Children's Hospital and Research Center at Oakland v. Health Plan of Nevada, Inc.,

Filing 102

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Samuel Conti on 4/30/2009. (sclc2, COURT STAFF) (Filed on 4/30/2009)

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

CHILDREN'S HOSPITAL AND RESEARCH CENTER AT OAKLAND, Plaintiff, v. HEALTH PLAN OF NEVADA, INC.; and DOES 1 THROUGH 25, INCLUSIVE, Defendants.

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No. 07-6069 SC MEMORANDUM OF DECISION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW

I.

INTRODUCTION The Children's Hospital and Research Center at Oakland

("CHO") brought this suit in the Alameda County Superior Court in October 2007, alleging that Defendant Health Plan of Nevada ("HPN") failed to pay the contractually required sum for medical services provided to one of HPN's members. Docket No. 1, Ex. A ("Compl."). Notice of Removal,

HPN removed the action from the Notice of Removal. Docket No. 3. HPN

Superior Court on November 30, 2007. filed its Answer on December 5, 2007.

With leave

of the Court, Docket No. 34, HPN filed an Amended Answer and Counterclaim ("Counterclaim"), asserting that it overpaid for medical services CHO provided to two of HPN's members, Docket No. 35. The Court denied HPN's Motion for Partial Summary Judgment

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("March 23, 2009, Order"). on April 20, 2009.

Docket No. 73.

The Court held a trial

After Plaintiff rested, Defendant moved for judgment on partial findings. under submission. RT at 130:3-22.1 Id. at 131:15-16. The Court took the motion Having now considered all of

the evidence and testimony offered at trial and the arguments of counsel, the Court DENIES the motion for judgment on partial findings as moot. On April 24, 2009, Defendant submitted an

administrative motion to file damage calculations under seal. Docket No. 99. The Court GRANTS the administrative motion. The

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Court by this memorandum of decision issues its findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court

concludes HPN did not underpay CHO for medical services provided to one of HPN's members. HPN overpaid CHO for medical services HPN is entitled to recover the

provided to two of HPN's members. overpayments.

II.

FINDINGS OF FACT A. The Parties 1. The Children's Hospital and Research Center at

Oakland ("CHO") is a California corporation. 2. corporation. Health Plan of Nevada ("HPN") is a Nevada

"RT" refers to the amended Transcript of Record from the trial held on April 20, 2009. Docket No. 96. 2

1

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B.

Patient A 3. Between May 1, 2006, and September 1, 2006, CHO

rendered medically necessary care, including bone marrow transplants, to a cancer patient enrolled in HPN's Medicaid Managed Care Program ("Patient A"). 4. On May 16, 2006, the Parties entered into a Letter

of Agreement, according to which HPN was to pay CHO as follows: For Medically Necessary Covered Services rendered by PROVIDER [i.e. CHO] in association with the above reference number, COMPANY [i.e. HPN] shall reimburse PROVIDER one-hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate less applicable copayments, coinsurance, and/or deductibles. Ex. P-4 ("LoA1") § 2. 5. The letter states that "PROVIDER agrees to reimburse

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COMPANY within thirty (30) days of written notification from COMPANY for any overpayment to PROVIDER made by COMPANY." § 7. 6. drafted LoA1. 7. On May 18, 2006, Debbie Nielsen ("Nielsen"), a CHO Shaun Schoener ("Schoener"), a HPN employee, Id.

employee, entered a note on her computer stating "LOA with Health Plan of Nevada to pay us for this admission at the Medi-Cal interim rate (50% of billed)." 8. Ex. P-16.

On July 20, 2006, Nielsen faxed Schoener the most

recent Hospital Interim Rate Report published by the State of California, and she included the comment that "[t]his is the basis that we utilize for payment expectations with out-of-state 3

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Medicaid plans and out-of-state Medicaid managed care plans." P-5 ("July 20, 2006, Fax"). 9.

Ex.

CHO billed HPN $2,008,550.40 for services provided

to Patient A between her admission and her death on September 1, 2006. 10. CHO refused to provide HPN with the contract rate

between Medi-Cal and CHO, claiming that the rate was confidential. 11. In October 2006, HPN paid the Hospital $341,325.00,

based on a per diem rate of $2,775.00 for the 123 days Patient A was admitted to the Hospital. C. Patient B 12. Between May 17, 2006, and May 22, 2006, CHO

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provided care to another HPN member ("Patient B"). 13. On May 17, 2006, the Parties entered into a

virtually identical Letter of Agreement for Patient B, which provides: For Medically Necessary Covered Services rendered by PROVIDER, COMPANY shall reimburse PROVIDER one-hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate less applicable copayments, coinsurance, and/or deductibles. Ex. P-5 ("LoA2") § 2. 14. The letter states that "PROVIDER agrees to

reimburse COMPANY within thirty (30) days of written notification from COMPANY for any overpayment to PROVIDER made by COMPANY." Id. § 7. 15. 16. Schoener drafted LoA2. On May 18, 2006, Nielsen entered a note on her 4

