L.A. Unified School Dist. v. Dept. of Health Care Services CA2/8 filed 7/8/26

Filed 7/8/26 L.A. Unified School Dist. v. Dept. of Health Care Services CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

LOS ANGELES UNIFIED SCHOOL DISTRICT,

Plaintiff and Appellant,

v.

DEPARTMENT OF HEALTH CARE SERVICES,

Defendant and Respondent.

B327073

Los Angeles County
Super. Ct. No. 20STCP03700

APPEAL from a judgment of the Superior Court of Los Angeles County, Mitchell L. Beckloff, Judge. Reversed in part, affirmed in part, and remanded with directions.
Andrade Gonzalez, Sean A. Andrade and Eric D. Mason for Plaintiff and Appellant.
Rob Bonta, Attorney General, Cheryl L. Feiner, Assistant Attorney General, Gregory D. Brown and Nicolas P. Rossenblum, Deputy Attorneys General, for Defendant and Respondent.
____________________
When the plan is to help the needy but the result hurts the needy, something is amiss.
The State Department of Health Services committed this blunder in a rushed audit of data from the Los Angeles Unified School District. The data concerned services to student Medi-Cal recipients. The Department then applied the same flawed reasoning in a second audit for the next fiscal year. Because the Department did not apply the law correctly, we reverse the ruling denying the District’s petition for writ of mandate. We direct the superior court to grant the petition and to set aside the challenged audit adjustments. Undesignated statutory citations are to the Welfare and Institutions Code.
I
We provide background by sketching the Medi-Cal program, the reimbursement plan, and the key documents. Then we discuss the Department’s audits and the ensuing proceedings.
A
Medi-Cal is California’s Medicaid program. Medicaid is a cooperative federal-state program for medical care to low-income populations. (Fam. Health Centers of San Diego v. State Dept. of Health Care Services (2023) 15 Cal.5th 1, 4, 7 (Health Centers); see also § 14063 [“Medi-Cal” is short for the California Medical Assistance Program].) In return for federal funding, states agree to reimburse health care providers for their costs. (Ibid.)
The Department must administer Medi-Cal in accord with the state Medicaid plan. (Cal. Code Regs., tit. 22 § 50004, subd. (b); Fam. Health Centers of San Diego v. State Dept. of Health Care Services (2021) 71 Cal.App.5th 88, 92 (Health Centers II).) The Department must audit payments to providers of Medi-Cal services to ensure they spend federal funds responsibly. (See §14170, subd. (a)(1).)
The Medi-Cal program at issue here is the LEA Medi-Cal Billing Option Program, which we call the Program.
Under the Program, the Department reimburses local education agencies, which we sometimes shorten to local agencies. The record documents use the acronym LEA to denote these entities.
Local agencies include school districts. They provide specified health-related services to Medi-Cal eligible students. Covered services include counseling, speech therapy, occupational therapy and the like. The Program reimburses local agencies around 50% of their costs of providing covered services. Expenditures funded by other federal sources are not eligible for reimbursement, however. The Department draws down federal Medicaid funding for covered services. (See §§ 14132.06, 14115.8; 42 C.F.R. § 433.51, subd. (c); LEA Program Overview, California Department of Health Care Services, <https://www.dhcs.ca.gov/ providers-partners/lea-program-overview/> [as of Jul. 2, 2026], archived at <https://perma.cc/9N3P-W43N>.)
In 2001, state legislators noticed that California schools, despite having the nation’s largest group of eligible children receiving school-based services, were receiving considerably less reimbursement than schools in other states. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 231 (2001–2002 Reg. Sess.), as amended May 7, 2001.) The Legislature responded by ordering the Department to amend the state plan to increase Medicaid reimbursement to local agencies. (See id.; § 14115.8, subd. (a)(1).) This was State Plan Amendment 03-024, Section 4.19-B, Supplement 8. This change is central to this appeal, and we call it the Amendment.
The 2001 legislation sought expansive reimbursement for schools, requiring that they “shall be reimbursed for all eligible services that they provide that are not precluded by federal requirements.” (§ 14115.8, subd. (a)(1).)
