Dignity Health v. Local Initiative Health Care Authority etc.

Filed 1/9/20
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

DIGNITY HEALTH et al., B288886

Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC583522)
v.

LOCAL INITIATIVE HEALTH
CARE AUTHORITY OF
LOS ANGELES COUNTY,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of
Los Angeles, Michael Johnson, Judge. Affirmed.
Jones Day, James Poth and Erica L. Reilley for Plaintiffs
and Appellants.
Daponde Simpson Rowe, Michael J. Daponde, Eunice C.
Majam-Simpson, and David P. McDonough for Defendant and
Respondent.
 King & Spalding, Glenn Solomon, Daron Tooch, and Vinay
Kohli for Miller Children’s & Women’s Hospital of Long Beach,
Pomona Valley Hospital Medical Center, Valley Children’s
Hospital, NorthBay Medical Center, Long Beach Medical Center,
Lucille Salter Packard Children’s Hospital at Stanford, Stanford
Health Care, Orange Coast Medical Center, El Camino Hospital,
and Saddleback Medical Center as Amici Curiae on behalf of
Plaintiffs and Appellants.
Hooper, Lundy & Bookman, Lloyd A. Bookman and Paul L.
Garcia for California Hospital Association as Amicus Curiae on
behalf of Plaintiffs and Appellants.
Xavier Becerra, Attorney General, Jennifer M. Kim,
Gregory D. Brown, and Sarah M. Barnes, Deputy Attorneys
General for California Department of Health Care Services as
Amicus Curiae on behalf of Defendant and Respondent.
Fred J. Hiestand for California Association of Health Plans
and Local Health Plans of California as Amici Curiae on behalf of
Defendant and Respondent.
____________________________
Plaintiffs and appellants Dignity Health and Northridge
Hospital Medical Center (Northridge Hospital; collectively,
plaintiffs) appeal from a grant of summary judgment in favor of
defendant and respondent Local Initiative Health Care Authority
of Los Angeles County dba L.A. Care Health Plan (defendant).
Defendant is a managed care health plan that provides health
care coverage to low-income individuals under Medi-Cal, the
state’s Medicaid program. Northridge Hospital, which Dignity
Health operates, is not within defendant’s network of contracted
providers. The question presented in this case is what amount
defendant must compensate plaintiffs for poststabilization

2
services—medically necessary inpatient care following
stabilization of an emergency—that defendant expressly or
implicitly authorized Northridge Hospital to provide to patients
enrolled with defendant.
Defendant contends, and the trial court found, state and
federal law mandate that out-of-network poststabilization
services under Medi-Cal be paid at state-set rates known as “All
Patient Refined Diagnosis Related Group” or “APR-DRG” rates.
Plaintiffs disagree, arguing that Welfare and Institutions Code1
section 14105.28, subdivision (b)(1)(B) specifically exempts
“managed care inpatient days” from services subject to the
APR-DRG rates, and that Northridge Hospital’s inpatient
treatment of defendant’s managed care enrollees constituted
“managed care inpatient days.” Plaintiffs further contend that
federal law is silent as to any payment rate for out-of-network
poststabilization services under Medicaid. Plaintiffs thus claim
they are entitled to their full billed rates.
We conclude that the legislative history of section 14105.28,
along with the statement of legislative intent within the statute
itself, indicate that the Legislature intended the APR-DRG rates
to apply to out-of-network inpatient poststabilization services
under Medi-Cal. Consistent with the Legislature’s intent, we
thus interpret the phrase “managed care inpatient days” to refer
to services provided pursuant to a managed care contract, that is,
in-network services. Accordingly, we affirm the judgment. We
do not decide whether federal law compels the same result.

1 Undesignated statutory citations are to the Welfare and
Institutions Code.

3
 PROCEDURAL BACKGROUND
Defendant is a publicly funded Medi-Cal managed care
health plan established by the County of Los Angeles. For the
time period at issue in this case, defendant did not have a written
contract with plaintiff Northridge Hospital for the provision of
inpatient services; thus, Northridge Hospital was “out-of-
network,” i.e., not part of defendant’s network of healthcare
providers. Plaintiff Dignity Health operates Northridge Hospital.
Plaintiffs filed an action against defendant alleging that
defendant had expressly or implicitly authorized Northridge
Hospital to provide inpatient poststabilization services to
Medi-Cal beneficiaries enrolled with defendant.2 Plaintiffs
alleged defendant therefore was financially responsible for those
services. Plaintiffs alleged defendant had not paid Northridge
Hospital’s full billed charges, however, instead paying the lower
APR-DRG rates set by the state.
Based on defendant’s alleged failure to pay the full billed
charges, plaintiffs asserted causes of action for breach of implied
contract, violation of Health and Safety Code section 1262.8, and
declaratory relief. Plaintiffs also asserted a cause of action under
Health and Safety Code section 1371.4, alleging defendant had
failed to pay state-mandated rates for outpatient and emergency
services provided by Northridge Hospital to patients enrolled
with defendant.
Following discovery, plaintiffs moved for summary
adjudication on their causes of action for breach of implied

2 We summarize the allegations from plaintiffs’ second
amended complaint, the operative pleading for purposes of this
appeal.

