The Deadbeat State: California Sued for Not Paying Savings to State’s Largest AIDS Group

State refuses to pay nearly $1M in Money Owed to AHF’s Positive Healthcare AIDS Care Plan; Move Creates Disincentive for Other State Vendors, Care Providers to Save Money. As State Bureaucrats Pursue Short-sighted, Punitive Ways to Try and Reduce Costs, Superior Court Action is among First Filed against State since California’s Budget Debacle Unfolded.

By: AIDS Healthcare Foundation

Los Angeles - June 2, 2009

After exhausting traditional administrative remedies, AIDS Healthcare Foundation (AHF) has filed a lawsuit against the State of California’s Department of Health Care Services (DHCS) for breach of contract regarding a dispute over the contractually agreed sharing of cost savings between the state and AHF’s Positive Healthcare, a primary care case management (PCCM) program for people living with AIDS which AHF operates under contract with the state. The lawsuit was filed Friday in Superior Court of California, Los Angeles Central District (Case No.: BC 414760).  Positive Healthcare, which AHF has operated since 1994, serves Medi-Cal patients with AIDS. According to AHF’s lawsuit, despite the fact that the Positive Healthcare clients served over the past fifteen years, “…are among the poorest and most medically challenging patients in the State, the program has resulted in improved health for its enrollees, while simultaneously saving the State millions of dollars in health care costs.” In its lawsuit, AHF asserts that the state has arbitrarily altered the ‘savings sharing’ payment formula agreed to in the contract, to the detriment of the patients AHF cares for through Positive Healthcare.

According to AHF’s lawsuit, “For more than a decade DHCS has consistently agreed that Plaintiff (AHF) is entitled to a fifty-percent share of the money it saves the state by operating the Positive Healthcare program.  DHCS, however, abandoned this longstanding course of conduct this past January by demanding that Plaintiff accept a savings sharing payment for the year 2007 of nearly a million dollars less than the amount actually owed, representing less than 17% of the money the Positive Healthcare program saved the State of California in that year.”

In a document titled, “AHF Healthcare Centers Savings Sharing Calculation Distribution for 2007 Savings Sharing Period,” California’s DHCS, revealed that AHF’s Positive Healthcare program generated $2,908,641 in savings for the State of California in 2007.  The document further indicated that 50% of the actual savings generated by the Positive Healthcare program for the year 2007 amounted to $1,454,320.50. However, according to AHF’s lawsuit, “On or about January 16, 2009 DHCS paid AHC [AHF Healthcare Centers] $487,439 purporting to represent savings sharing due and owing under the Contract for the period of January 1, 2007 to December 31, 2007.”

“Positive Healthcare has dramatically improved the lives and health outcomes of some of California’s sickest and most vulnerable Medi-Cal recipients living with AIDS while significantly reducing the state’s costs for such care, something the plan has consistently done year-after-year,” said Michael Weinstein, AIDS Healthcare Foundation President. “Despite California’s brewing budget debacle, the state is ultimately responsible for covering the costs of such health care for Medi-Cal-eligible Californians. By ignoring its contractual obligation to AHF’s Positive Healthcare and refusing to pay the nearly $1 million owed, the state is creating a real disincentive for other current and potential state vendors and providers like AHF to try and save the state any money.”

Positive Healthcare was created in part with the backing of a prestigious federal Special Projects of National Significance (SPNS) grant during the Clinton Administration, which was looking to develop national models to improve health care delivery while reducing costs of such care. AHF and the State of California have renewed the Positive Healthcare program year after year since it began back in 1994.

AIDS Healthcare Foundation’s Superior Court action is also believed to be among the first contract disputes filed against the state since California’s budget debacle began reaching a crescendo last month.

“Nearly two years after the fact, California is moving the goal posts by reneging on the contract for our 2007 savings sharing agreement,” said Tom Myers, General Counsel for AIDS Healthcare Foundation. “In doing so, the state appears to be pursuing a short-sighted, punitive—and we assert, illegal—way to try and reduce overall costs as California’s budget problem spirals out of control. At the end of the day, Positive Healthcare has been a successful shared-risk program that saved the state millions of dollars under a mutually agreed upon contract with the state, which we believe the state has now unequivocally breached.”

AHF’s lawsuit asserts that AHF Healthcare Centers (AHC) have incurred damages of at least $966,881.50.—Half of the $2.8 million DHCS admits the program saved the state in 2007 minus the $487,439 which the state has already paid to AHF.

In addition to seeking the $966,881.50 owed to AHF Positive Healthcare from 2007, AHF’s lawsuit asserts that

• DHCS has breached the Contract by refusing to pay AHC 50% of documented savings generated by the Positive Healthcare program,
• DHCS’ failure to accurately calculate savings sharing constitutes a breach of the Contract.
• …DHCS has failed to act in good faith and according to law in setting savings sharing for the year 2007 and in dismissing Plaintiff’s dispute regarding savings sharing payments for 2007.