Reimbursement under the Program operates in two parts. First, the Department makes interim payments to participating school districts throughout the year based on flat fees for services the districts provide. Second, after the year ends, there is a final “true-up” or reconciliation process that determines the final amount to be reimbursed or repaid. Local agencies calculate their total actual costs eligible for Medicaid reimbursement for the year, and the Department reconciles these costs to the interim payments. The Department may audit the local agencies’ filed cost information and must ensure there are no instances “where total Medi-Cal payments for services exceed 100 percent of actual, certified expenditures” for providing Program services.
The Amendment sets out this process.
Next, we take a closer look at the Amendment and the worksheets the Department created to implement it.
1
Unchanged since 2003, the Amendment sets out a four-step plan to determine the final settlement with a local agency.
The first part of the process calculates the net costs eligible for Medicaid reimbursement. Paragraphs I.1 and I.2 in the Amendment set forth steps to determine these costs. We excerpt these rules.
“I. Each LEA will certify to the Department, on an annual basis, the amount of its eligible costs to provide LEA services pursuant to Section H, and will compare its total computable eligible costs to the interim Medi-Cal reimbursement (‘Cost and Reimbursement Comparison Schedule’ as specified by the Department and approved by the Centers for Medicare & Medicaid Services) using the following methodology:
“1. Total personnel costs, consisting of salaries, benefits and other costs such as materials and supplies and contractor costs, necessary for the provision of health services will be reported for personnel providing health services by practitioner type (psychologist, speech therapist, etc.). The Department will specify allowable codes from the Standardized Account Code Structure (SACS), a comprehensive system of accounting and reporting school district revenues and expenditures. Personnel costs that are funded by federal revenues other than Medicaid will be excluded. All costs used to determine the certified actual costs must be in compliance with OMB Circular A-87, and, to the extent not governed by Circular A-87, by Generally Accepted Accounting Principles.
“2. Total personnel costs by practitioner type (from paragraph I.1.)will be multiplied by the percent of hours worked by corresponding practitionersto provide LEA Medi-Cal services to calculate the Medi-Cal direct cost of providing LEA services by practitioner type. The percent of hoursworked will be based on the number of units paid by Medi-Cal for each LEA service multiplied by the time worked by practitioners to provide one unit of service (numerator), divided by the total annual hours each practitioner type were required to work (denominator). The time worked by practitioners to provide one unit of service will include face-to-face as well as preparatory and follow-up time.”
(Italics added.)
We note some key aspects of these paragraphs. First, the formula begins by identifying net personnel costs: it excludes personnel costs funded by other federal revenues to ensure certified expenditures are eligible for Medicaid reimbursement. In other words, consistent with federal law, it ensures no double-dipping: no cost covered by other federal funds is eligible for reimbursement under the Amendment. (See 42 C.F.R. § 433.51.)
Second, the two paragraphs that get you to the Medi-Cal direct cost of providing local agency services are interrelated: the second paragraph builds off the first by incorporating its limitations, including by referring to “corresponding practitioners.”
The second step answers how much of the practitioners’ time was devoted to providing reimbursable Medi-Cal services. Or as the superior court framed it, with our emphasis, “Step Two considers the percentage of time expended by practitioner type in the context of those costs incurred” and calculated in Step One.
The second step is necessary because local agencies provide services to both Medi-Cal and non-Medi-Cal students, and the Department reimburses local agencies for Medi-Cal services only. Local agencies must allocate the costs to the Program correctly to receive the correct reimbursement from the Department.
The first two steps of the Amendment can be combined and simplified as follows:

