Children's Hospital & Medical Center v. Bonta (97 Cal. App. 4th 740, 2002)

Opinion

KLINE, P. J.

Respondents, 11 out-of-state hospitals that have provided services to California residents covered by the Medi-Cal program, commenced this action against appellants, Director of the state Department of Health Services, and the department itself (collectively DHS or Department), claiming that the difference between the reimbursement of in-state and out-of-state hospitals for costs incurred in the treatment and care of MediCal beneficiaries violated not just state and federal laws but the commerce clause (U.S. Const., art. I, § 8, cl. 3) and equal protection provisions of the federal and state Constitutions. The trial court agreed with respondents, awarded damages, and granted respondents prejudgment interest and attorney fees. We shall lower the amount of prejudgment interest allowed but otherwise affirm the judgment.

Statement of the Case and Facts

The state Medi-Cal program effectuates the federal Medicaid program established under title XIX of the Social Security Act (42 U.S.C. § 1396 et seq.) (the Medicaid Act), which authorizes the payment of federal funds to states to defray the cost of providing medical assistance to low-income persons. (See Rite Aid of Pennsylvania, Inc. v. Houstoun (3d Cir. 1999) 171 F.3d 842, 845.) The state reimburses California hospitals for services to Medi-Cal beneficiaries in one of two ways: (1) according to a specific contractual rate of payment negotiated between the hospital and the California Medical Assistance Commission (CMAC); or (2) on the basis of actual costs, calculated by formulas set forth in the California Code of Regulations. (Cal. Code Regs., tit. 22, §§ 51536, 51539, 51541, 51546, 51549.) California hospitals that have not negotiated contracts with CMAC, and are reimbursed on the basis of their actual costs, are paid the lesser of (1) their customary charges; (2) allowable costs determined by the Department; (3) the “[a]ll inclusive rate per discharge limitation” (ARPDL); or (4) the “peer grouping rate per discharge limitation” (PGRPDL). (Tit. 22, § 51546, subd. (a).)

The complex formulas used to determine the reimbursement to which noncontract California hospitals are entitled require development of an input price index (consisting of “a market basket classification of goods and services purchased by hospitals, a corresponding set of market basket weights derived from each hospital’s own mix of purchased good and services, and a related series of price indicators” (tit. 22, § 51536, subd. (g)) and a hospital cost index (consisting of “an input price index and an allowance for changes in service intensity”). (Tit. 22, § 51536, subd. (f).) The regulations also require classification of hospitals’ fixed and variable costs, application of an annual service intensity allowance and volume adjustment in certain circumstances. In-state hospitals are placed into one of 36 enumerated peer group categories (tit. 22, § 51553) and reimbursement is payable “at no more than the 60th percentile rate per discharge of the peer group to which the hospital is assigned by the Department.” (Tit. 22, § 51539, subd. (b).) Such hospitals may request administrative adjustments of the all-inclusive reimbursement rates and limits (tit. 22, §§ 51536, subd. (j), 51539, subd. (d)(1), 51550) and may appeal decisions on administrative adjustments (tit. 22, §§ 51536, subd. (k), 51539, subd. (d)(3)).

The elaborate formulae designed to sensitively determine the costs in-state hospitals incur in treating Medi-Cal patients have no application to out-of-state hospitals that treat such persons. Nor are out-of-state hospitals permitted to negotiate reimbursement contracts with CMAC. The methodology DHS uses to reimburse out-of-state hospitals is prescribed by subdivision (i) of Welfare and Institutions Code section 14105.15, which was enacted in 1992 (hereafter subdivision (i)). This statute provides that “reimbursement for out-of-state acute inpatient hospital services provided to Medi-Cal beneficiaries shall not exceed the current statewide average of contract rates for acute inpatient hospital services negotiated by the California Medical Assistance Commission or the actual billed charges, whichever is less.” (Ibid.) In addition to their constitutional claims, respondents challenged DHS’s application of subdivision (i) on the ground the Department “does not pay out-of-state hospitals the ‘current’ statewide average of contract rates, but rather uses an average of the different rates paid in-state contract hospitals on December 1 of the previous year.” The complaint states that “[i]n an inflationary economy, such as the one that hospitals operate in, last year’s average rate is always less than the ‘current’ rate.”

Furthermore, while out-of-state hospitals may request administrative adjustments to the rate of reimbursement, administrative decisions to grant or deny such adjustments may not be appealed and are final. (Tit. 22, § 51543, subd. (b).) This contrasts with the rights of in-state hospitals, which may appeal denial of an adjustment administratively and, if need be, judicially. (Tit. 22, § 51539, subd. (d)(3).)

Under the reimbursement methodology used by DHS prior to the 1992 enactment of subdivision (i), out-of-state hospitals were reimbursed “at a percentage of allowable billed charges based on Medicaid information obtained from the Medicaid program for the state of location.” (Tit. 22, former § 51543, subd. (a) [amended 1992].) The percentage of reimbursement was determined by one of five alternative methodologies, depending on the extent of the information made available to DHS. (Ibid.) Respondents allege, and the trial court essentially agreed, that under the prior reimbursement methodology California paid out-of-state hospitals 65 percent of their charges. Under .the new scheme, respondents receive only 38 percent of their charges.

The states in which respondent hospitals are variously located—Nevada, Arizona and Oregon—prohibit them from refusing to treat Medi-Cal patients. (See Orthopaedic Hospital v. Belshe (9th Cir. 1997) 103 F.3d 1491, 1498 [“hospitals have a legal obligation to provide those services regardless of the level of Medi-Cal reimbursement rates”].) Because they must treat such persons, respondents have incurred substantial shortfalls in reimbursement based on a comparison of the amounts they now receive to the amounts they would have received under the prior rates.

