Health Reform WK-EDGE California charity care regulation challenge rejected by Ninth Circuit
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Monday, April 13, 2020

California charity care regulation challenge rejected by Ninth Circuit

By Rebecca Mayo, J.D.

The Ninth Circuit held that the ACA may frustrate a facility’s efforts to provide a minimum level of charity care, but it does not preempt California’s charity care regulation.

The Patient Protection and Affordable Care Act (ACA) decreased the number of uninsured individuals, which in turn may have reduced the need for charity care services in some hospitals. However, the ACA does not preempt a state charity care regulation where the hospital may donate to a public benefit nonprofit to satisfy its obligation to provide charity care services under the regulation. The Ninth Circuit Court of Appeals affirmed a district decision to dismiss a California hospital’s challenge to its charity care obligation for failure to state a claim (Deanco Healthcare, LLC v. Becerra, April 2, 2020).

Charity care. Deanco Healthcare acquired Mission Community Hospital in Los Angeles. In order to obtain state approval to purchase Mission, Deanco had to agree to abide by a California regulation that required Deanco, as the new owner, to incur annual thresholds of charity care costs at Mission based on the historic level of charity care that the hospital provided before the acquisition. Under the regulation, if Deanco’s actual charity care costs fell below that annual threshold, Deanco would be required to pay the difference to a nonprofit public benefit corporation for direct medical care to residents in Mission’s primary service area.

Deanco agreed to abide by these conditions when it obtained state approval to purchase Mission in 2010 and again when its purchase closed in 2013. During this same period of time, the ACA was passed and implemented, which expanded access to health care by increasing the number of Americans covered by health insurance. According to Deanco, the increased number of Californians with health insurance lowered the demand for charity care in the state. This left Deanco paying hefty obligatory donations to public health charities when, it believed that it should have been able to reinvest those profits into improving the hospital in order to provide better health care for the patients.

Deanco sought declaratory and injunctive relief invalidating its charity care obligation on federal preemption grounds. Deanco argued that the diversion of profits, inhibited the ACA’s goal of improved health care delivery. The district court dismissed the complaint for lack of subject matter jurisdiction and for failure to state a claim. Deanco appealed.

Decision. The court held that the ACA did not preempt the annual charity care obligation. In fact, the ACA specifically states that it should not "be construed to preempt any state law that does not prevent the application of" the ACA. The annual charity care regulation does not prevent the application of the ACA, nor does it stand as an obstacle to the accomplishment and execution of the ACA’s full purposes and objectives. The objectives of the ACA are to increase the number of Americans covered by medical insurance to do decrease the cost of medical care, not to improve health care delivery through reinvestment of profits in the hospital’s services, doctors, and infrastructure.

Deanco further asserted. that the charity care regulation was preempted by the Emergency Medical Treatment and Active Labor Act of 1986 (EMTALA). According to Deanco, forcing hospitals to maintain the same level of charity care while the number of uninsured plummets, expands the requirements of EMTALA that in a way that Congress never intended. However, the court found that the argument assumed that the charity care regulation was intended as an implementing regulation for the EMTALA, which it was not. Further, the charity care regulation does not stand as an obstacle to any aspect of EMTALA, and in fact the two requirements are consistent and mutually reinforcing.

The case is No. 19-55155.

Attorneys: Craig Boyd Garner (Garner Health Law Corp.) for Deanco Healthcare, LLC. Seth Goldstein, Office of the California Attorney General, for Xavier Becerra, Office of the Attorney General for the State of California and State of California.

Companies: Deanco Healthcare, LLC; State of California

Cases: CaseDecisions GeneralNews AlaskaNews ArizonaNews CaliforniaNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews NewsFeed

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