The parties generally agree the percent of hours worked figure boils down to this ratio:

The parties differ on interpreting the Amendment’s second step. Specifically, they dispute how to compute the denominator used to determine the percentage of time District practitioners served Medi-Cal students. We use “percent of hours worked” as shorthand for the percentage outlined in Paragraph I.2 of the Amendment. And when we refer to the numerator and the denominator, it is to the calculation in this paragraph that we refer.
The percentage from the Amendment’s second step is critical. A lower percentage ultimately means less reimbursement.
We omit a detailed discussion of the third and fourth steps of the Amendment, as they are not at issue. These steps include applying the federal medical assistance percentage to reduce a local agency’s cost figure and comparing the result to the interim payments received during the relevant fiscal year.
We now turn to the documents that implement the Amendment — and that sparked the audits here.

2
California school districts participating in the Program report their cost information annually to the Department by certifying and submitting a report called a Cost and Reimbursement Comparison Schedule. We call these reports the Schedules.
This appeal stems from the Department’s audits of the District’s Schedules for the fiscal years ending in June 2010 and June 2011. From now on, we omit “fiscal” when referring to these fiscal years.
The Schedule assists with the annual reconciliation process and determines the final settlement. It aims to capture the total costs eligible for federal financial participation in the aggregate. Thus, instead of tracking expenditures for each individual practitioner, the Schedule uses a full-time equivalent employee standard, which is a composite of multiple employees. Services by practitioners are translated into units, which then are aggregated and converted into time. The Schedule permits averages in some circumstances.
The Schedule is made up of worksheets authored by the Department and approved by the federal Centers for Medicare & Medicaid Services. The worksheets implement the four steps of the Amendment.
The key worksheets for this appeal are Worksheet A.1/B.1, Worksheet A-3/B-3, and Worksheet A.
“Worksheet A.1/B.1: Salary, Benefit and Other Expenditures” implements the Amendment’s Paragraph I.1 to capture a local agency’s net total personnel costs. The worksheet requires local agencies to report all salary and benefit expenditures for all practitioners billing Program services. Local agencies also must identify their costs funded by federal revenues other than Medicaid, which are subtracted from the total personnel costs.
“Worksheet A.3/B.3: Percent of Time providing LEA Services” implements Amendment’s Paragraph I.2. It calculates the percent of time corresponding practitioners spent providing Program services. The worksheet has the local agency input the number of “Full-Time Equivalent (FTE) Employees” billing Program services, by practitioner type, in Column A. As written, the worksheet instructs: “Enter the number of total FTEs by practitioner type [ ] for all qualified district employed practitioners billing LEA reimbursable services in [the Program]. . . . If your LEA receives federal funding for practitioners that are providing reimbursable [Program] services, and their time is dedicated, in full or in part, to that federal program, exclude these FTEs (or portion of FTEs) from Column A.”
We advise readers to remember the “dedicated” language of this instruction, for it is the heart of this dispute. The worksheet does not spell out what it means to be “dedicated” to another federal program.
Another column in Worksheet A.3/B.3, Column C, captures the total hours required to work — the denominator of the time ratio in Paragraph I.2 of the Amendment. Column C is tied to Column A and therefore the latter’s “dedicated” language. Local agencies calculate the total hours required to work figure by multiplying the number of Full-Time Equivalent Employees (Column A) by the annual hours required to work for these employees (Column B).
Worksheet A-3/B-3 generates the percentage of time providing local agency services by practitioner type by dividing the number of hours an agency was reimbursed by the Department for Program services by the total hours required to work for each practitioner type.
Finally, Worksheet A calculates the “Cost of Providing LEA Services” by multiplying “Net Total Personnel Costs” (from Worksheet A.1/B.1) by the “Percent of Time Providing LEA Services” (from Worksheet A-3/B-3). Among other things, the worksheet goes on to subtract the interim payments the local agency received to reach the final settlement, which appears as either an “Overpayment” or an “Underpayment.” This is where the interim payments are reconciled.
B
The issues in this case arose after the Department provided two versions of the Schedule for the 2010 fiscal year.
The Schedules from 2006 to 2009 were like the Schedule we just described. They had local agencies exclude “federal funds” and “federally-related” full-time equivalents.
But the Department modified the instructions for the 2010 Schedule.
The original 2010 Schedule had two relevant modifications. First, it ordered local agencies to report cost information for all of the agency’s qualified practitioners, regardless of whether they billed Program services. Second, it required the agencies to report all federally funded Full-Time Equivalent Employees in Worksheet A-3/B-3, regardless of whether their practitioners’ time was dedicated to another federal program.
The Department’s consultant on the Program, Navigant Consulting, Inc., which helped draft the Schedules, warned the Department about problems with the second change. Specifically, Navigant warned the change created “a matching issue whereby the LEA is reporting net Salaries . . . but gross FTEs” — a situation that would dilute the percent of time worked figure and lower reimbursable costs.
The Department did not heed this caution. It proceeded with both changes. It acknowledged the potential dilution with the second change but believed this change resulted in a “truer LEA percentage” and also made the Schedules more “auditable.”
