REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
August 18, 2026
FROM
ANDREW GOLDFRACH, ARMC Chief Executive Officer, Arrowhead Regional Medical Center
SUBJECT
Title
Agreement with King & Spalding, LLP and Toyon Associates, Inc. to Pursue Floor Wage Index Appeal Relating to Medicare Reimbursement Rates
End
RECOMMENDATION(S)
Recommendation
Approve Agreement with King & Spalding, LLP and Toyon Associates Inc., including non-standard terms, to pursue an appeal for the Centers for Medicare and Medicaid Services to correct its calculation of the rural floor wage index relating to Medicare reimbursements, in an amount not to exceed $1,030,000, effective August 18, 2026, until terminated by either party (Four votes required).
(Presenter: Andrew Goldfrach, ARMC Chief Executive Officer, 580-6150)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
Provide for the Safety, Health and Social Service Needs of County Residents.
FINANCIAL IMPACT
Approval of this item will not result in the use of Discretionary General Funding (Net County Cost). Under the agreement (Agreement) with King & Spalding, LLP and Toyon Associates, Inc., (collectively, contractors) the County must pay $2,500 filing fee per hospital per appeal filed, not to exceed $25,000 per year appealed. If the contractors obtain a favorable outcome, then the County will pay a contingency fee of 15%. The costs under this Agreement will be funded by State Medi-Cal, Federal Medicare, private insurances, and other departmental revenue. Funding sources may change in the future pending any legislative activity related to the repeal and/or replacement of the Affordable Care Act. Adequate appropriation and revenue have been included in Arrowhead Regional Medical Center (ARMC) 2026-27 budget and will be included in future recommended budgets.
BACKGROUND INFORMATION
The Agreement with King & Spalding, LLP (K&P) and Toyon Associates, Inc. (Toyon) will allow ARMC to utilize their appellate services to pursue an appeal to have the Centers for Medicare and Medicaid Services (CMS) correct its calculation of the rural floor wage index (index) relating to Medicare reimbursements. K&P and Toyon are outside legal firms specializing in these types of appellate services.
The index is a Medicare rule that sets a minimum wage index for urban hospitals equal to the state's rural wage index, so they are not paid less than rural hospitals in the same state. Medicare pays hospitals for inpatient services provided to Medicare patients based on the Inpatient Prospective Payment System (IPPS). The IPPS considers various factors to determine reimbursement amounts, including the index. This index is determined by a complex formula, but the IPPS requires that CMS ensure that urban hospitals in a state will not have a lower index than rural hospitals in that state. ARMC is attempting to recover eight years, federal fiscal years 2019 and 2021 through 2027, of Medicare reimbursement through this appeal process for a potential approximate amount of $6.7 million. The appeals would not involve federal fiscal year 2020 as ARMC is currently participating in a separate appeal for that period that will preclude ARMC from pursuing it with these appeals.
The appeals process that K&P and Toyon will pursue on behalf of ARMC involves the filing of an administrative appeal with the Provider Reimbursement Review Board (PRRB). If K&P and Toyon are unable to reach a resolution with the PRRB, K&P will file an appeal in federal court, subject to approval by the Board of Supervisors. ARMC is required to pursue an administrative appeal in the PRRB before seeking relief from a federal court.
The estimated contract amount of $1,030,000 consists of approximately $20,000 in filing fees for eight appeal years and an estimated contingency fee of approximately $1,010,000, representing 15% of an estimated maximum Medicare reimbursement recovery. The estimated recovery was developed by Toyon based on historical Medicare reimbursement data and projected wage index adjustments.
The Agreement is K&P and Toyon’s standard contract, negotiated by the parties, which includes a term that differs from the standard County contract and omits certain County standard contract terms as follows:
1. The Agreement does not include certain standard County insurance requirements, including the waiver of subrogation.
• The County standard contract requires contractors to carry appropriate insurance at limits and under conditions determined by the County’s Risk Management Department.
• Potential Impact: No waiver of subrogation may allow K&P or Toyon’s insurer to bring suit against the County, which could result in expenses that exceed the total Agreement amount.
2. The Agreement does not require K&P or Toyon to indemnify the County, as required by County Policies 11-05 and 11-07.
• The County standard contract indemnity provision requires the contractor to indemnify, defend, and hold County harmless from third party claims arising out of the acts, errors or omissions of any person.
• Potential Impact: K&P and Toyon are not required to defend, indemnify or hold the County harmless from any claims, including indemnification for claims arising from K&P or Toyon’s negligent or intentional acts. If the County is sued for any claim, then the County may be solely liable for the costs of defense and damages, which could exceed the total Agreement amount.
3. The Agreement does not guarantee the duration of K&P and Toyon’s engagement. The Agreement may be terminated by any party for any reason.
• Standard County contracts are five years or less.
• Potential Impact: The term of the agreement may extend longer than five years if the parties fail to terminate the agreement. Termination of the agreement requires written notice to the other parties.
Four votes are required pursuant to Government Code section 25203 because the Agreement includes outside legal counsel to assist County Counsel in pursuing the Medicare reimbursement appeal.
ARMC recommends approval of the Agreement, including the non-standard terms, to provide for the safety, health and social service needs of County residents by additional resources for patient care. The Agreement remains in effect until the appeals are resolved or a written notice of termination is provided to the parties involved.
PROCUREMENT
The Purchasing Department supports this non-competitive procurement based on specialized credentials and expertise as K&P and Toyon have unique expertise in preparation and consultation of specific reports related to the CMS. Additionally, Toyon currently prepares all of ARMC’s CMS cost reports, and therefore, has the expertise needed to file the appeal on behalf of the hospital.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Daniella Hernandez, Deputy County Counsel, 387-5455) on July 1, 2026; Purchasing (Veronica Pedace, Buyer III, 387-2464) on July 8, 2026; Risk Management (Stephanie Pacheco, Staff Analyst II, 386-9039) on July 14, 2026; ARMC Finance (Chen Wu, Finance and Budget Officer, 580-3165) on July 24, 2026; and County Finance and Administration (Jenny Yang, Administrative Analyst, 387-4884) on July 30, 2026.