4
contract, violation of Health and Safety Code section 1262.8, and
declaratory relief, seeking a ruling that defendant had a “duty” to
pay plaintiffs’ full billed rates for poststabilization services rather
than the APR-DRG rates. Plaintiffs argued that section 14105.28
expressly excluded “managed care inpatient days” from the
APR-DRG rates, and that Northridge Hospital’s poststabilization
care of defendant’s managed care enrollees fell within that
exclusion. Plaintiffs concluded that absent application of the
APR-DRG rates, defendant had to pay them their full billed
charges for these poststabilization services.
Defendant countered with its own motion for summary
judgment. Defendant argued that federal law mandates that out-
of-network hospitals accept state-set rates for poststabilization
services under Medicaid, which in California are the APR-DRG
rates. Defendant further argued that the Department of Health
Care Services (DHCS), the state agency overseeing Medi-Cal, has
interpreted section 14105.28 to apply the APR-DRG rates to out-
of-network poststabilization services provided to managed care
patients, and that the legislative history of the APR-DRG
methodology supports DHCS’s interpretation. Defendant also
contended that Health and Safety Code sections 1262.8 and
1371.4 do not create private rights of action.
The trial court granted defendant’s motion and denied
plaintiffs’ motion. The trial court concluded that the interplay of
three federal regulations—42 C.F.R. part 422.113, 42 C.F.R. part
422.214, and 42 C.F.R. part 438.114—mandates that Medicaid
managed care plans pay state-set rates, such as the APR-DRG
rates, for out-of-network poststabilization services.
The trial court rejected plaintiffs’ interpretation that the
exclusion for “managed care inpatient days” in section 14105.28

5
applies to out-of-network services. The trial court found that
DHCS’s contrary interpretation that “managed care inpatient
days” excludes only in-network services from the APR-DRG rates
was “entitled to considerable weight.” The trial court also found
DHCS’s interpretation “makes sense” because in-network
services already were subject to contracted terms and thus there
was no need to regulate them through the APR-DRG rates.
The trial court further agreed with defendant that Health
and Safety Code sections 1262.8 and 1371.4 do not create private
rights of action.3
The trial court entered judgment in favor of defendant.
Plaintiffs timely appealed.

OVERVIEW OF MEDI-CAL

1. Medi-Cal
“Medi-Cal is California’s program under the joint federal-
state program known as Medicaid.” (Marquez v. State Dept. of
Health Care Services (2015) 240 Cal.App.4th 87, 93 (Marquez)).
“Medicaid provides federal financial assistance to
participating states to support the provision of health care
services to certain categories of low-income individuals and
families, including the aged, blind, and disabled, as well as
pregnant women and others.” (Marquez, supra, 240 Cal.App.4th

3 In this appeal, plaintiffs do not challenge the trial court’s
conclusion that there are no private rights of action under Health
and Safety Code sections 1262.8 and 1371.4, other than to say in
their reply brief that the trial court should reconsider that
conclusion on remand should we hold the APR-DRG rates do not
apply to out-of-network poststabilization services. In light of our
ruling, we need not address this argument further.

6
at p. 93.) State participation in Medicaid is voluntary, but if a
state chooses to participate, it must comply with federal
requirements and administer its Medicaid program through a
plan approved by the federal Centers for Medicare and Medicaid
Services (CMS). (Olszewski v. Scripps Health (2003) 30 Cal.4th
798, 809 (Olszewski); Marquez, at pp. 93–94.) DHCS is the state
agency in charge of the Medi-Cal program. (Marquez, at p. 94.)
“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.”
(Marquez, supra, 240 Cal.App.4th at p. 94.) The Medi-Cal
program provides reimbursement using two systems: fee-for-
service and managed care. (Ibid., citing § 14016.5, subd. (b).)
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 DHCS at a set amount for the services
provided.” (Marquez, supra, 240 Cal.App.4th at p. 94.) Under
this system, the state reimburses health care providers directly
for each covered service. (Ibid.)
In the managed care system, “DHCS contracts with health
maintenance organizations (HMOs) and other managed care
plans [such as defendant] 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. (§§ 14204, 14301, subd. (a); see
Cal. Code Regs., tit. 22, § 53800 et seq.) The beneficiary then
obtains medical services from a provider within the managed care
plan’s network.” (Marquez, supra, 240 Cal.App.4th at p. 94.)

7
2. Emergency and poststabilization services under
Medi-Cal
Under federal and state law, a hospital with an emergency
department must treat a patient with an emergency medical
condition regardless of the patient’s insurance status or ability to
pay. (42 U.S.C. § 1395dd(b), (h); Health & Saf. Code, § 1371;
Children’s Hospital Central California v. Blue Cross of California
(2014) 226 Cal.App.4th 1260, 1266 (Children’s Hospital).) If the
patient is enrolled in a managed care plan, whether through the
Medi-Cal program or otherwise, state law requires the plan to
reimburse the hospital for the emergency services even if the
hospital is not within the plan’s network of providers. (Health &
Saf. Code, § 1371.4, subd. (b); Children’s Hospital, at p. 1266.)
Federal law similarly requires Medicaid managed care plans to
compensate out-of-network hospitals for emergency services
provided to beneficiaries enrolled in the plans. (42 U.S.C.
§ 1396u–2(b)(2)(A)(i).)4
Once the emergency condition is stabilized, any resulting
medically necessary care provided thereafter is referred to as
poststabilization care. (Health & Saf. Code, § 1262.8,
subd. (l)(3).) Unlike emergency services, under state law a
managed care plan is not automatically required to reimburse an
out-of-network hospital for poststabilization services, and may
instead require the out-of-network hospital to obtain the plan’s
prior authorization. (Health & Saf. Code, § 1371.4, subd. (c);
Children’s Hospital, supra, 226 Cal.App.4th at p. 1266.) If a

4 We address the reimbursement rates required under
state and federal law for these emergency services in our
Discussion section, post.