Local agencies swiftly pushed back. Reimbursement was lower, as anticipated. The Department convened an ad-hoc committee to address the concerns. Local agencies claimed excluding federal salary and benefits while including federal hours unfairly reduced the percentage of time worked. Crucially, the new Schedule also seemed to hurt districts with other federal funding the most, and “[u]sually the poorer a district, the more federal funds it has.”
The Department thereafter revised the forms to correct the two issues. It permitted local agencies to resubmit their forms using the revised instructions.
The Department’s resubmission announcement candidly told local agencies that the original 2010 Schedule “removed federal revenues, but included federally funded practitioners which diluted the percentage of time estimates for practitioners and understated costs on the [Schedule], if the LEA reported federally funded expenditures and FTEs.”
Similarly, training materials distributed to local agencies about the resubmission process conceded, regarding the Full-Time Equivalent issue, that the Department’s modification “[d]iluted the percentage of time estimates and understates practitioner costs for federally funded practitioners.”
The revised 2010 forms once again allowed local agencies to exclude federally funded Full-Time Equivalents (or portions) dedicated to another federal program.
The District submitted its revised 2010 Schedule on November 13, 2012.
The District later submitted its 2011 Schedule using the same approach. The relevant instructions for this Schedule were similar to those for the revised 2010 Schedule.
C
The Department audited both submissions.
In October 2015, a few weeks before the three-year audit deadline, the Department notified the District of the first audit and requested several categories of records — what one witness categorized as a “voluminous amount of information” due within a few days. (See § 14170, subd. (a)(1).) The Department apologized for “such a short notice.”
A few days later, the Department sent the District proposed audit adjustments.
The Department’s audit division focused on one aspect of the reimbursement formula: the total hours required to work figure from Worksheet A-3/B-3. Recall this figure becomes the denominator of the time ratio in the second step of the Amendment.
Never before had the Department audited this figure in the Schedule. The Department privately told its consultant that Full-Time Equivalent data can be “difficult to audit.”
The Department determined the District had excluded from the total hours required to work figure hours for practitioners who were funded by federal revenues other than Medicaid. The Department proposed adding thousands of federally funded Full-Time Equivalent hours for some practitioner types.
Increasing the denominator necessarily decreases the value of the ratio (here, the percent of hours worked) and affects later calculations using this figure. This is a mathematical truism. As a result, the Department’s proposed change would result in a smaller reimbursement claim.
The District disputed the proposal.
On November 4, 2015, the Department explained that to exclude federally funded Full-Time Equivalents from the formula, the District needed to provide documentation showing the practitioners were not available to provide Program services.
The District provided additional documentation, which the Department deemed insufficient.
On November 12, 2015, before receiving all of the District’s documentation, the Department adopted the disputed adjustment in its final audit report. This was the deadline for any audit of the District’s revised 2010 Schedule.
In 2016, the Department used the same approach and adopted a similar adjustment for the District’s 2011 Schedule.
The adjustments were blows to the District. For 2010, the District claimed the Department owed it $1,771,167, but the audit determined the amount owed was just $69,076. For 2011, the District reported it owed the Department $58,434, but the audit adjustment increased this repayment obligation to $2,733,563.
The District says the Department’s adjustments meant roughly $4.4 million fewer Medicaid dollars for the District for these two years.
D
The District challenged the audit adjustments by appealing them through the Department’s administrative appeals process. After informal hearings, the appeals of both audits were consolidated before Administrative Law Judge Matthew C. Felix. The formal hearing lasted eight days and stretched from June to December 2018.
The lead auditor who performed the disputed audits, Olga Barajas, testified about her involvement and observations. She compared the information in the District’s Worksheets A-3/B-3 with the District’s supporting documents and concluded the District had not reported hours required to work for federally funded practitioners for whom the District had received reimbursement.
Barajas gave examples of individual practitioners who were 100% federally funded and had billed the Program but for whom the Districted reported zero Full-Time Equivalents. In other words, the practitioners’ services were reflected in the numerator but not the denominator of the percent of hours worked calculation. Applying this calculation, Barajas showed the District’s failure to report these hours resulted in a mathematical error, when viewed in isolation: a number divided by zero results in error. In the aggregate, Barajas maintained, this failure artificially elevated the percent of hours worked for various practitioner groups — school nurses and Trained Health Care Aides (Aides), in particular. And it caused the District’s claimed reimbursement to be overstated.
Although she focused on individual examples, Barajas acknowledged the Schedule depends on aggregated information for practitioner groups, not information for individual practitioners.
Barajas maintained she made the audit adjustments to agree with the District’s documentation. According to Barajas, the District failed to provide documentation demonstrating its federally funded practitioners dedicated their time to a federal program other than Medi-Cal. The only way to show practitioners were dedicated to another program, she maintained, was to show they were restricted or precluded from providing Program services or from billing Medi-Cal. We call this the Department’s “preclusion requirement.”
