa Clara
County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We read the complaint (or petition)
as a whole and its parts in their context to give the pleading a reasonable interpretation.
(Evans v. City of Berkeley, supra, at p. 6.)
When a trial court has sustained a demurrer without leave to amend, “we decide
whether there is a reasonable possibility that the defect can be cured by amendment: if it
can be, the trial court has abused its discretion and we reverse; if not, there has been no
abuse of discretion and we affirm.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “The
burden of proving such reasonable possibility is squarely on the plaintiff.” (Ibid.)
B. Crestwood Action
Appellants spend most of their time on issues related to the Crestwood action. Of
these, only two warrant serious discussion. First, appellants—or rather, Crestwood—
suggest section 14170 imposes a mandatory and ministerial duty on the Department to
include STP days in the calculation and award of QASP payments. Second, Crestwood
suggests the Department abused its discretion in failing to include STP days in QASP
calculations. We consider—and reject—these arguments momentarily.
Before we continue, we should note that Crestwood expends considerable energy
rehashing arguments that do not demonstrate error. Indeed, Crestwood devotes two
12
sections of its opening brief—more than eight pages—to things the trial court supposedly
got right. For example, Crestwood tells us the trial court properly rejected the
Department’s argument that California Code of Regulations, title 22, section 51511.1
(which authorizes the STP patch) precludes the Department from including STP days in
the QASP calculation. Crestwood also says the trial court was right to reject the
Department’s argument that section 14126.022 exempts STP days from the QASP
program. And Crestwood agrees with the trial court’s conclusion that Assembly Bill No.
81 (2019-2020 Reg. Sess.) (Stats. 2020, ch. 13, § 10) (Assembly Bill 81), which states
that STP services “shall continue to be exempt” from the QASP program, “is ‘a factor’
for the [c]ourt to consider, but is neither binding nor conclusive.”6 (See generally
McClung v. Employment Development Department (2004) 34 Cal.4th 467, 473 [“ ‘a
legislative declaration of an existing statute’s meaning’ is but a factor for a court to
consider and ‘is neither binding nor conclusive in construing the statute’ ”].) These
arguments miss the mark.
That the trial court was unmoved by the Department’s stated reasons for excluding
STP days from the QASP program does not establish any error in denying the petition.
The trial court was crystal clear that Crestwood’s policy arguments about whether the
Department could or should include STP days in QASP calculations were no substitute
for the requirement that Crestwood identify a mandatory and ministerial duty requiring
the Department to do so. As the trial court observed: “Crestwood spends most of its time
attacking various arguments the Department has made about why STP days are not
6 Assembly Bill 81 became effective during the pendency of this case and added a new
subsection to section 14126.022, which reads: “Notwithstanding any other law, special
program services for the mentally disordered that are entitled to receive the supplemental
payment under Section 51511.1 of Title 22 of the California Code of Regulations shall
continue to be exempt from the Skilled Nursing Facility Quality and Accountability
Supplemental Payment System.” (§ 14126.022, subd. (a)(2)(C).)
13
included when calculating QASP payments, and very little time explaining why the law
requires those days to be included. Some of Crestwood’s arguments are quite
convincing. None of them, however, demonstrate that the Department is required by law
to include STP days when calculating QASP payments. Thus, Crestwood fails to meet its
burden.” So too here.
1. Mandatory and Ministerial Duty
Crestwood’s search for a mandatory and ministerial duty begins and ends with
section 14170, which requires the Department to implement an auditing system ensuring
that federal and state funds are spent responsibly. (§ 14170, subd. (a)(1).) Specifically,
Crestwood argues support for the existence of a mandatory and ministerial duty can be
found in section 14170, subdivision (a)(1). That subdivision provides, in pertinent part,
that cost reports and other data “shall be considered true and correct unless audited or
reviewed within three years after the close of the period covered by the report.” (Ibid.)
Crestwood’s argument, which was only belatedly articulated in the trial court, fails to
identify any clear duty that could be remedied by the issuance of a writ of mandate.7
(Professional Scientists, supra, 195 Cal.App.4th at p. 1236.)
