California COVID-19 Emergency Testing Regulations Imposed By DMHC without Notice Ruled Improper

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By William Espinosa

California Association of Health Plans v. Mary Watanabe, et al., Case No. 20STCP03773 (Super. Ct., Los Angeles County). On May 5, 2021, after full consideration of the arguments and evidence presented at trial by Petitioner California Association of Health Plans (“CAHP”) and Respondents Mary Watanabe and the California Department of Managed Health Care (collectively, “DMHC”) relative to section 1300.76.01, subdivision (d), Title 28 of the CCR, and having entered its April 13, 2021 order finding Respondents failed to comply with the Administrative Procedure Act, the Court entered judgment finding that DMHC failed to comply with the California Administrative Procedure Act (APA) when promulgating the relevant emergency regulation (subdivision (d)).

Section 1300.67.01, Title 28 of the CCR, the regulation in dispute, was enacted by DMHC on July 17, 2020, as an emergency regulation without notice, public comment period, or public hearing. Among other changes, subdivision (c), the Coverage Mandate, of the regulation required that all COVID-19 tests for essential workers be covered by health plans as a medically necessary basic health care service regardless of a lack of symptoms or potential exposure. Subdivision (d) of the regulation prohibited health care plans from relying on previously negotiated contracts with their health care providers to allocate the costs of COVID-19 testing provided under the Coverage Mandate. Rather, health care plans were to renegotiate the allocation of such costs with the health care providers. According to the Court’s April 13th order, DMHC stated that this subdivision was necessary, as the enactment of the Coverage Mandate would lead to confusion as to who would cover the cost of testing, which would then lead to confusion as to when and how enrollees could be tested for COVID-19.

On November 13, 2020, the California Association of Health Plans (CAHP) petitioned for a writ of prohibition, mandamus, or judicial declaration “directing [DMHC] from enforcing [Subdivision (d)] as it was . . . enacted in violation of [the APA] and California Constitution.” CAHP focused on subdivision (d), asserting that DMHC did not make an emergency finding sufficient to waive the minimum of five-day notice, public comment period, or public hearing as required by the APA.  CAHP did not dispute the Coverage Mandate.

On April 13, 2021, the Court ruled that the DMHC’s enactment of subdivision (d) did not comply with the APA requirement that the DMHC’s emergency addressed by their regulation ‘“clearly poses . . . an immediate, serious harm that delaying action to allow public comment would be inconsistent with the public interest.’” The Court allowed for each subdivision of the regulation to be reviewed individually. The Court then noted that there “must be some sufficient relationship between the emergency and both the Coverage Mandate and Subdivision (d) to justify an adoption of the [specific] rule without public notice and comment.”

The Court rejected that there may be a connection between who was to pay for COVID-19 testing and easy access to testing by the public, stating that “[s]ubdivision (d) could only conceivably address any confusion that might have been generated between the health care providers and the health care plans over financial allocation.” The Court further stated that DMHC did not have evidence that there was any confusion between health care plans and health care providers about the allocation of costs for COVID-19 testing under their capitated contracts, and they did not have evidence that such confusion occurring would prevent the testing of essential workers in the first place. DMHC had, therefore, failed to demonstrate that there was an emergency that could justify the enacting of subdivision (d) without any notice period, and the Court held that subdivision (d) was invalid.

On March 8, 2021, the parties stipulated that the action be bifurcated for trial into two phases, with Trial Phase 1 limited to whether DMHC’s promulgation of subdivision (d) on an emergency basis complied with the APA and Trial Phase 2 addressing all remaining issues. On April 29, 2021, the parties further stipulated that Trial Phase 2 was unnecessary as a result of the Court’s April 13, 2021 order, and that judgment in the action be entered in Petitioner’s favor. These stipulations became part of the Court’s May 5, 2021 judgment and conclude this matter.

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