The Department argued the District’s records did not meet this requirement. Barajas pointed to multi-funded time reports and daily activity logs submitted by the District and used by multi-funded practitioners to track their time. These reports track the type of federal funding supporting each employee, the scope of work each day, and the amount of time spent on the programs funding the employee. But the reports did not show any worker was precluded from providing Medi-Cal services or unavailable to provide these services; nor did they document the time spent on local agency services versus other federal programs. Thus, they did not support the exclusion of any hours from the denominator. Additionally, the Department argued, the 100% federally funded workers necessarily were not fully dedicated to another federal program because they billed for Program services and thus were available to provide these services.
For its case, the District called the Department audit manager for the Program, Martin Alvarez, and put on three additional witnesses. The Districtaimed to show how the Department’s approach unfairly diluted its eligible reimbursement and reduced its eligible costs below actual costs.
District witness Timothy Rosnick had been involved as either a director or a controller in the District’s accounting and audit procedures for more than a decade. He admitted there was an issue regarding one practitioner group in 2011 (the Aides) and the District overstated costs for this group that year. Rosnick explained many of these practitioners ultimately were reclassified that year because the District needed to use up lapsing federal funds from a one-time program; yet when the claims for their services were filed, it was not known they would be 100% federally funded. The District believed the Schedule’s instructions required it to exclude this group’s federally funded hours, which resulted in a percent of hours spent providing Program services over 128% — an impossibility. The District flagged this issue for the Department and sought assistance before the 2011 Schedule was due. But the Department gave no meaningful guidance, basically told the District to do its best, and said it would address this issue through an audit.
The District presented several options it says the Department could have pursued to address this problem fairly. For example, the Department could have the Schedule cap the percent of hours worked at 100% or allowed the District to return the billed amounts for 100% federally funded practitioners. Or the District could remove federally funded units billed to Medi-Cal in the numerator and give back the interim payments for those units, while also keeping out their expenses and hours. According to Rosnick, neither the Amendment nor the Schedule prevent this approach.
Barajas acknowledged amounts paid to the District for federally funded workers should be repaid to the state, but she rejected the proposed compromises as contrary to the Amendment and beyond the scope of the audit, which was not to adjudicate claims. In contrast, Department audit manager Alvarez — who had supervised more than 2,000 audits and had reviewed thousands of Schedules — acknowledged before the hearing that the third option suggested by the District would result in a “complete wash.”
Addressing the Department’s concern about double-dipping into federal funds, the District emphasized the Amendment and the Schedule provide checks against this. Worksheet A.1/B.1 removes all federal revenues so that only net personnel costs are eligible for reimbursement; thus, the Schedule does not permit the District to seek any costs for its 100% federally funded workers. Worksheet A then reconciles the interim payments to reach the final settlement. Under the Schedule, interim payments for federally funded workers would result in an overpayment situation where the District must pay the Department back.
The District maintained its supporting documentation met the federal criteria requiring that cost data be based on financial records. The District also argued the Department’s new preclusion requirement was illusory and adopting this requirement exceeded the Department’s authority and amounted to surreptitious rulemaking.
The District showed the Department provided training on the Schedules but had not conveyed this interpretation of “dedicated” in the worksheet instructions. Indeed, the Department had not mentioned the preclusion requirement until the 2015 audit — almost three years after the District submitted its revised 2010 Schedule and five years after the services had been performed. The Department additionally requested documents after the retention period had lapsed.
Responding to the Department’s attack on its documentation, the District explained practitioner logs do not track the time spent providing Program services because practitioners treat students without knowing if they are on Medi-Cal — which is appropriate to avoid stigmatizing students, and because the information is confidential.
Rosnick showed how excluding federally funded practitioners on Worksheet A-3/B-3 was consistent with the Amendment and the worksheet instructions. Regarding the “dedicated” language, he explained those who work on their federal program and comply with the program dedicate their time to it and can be excluded from the worksheet. “You’re not eligible to charge the federal program if you’re not dedicated to it.” Practitioners can be fully dedicated to a federal program like Title I, yet also provide Medi-Cal services and bill for these services. In other words, they can be dedicated to two federal programs simultaneously: “The two have parallel tracks, if you will. They’re not mutually exclusive … . So you can certainly qualify for more than one funding source at a time or comply with more than one program at a time. That does not mean that you’re not dedicated to the program who’s funding you … .”
Department audit manager Alvarez confirmed that dedicating time to another federal program means being funded by that program and spending time on it.