Section 14170 vests the Department with discretion to decide which cost reports
and cost data should be audited. (§ 14170, subd. (a)(1) [“Amounts paid for services
provided to Medi-Cal beneficiaries shall be audited by the department in the manner and
form prescribed by the department”].) “Section 14170 does not prescribe a particular
form required for an audit. Instead, the scope of an audit is a matter left to the
Department’s discretion.” (Kaiser Foundation Hospitals v. Belshé (1997) 54 Cal.App.4th
7 Crestwood mentioned section 14170 in its opening brief to the trial court but made no
serious attempt to argue subdivision (a)(1) imposed any mandatory and ministerial duty
on the Department. That argument was not fully developed until the hearing on the
petition. Nevertheless, we exercise our discretion to consider the untimely argument on
the merits.
14
1547, 1558 (Kaiser).) As we shall discuss, the Department has exercised discretion to
exclude STP days from rate setting audits.
Subdivision (a)(1) limits the Department’s discretion by providing that cost reports
and other data “shall be considered true and correct unless audited or reviewed within
three years after the close of the period covered by the report.” (§ 14170, subd. (a)(1);
Palmdale Hospital Medical Center v. Department of Health Services (1992) 8
Cal.App.4th 1306, 1313 [“Plainly, unless one of the statutory exceptions applies, the
Department cannot question the information submitted by the provider once the three-
year period has expired”]; Redding Medical Center v. Bonta (2004) 115 Cal.App.4th
1031, 1041 [the Department “may not question the veracity of cost reports outside the
prescribed review period of three years” unless an exception applies].) However,
subdivision (a)(1) of section 14170 does not prescribe any “act” the Department must
take with respect to unaudited or unreviewed cost reports. (Palmdale Hospital Medical
Center, supra, at p. 1313 [“the sole consequence of the Department’s failure to audit or
review a provider’s cost report or other data within three years is that such information
‘shall be considered true and correct’ ”].) Herein lies the problem for Crestwood.
Contrary to Crestwood’s suggestion, subdivision (a)(1) of section 14170 does not
impose a mandatory and ministerial duty on the Department to treat unaudited cost
reports and data as though they had been audited. To say that unaudited cost reports and
data “shall be considered true and correct” does not imply that they have been audited or
must be considered to have been audited. Although audits “may take a range of forms”
(Kaiser, supra, 54 Cal.App.4th at p. 1559), they definitionally involve “a formal
examination of an organization’s or individual’s accounts or financial situation,” or “a
methodical examination and review.” (Merriam-Webster Dict. Online (2023)
[as of April 18, 2023].)
Nothing in section 14170 suggests the Legislature intended for unaudited cost reports or
data to be “deemed audited” after three years, and nothing requires the Department to
15
take any particular action with respect to such reports or data. Section 14170 thus fails to
establish the existence of a clear, present, and ministerial duty on the Department’s part
to act in a particular way, or a clear, present, and beneficial right to performance of that
duty on Crestwood’s part. (Professional Scientists, supra, 195 Cal.App.4th at p. 1236.)8
Crestwood argues our interpretation of section 14170 would conflict with the State
Plan.9 We perceive no conflict. Unaudited cost reports and data are “considered true and
correct” after three years in the limited sense that they are no longer subject to being
audited under section 14170. (See Robert F. Kennedy Medical Center v. Belshé (1996)
13 Cal.4th 748, 756 [“the statutory language [of § 14170, subd. (a)(1)] reflects an
apparent legislative intent simply to require the Department to perform an audit within
three years from the date of the filing of the provider’s cost reports”].) That does not
mean unaudited cost reports and cost data become audited with the passage of time. If
that were so, QASP payments could be calculated using bed days that had never been
formally examined or methodically reviewed, which would violate the State Plan.10 (See
8 Crestwood does not argue the language of section 14170, subdivision (a)(1) is
ambiguous. We therefore decline to consider Crestwood’s argument that extrinsic
evidence supports an alternate interpretation of the statute. (Williams v. Superior Court
(2001) 92 Cal.App.4th 612, 623 [“Courts may look to extrinsic evidence to construe a
statute only when the statutory language is susceptible of more than one reasonable
interpretation”].)
