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Medi-Cal percentage based billing / DHCS ordered to pay full CCP 1028.5 attorney's fees

RAAD AL-SHAIKH , Plaintiff and Appellant, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.

A147939 Decided: March 27, 2018

This Opinion clarifies a provision of 42 Code of Federal Regulations section 447.10 ultimately settling the question that percentage-based billing contracts are not illegal per se.

This Opinion clarifies 42 Code of Federal Regulations section 447.10 (and, in turn, Welf. & Inst. Code, § 14040.5, subd. (b)). This regulation was misinterpreted by the DHCS’s Chief, the Administrative Law Judge, DHCS’s attorneys, and the Superior Court. They failed to appreciate the regulation’s meaning from its face, and there was no case law to rely on for an interpretation.

This Opinion goes further by clarifying the legality of percentage-based billing contracts. Percentage-based billing contracts are the rule among private practice healthcare practitioners. In speaking with healthcare billing consultants, I learned that these contracts are commonly misunderstood by the government agencies overseeing Medicaid. And such mistakes can have disastrous consequences for the naïve healthcare provider’s practice. If she or he capitulates to the government’s demand to switch to a fee-based billing contract, the practitioner’s business is changed significantly for the worse. And if she or he argues the point, a protracted legal battle ensues because there is no legal precedent to turn to.

Furthermore, such a case is likely to repeat itself without this Court’s clarification. Even after DHCS was shown OIG guidance statement, it argued that it is not entirely clear if percentage-based contracts like appellant's would ultimately withstand judicial scrutiny. (Respondent’s Brief p. 19.) DHCS continued to argue that the risk of upcoding remains present when a billing agent is paid on a percentage basis- regardless of how that money is filtered to the agent. This Opinion puts that argument to rest. This Opinion clarifies provisions of CCP 1028.5 including defining the “substantial justification” standard and clarifying the effect of mandatory reporting on the discretionary awarding of attorney’s fees.

This Opinion clarifies provisions of CCP 1028.5 including defining the “substantial justification” standard and clarifying the effect of mandatory reporting on the discretionary awarding of attorney’s fees.

CCP 1028.5 is an important statute because it protects California’s smaller businesses from abuses by government agencies. However, cases law regarding this statute is virtually nonexistent, and there is no case law defining the “substantial justification” standard as applied to this statute. The parties in this case disagreed as to the proper standard for “substantial justification.” The government argued that the standard should be less rigorous than the similar tax code statutes (Revenue and Taxation Code sections 19717 and 7156) or the EAJA because CCP 1028.5 contains punitive elements that the taxation statutes do not contain. Dr. Al-Shaikh urged this Court to require the government to show a more than a reasonable basis for its position because CCP 1028.5 applies to a weaker plaintiff, the small business, and CCP 1028.5 has a ceiling on attorney’s fees. This Opinion clarifies the issue by setting the standard similar to previous cases’ “reasonable basis” requirement.

Furthermore, the Opinion adds to case law by providing a set of facts which constitute “lack of substantial justification.” Appellant could find only three cases which upheld an award for attorney’s fees based on a lower court’s finding of lack of substantial justification. These were all related to tax statutes. (Wertin v. Franchise Tax Bd. (1998) 68 Cal.App.4th Lucent Technologies, Inc. v. State Board of Equalization (2015) 241 Cal.App.4th 19; Fujitsu IT Holdings, Inc. v. Franchise Tax Bd. (2004) 120 Cal.App.4th 459 at 487). This Opinion defines this standard in light of a unique set of facts. (CRC, Rule 8.1105 subd. (c)(2).)

Finally, this Opinion clarified the effect of mandatory reporting on a court’s decision to award CCP 1028.5 discretionary fees. DHCS made a plea to the court to take into consideration, when deciding on an award, that the agency is required to report the fees to the Legislature. This Court has made it clear, that in exercising its discretion, a court should not refuse to award fees for this reason.

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