8
managed care plan requires authorization but the out-of-network
hospital fails to request it, the managed care plan has no
obligation to reimburse the out-of-network hospital for providing
poststabilization services to the managed care plan’s enrollee.
(See Health & Saf. Code, § 1262.8, subd. (f)(7).)
Should an out-of-network hospital request the
authorization, however, the plan must within 30 minutes either
authorize the poststabilization care or inform the out-of-network
hospital that the plan will transfer the patient to another
hospital. (Health & Saf. Code, § 1262.8, subd. (d)(1).) If the plan
fails to notify the out-of-network hospital of its decision within
30 minutes, “the poststabilization care shall be deemed
authorized,” and the hospital is entitled to reimbursement from
the plan. (Id., subd. (d)(2).) Federal regulations establish similar
requirements specific to Medicaid, providing that Medicaid
managed care plans are financially responsible for
poststabilization services they expressly have authorized, or have
implicitly authorized by failing to respond to the hospital’s
authorization request within one hour.5 (42 C.F.R. §§
422.113(c)(2)(i), (iii), 438.114(e).)

5 For purposes of this appeal we need not reconcile any
differences between state and federal law regarding the
circumstances under which a managed care plan is financially
responsible for poststabilization services. What matters for our
purposes is that under both regimes, a managed care plan is
financially responsible for poststabilization care the plan either
has expressly authorized or has implicitly authorized by not
responding to the hospital’s request for authorization within a set
period of time.

9
3. APR-DRG rates
In 2010, the Legislature enacted section 14105.28,
which states, “It is the intent of the Legislature to design a new
Medi-Cal inpatient hospital reimbursement methodology based
on diagnosis-related groups . . . .” (§ 14105.28, subd. (a).)
Subdivision (b)(1)(A)(i) directs DHCS to “develop and implement”
the new payment methodology, “subject to federal approval.”
Subdivision (b)(1)(B) states that “[t]he diagnosis-related group-
based payments shall apply to all claims, except claims for
psychiatric inpatient days, rehabilitation inpatient days,
managed care inpatient days, and swing bed stays for long-term
care services, provided, however, that psychiatric and
rehabilitation inpatient days shall be excluded regardless of
whether the stay was in a distinct-part unit. The department
may exclude or include other claims and services as may be
determined during the development of the payment
methodology.” (Italics added.)

STANDARD OF REVIEW
The sole issue presented in this appeal is whether the
trial court erred in concluding that the APR-DRG rates apply
to out-of-network inpatient poststabilization services under
Medi-Cal. This is a question of statutory and regulatory
interpretation subject to our independent review. (Hubbard v.
California Coastal Com. (2019) 38 Cal.App.5th 119, 135
(Hubbard).)
In interpreting a statute, “[t]he fundamental rule is to
ascertain the Legislature’s intent in order to give effect to the
purpose of the law.” (Hubbard, supra, 38 Cal.App.5th at p. 135.)
“We first examine the words of the statute and try to give effect

10
to the usual, ordinary import of the language while not rendering
any language surplusage. These words must be construed in
context and in light of the statute’s obvious nature and purpose,
and must be given a reasonable and commonsense interpretation
that is consistent with the Legislature’s apparent purpose and
intention.” (Ibid.) “If the statutory language is clear, we
should not change it to accomplish a purpose that does not
appear on the face of the statute or from its legislative history.”
(Id. at p. 136.) If, however, the language allows for more than
one reasonable interpretation and therefore is ambiguous, “we
turn to secondary rules of construction,” including “the legislative
history . . . and the wider historical circumstances of a statute’s
enactment.” (Ibid.) These rules of interpretation “are equally
applicable to administrative regulations.” (Id. at p. 135.)

DISCUSSION
Plaintiffs claim that the poststabilization services they
provided to defendant’s enrollees constituted “ ‘managed care
inpatient days,’ ” one of the categories of care exempt from
the APR-DRG methodology under section 14105.28,
subdivision (b)(1)(B). Plaintiffs contend defendant therefore
underpaid them for those services by compensating them under
the APR-DRG methodology. Plaintiffs reason they are entitled to
their full billed rates for poststabilization services.
Defendant’s primary argument to the contrary, which the
trial court accepted, is that federal law mandates that Medicaid
managed care plans pay for out-of-network poststabilization
services at the same rate the state would pay for those services—
that is, the fee-for-service rates. Defendant argues that state law
is consistent with federal law, but to the extent it is not, federal
law preempts it. Defendant also contends DHCS has interpreted

11
section 14105.28 to apply the APR-DRG rates to out-of-network
poststabilization services, and DHCS’s interpretation is entitled
to deference.
Plaintiffs counter that federal law does not mandate a
specific rate for out-of-network poststabilization services under
Medicaid, and that DHCS’s interpretation of section 14105.28
has changed over time and is not entitled to deference.
As we explain below, federal law played a role in the
Legislature’s development of state law in this area, and thus
provides context to the legislative history of section 14105.28.
That history, along with the text of section 14105.28 itself,
compel the conclusion that, under state law, out-of-network
poststabilization services provided to Medi-Cal managed care
patients are subject to the APR-DRG rates. Accordingly, the
trial court properly granted summary judgment in defendant’s
favor. Given our holding, we need not decide whether federal law
independently compels the same result, nor do we reach the
question of whether DHCS’s interpretation of section 14105.28 is
entitled to deference.
We begin with a discussion of federal law.

I. Federal Law Governing Poststabilization Services
Under Medicaid

A. Federal Medicaid statutes
Medicaid is governed by title XIX of the Social Security Act,
codified at 42 U.S.C. § 1396 et seq. (See Olszewski, supra,
30 Cal.4th at p. 809.) As we have discussed, title XIX requires
Medicaid managed care plans to pay for emergency services
provided to their enrollees by out-of-network hospitals.
(42 U.S.C. § 1396u–2(b)(2)(A)(i).)

