Opinion
CROSKEY, Acting P.J.
FountainValley Regional Hospital and Medical Center, a California corporation (Hospital), appeals from a judgment which denied its petition for administrative mandamus relief (Code Civ. Proc., § 1094.5). Hospital sued the Director of the California State Department of Health Services (the Department) to prevent the Department from assessing Medi-Cal liabilities against Hospital (refunds of money previously paid to Hospital by the state) for fiscal years 1981, 1982 and 1983.
The liabilities pertain to services previously rendered by Hospital to its Medi-Cal patients.
These liabilities are in excess of $470,000, and were not assessed against Hospital until September 1994. Although Hospital admits that the money sought to be reclaimed by the Department consists of “mistaken payments made to [Hospital],” Hospital contends the Department’s delay in assessing the liabilities is unreasonable and prejudicial, and therefore the doctrine of laches precludes the assessment.
The trial court ruled that while Hospital may indeed have a just claim of laches against the Department, Hospital would not prevail in this mandamus action because it had not presented evidence, at the administrative hearing which was held to try to resolve this matter, to support its laches claim. The court stated that Hospital had not “cite[d] the court to any portion of the administrative record which presents evidence of unreasonable delay and resulting prejudice. Instead, [Hospital] contend[ed] that it did not have to produce such evidence because both such elements are presumed.”
Although the trial court rejected Hospital’s contention that the elements of laches are presumed from the facts of this case, we find Hospital’s position is well taken. Whether Hospital demonstrated prejudice and unreasonable delay to the administrative law judge is not a controlling issue in this appeal. As discussed below, because Hospital may rely upon a limitations period “borrowed” from an analogous statute of limitations, and because the Department exceeded that period when it issued its 1994 notices claiming entitlement to a refund of money, a presumption arose that the delay in the issuance of those notices was unreasonable, and that Hospital had been prejudiced by that delay. Therefore, the Department has the burden of rebutting that presumption at the administrative hearing. If the Department cannot meet that burden of proof, it cannot recover on its refund claim.
We therefore reverse the judgment and direct the trial court to remand the case for further consideration by the administrative law judge, who shall determine whether the Department met its burden of proof at the administrative hearing.
Background of the Case
1.
The Department’s System for Reimbursing Hospitals Which Provide Services to Medi-Cal Patients
The Medi-Cal program provides a variety of health care services for its recipients, including inpatient hospital care. Throughout a fiscal year, the
Department makes interim Medi-Cal reimbursement payments to a hospital (based on the hospital’s historical rate of Medi-Cal reimbursement) so that the hospital has sufficient cash flow to continue to service Medi-Cal patients. Following the close of a hospital’s fiscal year, the hospital presents a cost report to the Department which sets forth the actual cost of its Medi-Cal services. After a hospital submits its cost report to the Department, the Department uses the unaudited cost report to make a tentative settlement of money owed the hospital for its Medi-Cal services. If the interim payments made to the hospital appear to be exceeded by the amount which the cost report shows should be reimbursed to the hospital by the Department, the Department will make an additional payment to the hospital. When a final audit report and settlement (which determines the hospital’s allowable MediCal costs for services to Medi-Cal patients for the pertinent fiscal year) is made, the Department then determines the hospital’s all-inclusive rate per discharge and its peer group limit (Cal. Code Regs., tit. 22, §§ 51536 & 51539), and arrives at a
“final reimbursement settlement’
of the Medi-Cal reimbursement amount which was due the hospital for the relevant fiscal year. This sum represents the Department’s total reimbursement liability. Thereafter, the hospital itself will be charged with a liability if the Department determines too much money was paid to the hospital, during a fiscal year, as reimbursement for the hospital’s services to Medi-Cal patients.
(Robert F. Kennedy Medical Centers. Belshé
(1996) 13 Cal.4th 748, 753-754 [55 Cal.Rptr.2d 107, 919 P.2d 721]
(Kennedy Medical Center).)
Absent certain circumstances, section 14170 of the Welfare and Institutions Code (§ 14170) gives the Department three years to audit or review the accuracy of a hospital’s cost report data after it is submitted by the hospital, and if this time limit is not met, the cost report data will be considered true and correct.
(Kennedy Medical Center, supra,
13 Cal.4th at pp. 750, 760.) However, the Department is not limited by this time constraint in its
utilization
of the cost report data to ultimately arrive at a final reimbursement settlement amount.
(Ibid.)
2.
The Department’s Final Reimbursement Settlements in the Instant Case
On January 10, 1985, the Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1981. On August 21, 1985, the Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1982. On October 10, 1989, the
Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1983.
