Health Reform WK-EDGE Service vendors must exhaust administrative remedies before filing a writ of mandate
Thursday, January 17, 2019

Service vendors must exhaust administrative remedies before filing a writ of mandate

By Elizabeth M. Dries, J.D.

A petition for writ of mandate under California Code of Civil Procedure §1085 by Social Vocational Services, a vendor of community based day programs for individuals with developmental disabilities, was properly denied, as Social Vocational neither exhausted its administrative remedies with the Department of Developmental Services (Department), nor was it excused from doing so. Furthermore, the Department properly rejected Social Vocational’s claim that it is entitled to a rate increase due to increased employee healthcare costs resulting from the enactment of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Judgment affirmed (Social Vocational Services Inc. v. Bargman, January 11, 2019, Hoch, A.).

Social Vocational Services. The Department is required to contract with regional centers to provide services to individuals with developmental disabilities. The regional centers contract for needed services such as community based day programs for individuals with developmental disabilities through approved service vendors. Social Vocational was an approved service vendor of community based day programs providing services to developmentally disabled persons and had nearly 2,000 employees. Starting in January 2015, the ACA required large employers to provide healthcare coverage for their employees or pay a penalty. Social Vocational services elected to pay the $2.2 million in ACA mandated healthcare coverage in lieu of the penalty. Social Vocational receives payment according the to the rates set by the Department, which sets a services provider’s permanent payment rate based on information submitted by the provider, including information regarding salary, wages and benefits. Once permanent payment rates are set they are unchanged unless there are unanticipated program changes are made and are limited to the following: (1) mandated services adjustments due to changes in existing statutes, laws, regulations or court decisions; and/or (2) emergency relocations.

Administrative action and appeal. On February 19, 2015, Social Vocational requested a rate adjustment from the Department on grounds the ACA’s enactment constituted an unanticipated program change or addition to the law. The Department denied the request for a rate increase on June 25, 2015. In response, Social Vocational filed a timely appeal on July 2, 2015. The Department’s deputy director failed to issue a decision within 60 days of the filing date. On October 7, 2015, Social Vocational filed a petition for writ of mandate in court. Approximately two weeks later, the deputy director issued a decision that denied the appeal and Social Vocational failed to appeal the deputy director’s denial to the Department director. The trial court denied the writ of petition on two grounds ruling: (1) Social Vocational had not exhausted its administrative remedies for failure to file an appeal to the department’s director; and (2) that employee costs imposed by the ACA did not constitute a mandated service adjustment.

Appeals decision. On appeal, Social Vocational argued that the trial court erred in denying the writ of petition for failure to exhaust its administrative remedies. It argued that it was excused from exhausting its administrative remedies because exhaustion would have been futile, the Department’s appeals process was fundamentally unfair, and the Departments should be estopped from invoking the exhaustion doctrine. It further argued that it is entitled to a rate increase because the California Code of Regulations includes employee costs in the definition of reimbursable "services" to the developmentally disabled.

The appeals court rejected all of these arguments, stating that Social Vocational did not exhaust its administrative remedies with the Department when it failed to appeal the decision of the deputy direction and instead sought relief superior court. In addition, it presented no evidence to support its assertion that the Director’s decision was certain to be a denial of the rate increase request and therefore, an appeal would have been futile. Social Vocational’s argument that the administrative remedy provided in the form of an appeal to the Department’s director violated due process as the Department failed to meet its own mandatory deadlines for processing appeals was also rejected as unconvincing. The appeals court reasoned that Social Vocational’s remedy for any delay by the Department was not to ignore its administrative remedies, but to secure a writ of mandate to compel the Department to fulfill its administrative duties. Finally, the court rejected Social Vocational’s argument that the Department and its director "are estopped" from invoking the exhaustion doctrine since they themselves stated in their initial response that the regulations did not apply.

The appeals court reasoned this was not the sort of special case in which the agency must be estopped because the interests of justice clearly require it, and would in fact undermine the appeals process itself as the result would be to prevent the deputy director and director from engaging in an error-correction cementing the Department’s first response as its only response. The Department’s initial response did not excuse Social Vocational from pursuing its administrative remedies, but made the administrative remedies all the more important to pursue.

The case is No. C083251.

Attorneys: Chad Wesley Carlock (Chad Wesley Carlock, Attorney at Law) for Social Vocational Services, Inc. Karli Eisenberg, Office of the State Attorney General, for Santi Rogers.

Companies: Social Vocational Services, Inc.

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