12
 In 2006, Congress amended title XIX to specify the
payment amounts to which out-of-network providers were
entitled for emergency services, stating in relevant part, “Any
provider of emergency services that does not have in effect a
contract with a Medicaid managed care entity that establishes
payment amounts for services furnished to a beneficiary enrolled
in the entity’s Medicaid managed care plan must accept as
payment in full no more than the amounts (less any payments for
indirect costs of medical education and direct costs of graduate
medical education) that it could collect if the beneficiary received
medical assistance under this subchapter other than through
enrollment in such an entity.” (42 U.S.C. § 1396u–2(b)(2)(D);
Pub.L. No. 109–171, § 6085 (Feb. 8, 2006), 120 Stat. 121.) In
other words, out-of-network providers are compensated for the
emergency care of managed care patients at the same rate the
providers would receive under a fee-for-service system.
As for poststabilization services, title XIX is silent except to
state that Medicaid managed care organizations must “comply
with guidelines established under section 1395w-22(d)(2) of this
title (respecting coordination of post-stabilization care) in the
same manner as such guidelines apply to Medicare+Choice plans
offered under part C of subchapter XVIII.” (42 U.S.C. § 1396u-
2(b)(2)(A)(ii).) Title 42 United States Code section 1395w-
22(d)(2), in turn, requires Medicare+Choice plans to comply with
administrative guidelines “relating to promoting efficient and
timely coordination of appropriate maintenance and post-
stabilization care of an enrollee after the enrollee has been
determined to be stable.” In short, title XIX itself does not
specify either when a Medicaid managed care plan must pay for

13
out-of-network poststabilization services or what rate the plan
must pay.

B. Federal Medicaid regulations
CMS has promulgated one regulation pertaining to
Medicaid poststabilization services, 42 C.F.R. part 438.114(e),
which states, “Poststabilization care services are covered and
paid for in accordance with provisions set forth at [42 C.F.R.]
§ 422.113(c) of this chapter. In applying those provisions,
reference to ‘MA organization’ and ‘financially responsible’ must
be read as reference to the entities responsible for Medicaid
payment, as specified in paragraph (b) of this section, and
payment rules governed by Title XIX of the Act and the States.”6
The second sentence of 42 C.F.R. part 438.114(e) addresses
the fact that the cross-referenced regulation, 42 C.F.R.
part 422.113, is a Medicare regulation,7 and thus some
substitution of terms is necessary to render it applicable in the
Medicaid context. Thus, for purposes of applying 42 C.F.R. part
422.113(c) to Medicaid, 42 C.F.R. part 438.114(e) instructs us to

6 We quote the current version of 42 C.F.R. part
438.114(e), which CMS promulgated in 2016. (81 Fed.Reg. 27877
(May 6, 2016).) Among other things, the 2016 version added the
phrase “and payment rules governed by Title XIX of the Act and
the States.” (Ibid.) Because we do not resolve this appeal under
federal law, we need not address the significance, if any, of the
differences between the current version of the regulation and the
previous version.
7“Medicare is a federally funded medical insurance
program for the elderly and disabled.” (Fischer v. U.S. (2000)
529 U.S. 667, 671.)

14
read “MA organization” (that is, Medicare Advantage8
organization, see 42 C.F.R. § 422.1(a)(1)(v)) as referring to the
“entit[y] responsible for Medicaid payment,” such as a Medicaid
managed care organization. (See 42 C.F.R. § 438.114(b)(1)
[listing Medicaid managed care organizations (MCOs, see
42 C.F.R. § 438.2) among the “entities . . . responsible for
coverage and payment of emergency services and
poststabilization care services”].)
42 C.F.R. part 422.113(c) defines under what circumstances
a Medicare Advantage organization is financially responsible for
poststabilization services, whether provided “within or outside”
the Medicare Advantage organization’s network. (42 C.F.R.
§ 422.113(c)(2).) Among other circumstances, the Medicare
Advantage organization “[i]s financially responsible (consistent
with [42 C.F.R.] § 422.214) for post-stabilization care services
obtained within or outside the MA organization” if those services
are “pre-approved by a plan provider” or if “[t]he MA organization
does not respond to a request for pre-approval within 1 hour.”
(42 C.F.R. § 422.113(c)(2)(i), (iii)(A).)9 Per the substitution

8“[T]he Medicare Advantage program allows eligible
Medicare beneficiaries the right to obtain the statutorily
mandated benefits, as well as a variety of additional benefits,
through privately run health plans.” (Roberts v. United
Healthcare Services, Inc. (2016) 2 Cal.App.5th 132, 137–138.)
9 The requirement that a Medicare Advantage
organization’s financial responsibility be “consistent with
[42 C.F.R.] § 422.214” appears only in 42 C.F.R. part
422.113(c)(2)(i), pertaining to financial responsibility for pre-
approved poststabilization care. In contrast, 42 C.F.R. part
422.113(c)(2)(ii) and (iii), which under certain circumstances
impose financial responsibility for poststabilization care that is

15
guidelines of 42 C.F.R. part 438.114(e), the above rules apply
equally to Medicaid managed care organizations.
Although 42 C.F.R. part 422.113 defines when a Medicare
Advantage organization is financially responsible for
poststabilization services, it does not address the amounts the
Medicare Advantage organization must pay for those services.
However, it cross-references another Medicare regulation,
42 C.F.R. part 422.214, which does.
42 C.F.R. part 422.214(b) states, in relevant part, that
“[a]ny provider of services . . . that does not have in effect a
contract establishing payment amounts for services furnished to
a beneficiary enrolled in an MA coordinated care plan, an MSA
plan, or an MA private fee-for-service plan must accept, as
payment in full, the amounts . . . that it could collect if the
beneficiary were enrolled in original Medicare.”10 “Original
Medicare” is defined elsewhere as “health insurance available
under Medicare Part A and Part B through the traditional fee-for
service payment system.” (42 C.F.R. § 422.2.)
The parties disagree as to the interpretation of these
federal regulations. Defendant argues that because 42 C.F.R.

