Memorial Hospital-Ceres v. Belshé

[235]Opinion

NEAL, J.— Summary

The State Department of Health Services (Department) properly used a hospital’s average overall costs and not its psychiatric unit costs in computing reimbursements due the hospital for psychiatric services to Medi-Cal patients.

Facts and Proceedings Below

Appellant Memorial Hospital-Ceres provides care to patients insured by Medi-Cal, including short term psychiatric care. Medi-Cal is the State of California’s health insurance for the poor. Respondent Department administers the Medi-Cal program.

Medi-Cal employs two significantly different methods for determining the quantum of reimbursement due to hospitals or “providers” treating Medi-Cal patients. These are a “retroactive” payment system and a “prospective” payment system.

Under the “retroactive” method, historically used by Medi-Cal and the federal programs on which it was modeled, providers of Medi-Cal services are reimbursed for their customary charges, or reasonable costs, whichever are less. Medi-Cal advances estimated reimbursements during the fiscal year, then settles with the provider at year’s end for any excess or shortfall.

Under the “prospective” method, initiated in the early 1980’s in an attempt to contain medical costs, Medi-Cal contracts with providers before services are furnished to pay a flat rate per patient-day.

Some providers furnish both “contract” and “non-contract” services to Medi-Cal patients. Medi-Cal is required to separately report and account for contract and noncontract services.

For the fiscal years 1991 to 1993 Memorial contracted to provide all general routine and ancillary inpatient services to Medi-Cal patients in return [236]for the department’s payment of a flat daily amount per patient day. However, routine and ancillary psychiatric services were excluded from Memorial’s contract with the department, and thus were subject to reimbursement under the “reasonable cost” principles of the retroactive payment scheme.