The District showed the instructions for Worksheet A-3/B-3 bolster its view, as they recognize federally funded workers can bill for Program services and still be “dedicated, in full” to their other federal program. According to the District, it established practitioners it excluded from the worksheet were funded by other federal programs to which they were dedicated; only an audit by the other federal programs would establish they were not dedicated to those programs.
E
In February 2020, more than a year after the close of evidence, the administrative law judge ruled for the Department and upheld the challenged audit adjustments in a forty-seven-page proposed decision. The Department then adopted this proposal as its final decision.
In November 2020, the District sought a writ of mandate in the superior court. The District later filed an amended petition and lost two causes of action on demurrer.
The parties briefed the validity of the audit adjustments and argued at a two-part hearing. The court provided a tentative opinion in the District’s favor. But it ultimately denied the District’s amended petition and upheld the adjustments in an eleven-page decision issued in December 2022. The court later entered judgment for the Department.
II
In reviewing administrative decisions like this one, we discern whether there has been a prejudicial abuse of discretion. (Code Civ. Proc., § 1094.5, subd. (b).) We independently review legal issues, taking into account the relevant agency’s interpretation. (Health Centers, supra,15 Cal.5th at p. 10; Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7–8 (Yamaha).)
A prejudicial abuse of discretion occurs when the Department does not proceed as required by law. (See Code Civ. Proc., § 1094.5, subd. (b); Health Centers, supra,15 Cal.5th at p. 10.) That happened here. We reverse the audit adjustments.
A
At the outset, we note both sides’ approaches create a mismatch. The Department’s approach would have net personnel costs (i.e., non-federal costs) applied to gross Full-Time Equivalents (including federally funded workers). The District’s approach includes billed units for federally funded workers in the numerator of the percent of hours worked calculation but omits these workers’ hours from the denominator.
The District admitted there was a problem with part of its 2011 Schedule and maintained there was an apparent flaw in the Schedules. The District offered solutions, which the Department rejected.
The Department does not acknowledge the mismatch created by its approach and maintains it was proper to include all federally funded workers’ hours in the denominator of the percent of hours worked calculation. At the administrative hearing, the Department said the District provided insufficient documentation showing these workers dedicated their time to a federal program other than Medicaid. Excluding their hours from the denominator, the Department claimed, violated the Amendment and artificially inflated the percentage of time District workers spent providing Program services, thereby inflating the District’s claimed reimbursement.
It was not enough for the Department to show the District’s submissions were wrong. The Department’s burden at the administrative hearing was to show its audit adjustments were “correctly made.” (Cal. Code of Regs., tit. 22, § 51037, subd. (i).) In this effort the Department failed.
Barajas made clear her adjustments were based on the documentation supplied to support the District’s reported total hours required to work in Column C of Worksheet A-3/B-3. She explained the Department’s interpretation of the key instruction in this worksheet — the “dedicated” language — as follows: the District could exclude federally funded hours only if it provided documentation showing its workers were restricted or precluded from providing Program services or from billing Medi-Cal.
Many problems plague this approach.
To begin, this interpretation of “dedicated” in the worksheet instructions is untethered to anything in the Amendment. Barajas conceded this, admitting it was offered as a “compromise” to the District.
The Department’s interpretation also runs counter to the legislative command fully to reimburse local agencies for eligible services. (See § 14115.8, subd. (a)(1).) It ignores the District’s evidence showing real-world practitioners can both be dedicated to their federal programs and be available to provide Medi-Cal services. And it penalizes the school districts with the most need.
The parties point to competing principles of construction supporting their view. “In the end, a court must adopt the construction most consistent with the apparent legislative intent and most likely to promote rather than defeat the legislative purpose and to avoid absurd consequences.” (In re J.W. (2002) 29 Cal.4th 200, 213 (J.W.).)
The District illustrated how the Department’s interpretation — requiring the inclusion of all federally-funded hours in the denominator of the percent of hours worked formula — hurts school districts with low-income students that rely on federal funding other than Medicaid, like Title I of the Elementary and Secondary Education Act of 1965, 79 Stat. 27, as modified, 20 U.S.C. § 6301 et seq. Applying the reimbursement formula using the Department’s view means wealthier school districts with less or no need for federal funding are reimbursed at a higher rate for providing the same services. The Department does not dispute this effect: “Medi-Cal reimbursements are reduced when an LEA receives other federal funding,” it admits. The Department made similar concessions at the superior court about this dilutive effect of its approach.
Having Title I funding cannot justify giving less in Program reimbursements. Title I funds have purposes other than covering Medi-Cal services. They are to be used for teachers and programs to improve student academic outcomes in communities that suffer higher rates of poverty. (See Bennett v. New Jersey (1985) 470 U.S. 632, 634–635, 639.)
It is no justification to say, as the Department does, that Medicaid is a payor of last resort and the other federal funds can fill the gap created by the Department’s approach for the Program. For these schools with needier populations relying on federal dollars, the District showed the Department’s approach lowers billing practitioners’ hourly rate of pay,which runs counter to the federal charge of reimbursing the actual costs of providing care. (See 42 C.F.R. § 413.9, subds. (a) & (c)(3).)