not pre-approved (such as when the Medicare Advantage
organization fails to respond to a request for pre-approval within
one hour), do not cross-reference 42 C.F.R. part 422.214. We
assume for purposes of this appeal, however, that a Medicare
Advantage organization’s financial responsibility under 42 C.F.R.
part 422.113(c)(2)(ii) and (iii) also must be consistent with
42 C.F.R. part 422.214.
10 42 C.F.R. part 422.214(b) applies to “section 1861(u)
providers of service,” which includes hospitals. (See section
1861(u) of the Social Security Act, codified at 42 U.S.C.
§ 1395x(u).)

16
part 438.114(e) expressly incorporates 42 C.F.R. part 422.113(c),
which in turn cross-references 42 C.F.R. part 422.214, then by
extension the Medicare payment rules in 42 C.F.R. part 422.214
apply in the Medicaid context as well. Accordingly, defendant
contends, out-of-network poststabilization services to Medicaid
managed care patients are paid at the Medicaid fee-for-service
rate, which defendant asserts is the Medicaid equivalent of
“original Medicare.” The trial court agreed with this argument,
concluding that “these federal regulations state that where post-
stabilization services are provided by a non-contract/out-of-
network provider . . . , the services are to be compensated at the
state’s Medicaid rates . . . .”
Plaintiffs contend that 42 C.F.R. part 438.114(e)’s
incorporation of one Medicare regulation, 42 C.F.R.
part 422.113(c), provides no basis to incorporate an additional
Medicare regulation, 42 C.F.R. part 422.214, particularly when
42 C.F.R. part 422.214 refers to payment under “original
Medicare” and thus has no application in the Medicaid context
without implicitly rewriting the regulation.11 Plaintiffs instead
direct us to 42 C.F.R. part 438.114(e)’s reference to “payment
rules governed by Title XIX of the Act and the States.” Plaintiffs
argue that because Title XIX is silent as to payment rates for out-

11 Comments by CMS in the Federal Register indicate that
some construed 42 C.F.R. part 438.114(e) as literally requiring
payment for out-of-network poststabilization services under
Medicaid at Medicare rates. CMS clarified this was not the case,
stating that 42 C.F.R. part 438.114(e) was “only intended to
require coverage of post-stabilization care services in accordance
with the provisions at [42 C.F.R.] § 422.113(c) of this chapter but
not to mandate a payment rate using Medicare standards.”
(81 Fed.Reg. 27749 (May 6, 2016).)

17
of-network poststabilization services, 42 C.F.R. part 438.114(e)
necessarily leaves it to the states to determine the rates at which
those services should be paid. ~(AOB 48-49)~
We need not resolve the parties’ arguments under federal
law, because we conclude below that state law requires that
poststabilization care by out-of-network providers under Medi-
Cal be reimbursed at the APR-DRG rates. We turn now to that
discussion.

II. Out-Of-Network Poststabilization Care Does Not
Constitute “Managed Care Inpatient Days”

A. The term “managed care inpatient days” is
ambiguous
In interpreting state law, we begin as we must with the
language of the statute. (Hubbard, supra, 38 Cal.App.5th
at p. 135.) “Managed care inpatient days” is not defined in
section 14105.28 or elsewhere in the Welfare and Institutions
Code.
Plaintiffs claim the term is unambiguous on its face. They
note that Medi-Cal is subject to two payment systems, fee-for-
service and managed care. Plaintiffs argue that in specifically
exempting “managed care inpatient days” from the APR-DRG
methodology, the Legislature thus indicated that the APR-DRG
methodology was limited to fee-for-service inpatient days. In
other words, plaintiffs’ position is that if a managed care plan is
financially responsible for inpatient services, whether in-network
or out-of-network, those services constitute “managed care
inpatient days” exempt from the APR-DRG rates.
The trial court interpreted the term “managed care
inpatient days” differently, concluding it referred to care

18
pursuant to a contract between a managed care plan and an in-
network provider. The trial court said, “[W]here services are
contracted for, there is no need to apply the APR-DRG rates, and
it is logical for § 14105.28(b)(1)(B) to exclude contract/in-network
providers from the payment scheme.” DHCS in its amicus brief
similarly argues that “ ‘[m]anaged care inpatient days’ refers to
services provided by hospitals that are part of a managed care
plan, i.e. in-network hospitals.”
Plaintiffs’ interpretation and the trial court’s and DHCS’s
alternative construction of the term “managed care inpatient
days” are reasonable under the term’s plain language, and we
do not agree with plaintiffs that the term is unambiguous. (See
Hubbard, supra, 38 Cal.App.5th at p. 136 [statute susceptible to
“more than one reasonable interpretation . . . is ambiguous”].) As
set forth below, when the term is read in the context of the
legislative history of section 14105.28 and the previous statute
regulating payments for out-of-network poststabilization services,
as well as the statement of legislative intent in section 14105.28
itself, we conclude the trial court’s and DHCS’s interpretation is
the correct one.12

B. Legislative history
As best as we can determine, prior to September 2008,
California law did not set rates for out-of-network

12 The parties argue extensively as to whether we
should defer to DHCS’s interpretation as the agency in charge
of Medi–Cal. To be clear, we reach our holding through our own
analysis of the statutory language and legislative history and
need not decide whether DHCS’s interpretation is entitled to
deference.

