REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
January 9, 2024
FROM
TOM BUNTON, County Counsel
SUBJECT
Title
Non-Financial Agreement with Hooper, Lundy & Bookman, P.C. for Participation in the Challenge to the Centers for Medicare and Medicaid Services Federal Fiscal Year 2024 Rule Regarding the Area Wage Index
End
RECOMMENDATION(S)
Recommendation
1. Approve a non-financial Agreement for Legal Services, including non-standard terms, with Hooper, Lundy & Bookman, P.C., to represent the County in a challenge to the Centers for Medicare and Medicaid Services’ Federal Fiscal Year 2024 Rule on the area wage index, effective January 9, 2024, until terminated by either party (Four votes required).
2. Authorize the County Counsel to execute the Agreement for Legal Services in Recommendation No. 1.
3. Direct the County Counsel to submit the Agreement for Legal Services to the Clerk of the Board of Supervisors within 30 days of execution.
(Presenter: Tom Bunton, County Counsel, 387-5455)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of this item will not result in the use of any Discretionary General Funding (Net County Cost). Expenditures for the legal services provided under the Agreement for Legal Services (Agreement) will be paid by the California Hospital Association (CHA), which has sponsored and coordinated the legal challenge.
BACKGROUND INFORMATION
Hospitals that contract with Centers for Medicare and Medicaid Services (CMS) agree to accept pre-determined rates for inpatient services based on various factors, including the area wage index. The area wage index is used by Medicare to adjust payments to hospitals based on geographic differences in labor costs.
On August 2, 2019, CMS adopted a rule which changed the area wage index in several ways that resulted in a significant reduction of Medicare’s payments to hospitals in areas that have high labor costs. The rule change essentially resulted in higher payments to hospitals in low labor cost regions to the detriment of hospitals in high labor cost regions.
As a result, in 2019, CHA sponsored a legal challenge to the changes made by CMS to the area wage index in Federal Fiscal Year 2020. The CHA invited member hospitals throughout the state, including Arrowhead Regional Medical Center (ARMC), to join in the challenge at no cost to its members. On November 19, 2019, in closed session, the Board of Supervisors (Board) authorized ARMC to join in the legal challenge for Federal Fiscal Year 2020. The hospitals that participated in the challenge recently prevailed in the United States District Court, but the federal government has appealed the ruling.
Because CMS continued the changes to the rule relating to the area wage index in Federal Fiscal Years 2021, 2022, and 2023, CHA sponsored similar challenges for those years and the County joined in those challenges at no cost to the County upon approval by the Board. Those challenges are currently pending.
CMS has issued its Federal Fiscal Year 2024 final rule regarding the area wage index, which continues the changes from Federal Fiscal Year 2020. As a result, the CHA has, once again, sponsored a challenge to the rule relating to the area wage index and invited member hospitals to participate at no cost to the hospitals. The CHA has retained Hooper Lundy & Bookman, P.C. (Hooper) to represent its members in the legal challenge.
On December 19, 2023, in closed session, the Board authorized ARMC to participate in the legal challenge sponsored by and paid for by the CHA to Medicare’s Federal Fiscal Year 2024 rule relating to the area wage index. The Agreement with Hooper formalizes that participation.
Hooper will, at no cost to the County, represent ARMC, and all other participating hospitals, on the challenge to the Federal Fiscal Year 2024 final rule relating to the area wage index, until the challenge is resolved, withdrawn, or the representation is terminated. Four votes are necessary for approval of this Agreement to comply with the requirements under Government Code section 25203.
The proposed Agreement is non-negotiable and contains non-standard terms or omits County standard contract terms as follows:
1. All disputes arising out of the Agreement must be submitted to mediation, and if unsuccessful, to binding arbitration before a retired judge of the Los Angeles County Superior Court.
• The County standard contract requires that the parties use their best efforts to settle the dispute through negotiation with each other in good faith and does not require mediation or arbitration of any dispute.
• Potential Impact: The County is required to submit claims to mediation and arbitration. The arbitrator’s decision will be final and binding on the County with no ability for any court to review or overturn the award.
2. Hooper is not required to contractually indemnify the County.
• The County standard general indemnity provision requires the contractor to indemnify, defend, and hold the County harmless from third party claims arising out of the acts, errors, or omissions of any person.
• Potential Impact: Hooper is not required to defend, indemnify, or hold the County harmless from any claims, including claims arising out of Hooper’s negligent or intentional acts. If the County is sued for any claim, the County may be solely liable for the costs of defense and damages.
3. The Agreement does not require Hooper to meet the County insurance standards.
• 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: The Agreement does not include the County’s standard insurance requirements. This means that the County has no contractual assurance that Hooper carries the appropriate types and levels of insurance and will be financially responsible for claims that may arise under the Agreement.
4. The term of the Agreement is indefinite.
• County Policy 11-04 does not permit indefinite terms or automatically renewing contracts unless approved by the Board.
• Potential Impact: There is no expiration date to the Agreement and the County is bound to the terms and conditions of the Agreement until the matter is resolved, withdrawn, or the representation is terminated.
County Counsel is requesting authority to execute the Agreement as County Counsel will serve as the point of contact with Hooper in the coordination of this challenge.
County Counsel recommends approval of the Agreement, including the non-standard terms, to enable the County, on behalf of ARMC, to participate in the challenge at no-cost to the County, which, if successful, will result in additional revenue to ARMC.
PROCUREMENT
This is a non-competitive procurement. Hooper has specialized expertise in handling challenges to Medicare rules issued by CMS and has successfully handled similar matters in the past for hospitals throughout the country.
Pursuant to Title 1, Division 2, Chapter 19, Section 12.1908 of the County Code, County Counsel is authorized to select and retain specialized counsel for a particular matter not to exceed $200,000 per fiscal year. Contracts for services in excess of that amount require the Board's approval. In accordance with County Policy No. 11-05, contracts with certain non-standard terms must be approved by the Board. The Purchasing Department concurs with the non-competitive justification of specialized credential for handling challenges to Medicare rules issued by CMS.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Charles Phan, Deputy County Counsel, 387-5455), on November 22, 2023; Purchasing (Jessica Barajas, Supervising Buyer, 387-2065), on December 12, 2023; Risk Management (Gregory Ustaszewski, Staff Analyst II, 386-9008) on December 13, 2023; Finance (Carl Lofton, Administrative Analyst, 387-5404) on December 18, 2023; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on December 20, 2023.