Family Health Centers of San Diego v. State Dept. of Health Care Services (July 24, 2023, S270326) __ Cal.5th __ [2023 WL 4697232].
Federally qualified health centers (FQHCs) receive federal funding to provide basic health care to underserved communities regardless of patients’ ability to pay. Federal law requires FQHCs to educate underserved communities about obtaining needed healthcare. States must fully reimburse FQHCs for the costs of providing medical assistance to Medicaid beneficiaries that are “reasonable and related to the cost of furnishing such services.” Family Health Centers of San Diego, which operates several FQHCs, sought reimbursement from the state Medicaid program, Medi-Cal, for outreach expenses, such as sending workers into the community to provide information about available healthcare services. An auditor at the State Department of Health Care Services (DHCS), which administers Medi-Cal, determined that these outreach expenses were nonreimbursable advertising expenses. Family Health administratively appealed, but an administrative law judge (ALJ), relying on the federal Centers for Medicare & Medicaid Services’ Provider Reimbursement Manual (Manual), ruled the outreach expenses were nonreimbursable because they did not involve patient care and were advertising aimed at patient recruitment.
Family Health filed a petition for writ of administrative mandamus, which the superior court denied. Family Health appealed. The Court of Appeal affirmed, holding that the ALJ did not abuse its discretion by finding that Family Health’s outreach expense had the purpose of recruiting new patients and increasing utilization of the FQHC, making it a nonreimbursable advertising expense under the Manual. The Supreme Court later granted Family Health’s petition for review.
The Supreme Court reversed and remanded for further proceedings. The court found nothing in the Manual or regulatory scheme established that outreach costs are nonreimbursable merely because they have the incidental effect of recruiting new patients and increasing utilization of FQHCs. To determine whether an outreach expense is “reasonably related, directly or indirectly, to patient care” requires distinguishing between costs associated with educating the public and public relations activities designed to present a positive public image regarding patient care (which are reimbursable) and advertising costs designed to generate revenue by convincing patients to seek care at a particular facility, rather than its competitors (which are nonreimbursable). Here, the ALJ failed to apply that standard, so the court reversed and remanded to allow the DHCS to reconsider the reimbursability of Family Health’s outreach expenses under the correct standard.