19
poststabilization care provided to Medi-Cal managed care
patients. According to the one case we have found on the subject,
payment for these services instead was determined under
principles of quantum meruit. (Children’s Hospital, supra,
226 Cal.App.4th at p. 1274.) Children’s Hospital concerned
out-of-network poststabilization services provided between
July 31, 2007 and June 1, 2008. (Id. at p. 1266.) The court held
that the hospital was entitled to “ ‘the reasonable and customary
value’ ” of its poststabilization services pursuant to California
Code of Regulations, title 28, section 1300.71, subdivision
(a)(3)(B), a claims settlement regulation applying to medical
services provided to enrollees in managed care plans in general,
both Medi-Cal and otherwise.13 (Children’s Hospital, at p. 1271.)
The court further held that the “reasonable and customary value”
standard “embodies the concept of quantum meruit,” and that the
agency adopting the regulation, the Department of Managed
Health Care, intended that “value disputes be resolved by the
courts.” (Id. at pp. 1273–1274.)
This changed in 2008, when the Legislature enacted
Welfare and Institutions Code former section 14091.3, effective

13 Children’s Hospital acknowledged that federal law
required the managed care plan to pay for out-of-network
emergency services at the Medi–Cal fee-for-service rate
(Children’s Hospital, supra, 226 Cal.App.4th at p. 1266), but
did not cite 42 C.F.R. part 438.114(e) or address whether
federal law governed payment amounts for out-of-network
poststabilization services. “[C]ases are not authority for issues
not raised or decided.” (Mintz v. Blue Cross of California (2009)
172 Cal.App.4th 1594, 1607.) We therefore draw no inference
from Children’s Hospital’s silence as to the applicability of federal
law.

20
September 30 of that year. (Stats. 2008, ch. 758, § 42.) Former
section 14091.3, subdivision (c) defined the payment amounts a
Medi-Cal managed care plan must pay for certain out-of-network
services, including emergency and poststabilization services.14
The Legislature enacted the statute in part to comply with
Congress’s amendment to the Social Security Act limiting
payment of Medicaid out-of-network emergency services to the
fee-for-service rate. (See Assem. Budget Com., Bill Analysis,
Concurrence in Senate Amendments (2007–2008 Reg. Sess.), as
amended Sep. 15, 2008, par. 7 [“This provision is intended to
comply with federal law limits on emergency care charges to
Medicaid managed care plans”].)
Former section 14091.3 required plans to pay for out-of-
network emergency inpatient services at an average per diem
contract rate pursuant to former section 14166.245, with certain
adjustments. (Former § 14091.3, subd. (c)(2).) The statute
required plans to pay for out-of-network poststabilization services
“consistent with” 42 C.F.R. part 438.114(e), the federal Medicaid
regulation governing poststabilization care.15 (Former § 14091.3,
subd. (c)(3).)

14 Former section 14091.3, subdivision (c), stated, “Any
hospital that does not have in effect a contract with a Medi–Cal
managed care health plan . . . that establishes payment amounts
for services furnished to a beneficiary enrolled in that plan shall
accept as payment in full, from all these plans, the following
amounts . . . .”
15 Former section 14091.3, subdivision (c)(3) read in full,
“For poststabilization services following an emergency admission,
payment amounts shall be consistent with subdivision (e) of
Section 438.114 of Title 42 of the Code of Federal Regulations.
This paragraph shall only be implemented to the extent that

21
 In explaining this latter provision governing
poststabilization care, an Assembly Budget Committee analysis
issued shortly before the statute’s enactment stated that
payment for out-of-network poststabilization services was
“subject to the equivalent of the payment that a provider
would receive for the same service provided to a fee-for-service
Medi-Cal enrollee.” (Assem. Budget Com., Bill Analysis,
Concurrence in Senate Amendments (2007–2008 Reg. Sess.), as
amended Sep. 15, 2008, par. 7.) Thus, our Legislature
interpreted federal law as defendant does, equating payment
“consistent with” 42 C.F.R. part 438.114(e) with payment at the
fee-for-service rate. Accordingly, from 2008 to 2012, DHCS
annually issued “All Plan Letters” setting specific payment
amounts for out-of-network poststabilization services based on
fee-for-service rates calculated under former section 14166.245.16
(See Cal. Dept. of Health Care Services, MMCD All Plan Letters

contract amendment language providing for these payments is
approved by CMS. For purposes of this paragraph, this payment
amount shall apply to all hospitals, including hospitals that
contract with the department under the Medi–Cal Selective
Provider Contracting Program pursuant to Article 2.6
(commencing with Section 14081).”
16 Although the rates for emergency and poststabilization
services were calculated according to former section 14166.245,
they were not identical because the rates for emergency services
did not take into account specified exemptions that applied to
poststabilization services. (Cal. Dept. of Health Care Services,
MMCD All Plan Letter 08-010, Nov. 10, 2008).)