The Federal Proceedings

In 1995, before they commenced this state proceeding, respondents and other hospitals filed an action against DHS in the United States District Court for the Northern District of California (Children’s Hosp. and Medical Center v. Belshe, No. C-95-1076 MHP), alleging that California’s reimbursement scheme for out-of-state hospitals did not comply with the so-called Boren Amendment to the Medicaid Act (42 U.S.C. former § 1396a(a)(13)(A); see Historical Notes, 42 U.S.C.A. (2001 supp.) foll. § 1396a, p. 286 [repealed]), and seeking declaratory and injunctive relief. The federal action sought no damages but only declaratory relief invalidating the existing reimbursement scheme, compelling DHS to replace it with a more equitable system.

Prior to enactment of the Boren Amendment, states that participated in the federal Medicaid program were required to reimburse hospitals for the reasonable cost of providing inpatient services, which was ordinarily accomplished through retrospective payments based on a hospital’s costs for specified services. (See West Virginia University Hospitals, Inc. v. Casey (3d Cir. 1989) 885 F.2d 11, 15, affd. on other grounds (1991) 499 U.S. 83 [111 S.Ct. 1138, 113 L.Ed.2d 68].) The Boren Amendment required states to prospectively establish reimbursement rates that “are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services. The measure had two purposes: to encourage health care providers to meet a reasonable rate or absorb the loss if their costs exceeded that rate and to provide states greater flexibility in determining the method of payment. (Sen.Rep. No. 97-139, 1st Sess., p. 478 (1981), reprinted in 1981 U.S. Code Cong. & Admin. News, p. 744; see also Wilder v. Virginia Hospital Assn. (1990) 496 U.S. 498, 515, fn. 13 [110 S.Ct. 2510, 2520, 110 L.Ed.2d 455]; Folden v. Washington State DSHS (9th Cir. 1992) 981 F.2d 1054, 1056.)

In orders dated January 9, 1997, and February 5, 1998, United States District Court Judge Marilyn Hall Patel denied DHS’s motion for summary judgment, determined that the procedural and substantive requirements of the Boren Amendment apply equally to in-state and out-of-state hospitals and found that DHS failed to meet its procedural requirements in setting reimbursement rates for out-of-state hospitals. Judge Patel specifically held that DHS did not discharge its obligation under the Boren Amendment to make requisite adjustments in the payments to out-of state hospitals that “serve a disproportionate share of low-income patients with special needs.”

In her 1998 order, Judge Patel noted that in 1997, while the action before her was pending, portions of the Boren Amendment were repealed and revised by section 4711 of the Balanced Budget Act of 1997 (Pub.L. No. 105-33 (Aug. 5, 1997) 11 Stat. 251.) Section 4711 eliminated the “findings” and “assurances” methodology prescribed by the Boren Amendment and required instead that states create a “public process for determination of rates of payment under the [medical assistance] plan.” (42 U.S.C. § 1396a(a)(13)(A).) Under the new statute, states must allow “providers, beneficiaries and their representatives, and other concerned State residents” (42 U.S.C. § 1396a(a)(13)(A)(ii)) a reasonable opportunity to review and comment on “proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates.” (42 U.S.C. § 1396a(a)(13)(A)(i).) Section 4711 also requires that rates “take into account . . . the situation of hospitals which serve a disproportionate number of low-income patients with special needs.” (42 U.S.C. § 1396a(a)(13)(A)(iv).) As Judge Patel observed, the foregoing requirements of section 4711 “affect[] only payments made to out-of-state hospitals for items and services furnished on or after October 1, 1997.” However, in December 1997 the Health Care Financing Administration (HCFA), the federal agency responsible for overseeing operation of the Medicaid Program, authorized states to continue to use payment methodologies approved under the Boren Amendment standard notwithstanding its repeal. Pursuant to this authority, DHS continues to administer its Medi-Cal program by using the Boren Amendment methodology, but only with respect to in-state hospitals.

At the end of her 1998 order, Judge Patel allowed that her determination that the Boren Amendment applied to out-of-state hospitals and that the Department failed to comply with its procedural requirements “involves a controlling question of law as to which there may be substantial ground for difference of opinion.” Accordingly, she found that an immediate appeal from her orders “may materially advance the ultimate termination of this litigation” and granted the state’s petition for an interlocutory appeal under 28 United States Code section 1292(b), certified the action for interlocutory appeal, and stayed further district court proceedings pending a decision from the Ninth Circuit Court of Appeals. The Ninth Circuit granted the state’s petition for permission to prosecute an interlocutory appeal, and decided the appeal on August 16, 1999. (Children’s Hosp. and Health Center v. Belshe (9th Cir. 1999) 188 F.3d 1090, cert. den. 530 U.S. 1204 [120 S.Ct. 2197, 147 L.Ed.2d 233].)

In a split opinion, the Ninth Circuit affirmed the judgment of the district court. The majority held that repeal of the Boren Amendment did not render the case moot and the action was not barred by the Eleventh Amendment. Among other things, the majority pointed out that, as authorized by the HCFA, DHS continued to use payment methodologies approved under the Boren Amendment even after its repeal, but “refuses, however, to apply that methodology to its reimbursement of out-of-state hospitals for services they provide to Medi-Cal patients.” (Children’s Hosp. and Health Center v. Belshe, supra, 188 F.3d at p. 1095.) The Boren Amendment applied to out-of-state health care providers, but did not require that same methodology to be used to determine reimbursement rates for both in-state and out-of-state providers. (Id. at pp. 1096-1099.) As the majority concluded, DHS “has the option of complying with the Boren Amendment or with the public process provisions of the Balanced Budget Amendment of 1997. It does not have the option of failing to comply with either law. So long as it fails to comply with the Balanced Budget Amendment, it is bound by the Boren Amendment, and we hold that the Boren Amendment applies to all hospitals, including out-of-state hospitals. We reject [DHS’s] contention that the administrative burden of applying the Amendment to out-of-state providers suggests that Congress intended otherwise.” (Id. at p. 1099, italics added.)

