Judge: California health care department exempt from dormant Commerce Clause

By Amanda Thomas | Apr 8, 2018

SAN FRANCISCO — A federal judge has reversed a district court's decision in a lawsuit brought by hospitals outside but near the California border against the state Department of Health Care Services.

In the March 14 unanimous ruling by a three-judge panel, Ninth Circuit U.S. Appeals Court Judge Ferdinand F. Fernandez held that the department didn't violate the dormant Commerce Clause in adopting Medi-Cal policies related to reimbursements to out-of-state hospitals because it was acting as a market participant and not a regulator.

"The Department's reimbursement methodology does not violate the dormant Commerce Clause," Fernandez wrote on behalf of the panel in a 17-page opinion.

The case stems from a lawsuit brought by 19 hospitals in Arizona, Nevada and Oregan against the department and its director, Jennifer Kent. The hospitals claimed California violated the clause when it established new criteria for medical reimbursements to out-of-state hospitals. The new rates were incorporated as part of Medi-Cal, California's Medicaid health care program.

The hospitals claimed the new policy would cost them millions of dollars each year because they are the trauma centers most conveniently available to Medi-Cal patients in the event of an emergency. For example, the University Medical Center of Southern Nevada is the only Level 1 trauma center within a 200-mile radius of Las Vegas, Nevada. And Renown Regional Medical Center is the only Level II trauma center between Sacramento, California and Salt Lake City, Utah.

In 2015, U.S. District Court Judge Edward M. Chen held that the department violated the clause, but denied the hospitals' claim for retroactive monetary relief. The hospitals appealed that decision.

In his ruling, Fernandez noted that "the Department sets rates of reimbursement to hospitals for those who are essentially insured as beneficiaries under Medi-Cal in a manner much like that of a private insurer participating in the market."

He noted there was no need to address questions presented by the other issues brought before the court that hinged on the commerce clause.

"The district court's resolution of the market participant issue was the foundation of its decision's whole edifice and with the demolition of the foundation, the whole edifice falls and shatters," Fernandez said.

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U.S. Court of Appeals for the Ninth Circuit University Medical Center of Southern Nevada

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