22
08–010, Nov. 10, 2008; 09–013, June 29, 2009; 10–008, July 6,
2010; 11–017, July 18, 2011; 12–004, July 13, 2012.)17
Former section 14091.3 also contained a sunset provision
repealing itself as of January 1, 2011 unless a statute enacted
before the sunset date deleted or extended that date. (Former
§ 14091.3, subd. (f).) The Legislature extended the sunset date in
2010 and 2011. (Stats. 2010, ch. 717, § 147; Stats. 2011, ch. 3,
§ 92.)
The Legislature last amended former section 14091.3 in
2012, in anticipation of the implementation of the APR-DRG
rates pursuant to section 14105.28. (Stats. 2012, ch. 23, § 81.)
The Legislature added subdivision (c)(2) to former section
14091.3 stating that “[t]he rates . . . for emergency inpatient
services and poststabilization services [listed in former section
14091.3] shall remain in effect only until [DHCS] implements the
payment methodology based on diagnosis-related groups
pursuant to Section 14105.28.” A new subdivision (c)(3) further
stated that, “[u]pon implementation of ” the APR-DRG
methodology, “any [out-of-network] hospital . . . shall accept as
payment in full for inpatient hospital services, including both
emergency inpatient services and poststabilization services
related to an emergency medical condition, the payment amount
established pursuant to the methodology developed under
Section 14105.28.”
The Legislature also amended former section 14091.3’s
sunset provision, now labeled subdivision (g), to state that
section 14091.3 “shall become inoperative on July 1, 2013, and, as

17 We take judicial notice of the All Plan Letters cited
herein. (Evid. Code, § 452.)

23
of January 1, 2014, is repealed,” absent enactment of a statute
deleting or extending those dates. Although neither the amended
former section 14091.3 nor its legislative history indicates why
those specific sunset dates were chosen, the parties do not
dispute that DHCS implemented the APR-DRG methodology
“on or about July 1, 2013.” (Cal. Dept. of Health Care Services,
MMCD All Plan Letter 13-004, Feb. 12, 2013.) The Legislature
took no further action regarding former section 14091.3, which
under its own terms became inoperative on July 1, 2013, and
repealed on January 1, 2014.

C. Analysis
The 2012 amendments to former section 14091.3 make
clear the Legislature’s intent to apply the APR-DRG rates to out-
of-network inpatient poststabilization services in place of the
rates implemented under former section 14091.3. The
Legislature expressly so stated, and amended former section
14091.3 to become inoperative on the same date DHCS
implemented the APR-DRG rates. We must interpret
section 14105.28 “consistent with the Legislature’s apparent
purpose and intention.” (Hubbard, supra, 38 Cal.App.5th
at p. 135.) Thus, we conclude, as did the trial court, that
section 14105.28’s exclusion of “managed care inpatient days”
from the APR-DRG rates excludes inpatient poststabilization
care provided under a managed care contract, i.e., in-network
care. In sum, out-of-network inpatient poststabilization care is
subject to the APR-DRG rates.
Plaintiffs urge us to draw a different conclusion from the
legislative history. They argue that the Legislature, by enacting
former section 14091.3, demonstrated that the Legislature knew
how expressly to specify payment rates for out-of-network

24
services if the Legislature so chose, yet that express language is
absent from section 14105.28. Plaintiffs quote other sections of
the Welfare and Institutions, Health and Safety, and Insurance
Codes expressly distinguishing between in-network and out-of-
network services as well. Plaintiffs also contend that by
permitting former section 14091.3 to sunset, the Legislature
chose to abandon the express scheme outlined in that statute,
and that we should not read into section 14105.28 the express
language from the now-repealed section 14091.3.
We do not deny that resolving the question presented in
this appeal would be more straightforward had the Legislature
not allowed section 14091.3 to sunset or had it stated specifically
in section 14105.28 or elsewhere whether the APR-DRG rates
applied to out-of-network managed care inpatient
poststabilization services. To accept plaintiffs’ interpretation of
the legislative history, however, would require us to conclude
that the Legislature, having set specific payment rates for out-of-
network poststabilization services beginning in 2008, and having
stated its intention to continue setting those rates under the new
APR-DRG methodology, suddenly reversed course completely,
not through any affirmative act but merely by allowing former
section 14091.3 to sunset on its own terms.
Such a conclusion is unreasonable, particularly in light of
the fact that the amended sunset date for former section 14091.3
coincided with the implementation of the APR-DRG rates. The
reasonable conclusion is that the sunset provision worked as
intended, repealing former section 14091.3 when implementation
of the APR-DRG rates rendered the statute no longer necessary.
Our interpretation is consistent with the statement of
legislative intent in section 14105.28 itself. Subdivision (a) lists

25
ten goals the Legislature hoped to “more effectively ensure[ ]”
through the APR-DRG methodology, including “[i]mprovement of
fairness so that different hospitals receive similar payment for
similar care and payments to hospitals are adjusted for
significant cost factors that are outside the hospital’s control”;
“[e]ncouragement of administrative efficiency and minimizing
administrative burdens on hospitals and the Medi-Cal program”;
and “[s]implification of the process for determining and making
payments to the hospitals.” (§ 14105.28, subd. (a)(4), (5), (7).)
These goals could not be achieved if, as plaintiffs argue,
section 14105.28 does not apply the APR-DRG rates to out-of-
network poststabilization services and hospitals may instead
charge whatever rates they choose.
We reject plaintiffs’ contention that our interpretation
“ ‘read[s] into [section 14105.28] language it does not contain or
elements that do not appear on its face.’ ” Specifically, plaintiffs
claim that to interpret section 14105.28 as we have requires
inserting the term “ ‘in-network’ ” before the term “ ‘managed
care inpatient days.’ ” As we have discussed, the term “managed
care inpatient days” can be interpreted to refer to inpatient care
provided pursuant to a managed care contract, which necessarily
would exclude out-of-network care. Our interpretation requires
no addition or omission of terms or manipulation of the language
beyond its reasonable meaning. Further, our interpretation
is consistent with the legislative history and intent of
section 14105.28, while plaintiffs’ interpretation is not.18

18 Plaintiffs observe that DHCS has taken the position
that elective inpatient services provided by out-of-network
hospitals, unlike emergency and poststabilization inpatient
services, are not subject to the APR-DRG rates. DHCS confirms