9 Crestwood also suggests that its reported STP days may have been audited after all.
This argument has been forfeited. The trial court specifically found that Crestwood’s
STP days were not audited, and Crestwood does not argue the evidence was insufficient
to support the finding. (Delta Stewardship Council Cases (2020) 48 Cal.App.5th 1014,
1075 [when an appellant raises an issue “but fails to support it with reasoned argument
and citations to authority, we treat the point as forfeited”].)
10Again, the State Plan provides that only audited bed days are used to calculate QASP
payments. STP days are not audited; therefore, they are not used to calculate QASP
payments.
16
County of San Luis Obispo v. Superior Court (2001) 90 Cal.App.4th 288, 292
[“ ‘Mandamus will not lie to compel the performance of any act which would be void,
illegal or contrary to public policy’ ”].) Such an interpretation would create the very
conflict Crestwood urges us to avoid.
Crestwood also argues that excluding STP days from QASP calculations would
create “absurd results.” This is so, Crestwood says, because the Department could refuse
to audit any and all cost reports, and thereby avoid making any QASP payments. We
need not address such hypothetical scenarios because they are not before us. Even so, we
note the State Plan requires the Department to audit skilled nursing facilities “a minimum
of once every three years.” Thus, the Department would not have discretion to refuse to
conduct any audits at all. Under the circumstances, we do not believe that our
construction of section 14170 would be likely to produce absurd results.
For all of the foregoing reasons, we conclude section 14170, subdivision (a)(1)
does not impose a mandatory and ministerial duty on the Department to deem unaudited
cost reports and data as having been audited after three years. It follows that the
Department does not have a mandatory and ministerial duty to include unaudited STP
days in QASP calculations.11 We therefore reject Crestwood’s contention that writ relief
should have been granted to compel the performance of a mandatory, ministerial act.
2. Abuse of Discretion
Crestwood next argues the Department’s practice of excluding STP days from
QASP calculations constitutes an abuse of discretion.12 Although not entirely clear,
11As the trial court observed, the only mandatory and ministerial duty suggested by the
petition is the duty to comply with the State Plan, and the State Plan says only audited
bed days are used to calculate QASP payments.
12 Contrary to Crestwood’s contention, the petition in the Crestwood action does not
allege any abuse of discretion by the Department. We note, however, that the petitions in
the West Anaheim and South Coast actions mention an alleged abuse of discretion, albeit
17
Crestwood appears to argue that an abuse of discretion occurred because the Department
mistakenly believed and unsuccessfully argued that STP days were exempt from the
QASP program under section 14126.022 and/or excluded by California Code of
Regulations, title 22, section 51511.1. Crestwood also appears to argue the Department
abused its discretion in choosing not to audit STP days. Neither argument is persuasive.
While “traditional mandate will lie to correct abuses of discretion, a party seeking
review under traditional mandamus must show the public official or agency invested with
discretion acted arbitrarily, capriciously, fraudulently, or without due regard for his
rights, and that the action prejudiced him.” (Gordon v. Horsley (2001) 86 Cal.App.4th
336, 351; see also Carrancho v. California Air Resources Board (2003) 111 Cal.App.4th
1255, 1265 [“Mandamus may issue to correct the exercise of discretionary legislative
power, but only if the action taken is so palpably unreasonable and arbitrary as to show
an abuse of discretion as a matter of law”].) We cannot say the practice of excluding STP
days from QASP calculations constitutes an abuse of discretion.
Here, though the trial court may have rejected some of the Department’s reasons
for excluding STP days, the court accepted another reason as dispositive, and so do we.