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computer stating "LOA with Health Plan of Nevada to pay us for this admission at the Medi-Cal interim rate (50% of billed)." P-21. 17. Patient B. 18. CHO refused to provide HPN with the contract rate CHO billed HPN $101,832.53 for services provided to Ex.

between Medi-Cal and CHO. 19. In July 2006, HPN paid the Hospital $44,745.09 for

services provided to Patient B. D. The Medi-Cal Contract Rate 20. The contract for hospital inpatient services

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between the State of California and CHO provides that, prior to May 12, 2006, the rate of reimbursement was $1,927 per day. ("Medi-Cal Contract") Amendment 10 § 4.1(a), Amendment 11 § 4.1(a). 21. The contract provides that, commencing May 12, P-31

2006, Medi-Cal would reimburse CHO at a rate of $2,000 per day. Id. Amendment 11, § 4.1(b). 22. The contract provides that, prior to May 12, 2006,

bone marrow transplant cases were reimbursed at a rate of $2,450 per day for the first 35 days of transplant, and commencing May 12, 2006, bone marrow transplant cases were paid at $2,500 per day for the first 35 days of transplant. 4.1(e)(1), 4.1(e)(2). 23. The contract provides that for ECMO (Extracorporeal Id. Amendment 11, §§

Membrane Oxygenation) services, Medi-Cal pays an all-inclusive rate of $5,000 per day not to exceed a total of 14 days. 5 Id. §

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4.1(e)(3). 24. If HPN had reimbursed CHO for services provided to

Patient A based on the rates in the Medi-Cal Contract, CHO states it would have been reimbursed according to the following rates: Prior to May 12, 2006, CHO's inpatient MediCal general acute care per diem rate was $1927 per day. As of May 12, 2006, CHO's inpatient Medi-Cal general acute care per diem rate was $2000 per day, and bone marrow transplant cases were paid at $2450 per day for the first 35 days of transplant. Medi-Cal also pays an ECMO (Extracorporeal Membrane Oxygenation) rate of $5000 per day for up to 14 days instead of the general acute per diem . . . CHO is a "Disproportionate Share" hospital and is entitled, in addition to the above referenced per diem rates, to receive an additional $500 per day per Medi-Cal patient. Ex. D-584 ("Pl.'s Supplemental Resp. to Def.'s First Set of Interrogs"), Resp. to Interrog No. 7.

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III. CONCLUSIONS OF LAW A. Contract Interpretation

The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity. Cal. Civ. Code § 1638; Doe 1 v. AOL LLC, 552 F.3d

1077, 1081 (9th Cir. 2009); AIU Ins. Co. v. Super. Ct., 51 Cal. 3d 807, 818 (1990). The words of a contract are to be understood in Cal. Civ. Code § 1644. If the

their ordinary and popular sense.

contract language is not ambiguous, then the Court's inquiry should end there, because parol evidence is only admissible if a contract is ambiguous. See e.g., Consol. World Invs., Inc. v.

Lido Preferred, Ltd., 11 Cal. Rptr. 2d 524, 526-27 (Ct. App. 1992) 6

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("One exception to the parol evidence rule is that extrinsic evidence may be introduced to explain the meaning of ambiguous contractual language."). However, under California law, parties may introduce evidence to prove a latent ambiguity in the terms of a contract. "The test

of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." Pac. Gas & Elec. Co.

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v. G. W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 37 (1968). Here, the phrase in dispute is "one-hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate." See LoA1; LoA2. CHO contends the phrase refers to the

interim rate.

HPN contends the phrase refers to the per diem When the Court ruled on

rates stated in the Medi-Cal Contract.

HPN's motion for partial summary judgment, the Court did not have a copy of the Medi-Cal Contract. n.3. See March 23, 2009, Order at 5

Without this evidence, the Court determined that the

disputed phrase was reasonably susceptible to being interpreted as the interim rate or a per diem rate. Id. at 6.

During trial, however, portions of the Medi-Cal Contract between the State of California and CHO were submitted into evidence. See P-31. This evidence shows that the rates set in

the Medi-Cal Contract are per diem rates, not the interim rate. See id. Based on this evidence, and the testimony offered at

trial, the Court concludes that the disputed phrase refers to the 7

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per diem rates stated in the Medi-Cal Contract. The letters of agreement were signed by Schoener on behalf of HPN. See LoA1; LoA2. Schoener custom drafted the phrase "one-

hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate." RT at 106:17-23.

Schoener's intent in drafting that language was that HPN would reimburse CHO according to the rate CHO would receive under its Medi-Cal Contract. Id. at 107:13-16. Schoener did not intend for Id. at 107:17-19.

the language to refer to the interim rate.

Schoener understood that if there was no agreement in place between HPN and CHO, then HPN would be required to pay the interim rate. Id. at 114:18-20. Schoener testified that if he entered

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into a contract based on the interim rate, he would be leaving HPN open to having to pay a percentage of whatever CHO wanted to bill. Id. at 116:8-117:3. The two letters of agreement were signed by Douglas T. Myers ("Meyers") on behalf of CHO. See LoA1; LoA2. Myers is the Chief RT at

Operating Officer and Chief Financial Officer of CHO. 142:12-13.

