SINAI MEDICAL v. SHEWRY

Filed 3/21/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County. Dzintra Janavs, Judge. Affirmed.

Sonnenschein, Nath & Rosenthal, David L. Volk, Susan M. Walker; Greines, Martin, Stein & Richland, Robin Meadow, Cynthia Tobisman and Tillman J. Breckenridge for Plaintiff and Appellant.

Bill Lockyer, Attorney General, Thomas Yanger, Assistant Attorney General, John H. Sanders and Karen L. Fried, Deputy Attorneys General, for Defendants and Respondents.

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INTRODUCTION

In 1983, the state contracted with the University of California, Los Angeles Medical Center (UCLA) that UCLA be the sole provider of medical services to Medi-Cal beneficiaries in Los Angeles. With the state's approval, UCLA subsequently delegated to Cedars-Sinai Medical Center (Cedars-Sinai) the right to provide inpatient services to certain Medi-Cal beneficiaries and to bill the state for those services under UCLA's contract rate. The delegation contract was later amended to expand the services Cedars-Sinai could provide. For the next four years, instead of billing the state under UCLA's contract rate, Cedars-Sinai billed and was paid under a higher cost rate for certain patients. Later the state's audits concluded that Cedars-Sinai should have been paid UCLA's contract rate for treatment of these patients, and the state recouped more than $35 million in overpayments.

Cedars-Sinai filed administrative appeals of the audit findings, but contended that under Welfare and Institutions Code section 14087.27 it was first entitled to judicial review of the terms of the contracts at issue. The administrative law judge disagreed, proceeded with the hearings, and denied the appeals.

Cedars-Sinai then filed a petition for writ of mandate against the director of the California Department of Health Services and the department itself (collectively the Department). The trial court affirmed the administrative findings, but reduced the recouped amount by the statutory penalty of ten percent under Welfare and Institutions Code section 14171, subdivision (d). We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The Medi-Cal Reimbursement Program

California's Medi-Cal program implements the federal Medicaid program, which funds medical services for elderly and low-income persons. (42 U.S.C. § 1396 et seq.; Welf. & Inst. Code, § 14000.) The Department administers the Medi-Cal program and reimburses hospitals for treating eligible Medi-Cal patients. (Welf. & Inst. Code, § 10721; Cal. Code Regs., tit. 22, § 50004.) The original federal Medicaid Act required states to reimburse hospitals for their â€