As previously discussed, the State Plan provides that only audited bed days may be used
to calculate QASP payments. The trial court found, and substantial evidence supports,
that STP days are not audited. The Department could not exercise discretion to include
unaudited STP days in QASP calculations because doing so would have violated the
State Plan. The provisions of the State Plan being mandatory, the Department was not
free to choose some other approach to calculating QASP payments. (Mission Hospital
Regional Medical Center v. Shewry, supra, 168 Cal.App.4th at p. 470.) The Department
only briefly, and appellants suggest they could amend the petitions to clarify that they
seek writ relief to correct the alleged abuses. Accordingly, we will again exercise our
discretion to consider Crestwood’s untimely arguments.
18
was instead obliged to follow the approach spelled out in the State Plan.13 (Ibid.) That
approach implicitly foreclosed the possibility of STP days being included. The
Department thus reasonably determined that STP days could not be used to calculate
QASP payments. (Ibid.) That the Department may have offered or entertained other,
less convincing explanations for excluding STP days does not establish any prejudicial
abuse of discretion.
Crestwood next argues the Department abused its discretion by choosing not to
audit STP days. Again, we disagree. The trial court received evidence that STP days are
not audited because they are not used for rate setting purposes. That evidence was
undisputed. Given that STP days are not used for rate-setting purposes, there is nothing
unreasonable about not auditing them during rate-setting audits. The Department could
reasonably exercise discretion to decline to audit STP days.14
“With more than 2,000 providers submitting cost reports, the Department does not
have enough resources to conduct a comprehensive audit of each Medi-Cal provider. In
some cases, an audit may consist of a desk review and acceptance of the cost report as
filed. . . . In other situations, a more comprehensive audit may be required. It is left to
the Department to determine the scope of audit required in any particular case.” (Kaiser,
supra, 54 Cal.App.4th at p. 1559.) Here, the Department acted within its discretion in
declining to audit STP days that would not be used for rate setting purposes, and
13 Again, Crestwood’s petition does not purport to challenge the State Plan.
14 The Department suggests the reason that STP days are not used in rate setting can be
found in the State Plan, which provides: “Freestanding STP facilities are excluded from
the determination of freestanding [nursing facility] rates due to their different staffing
requirements and the complexity of their reporting costs by level of care and services.
The cost reports for these facilities often comingle the data related to [nursing facility],
Short-Doyle [Mental Health Medi-Cal Program,] and special county programs.”
19
choosing, instead, to rely on audited bed days that could be drawn from readily available
rate setting audit reports. No abuse of discretion appears.
C. West Anaheim and South Coast Actions
As previously discussed, appellants’ opening brief focuses almost entirely on the
Crestwood action and makes little mention of the West Anaheim or South Coast actions.
Indeed, the argument section of the opening brief mentions the West Anaheim and South
Coast actions only once, in a footnote. That footnote reads, in pertinent part: “Petitioner
can amend their Petition here to clarify allegations that the Department abused its
discretion by failing to count STP days and/or audit STEP [sic] days, and thus to include
STP days in the QASP calculation. . . . In addition, allegations can be added that clarify
that the Department further abused its discretion by formulating and relying on an
erroneous legal conclusion whereby STP days were exempt from the QASP Program.”
These afterthoughts fail to demonstrate error. (See Cal. Rules of Court, rule
8.204(a)(1)(B) [appellant must [“[s]tate each point under a separate heading or
subheading summarizing the point”]; Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, 179
[“Failure to provide proper headings forfeits issues that may be discussed in the brief but
are not clearly identified by a heading”].)
In any case, we have already rejected the same arguments in the context of the
Crestwood action. We therefore conclude that West Anaheim and South Coast have
failed to carry their burden of showing that the trial court abused its discretion in
sustaining the Departments demurrers without leave to amend. (Blank v. Kirwan, supra,
39 Cal.3d at p. 318; T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.)
20
III. DISPOSITION
The judgments are affirmed. Respondents shall recover their costs on appeal.
(Cal. Rules of Court, rule 8.278(a)(1) & (2).)
/S/
RENNER, J.
We concur:
/S/
HULL, Acting P. J.
/S/
McADAM, J.*
* Judge of the Yolo County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
21