County to Settle Medi-Cal Suit for $10.5 Million

The good news is that Los Angeles County will get $10.5 million if the Board of Supervisors votes today to approve an out-of-court settlement of a lawsuit filed against state health officials over disputed Medi-Cal billings.

The bad news is that the county could have received as much as $25.3 million but won’t because, as its own legal documents show, the county’s lawyers haven’t been able to come up with a legally compelling justification for the late submission of thousands of Medi-Cal bills.

Approval of the settlement would end a protracted legal battle that began in 1994, when the county was told that Medi-Cal would not pay bills for treatment at the Rancho Los Amigos Medical Center in Downey because they had been submitted after a clearly defined state deadline.

Although the state formally denied Medi-Cal payments of $10.3 million, the county later determined that it had lost at least $26.6 million for care provided to the poor between 1990 and 1993. It sought reimbursement from the state for the entire amount.

The county blamed its problems on IBAX, a computerized hospital information system it had installed in 1990 at Rancho and its High Desert Hospital, and planned to install in its other four public hospitals. IBAX, a brainchild of IBM and the Baxter Healthcare Corp., was touted as a panacea for the county’s efforts to modernize its outdated hospital system.

Instead, IBAX nearly brought the hospital system to its knees, crashing often and spitting out gibberish instead of producing billing and patient information. In many “unexplainable” and “unexpected” cases, county lawyers concluded in recommending the settlement, that IBAX labeled unbilled Medi-Cal accounts as billed.

By the time county officials found out about the system’s deficiencies, they had missed what state health officials say was a very generous one-year deadline for filing claims. Many of the claims for reimbursement weren’t filed until years after the services had been provided, according to lawyers involved in the lawsuit.

As a result, the state declined all but $1.3 million of the county’s late billings in 1994, saying Los Angeles County’s grounds for seeking an exception to the deadline--that it was due to circumstances beyond the county’s control--wasn’t convincing.

That prompted a 1995 lawsuit by the Board of Supervisors, which argued that the state should pay the remaining $25.3 million, because providing health care to the poor is a state-mandated service. The suit also accused the state of abusing its discretionary authority in denying the county’s claims.

The state has refused to back down, however. Deputy Atty. Gen. Richard Waldow had no comment Monday, citing the pending settlement. State health officials and lawyers representing Los Angeles County also said they could not comment.

But legal documents show that county lawyers are eager to settle the case.

In one legal memo, county lawyers said they “strongly recommend” that the county accept the $10.5 million.

The reason: If the matter proceeds to trial, there is a chance the county could end up getting next to nothing because of the litany of IBAX-related mistakes and the lateness of the billings.

Another legal memo to the five supervisors, marked confidential, said the county would have a hard time proving that the state was abusing its discretion in rejecting the claims.

“At a minimum, the court would probably require a showing that the county had no reasonable ability to timely file the claims in question,” said the memo by County Counsel Lloyd W. Pellman.

And even if the county could do so, which Pellman said was unlikely because of the “very large number of differing factual situations” that caused the late billings, the judge could still find that the state had the right to reject the county’s claims.

“Consequently, the proposed settlement is very favorable to the County,” Pellman wrote. “The Department of Health Services fully concurs with this view.”

In the past, the county supervisors haven’t said much in public about IBAX, except Supervisor Gloria Molina, who called it a disaster “of catastrophic proportions.”

None of the legal documents even mention IBAX by name.

In 1995, a Times investigation disclosed that the county Health Services Department was spending millions a year on IBAX even though the system had never really worked, and that county officials had been warned it would be a costly failure even before they had bought it five years earlier.

In all, according to documents and experts, IBAX had cost the county more than $74 million, although county officials conceded they had never tried to determine the total cost of buying, dismantling and replacing the system.

The county settled its lawsuit against IBAX in 1994, getting about $8.4 million in cash and medical equipment. But it took three more years, and millions more in cash, documents now show, for the county to wean itself off of the information management system.

Michele Vercoutere, the chief administrative office’s assistant division chief in charge of health issues, said Monday that the county has only recently finished its “complete rebuilding, and now we have a . . . system that is up and running in all of our hospitals” to replace IBAX.

“Are we completely up to where we want to be? No,” Vercoutere said. “Are we at a place where we are better off than with IBAX? I believe so.”