At his deposition, Myers testified that he understood

the word "contracted" in the disputed phrase to refer to a contract with the State of California, and he also understood that the contracted rate was a per diem rate. Id. at 144:18-145:19.

Nielsen is the Director of Managed Care Contracting at CHO. Id. at 4:16-19. with Schoener. Nielsen negotiated the two letters of agreement Id. at 34:25-35:2, 43:18-20. Nielsen understood

the disputed phrase in the letters of agreement to refer to the interim rate. Id. at 36:15-18, 44:8-13, 46:22-47:1. 8 However,

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Nielsen did not sign the letters of agreement on behalf of CHO. Myers signed them, and Myers understood the disputed phrase to refer to a contracted, per diem rate. See id. at 144:18-145:19. Id. at

The State of California calculates the interim rate. 133:1-10.

The interim rate is a temporary rate of reimbursement Id. at 133:17-20,

calculated for every hospital in California. 139:2-4.

Typically, California hospitals that have Medi-Cal Id. at

contracts are not reimbursed based on the interim rate. 136:14-137:4.

However, even contract hospitals can be reimbursed

using the interim rate for non-contract services they provide to Medi-Cal patients. Id. at 139:2-21.

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Here, the letters of agreement do not contain the words "interim rate." Id. at 60:10-14. They clearly and unambiguously After receiving

refer to the contracted rate.

See LoA1; LoA2.

the unexecuted letters of agreement from HPN, Nielsen did not request that changes be made to the documents, and she did not have CHO's attorneys review the language in the letters of agreement. RT at 59:19-24, 63:8-16. Nielsen testified to a

discussion with Schoener about the difference between the interim rate and a per diem rate, but she could not recall if the discussion occurred before or after the letters of agreement were executed and sent back to HPN. Id. at 65:24-66:6. Id.

Corrine Spaeth ("Spaeth") is HPN's Director of Claims. at 146:25-147:1.

In her deposition, she testified that when there

is no letter of agreement, HPN's usual custom and practice is to pay the interim rate. Id. at 150:8-15. In this case, however,

there are letters of agreement, and Spaeth testified that HPN's 9

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usual practice is to pay a hospital according to the terms of the letter of agreement. Id. at 149:6-12. She also testified that

she understood the disputed phrase to mean whatever the State of California would pay CHO for the services provided. 148:19-149:5. Based on the language in the two letters of agreement which clearly and unambiguous refer to a contract rate, based on the evidence that rates in the Medi-Cal Contract are per diem rates, and based on the testimony and arguments presented at trial, the Court can come to only one conclusion: that the phrase "onehundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate" is a per diem rate to be calculated in accordance with the terms set out in the Medi-Cal contract between the State of California and CHO. B. Calculation of HPN's Overpayments Id. at

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HPN paid $341,325.00 for the services and supplies provided by CHO to Patient A. Based on the rates set forth in the Medi-Cal This calculation is

Contract, HPN should have paid $262,697.00.

based on 35 days of treatment at the $2,500 rate for a bone marrow transplant, eleven (11) days of treatment at the $1,927 rate that applied prior to May 12, 2006, and seventy-seven (77) days of treatment at the $2,000 rate that applied commencing May 12, 2006. CHO claims to be entitled to an extra payment of $500 per day because it is a disproportionate share hospital. See Ex. D-584.

However, Nielsen testified that disproportionate share payments do not apply to patients from outside California. RT at 16:15-17:5.

Also, supplemental fund payments to CHO are lump sum payments. 10

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See Ex. P-31.

The Court finds that CHO is not entitled to an Therefore, HPN made

extra payment of $500 per day for Patient A. an overpayment of $78,628.00.

Section 7 of the letter of

agreement for Patient A entitles HPN to recovery of the overpayment. HPN paid $44,745.09 for the services provided by CHO to Patient B. Based on the rates set forth in the Medi-Cal Contract, This calculation is based on six

HPN should have paid $12,000.

(6) days of treatment at the $2,000 rate that commenced May 12, 2006. For the same reasons as explained in the previous

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paragraph, CHO is not entitled to an extra payment of $500 per day for services provided to Patient B. overpayment of $32,745.09. Therefore, HPN made an

Section 7 of the letters of agreement

for Patient B entitles HPN to recovery of the overpayment. /// /// /// /// /// /// /// /// /// /// /// /// /// 11

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IV.

CONCLUSION The Court concludes that HPN did not fail to pay the

contractually required sum for the medical services CHO provided to Patient A, and CHO takes nothing by way of its Complaint. regard to HPN's Counterclaim, the Court concludes that HPN overpaid CHO for the services provided to Patient A in the amount of $78,628.00. The Court concludes that HPN overpaid CHO for the HPN With

services provided to Patient B in the amount of $32,745.09. is entitled to a refund of $111,373.09.

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IT IS SO ORDERED.

Dated: April 30, 2009 UNITED STATES DISTRICT JUDGE

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