State Proceedings

When respondents initiated the federal action they filed a claim for compensation for past underpayments with the State Board of Control. In 1995, after the claim was denied, respondents commenced the present action in the San Francisco Superior Court. Unlike the federal action, which sought only prospective declaratory relief, the state action sought damages for past underpayments. The state proceeding was necessitated by the fact that while a federal court may find that a state official failed to comply with federal statutory and regulatory requirements, and prospectively enjoin such noncompliance, the Eleventh Amendment bars such a court from imposing a liability which must be paid from public funds in the state treasury. (Edelman v. Jordan (1974) 415 U.S. 651, 663-665 [94 S.Ct. 1347, 1355-1357, 39 L.Ed.2d 662].) Thus, the complaint herein states that the present action is necessary “to protect [respondents’] right to receive retroactive damages for DHS’ continuing pattern of unlawful underpayments to out-of-state hospitals in connection with their treatment of Medi-Cal patients since at least October 1992.”

Unlike the federal complaint, the complaint in this action makes no mention of the Boren Amendment; it simply alleges generally that appellants’ reimbursement scheme violated “federal and state law and the California and U.S. Constitutions.” The only state statute referred to in the complaint is subdivision (i). As earlier noted, respondents allege that DHS’s application of that statute—which provides that reimbursement for out-of-state hospitals “shall not exceed the current statewide average of contract rates for acute inpatient hospital services”—is invalid, because DHS does not pay out-of-state hospitals the current statewide average of contract rates, but rather the average rate paid in-state hospitals during the previous year, which in an inflationary economy is always less than the current rate.

On December 9, 1998, respondents moved for summary adjudication of two issues. Maintaining Judge Patel’s orders were res judicata (the Ninth Circuit had not yet ruled), respondents contended it must therefore be deemed established that, prior to its repeal, the Boren Amendment applied to California’s reimbursement scheme and was violated, so that there was no triable issue as to that question. Respondents claimed there was also no triable issue as to the amount of damages to which they were entitled, because federal law mandates that states may only use reimbursement rates that have been approved by the HCFA. Respondents claimed that, because the federal district court invalidated the DHS’s current rate-setting methodology, the former HCFA-approved rate-setting methodology remained in effect and was the only legally effective rate-setting methodology that could properly be employed for purposes of calculating respondents’ damages.

DHS opposed respondents’ motion essentially on the grounds Judge Patel’s determinations were in the form of interim orders and therefore not binding as res judicata, and that, in any case, Judge Patel found only that DHS failed to comply with the procedural requirements of the Boren Amendment, and never determined the substantive requirements had not been met. On March 9, 1999, respondents’ motion for summary adjudication was denied by Judge A. James Robertson II, without a statement of reasons.

On September 13, 1999, about a month after the Ninth Circuit affirmed Judge Patel and remanded the case to her for further proceedings, DHS moved in the superior court to strike portions of the complaint. The motion proceeded on the hypothesis that all of respondents’ claims, and at least their constitutional claims, were “dependent upon and inextricably tied” to the assertion that appellants violated a federal statute (42 U.S.C. former § 1396a(a)(13)(A)), because except for the Medicaid Act “there is no requirement that California must pay someone who renders care to a California resident.” According to DHS, “[i]t is only the [Medicaid Act] and California’s participation in the program authorized by that statute, which compels California to reimburse hospitals in such situations.” Relying on the holding in Alden v. Maine (1999) 527 U.S. 706 [119 S.Ct. 2240, 144 L.Ed.2d 636] (Alden) that the powers delegated to Congress under article I of the United States Constitution do not include the power to subject nonconsenting states to private suits for damages in their own courts unless “there is ‘compelling evidence’ that the States were required to surrender this power to Congress pursuant to the constitutional design” (Alden, at p. 731 [119 S.Ct. at p. 2255]), DHS maintained that respondents’ “federally-based causes of action” are barred by the doctrine of sovereign immunity implicit in the Eleventh Amendment, which California has not waived. The motion to strike included the fallback argument that if the trial court believed respondents’ state claims were separate and independent of the federal claims, “then, at most, the court should permit [them] to assert only two causes of action: a) alleged violation of the state Constitution, and b) alleged violation of section 14105.15 of the state Welfare and Institutions Code [i.e., subdivision (i)].”

Respondents agreed their damages claims would be barred by the Eleventh Amendment if they derived from a private right of action created by Congress, but claimed they never alleged any such federal claim in this proceeding and were relying instead on “a variety of State-based legal grounds.”

On October 19, 1999, DBS’s motion to strike was granted by Judge David Garcia in an order stating, without elaboration, that “all causes of action based on violations of federal law are hereby stricken from the complaint.”

On December 10, 1999, DBS moved for summary judgment and, on December 21, 1999, respondents filed a cross-motion seeking the same relief. Judge Garcia denied both motions on January 19, 2000. In denying DBS’s motion, Judge Garcia implicitly rejected the contention that respondents were improperly using rulings of the United States District Court and the Ninth Circuit “to mount an indirect attack based on the alleged violation of a federal statute” precluded by Alden, supra, 527 U.S. 706.

A bench trial before Judge Robert L. Dondero commenced on July 10, 2000, and lasted 10 days. On December 14, 2000, after posttrial briefing, the trial court issued 26 findings of fact, 32 conclusions of law, and an order. The court concluded that, as alleged in the complaint, DBS violated “state and federal constitutional standards.” Deferring to the federal district court ruling, which had by then been affirmed by the Ninth Circuit (Children’s Hosp. and Health Center v. Belshe, supra, 188 F.3d 1090), the court also concluded that DBS violated the Boren Amendment, indicating that the constitutional and state statutory violations which it found were in part the result of this violation, because the Boren Amendment was in effect during the period for which respondents sought damages. As the federal courts had found that DBS’s reimbursement scheme violated the Medicaid Act, the trial court declared that DBS was “collaterally estopped from raising these issues again in that they have already had a full and fair opportunity to litigate them. Lumpkin v. Jordan (1996) 49 Cal.App.4th 1223 [57 Cal.Rptr.2d 303]; Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101 [51 Cal.Rptr.2d 286].”