The Department’s approach also adopts a requirement for supporting documentation that apparently is impossible to meet. The requirement is illusory.
Barajas admitted this without qualification at the hearing: “Q: [ ] So isn’t it true that this documented preclusion requirement is really illusory because the [Department’s] position is that if a practitioner bills for a single Medi-Cal service, then all of their hours required to work must be included in the denominator?” “A: Correct.”
Impossibility counsels against the Department’s approach.
The reimbursement formula is limited to practitioners who billed Program services. Requiring the District to show that billing practitioners were precluded from providing (billing) services makes no sense.
Further underscoring the chimeric character of the preclusion requirement, Barajas had not seen a document that would meet this requirement. The Department’s discovery responses confirmed the Department had no documents showing a practitioner can bill for Program services and also be dedicated to another federal program. Yet the instructions to Worksheet A-3/B-3 contemplate this scenario.
The District illustrated at the administrative hearing how no document would meet the preclusion requirement. It pressed Barajas on a particular multi-funded time report it produced showing one of its Title I-funded workers had spent two hours on staff development one day and recorded her time under the Title I program. In other words, the timesheet showed the worker was not providing services to Medi-Cal students and was unavailable to provide such services at that time because she was training adults. (See § 14132.06, subd. (k)(1) [“the department shall seek federal financial participation for covered services that are provided by a local educational agency pursuant to subdivision (a) to a child who is an eligible Medi-Cal beneficiary”].) Barajas conceded Medi-Cal does not pay for staff development, and this worker was precluded from billing Medi-Cal for any services during these two hours. Yet she testified even this timesheet was insufficient to enable the District to exclude the worker’s hours.
Ultimately, the Department interpreted the instructions of Worksheet A-3/B-3 in a manner to reach the same end its consultant found improper in the original 2010 Schedule. That is, it interpreted the “dedicated” phrase in a way that ensured all federally funded hours would be included in the denominator and thus would dilute the District’s eligible reimbursement. This was error.
Neither the Amendment nor any authority cited by the Department require all federally funded practitioner hours to be included in the reimbursement formula to measure the Medi-Cal direct cost.
Worksheet A-3/B-3 recognizes this. The Department designed this worksheet to implement the Amendment. It enabled the exclusion of hours for federally funded workers who dedicate their time to another federal program. (Recall, the Department abandoned this instruction in the original 2010 Schedule and then inserted it in the revised Schedule after Navigant and local agencies voiced concern about dilution.)
The Department argued the “dedicated” language must mean something more than receiving federal funding. This is true. But the Department’s current interpretation renders the entire instruction meaningless, as in practice it compels the inclusion of all federally funded hours into Column C of the worksheet.
The Department cited various regulations and federal guidance as supporting its interpretation. These sources generally address providers’ duty to maintain adequate documentation supporting costs or the Department’s duties — duties the District does not dispute. (See, e.g., 42 C.F.R. §§ 413.20, subd. (a), 413.24, subd. (a); Cal. Code Regs., tit. 22, § 51458.1, subd. (a)(3).) As Barajas candidly admitted, none of the sources cited as the basis for her adjustments sets forth the Department’s novel preclusion requirement: “you’re not going to find [ ] any regulation that states that time has to be restricted to another federal program.”
B
For transparent reasons, the Department’s briefing largely avoids the preclusion requirement. The Department averts its gaze from the now-obvious problem even though Barajas repeatedly testified this was the basis for the adjustments, and even though it conceded in the superior court that “the issue comes down to documentation.”
Instead, the Department offers a contradictory rationale to rescue its adjustments. It argues Paragraph I.2 of the Amendment, unlike Paragraph I.1, shows a clear intent to includeall federally funded hours in the percent of hours worked calculation. Under this view, if practitioners bill for a single Medi-Cal service, then all of their hours must be included in the denominator. This interpretation is inconsistent with Worksheet A-3/B-3’s instruction to exclude from the calculation any federally funded Full-Time Equivalents dedicated to another federal program. The Department does not acknowledge this inconsistency.
This instruction was the focal point of the hearing; yet on appeal the Department sidelines it.
The inconsistencies and reversals in the Department’s approach poison our customary deference. (See Yamaha, supra, 19 Cal.4th at pp. 7–8, 11, 14–15 [appellate courts give deference that is appropriate to the circumstances of the agency action; depending on the context, an agency’s interpretation “may be helpful, enlightening, even convincing” or “may sometimes be of little worth”]; see also Health Centers II, supra, 71 Cal.App.5th at p. 97 [“the court is the ultimate arbiter of the interpretation of the law”].)
The Department’s alternative reading of the Amendment violates basic rules of statutory construction and contradicts the Amendment’s purpose.
When interpreting texts, including statutes, regulations, and contracts, we naturally begin with the text: writing is meant to be read. We also consider provisions in the context of the entire framework and harmonize them so all parts retain effectiveness. (In re Marriage of Harris (2004) 34 Cal.4th 210, 221–222 (Harris).) We assume every part serves a purpose and nothing is superfluous. (J.W., supra, 29 Cal.4th at p. 209; see also People v. Canty (2004) 32 Cal.4th 1266, 1276 (Canty) [courts give significance to every word, phrase, sentence, and part of an act]; Civ. Code, § 1641 [“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other”].)