Then, on September 16, 1994, nearly 10 years after the issuance of its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1981, the Department issued
revised
final reimbursement settlements for that fiscal year and for fiscal years 1982 and 1983. The Department’s stated reason for the revision was that the Department had discovered a calculation error in the final reimbursement settlements for those years. The revised final reimbursement settlements sought to recoup from Hospital a total of $1,265,440 of the reimbursement money the Department had paid to Hospital for those three fiscal years.
Hospital requested an administrative adjustment to the revised final reimbursement settlements, and in a letter to the Department asserted that the delay in producing
truly
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Opinion
CROSKEY, Acting P.J.
FountainValley Regional Hospital and Medical Center, a California corporation (Hospital), appeals from a judgment which denied its petition for administrative mandamus relief (Code Civ. Proc., § 1094.5). Hospital sued the Director of the California State Department of Health Services (the Department) to prevent the Department from assessing Medi-Cal liabilities against Hospital (refunds of money previously paid to Hospital by the state) for fiscal years 1981, 1982 and 1983.
The liabilities pertain to services previously rendered by Hospital to its Medi-Cal patients.
These liabilities are in excess of $470,000, and were not assessed against Hospital until September 1994. Although Hospital admits that the money sought to be reclaimed by the Department consists of “mistaken payments made to [Hospital],” Hospital contends the Department’s delay in assessing the liabilities is unreasonable and prejudicial, and therefore the doctrine of laches precludes the assessment.
The trial court ruled that while Hospital may indeed have a just claim of laches against the Department, Hospital would not prevail in this mandamus action because it had not presented evidence, at the administrative hearing which was held to try to resolve this matter, to support its laches claim. The court stated that Hospital had not “cite[d] the court to any portion of the administrative record which presents evidence of unreasonable delay and resulting prejudice. Instead, [Hospital] contend[ed] that it did not have to produce such evidence because both such elements are presumed.”
Although the trial court rejected Hospital’s contention that the elements of laches are presumed from the facts of this case, we find Hospital’s position is well taken. Whether Hospital demonstrated prejudice and unreasonable delay to the administrative law judge is not a controlling issue in this appeal. As discussed below, because Hospital may rely upon a limitations period “borrowed” from an analogous statute of limitations, and because the Department exceeded that period when it issued its 1994 notices claiming entitlement to a refund of money, a presumption arose that the delay in the issuance of those notices was unreasonable, and that Hospital had been prejudiced by that delay. Therefore, the Department has the burden of rebutting that presumption at the administrative hearing. If the Department cannot meet that burden of proof, it cannot recover on its refund claim.
We therefore reverse the judgment and direct the trial court to remand the case for further consideration by the administrative law judge, who shall determine whether the Department met its burden of proof at the administrative hearing.
Background of the Case
1.
The Department’s System for Reimbursing Hospitals Which Provide Services to Medi-Cal Patients
The Medi-Cal program provides a variety of health care services for its recipients, including inpatient hospital care. Throughout a fiscal year, the
Department makes interim Medi-Cal reimbursement payments to a hospital (based on the hospital’s historical rate of Medi-Cal reimbursement) so that the hospital has sufficient cash flow to continue to service Medi-Cal patients. Following the close of a hospital’s fiscal year, the hospital presents a cost report to the Department which sets forth the actual cost of its Medi-Cal services. After a hospital submits its cost report to the Department, the Department uses the unaudited cost report to make a tentative settlement of money owed the hospital for its Medi-Cal services. If the interim payments made to the hospital appear to be exceeded by the amount which the cost report shows should be reimbursed to the hospital by the Department, the Department will make an additional payment to the hospital. When a final audit report and settlement (which determines the hospital’s allowable MediCal costs for services to Medi-Cal patients for the pertinent fiscal year) is made, the Department then determines the hospital’s all-inclusive rate per discharge and its peer group limit (Cal. Code Regs., tit. 22, §§ 51536 & 51539), and arrives at a
“final reimbursement settlement’
of the Medi-Cal reimbursement amount which was due the hospital for the relevant fiscal year. This sum represents the Department’s total reimbursement liability. Thereafter, the hospital itself will be charged with a liability if the Department determines too much money was paid to the hospital, during a fiscal year, as reimbursement for the hospital’s services to Medi-Cal patients.
(Robert F. Kennedy Medical Centers. Belshé
(1996) 13 Cal.4th 748, 753-754 [55 Cal.Rptr.2d 107, 919 P.2d 721]
(Kennedy Medical Center).)
Absent certain circumstances, section 14170 of the Welfare and Institutions Code (§ 14170) gives the Department three years to audit or review the accuracy of a hospital’s cost report data after it is submitted by the hospital, and if this time limit is not met, the cost report data will be considered true and correct.
(Kennedy Medical Center, supra,
13 Cal.4th at pp. 750, 760.) However, the Department is not limited by this time constraint in its
utilization
of the cost report data to ultimately arrive at a final reimbursement settlement amount.
(Ibid.)
2.