The trial court found not only that the Medi-Cal patients respondents served were much more costly to treat than Medi-Cal patients typically served by in-state hospitals, but also that DBS’s payments to respondents “have nothing to do with costs, acuity, or any of the other important factors that are considered for in-state hospitals” (original italics), that respondents were not reimbursed for costs that were “reasonable” and “allowable” under the Medicaid program and for which in-state hospitals were compensated, and that damages should be calculated by subtracting the amount of compensation respondents received from DBS from the amount they would have received under the reimbursement method prescribed by regulations that had been approved by the HCFA and were used by DHS prior to the enactment of subdivision (i). (Tit. 22, § 51543 (1992).) Using this methodology, the court calculated a net shortfall of $6,088,263 during the period from April 1, 1994 (one year prior to the filing of respondents’ claim with the Board of Control) to August 14, 2000, which resulted in reimbursement of 85 percent of the Medi-Cal patient costs respondents incurred during that period. The court also awarded respondents prejudgment interest from August 14, 2000, to the date of judgment calculated at the rate of 10 percent per annum, together with “an award of attorneys fees pursuant to the private attorney general doctrine, in [an] amount to be determined according to proof.” (See Code Civ. Proc., § 1021.5.)

After judgment was entered, respondents requested attorney fees in the amount of $1,289,967, which was arrived at by application of a 1.5 multiplier. Rejecting the use of a multiplier, and deducting certain hours claimed by respondents’ counsel, the court awarded fees in the amount of $827,145.

This timely appeal followed.

Discussion

The issues we are asked to address—whether DHS’s reimbursement scheme violates the commerce clause, denies equal protection of the law, and infringes rights arising under the Welfare and Institutions Code— present questions of law, as do the related questions of the effect of the federal rulings and the application to this case of the Eleventh Amendment. We review such issues independently. (Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888 [264 Cal.Rptr. 139, 782 P.2d 278].)

I.

Eleventh Amendment

It is necessary, at the outset, to eliminate some confusion as to application of the Eleventh Amendment. If the trial court correctly concluded that the reimbursement scheme is constitutionally defective or violates state statutes, the state would enjoy no immunity under the Eleventh Amendment, as the violations would not pertain to any congressional mandates. However, as noted, in drawing its conclusions as to the violations of constitutional standards and state statutes, the trial court referred to the determination of the federal district court, affirmed by the Ninth Circuit, that DHS violated provisions of the federal Medicaid Act pertaining to the compensation of out-of-state hospitals. In the mind of the trial court, the state statutory and constitutional violations were in some unspecified measure the result of the DHS’s failure to comply with procedural and substantive requirements of federal law. DHS argues that the trial court’s conclusion that the out-of-state rates paid by the Department violate substantive or procedural requirements of federal law “is inconsistent with the earlier ruling by the court striking all causes of action alleging violations of federal law.” According to DHS, “[s]ince Alden precludes suit in state court based on a violation of a federal statute, plaintiffs should not be permitted to rely on federal court rulings which were based on violations of a federal statute. They cannot do indirectly what they cannot do directly.”

Conceiving respondents’ constitutional and state statutory claims to be entirely derivative of federal rulings that it violated federal statutes, DHS suggests, though it does not flatly say, that the claims advanced here by respondents are all barred by the doctrine of sovereign immunity articulated in Alden, supra, 527 U.S. 706. The trial court correctly rejected this claim.

Prior to Alden most Eleventh Amendment cases involved federal court actions against a state on the basis of alleged violations of & federal statute. Alden was an action in state court by state probation officers against the state under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.), which purported to authorize private actions against states in state courts without their consent. The federal statute with which we are here concerned, the Medicaid Act, contains no such provision. Furthermore, Alden involved no claimed violations of state or federal constitutional standards or state law. The present action is one in state court in which unidentified federal statutory causes of action (which respondents insist never existed in the first place) were stricken prior to trial and the trial court, which never independently determined whether any federal statute was violated, found violations only of state and federal constitutional standards and state statutes. The federal statutory violations found by the federal courts relate to the questions whether DHS violated constitutional requirements only because they put the questioned conduct in context; the federal statutes do not, however, provide the legal basis upon which respondents sought and received damages. The Eleventh Amendment only restricts the United States—that is, Congress— from subjecting unconsenting states to lawsuits by citizens of the same or another state. The Medicaid Act was not designed for and does not achieve that proscribed purpose; and the fact that violations of the Medicaid Act may result in or exacerbate violations of constitutional requirements does not in and of itself implicate the doctrine of sovereign immunity. Because the rights asserted by respondents in this action derive from the Constitutions of this state and nation, not from any private right of action created by Congress, Alden does not subject them to the bar of the Eleventh Amendment.

II.

The Commerce Clause

A.

The commerce clause provides that “Congress shall have power . . . [H] . . . [1[] [t]o regulate commerce . . . among the several states . . . .” “It has long been accepted that the Commerce Clause not only grants Congress the authority to regulate commerce among the States, but also directly limits the power of the States to discriminate against interstate commerce. [Citations.]” (New Energy Co. of Indiana v. Limbach (1988) 486 U.S. 269, 273 [108 S.Ct. 1803, 1807, 100 L.Ed.2d 302]; Gibbons v. Ogden (1824) 22 U.S. (9 Wheat.) 1, 199-200 [6 L.Ed. 23, 70-71]; Cooley v. Board of Wardens (1851) 53 U.S. (12 How.) 299, 319 [13 L.Ed. 996, 1003].)