26
 Plaintiffs argue that our interpretation of “ ‘managed care
inpatient days’ ” to refer only to care provided according to a
managed care contract renders that exclusion surplusage,
because the contract clauses of the federal and state
Constitutions already shield in-network rates from legislative
interference. (See U.S. Const., art. I, § 10, cl. 1 [“No State
shall . . . pass any . . . Law impairing the Obligation of
Contracts . . . .”]; Cal. Const., art. I, § 9 [“law impairing the
obligation of contract may not be passed”]). Plaintiffs’ argument
in fact supports our interpretation: Assuming arguendo that
laws regulating contracted rates would violate constitutional
protections for contractual obligations, the Legislature logically
would exempt contracted rates from section 14105.28 expressly to
maintain the statute’s constitutionality.
Plaintiffs argue that if out-of-network poststabilization
services are subject to the APR-DRG rates, then a managed care

this position in its amicus brief. Plaintiffs argue DHCS’s position
regarding elective services is inconsistent with its interpretation
of “ ‘managed care inpatient days’ ” as referring only to in-
network services. Plaintiffs argue that if “ ‘managed care
inpatient days’ ” refers only to in-network services, then all out-
of-network services must be subject to the APR-DRG rates,
including out-of-network elective services.
Our holding does not depend on deference to DHCS’s
interpretation of section 14105.28, and the only question before
us is whether out-of-network inpatient poststabilization
treatment under Medi-Cal is subject to the APR-DRG rates.
We need not decide whether DHCS’s interpretation is internally
consistent, or what reimbursement amounts would be required
under Medi–Cal for other categories of medical services delivered
by out-of-network providers.

27
plan would never exercise its option under Health and Safety
Code section 1262.8 to transfer the patient to an in-network
hospital rather than authorize the out-of-network hospital to
provide the care. Plaintiffs argue this would render that
statutory provision superfluous, which could not have been the
Legislature’s intent. Plaintiffs’ argument assumes that the
APR-DRG rates are less than what the plan would pay to an in-
network hospital for poststabilization care, and therefore a plan
would have no reason to transfer the patient to an in-network
provider and incur greater costs.
We reject this argument for three independent reasons.
First, we question the assumption that if the APR-DRG rates
apply there would be no purpose to an out-of-network hospital
seeking authorization from a managed care plan. It is
conceivable a plan might have a contracted rate with an in-
network hospital below the APR-DRG rates for particular
services, or that there might be other reasons besides cost for the
plan to transfer the patient.
Second, former section 14091.3, which mandated that out-
of-network poststabilization care be paid at the Medi-Cal fee-for-
service rates, was enacted during the same legislative session as
the current version of Health and Safety Code section 1262.8, and
the two statutes coexisted for years. (See Stats. 2008, ch. 603,
§ 2; Stats. 2008, ch. 758, § 42.) Assuming arguendo that applying
those state-set rates rendered meaningless the choice under
Health and Safety Code section 1262.8 to transfer the patient,
the Legislature approved of such an outcome.
Finally, plaintiffs’ argument does not recognize that Health
and Safety Code section 1262.8 is not specific to Medi-Cal, but
applies to all “health care service plans” licensed under specified

28
provisions of the Health and Safety Code. (Health & Saf. Code,
§§ 1262.8, subd. (m)(1), 1345, subd. (f).) Thus, the statute
remains vital independent of any interpretation of
section 14105.28.
Plaintiffs argue that if managed care plans are never
obliged to pay more than the APR-DRG rates for out-of-network
poststabilization care, they will have no financial incentive to
contract with out-of-network hospitals, and instead “can simply
compel those out-of-network hospitals to accept rates to which
they never agreed.” Plaintiffs contend this would thwart federal
and state law requiring managed care plans to “maintain an
adequate network of contracted/in-network hospitals.”
Defendant counters that plaintiffs’ interpretation of
section 14105.28 would allow out-of-network hospitals “to collect
exorbitant and arbitrary amounts” for poststabilization services,
thus “placing a potentially crippling burden on the Medi-Cal
program.” Amici join in the policy debate as well.
Whatever the merits of these arguments, policy
considerations are for the Legislature to address. We cannot
override the Legislature’s intent, embodied in the language and
legislative history of section 14105.28 and former section 14091.3,
to apply the APR-DRG rates to out-of-network poststabilization
services.
A group of hospitals19 filed an amicus brief in support of
plaintiffs arguing inter alia that a federal regulation, 42 C.F.R.

19 The hospitals are Miller Children’s & Women’s Hospital
of Long Beach, Pomona Valley Hospital Medical Center, Valley
Children’s Hospital, NorthBay Medical Center, Long Beach
Medical Center, Lucille Salter Packard Children’s Hospital at

29
part 438.6(c), prohibits states from directing a managed care
plan’s expenditures, and therefore the Legislature and DHCS
could not mandate that out-of-network poststabilization services
be paid at the APR-DRG rates or any other rate. Plaintiffs do not
argue this point on appeal. “An amicus curiae ordinarily must
limit its argument to the issues raised by the parties on appeal,
and a reviewing court need not address additional arguments
raised by an amicus curiae.” (Bullock v. Philip Morris USA, Inc.
(2011) 198 Cal.App.4th 543, 572.) We therefore decline to
address the applicability of 42 C.F.R. part 438.6(c) to this case.
(Bullock, at p. 572.)

DISPOSITION
The judgment is affirmed. Defendant is awarded its costs
on appeal.
CERTIFIED FOR PUBLICATION.

BENDIX, J.

We concur:

ROTHSCHILD, P. J.

WEINGART, J.*

Stanford, Stanford Health Care, Orange Coast Medical Center,
El Camino Hospital, and Saddleback Medical Center.
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.

30