The Department’s Final Reimbursement Settlements in the Instant Case
On January 10, 1985, the Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1981. On August 21, 1985, the Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1982. On October 10, 1989, the
Department issued its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1983.
Then, on September 16, 1994, nearly 10 years after the issuance of its final reimbursement settlement for Hospital’s fiscal year ending October 31, 1981, the Department issued
revised
final reimbursement settlements for that fiscal year and for fiscal years 1982 and 1983. The Department’s stated reason for the revision was that the Department had discovered a calculation error in the final reimbursement settlements for those years. The revised final reimbursement settlements sought to recoup from Hospital a total of $1,265,440 of the reimbursement money the Department had paid to Hospital for those three fiscal years.
Hospital requested an administrative adjustment to the revised final reimbursement settlements, and in a letter to the Department asserted that the delay in producing
truly
final reimbursement settlements created “an unreasonable burden of proof for the Hospital to justify costs in excess of [its allowable peer group rate].” Moreover, explained Hospital, “[t]he principal firm which previously assisted [Hospital] in these matters has ceased to exist, pertinent documents and files were unavailable at the Hospital, and unobtainable from the State in a timely manner despite repeated requests.”
In October
1996
the parties reached an administrative adjustment settlement whereby the Department would recoup $470,571 for the three fiscal years in question unless it was determined, by an administrative hearing, that a statute of limitations or the doctrine of laches prevents the Department from recouping the money. In February 1997 the administrative law judge (ALJ) issued her proposed decision whereby Hospital would be denied relief. On the issue of laches, the ALJ stated Hospital had failed to show that the Department’s revision of the final reimbursement settlements had caused Hospital “injury, surprise, prejudice, or substantial harm.” The decision was adopted by the Department in March 1997.
Hospital filed this administrative mandamus action in September 1997. In its petition for relief, Hospital asserted that due in part to the passage of time, it was not able to present evidence to reduce its remaining liabilities below the $470,571 settlement figure. In March 1998, the court signed and filed its judgment in favor of the Department. Thereafter, Hospital filed this appeal.
Issue Raised by This Appeal
This appeal raises the following issue. At the administrative hearing, who had the burden of proof on the question as to whether the Department is precluded by the doctrine of laches from assessing Medi-Cal liabilities against Hospital for fiscal years 1981, 1982 and 1983? Putting it in the context of the specific facts before us, was Hospital required to demonstrate that the Department unreasonably delayed its revision of the final reimbursement settlements, with resulting prejudice to Hospital? Or do the facts warrant the conclusion that unreasonable delay and prejudice are presumed in this case (because of the length of time which elapsed between the Department’s issuance of its original final reimbursement settlements and its issuance of the revised final reimbursement settlements), and therefore the Department had the burden of rebutting that presumption?
Discussion
1.
Standard of Review
Resolution of this burden of proof issue turns on matters of law, not fact. Therefore, we exercise our independent judgment and review the trial court’s decision de novo.
(Evans
v.
Unemployment Ins. Appeals Bd.
(1985) 39 Cal.3d 398, 407 [216 Cal.Rptr. 782, 703 P.2d 122].)
2.
The Doctrine of Laches as Applied to Administrative Proceedings
Citing
Steen
v.
City of Los Angeles
(1948) 31 Cal.2d 542 [190 P.2d 937] and
Gates
v.
Department of Motor Vehicles
(1979) 94 Cal.App.3d 921 [156 Cal.Rptr. 791], the
Kennedy Medical Center
court stated that “[u]nder appropriate circumstances, the defense of laches may operate as a bar to a claim by a public administrative agency, such as the Department,
if the requirements of unreasonable delay and resulting prejudice are met."
(Kennedy Medical Center, supra,
13 Cal.4th at p. 760, fn..9, italics added.) We observe that the elements of unreasonable delay and resulting prejudice may be “met” in two ways. First, they may be demonstrated by the evidence
in the case, and the person arguing in favor of a finding of laches has the burden of proof on the laches issue. Second, the element of prejudice may be “presumed” if there exists a statute of limitations which is sufficiently analogous to the facts of the case, and the period of such statute of limitations has been exceeded by the public administrative agency in making its claim. In the second situation, the limitations period is “borrowed” from the analogous statute, and the burden of proof shifts to the administrative agency. To defeat a finding of laches the agency, here the Department, must then (1) show that the delay involved in the case (such as the Department’s delay between issuing the original final reimbursement settlements and the assertion of the
revised
settlements) was excusable, and (2) rebut the presumption that such delay resulted in prejudice to the opposing party.
(Brown
v.
State Personnel Bd.
(1985) 166 Cal.App.3d 1151, 1158-1161 [213 Cal.Rptr. 53];
accord,
Stevedoring Services
v.
Prudential Lines, Inc.