The United States Supreme Court regularly explains that the implicit or “dormant” limitation on the authority of the states to enact legislation affecting interstate commerce precludes state regulation in certain areas “even absent congressional action.” (CTS Corp. v. Dynamics Corp. of America (1987) 481 U.S. 69, 87 [107 S.Ct. 1637, 1648, 95 L.Ed.2d 67].) “Though phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce. [Citations.] The Framers granted Congress plenary authority over interstate commerce in ‘the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.’ [Citation.] See generally The Federalist No. 42 (J. Madison). ‘This principle that our economic unit is the Nation, which alone has the gamut of powers necessary to control of the economy, . . . has as its corollary that the states are not separable economic units.’ [Citation.] [f] Consistent with these principles, we have held that the first step in analyzing any law subject to judicial scrutiny under the negative Commerce Clause is to determine whether it ‘regulates evenhandedly with only ‘incidental’ effects on interstate commerce, or discriminates against interstate commerce.’ [Citations.]” (Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore. (1994) 511 U.S. 93, 98-99 [114 S.Ct. 1345, 1349-1350, 128 L.Ed.2d 13].)

The crucial factual determinations the trial court used to support its conclusion that DHS’s reimbursement scheme affronted this negative aspect of the commerce clause were that (1) the unweighted average of in-state contract rates for acute inpatient hospital services used by DHS as the basis for reimbursing out-of-state hospitals was 23.8 percent lower than a weighted average would be and the use of an unweighted average compensated respondents nearly $3 million less than they would have received if DHS employed a weighted average; (2) in-state contract rates consistently increased over time and that “use of a rate that is set on December 1, and not adjusted until the next year, inevitably results in out-of-state hospitals being paid less than the ‘current’ average contract rate,” as mandated by state law implementing the Medicaid Act (i.e., subdivision (i)); (3) DHS annually distributes over $2 billion in disproportionate share adjustments to state hospitals, but “has never made a payment of disproportionate share moneys to any out-of-state hospital”; (4) in-state hospitals are entitled to challenge DHS cost determinations administratively and judicially, and DHS is obliged to pay interest on the amounts in-state hospitals are ultimately determined to have been undercompensated, but out-of-state hospitals cannot similarly challenge the adequacy of the compensation they receive; (5) out-of-state hospitals typically serve Medi-Cal patients who are more costly to treat than the Medi-Cal patients typically treated by in-state hospitals; (6) regardless of the financial disincentives in treating Medi-Cal patients, out-of-state hospitals cannot refuse to treat most Medi-Cal patients or transfer them to a California hospital; (7) DHS payments to out-of-state hospitals “have nothing to do with costs, acuity, or any of the other important factors that are considered for in-state hospitals” (original italics); (8) during the relevant time period (i.e., April 1, 1994 to August 14, 2000) the expenses incurred by respondent hospitals in treating Medi-Cal patients that were allowable under the principles of cost reimbursement reflected in the Medicaid Act were $22,660,318, but the compensation respondents received for the services they provided such patients during that period was $14,696,955, which was “only sixty-five percent ... of their ‘allowable costs’ for the Medi-Cal patients they treated,” “leaving a net shortfall based on ‘allowable costs’ (exclusive of interest) of $7,963,363”; and (9) under the reimbursement system employed by DHS prior to its use of the present system respondents would have received $19,380,433 for the services they provided Medi-Cal patients during the relevant time period, leaving a net shortfall (exclusive of interest) of $4,683,478.

The trial court concluded that the “fundamental dissimilarities” it found between the treatment of in-state and out-of-state hospitals adversely affected the commercial health of out-of-state hospitals. As stated by the court, “the evidence shows that [respondents] receive compensation that is not even substantially commensurate with the acute care services they are compelled to render for Medi-Cal patients because of Medicaid requirements. Also, [respondents] lack the contracting opportunity and review procedures enjoyed by hospitals in California. Such distinctions are discriminatory and violate the [C]ommerce [C]lause.” (Original italics.)

The reimbursement methodology DHS has employed since 1992 affected respondent hospitals far more adversely than most other out-of-state hospitals because of the unusually high number of Medi-Cal patients they each treat. Unlike the vast majority of out-of-state hospitals, respondents are located close to the California border and serve bi-state regions encompassing large rural areas of California in which the level of medical care immediately available is considerably lower than that provided by respondents. Thus, the trial court found respondents “provide the full medical services needed for acute care Medi-Cal patients not just visiting the states of Arizona, Oregon or Nevada, but also those Californians who must avail themselves of [respondents’ facilities] . . . because they are the closest major trauma centers available to Medi-Cal participants residing in California.” (Original italics.) For example, because large numbers of Medi-Cal beneficiaries residing in California can so easily reach respondent Washoe Medical Center, located in Reno, Nevada, it treats more Medi-Cal patients than any other hospital in the nation located outside California. Moreover, due to the trauma care and other forms of intensive care respondent hospitals provide, they attract “Medi-Cal patients who are much sicker, and therefore require a greater expenditure of resources and costs, than the typical in-state Medi-Cal patient.”

The trial court’s view that DHS’s constitutionally offensive conduct was at least partly attributable to the violations of the Boren Amendment established in the federal proceedings is shown by the quotation in its order of Judge Patel’s statement that DHS “ ‘gathered no information on the costs incurred by out-of-state hospitals and performed no empirical analysis of the effects of the reimbursement scheme on out-of-state hospitals [DHS] therefore failed to provide any basis for a reasonably principled analysis in determining whether the payment rates that it provides to out-of-state hospitals are reasonable and adequate.’ ” The court also referred to Judge Patel’s observation that DSH made no disproportionate share adjustment payments to out-of-state hospitals, nor “ ‘made any findings as to whether any out-of-state hospitals serve a disproportionate share number of low-income patients with special needs in order to determine whether these hospitals are entitled to receive [disproportionate share] payments.’ ”

B.