The fundamental goal is to discern and effectuate the drafter’s purpose. (Apple Inc. v. Superior Court (2013) 56 Cal.4th 128, 135.)
We restate the relevant portions of the two key paragraphs in the Amendment.
“1. Total personnel costs … necessary for the provision of health services will be reported for personnel providing health services by practitioner type … Personnel costs that are funded by federal revenues other than Medicaid will be excluded … .
“2. Total personnel costs by practitioner type (from paragraph I.1.) will be multiplied by the percent of hours worked by corresponding practitioners to provide LEA Medi-Cal services to calculate the Medi-Cal direct cost of providing LEA services by practitioner type. The percent of hours worked will be based on the number of units paid by Medi-Cal for each LEA service multiplied by the time worked by practitioners to provide one unit of service (numerator), divided by the total annual hours each practitioner type were required to work (denominator) … .” (Italics added.)
As written, Paragraph I.2 carries over the limitations from the previous paragraph. We read these paragraphs together, as we must and as the wording directs. Therefore, “corresponding practitioners” in the second paragraph must refer to the practitioners who make up the net personnel costs in the first paragraph. Federally funded practitioners are explicitly excluded from that group. Unlike the Department’s reading, this reading gives meaning to all words in the second paragraph.
The first sentence of this paragraph narrows the formula to cover only a subset of those who provided Program services. The Department’s alternative interpretation of Paragraph I.2 impermissibly reads out the limiting parenthetical and distorts the key phrase “corresponding practitioners.” In various briefing, the Department erroneously cites the formula in this paragraph as if the first sentence were not there and then concludes it covers all practitioners who bill Program services. Or the Department changes the wording of the first sentence by referring to “corresponding practitioner type.”
To the extent the parties claim “corresponding practitioners” is ambiguous, our reading of the term effectuates the Amendment’s purpose of enabling local agencies to obtain the maximum federal financial participation. (See § 14115.8, subd. (a)(1); see also Canty, supra, 32 Cal.4th at p. 1277 [where ambiguity exists, courts adopt the interpretation that achieves a more reasonable result, considering the intent of the enacting body and the history of the provision]; Alvarado v. Dart Container Corp. (2018) 4 Cal.5th 542, 566–569 [rejecting an interpretation of a pay formula that undermined state policy].)
Reading the Amendment as we do shows one of the District’s compromise approaches — removing billed units for federally-funded practitioners from the numerator of the percent of hours worked formula, as discussed in Exhibit 34 — in fact is consistent with the Amendment.
The Department fails to address this approach on appeal.
We do not spell out the particulars of a compromise approach in the absence of briefing on this issue. The compromise must be consistent with this opinion. The Department thus cannot construe this opinion as permitting it to remove from the numerator all units for partially federally-funded District workers.
This compromise avoids the illogic of including in the formula practitioner hours that have no associated reimbursable cost, while also ensuring the percentage is not inflated by the services provided by these practitioners. It avoids the two mismatch issues identified by the parties. (See Harris, supra, 34 Cal.4th at p. 222 [fundamental rule of statutory construction is to avoid anomalies].)
Barajas rejected this approach at the hearing, saying “the numerator is not an issue here” and she “didn’t find it to be problematic.” She also explained the purpose of the Department’s audits is not to adjudicate claims and they must follow the Amendment’s methodology, not create a new one. Barajas conceded that removing from the numerator would decrease the percent of hours worked and that “no matter what” she could have requested money back for overpayments through the audit. She also conceded the Department could have determined the difference between what the District billed and what its actual costs were, but she did not pursue this.
Both parties appear to recognize the errors here could have been averted had the District not billed Medi-Cal for services that were federally funded. Although such billings are permissible, the District has a policy of not billing the Program for federally funded practitioners. Going forward, the District could save itself some trouble by systematically pursuing this policy.
We hold the Department misinterpreted the Amendment and the related worksheet instructions in making the audit adjustments here. Our holding renders it unnecessary to address the District’s arguments about rulemaking procedures.
III
The District contends the superior court erred in sustaining the Department’s demurrer to two causes of action in the amended petition.
The Department says the parties agreed the remaining cause of action encompasses all relief sought by the District. The District does not dispute this. Nor does it offer any argument on appeal as to why the other two claims properly belong in this case. The District thus has forfeited any challenge to their dismissal. (See Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 867, fn. 1 [issues lacking argument are forfeited].)
DISPOSITION
We affirm the demurrer ruling. We reverse the December 5, 2022 ruling denying the District’s petition for writ of mandate and the resulting judgment. We remand the matter and direct the superior court to grant the petition and to set aside the challenged audit adjustments. (See Code Civ. Proc., § 1094.5, subd. (f).) The District shall recover its costs on appeal.

WILEY, J.

We concur:

STRATTON, P. J.

SCHERB, J.