(1986) 181 Cal.App.3d 154, 158, 160 [226 Cal.Rptr. 225] [applied federal law respecting the doctrine of laches];
Robert F. Kennedy Medical Center
v.
Department of Health Services
(1998) 61 Cal.App.4th 1357, 1362 [72 Cal.Rptr.2d 180] [addressed a different fiscal year than those addressed by the Supreme Court in
Kennedy Medical Center,
the court determined the period of the analogous statute of limitations (the four-year period for actions on a written contract) had not been exceeded by the Department].)
Thus, “[i]n cases in which no statute of limitations directly applies [such as administrative proceedings] but there is a statute of limitations governing an analogous action at law, the period may be borrowed as a measure of the outer limit of reasonable delay in determining laches. [Citations.] Whether or not such a borrowing should occur depends upon the strength of the analogy.”
(Brown
v.
State Personnel Bd., supra,
166 Cal.App.3d at pp. 1159-1160.)
3.
The Trial Court’s Rejection of the “Borrowing” Rule
In the instant case, the trial court rejected the concept of borrowing periods of limitation to determine whether the burden of proof on the issue
of laches should be shifted to the Department. The court ruled that “statutes of limitation have nothing to do with time limits for taking administrative action of the type involved in this case.” However, we disagree. There are several statutes of limitation in the Code of Civil Procedure which are clearly applicable to the facts of this case. They are section 337, which provides for a four-year statute of limitations on a book account; section 338, subdivision (a), which provides for a three-year statute of limitations for “[a]n action upon a liability created by statute, other than a penalty or forfeiture”; and section 338, subdivision (d), which provides for a three-year statute of limitations for actions “for relief on the ground of fraud or mistake.”
On appeal, the Department argues that Hospital is attempting to “backdoor” what the court in
Little Company of Mary Hospital
v.
Belshé,
supra, 53 Cal.App.4th 325 said cannot be done—apply a statute of limitations to an administrative action. (See fn. 3,
ante.)
However, transferring the burden of proof on a claim of laches when there is an analogous statute of limitations is not the same thing as applying a statute of limitations to a given set of facts. In the latter situation, application of the statute of limitations bars the claim completely. In the former situation, recognition of an analogous statute of limitations simply shifts the burden of proof from the party asserting laches to the party arguing against application of the doctrine of laches. Thus, shifting the burden of proof in the instant case would not, in and of itself, preclude the Department from obtaining an additional recoupment from Hospital. Rather, it would be the Department’s inability to present facts excusing its delay in revising its final reimbursement settlements, and its inability to overcome the presumption of prejudice to Hospital, which would work such a result. Thus, we hold that when the Department seeks to
revise
its
final
reimbursement settlements, the borrowing rule for periods of limitation should be applied by ALJ’s in administrative hearings on such revisions, if factually appropriate.
4.
The Matter of Prejudice
As noted in footnote 3,
ante,
the
Kennedy Medical Center
court rejected the argument that when there is a long delay by the Department in reaching a final reimbursement settlement for a fiscal year, it is harmful to a hospital because the hospital’s uncertainty as to large contingent Medi-Cal claims
interferes with the financial planning which is necessary for a successful business operation. The court said that problem is one for the Legislature to remedy.
(Kennedy Medical Center, supra,
13 Cal.4th at p. 760.) It is also true the Supreme Court observed that when there is a delay in a final reimbursement settlement, the usual result is that the hospital owes the Department money, not vice versa, and therefore the hospital has had the use of interest-free government funds during that delay.
(Id.
at pp. 759-760.) However, in the instant case, there
were
final reimbursement settlements at the time the Department informed Hospital it wanted to recoup reimbursement money. Indeed, two of those final reimbursement settlements were more than nine years old.
At some point, there must be finality to the Department’s “final” reimbursement settlements. Otherwise, a hospital’s financial planning and rational allocation of its resources will simply be impossible. Such a result is neither fair nor socially desirable. These considerations provide additional support for a rule that shifts the laches burden of proof to the Department when its own delay in
revising
a previously submitted “final reimbursement settlement” exceeds an analogous statute of limitations period. Additionally, a hospital’s final reimbursement settlement depends on matters that factor into its allowable peer group rate, and that rate is derived from information to which a hospital does not have access (i.e., the financial records of the other hospitals in its peer group). Therefore, the Department, not the hospital, will always have better, if not exclusive, access to information respecting the question whether the challenged administrative delay in issuing a revised final reimbursement settlement is excusable.
Disposition
The judgment is reversed and the matter is remanded to the trial court with directions to remand the case to the administrative law judge with directions to vacate her decision of February 24, 1997, as approved by the Board on March 11, 1997, and to conduct further proceedings consistent with the views expressed herein. Costs on appeal to Hospital.
Kitching, J., and Aldrich, J., concurred.