The still evolving jurisprudence of the dormant commerce clause traces the fitful efforts of the United States Supreme Court to establish a satisfactory theoretical basis for a doctrine that is not explicit in the text of the Constitution but may only be inferred. As is widely appreciated, not least of all by members of the United States Supreme Court, our high court has yet to provide a fully coherent theory of the negative dimension of the commerce clause that usefully assists application of the doctrine. Under the Supreme Court’s current approach, it appears that “a state law must, in the first instance, concern a legitimate state end. Second, even if they have a legitimate aim, state regulations that discriminate against interstate or out-of-state commerce are subject to rigorous scrutiny that approaches per se invalidity. Finally, even if a regulation does not discriminate against interstate commerce, it must be struck down if the burden it imposes on interstate commerce is ‘clearly excessive in relation to the putative local benefits.’ ” (1 Tribe, American Constitutional Law, supra, § 6-5, pp. 1050-1051, fns. omitted.) By discrimination, the Supreme Court means “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” (Oregon Waste Systems, Inc. v. Department of Environmental Quality, supra, 511 U.S. 93, 99 [114 S.Ct. 1345, 1350].)

DHS’s reimbursement scheme obviously discriminates against out-of-state hospitals like respondents’ that treat significant numbers of MediCal patients. DHS’s argument that the scheme is fair, boils down to no more than the false assertion that paying out-of-state hospitals the average of what DHS pays in-state hospitals with which it has contracts simply means that “out-of-state hospitals will receive less than some California contract hospitals receive and more than others do.” This superficial argument ignores findings and substantial evidence that the “cost-mix” of Medi-Cal patients cared for by respondent hospitals is considerably higher than that of the in-state hospitals with which DHS contracts, so that the average rate paid such in-state hospitals is an invidious basis upon which to calculate the level of reimbursement that will fairly compensate respondents.

DHS also ignores the fact that the discrimination found by the trial court relates not just to the undercompensation of out-of-state hospitals, but the denial to them of administrative or judicial processes to challenge the adequacy of reimbursement, which are available to in-state hospitals. As the trial court correctly noted, procedural distinctions providing greater rights to in-state than out-of-state interests have been held to impermissibly burden interstate commerce. Bendix Autolite Corp. v. Midwesco Enterprises (1988) 486 U.S. 888 [108 S.Ct. 2218, 100 L.Ed.2d 896] is illustrative. That case involved an Ohio law tolling the statute of limitations for any period that a person or corporation is not “present” in the state. To be present in Ohio, a foreign corporation must appoint an agent for service of process, which operates as consent to the general jurisdiction of Ohio courts. The Supreme Court found that the tolling provision—which “gave Ohio tort plaintiffs unlimited time to sue out-of-state (but not in-state) defendants” (Reynoldsville Casket Co. v. Hyde (1995) 514 U.S. 749, 750 [115 S.Ct. 1745, 1747, 131 L.Ed.2d 820])—violated the commerce clause. As the court explained, the Ohio statutory scheme “forces a foreign corporation to choose between exposure to the general jurisdiction of Ohio courts or forfeiture of the limitations defense, remaining subject to suit in Ohio in perpetuity. Requiring a foreign corporation to appoint an agent for service in all cases and to defend itself with reference to all transactions, including those in which it did not have the minimum contacts necessary for supporting personal jurisdiction, is a significant burden.” (Bendix, supra, at p. 893 [108 S.Ct. at p. 2221].)

The reimbursement scheme at issue here does not provide out-of-state hospitals the sort of Hobson’s choice compelled in Bendix, or any choice at all; it simply deprives them of the procedural rights in-state hospitals possess to effectively challenge the adequacy of the compensation they receive for the service they provide. (Goleta Valley Community Hospital v. Department of Health Services (1983) 149 Cal.App.3d 1124 [197 Cal.Rptr. 294].)

While differences in the treatment of in-state and out-of-state hospitals that are demonstrably necessary would be constitutionally tolerable, the total indifference of DHS to the true cost of the care provided by out-of-state hospitals which serve significant numbers of Medi-Cal patients, and the denial to such hospitals of any effective way in which to seek and obtain the administrative and judicial relief made available to in-state hospitals, is facially untenable. It must be kept in mind that, for purposes of the dormant commerce clause, the Supreme Court has defined discrimination very expansively. “Any disparity in the treatment of in-state and out-of-state interests—whether businesses, users, or products—constitutes discrimination, even if the disparity is slight. Moreover, the Court has declared that, ‘where discrimination is patent, . . . neither a widespread advantage to in-state interests nor a widespread disadvantage to out-of-state competitors need be shown’ in order to invalidate the law. Nor does a finding of ‘discrimination’ necessarily depend on economic analysis.” (1 Tribe, American Constitutional Law, supra, § 6-6, pp. 1059-1060, fns. omitted.)

In light of the profound judicial antipathy to state regulations that discriminate against out-of-state economic interests, DHS’s scheme must be subjected to the most rigorous judicial scrutiny. As the United States Supreme Court has repeatedly declared: “where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.” (Philadelphia v. New Jersey (1978) 437 U.S. 617, 624 [98 S.Ct. 2531, 2535, 57 L.Ed.2d 475]; accord, Hughes v. Oklahoma (1979) 441 U.S. 322, 337 [99 S.Ct. 1727, 1737, 60 L.Ed.2d 250] [“facial discrimination by itself may be a fatal defect”]; Sporhase v. Nebraska ex rel. Douglas (1982) 458 U.S. 941, 958 [102 S.Ct. 3456, 3465, 73 L.Ed.2d 1254] [“facially discriminatory legislation” merited ‘“strictest scrutiny’”]; Chemical Waste Management, Inc. v. Hunt (1992) 504 U.S. 334, 342 [112 S.Ct. 2009, 2014, 119 L.Ed.2d 121] [“Once a state tax is found to discriminate against out-of-state commerce, it is typically struck down without further inquiry.”]; Oregon Waste Systems, Inc. v. Department of Environmental Quality, supra, 511 U.S. 93, 99 [114 S.Ct. 1345, 1350] [“If a restriction on commerce is discriminatory, it is virtually per se invalid.”].) The California Supreme Court has of course been equally strict. Speaking for a unanimous court, Chief Justice George has observed that practices which discriminate against interstate commerce must be subjected to “heightened scrutiny.” (Woosley v. State of California (1992) 3 Cal.4th 758, 783 [13 Cal.Rptr.2d 30, 838 P.2d 758].) Our high court has also refused to indulge discrimination on the ground of “the legitimacy of the state interests that the statute is designed to protect, the degree and scope of the discrimination, and the volume of commerce affected.” (Pacific Merchant Shipping Assn. v. Voss (1995) 12 Cal.4th 503, 517 [48 Cal.Rptr.2d 582, 907 P.2d 430].) The discrimination prohibited by the dormant commerce clause is simply any “ ‘differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.’ ” (Ibid.)

Facially discriminatory state regulations of the sort presented in this case must be stricken “unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism.” (New Energy Co. of Indiana v. Limbach, supra, 486 U.S. 269, 274 [108 S.Ct. 1803, 1808].) DHS’s defense to respondents’ commerce clause claim does not genuinely rest on any such justification. Its chief defense lies instead in the unusual contention that its reimbursement scheme cannot offend the commerce clause because it does not relate to an article of commerce.

Allowing that there is an interstate aspect to this case, DHS insists that, unlike the commerce clause cases relied upon by respondents and by the trial court, in which there was competition between the in-state and out-of-state enterprises whose economic interests were at stake, there is no competition between in-state and out-of-state hospitals relating to the treatment of Medi-Cal patients and the challenged regulation therefore does not affect the flow of commerce. DHS emphasizes that respondent hospitals do not send their doctors into California to do business, but simply provide treatment in their states to California residents who happen to be there. According to DHS, when respondents provide such care and are paid by California, “there is no competitive consequence. California hospitals do not achieve an advantage over [respondent hospitals] as a consequence of the latter’s being paid less than some California hospitals might be paid for the same services.” DHS also emphasizes that, because hospitals have a legal obligation to provide services to persons whose health care is subsidized under the Medicare program, treatment decisions are not made on the basis of competitive considerations. For this reason, DHS argues, “all hospitals in all states are on an equal footing. They all must treat out-of-state residents. Some may receive more money than others but there is no law which requires parity or any uniform payment system and, in any event, differing reimbursement rates have no effect on the hospitals’ statutory obligation to render treatment.” We are not impressed with this argument.

To begin with, the Supreme Court’s definition of interstate commerce is notably capacious. “All objects of interstate trade merit commerce clause protection; none is excluded by definition at the outset.” (Philadelphia v. New Jersey, supra, 437 U.S. at p. 622 [98 S.Ct. at p. 2534].) The provision of services to residents of other states is no less an object of interstate commerce than the sale of goods. (See, e.g., Camps Newfound/Owatonna, Inc. v. Town of Harrison, supra, 520 U.S. 564.)

The flaw in DHS’s argument lies in the artificiality of its definition of the commerce at issue in this case. It is true that, unlike most other services that are offered for a fee, the service of ¿treating Medi-Cal patients (which the recipient of care cannot afford and the government does not fully subsidize) is by its very nature unprofitable, and hospitals therefore have no incentive to compete for such patients. However, while there is no competition between in-state and out-of-state hospitals for Medi-Cal patients, beneficiaries of the Medi-Cal program are not the only Californians who may obtain needed medical assistance from out-of-state hospitals, particularly those located in nearby communities in adjacent states. Respondents and undoubtedly other out-of-state hospitals located close to our state line serve not just Medi-Cal patients but many other California residents in need of care who are able to pay their own way or whose health insurance more fully compensates health care providers. With respect to this universe of patients there is competition between and among in-state and out-of-state hospitals located in the same region. Respondents’ commerce clause claim is built on the theory that the undercompensation they receive from DHS regarding a class of patients they cannot legally refuse to serve places them at a disadvantage against nearby in-state hospitals with which they compete for profitable business. The only way out-of-state hospitals can recover the inordinately high unreimbursed costs they incur by treating Medi-Cal patients is either to charge other patients more than the California hospitals with which they compete need to charge in order to cover their costs or to accept lower profit margins than the in-state competitors they have relieved of the need to serve unprofitable Medi-Cal patients. Without ever explicitly addressing the issue, DHS untenably assumes California hospitals do not compete with out-of-state hospitals for other patients, and ignores the manner in which its reimbursement scheme places out-of-state hospitals at a disadvantage with respect to that competition. In short, the article of commerce with which we are here concerned is not the provision of hospital care to Medi-Cal patients, as DHS maintains, but the provision of such care to all persons to whom a hospital can make it available. The evidence supports the trial court determination that DBS’s reimbursement scheme adversely affected respondents’ overall commercial health, to the advantage of the in-state hospitals with which they compete, and it is in that way that the scheme burdens the interstate flow of the commercial services respondents provide.

We are not persuaded by DBS’s contention that the revenues out-of-state hospitals receive from treating Medi-Cal patients are such a small portion of their total revenues that the undercompensation they receive for this service does not materially affect their ability to compete with in-state hospitals. Even if Medi-Cal patients provide a small portion of the revenues of respondent hospitals, it must be remembered that even a slight disparity in the treatment of in-state and out-of-state interests may offend the dormant commerce clause. For example, in Oregon Waste Systems, Inc. v. Department of Environmental Quality, supra, 511 U.S. 93, the Supreme Court found that a $2.25 per ton surcharge on out-of-state waste impermissibly burdened interstate commerce even though it amounted to an increase of only 14 cents per week for the average user. The court stated that its precedents “clearly establish that the degree of a differential burden or charge on interstate commerce ‘measures only the extent of the discrimination’ and ‘is of no relevance to the determination whether a State has discriminated against interstate commerce.’ ” (Id. at p. 100, fn. 4 [114 S.Ct. at p. 1350], original italics, quoting Wyoming v. Oklahoma (1992) 502 U.S. 437, 455 [112 S.Ct. 789, 801 117 L.Ed.2d 1].)

DHS suggests that any unfairness that may result from its reimbursement scheme is or can be ameliorated by other states, which may reciprocally undercompensate California hospitals for services to Medicaid patients from their states. This argument is unacceptable, even indulging the unjustified assumptions that reciprocal discrimination against California could legally be achieved, and, if so, would be desirable as a matter of policy. In New Energy Co. of Indiana v. Limbach, supra, 486 U.S. 269, the Supreme Court invalidated an Ohio law providing a tax credit against the Ohio motor fuel sales tax for ethanol produced in Ohio or in a state granting similar tax advantages to ethanol produced in Ohio. New Energy Company manufactured ethanol in Indiana, a state that provided no such tax relief. Ohio defended its statute on the ground, among others, that it simply encouraged other states to provide ethanol credits for motor fuel taxes, and therefore did not burden but actually promoted interstate commerce in an environmentally sound product. The Supreme Court rejected this justification, quoting its earlier declaration that a state “ ‘may not use the threat of economic isolation as a weapon to force sister States to enter into even a desirable reciprocity agreement.’ ” (Id. at p. 274 [108 S.Ct. at p. 1808], quoting A & P Tea Co. v. Cottrell (1976) 424 U.S. 366 [96 S.Ct. 923, 47 L.Ed.2d 55].)

DHS argues, finally, that even if its reimbursement scheme burdens interstate commerce, the so-called “market participation exception” exempts its conduct from prohibitions of the dormant commerce clause that might otherwise apply. We disagree.

As the Supreme Court has explained, “[n]othing in the purposes animating the commerce clause prohibits a State, in the absence of congressional action, from participating in the market and exercising the right to favor its own citizens over others.” (Hughes v. Alexandria Scrap Corp. (1976) 426 U.S. 794, 810 [96 S.Ct. 2488, 2498, 49 L.Ed.2d 220].) Thus, “if a State is acting as a market participant, rather than as a market regulator, the dormant commerce clause places no limitation on its activities.” (South-Central Timber Dev. v. Wunnicke (1984) 467 U.S. 82, 93 [104 S.Ct. 2237, 2243, 81 L.Ed.2d 71]; accord, Wyoming v. Oklahoma, supra, 502 U.S. 437, 458 [112 S.Ct. 789, 802]; Reeves, Inc. v. Stake (1980) 447 U.S. 429, 439 [100 S.Ct. 2271, 2278-2279, 65 L.Ed.2d 244]. Application of this principle invariably turns upon whether the state conduct at issue truly constitutes participation in an open private market or is instead simply a form of governmental regulation. “When a state engages in market ‘participation’— that is, when it enters the open market as a buyer or seller on the same footing as private parties—there is less danger that the state’s activity will interfere with Congress’s plenary power to regulate the market. As the Court has explained, the Commerce Clause ‘restricts “state taxes and regulatory measures impeding free private trade in the national marketplace,” but “[there] is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market.” ’ [Citations.] Pursuant to this doctrine—the ‘market participant’ exception to the dormant Commerce Clause—states are permitted to enter a market with the same freedoms and subject to the same restrictions as a private party. To the extent that a state is acting as a market participant, it may pick and choose its business partners, its terms of doing business, and its business goals—just as if it were a private party.” (SSC Corp. v. Town of Smithtown (2d Cir. 1995) 66 F.3d 502, 510, fn. omitted.)

DHS claims the market participation exception applies because the State of California “participates in the purchase of medical services for those of its residents who require acute inpatient care when out-of-state.” The defects in this argument are readily apparent. First, the state is not itself a consumer of the service in question, nor does it pick and choose service providers. Discharging conventional regulatory responsibilities imposed on it by state and federal law, the state, through DHS, merely reimburses those service providers selected by Medi-Cal recipients in need of medical care. The level of reimbursement DHS allows is clearly not responsive to market forces. Moreover, as DHS itself correctly points out in a different connection, there is no genuine private market regarding the delivery of care to Medi-Cal patients in which the state could participate. Though the treatment of Medi-Cal patients is less costly for in-state than out-of-state hospitals, it is in both cases inherently unprofitable; hospitals serve Medi-Cal patients only because they cannot legally refuse to do so. In sum, when it determines the level of compensation hospitals are entitled to receive for the treatment of Medi-Cal patients, DHS is not participating in an open market but simply carrying out a traditional state regulatory responsibility. The market participation exception therefore does not apply.

The trial court finding that DHS’s discriminatory reimbursement scheme came within the negative sweep of the commerce clause was correct.

HI.

The Equal Protection Clause

The equal protection clause of the Fourteenth Amendment commands that no state shall “deny to any person within its jurisdiction the equal protection of the laws.” (U.S. Const., 14th Amend., § 1.) The provisions of the California Constitution guaranteeing equal protection, set forth in article I, section 7, are “substantially the equivalent of the equal protection clause of the Fourteenth Amendment. . . .” (Department of Mental Hygiene v. Kirchner (1965) 62 Cal.2d 586, 588 [43 Cal.Rptr. 329, 400 P.2d 321].)

Where, as here, the differential treatment of in-state and out-of-state enterprises does not relate to any fundamental interests, such as the right to vote, or suspect classifications, such as race or sexual orientation, the question is whether there is a rational basis for the different treatment. “ ‘[W]hatever the extent of a State’s authority to exclude foreign corporations from doing business within its boundaries, that authority does not justify imposition of more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations, unless the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose.’ ” (Metropolitan Life Ins. Co. v. Ward (1985) 470 U.S. 869, 875 [105 S.Ct. 1676, 1680, 84 L.Ed.2d 751].)

Discriminatory state conduct that violates the commerce clause does not necessarily offend the equal protection clause. (Bendix Autolite Corp. v. Midwesco Enterprises, Inc., supra, 486 U.S. 888, 894 [108 S.Ct. 2218, 2222].) Moreover, as the seminal opinion of Dandridge v. Williams (1970) 397 U.S. 471 [90 S.Ct. 1153, 25 L.Ed.2d 491] makes clear, “[i]n the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some ‘reasonable basis,’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality.’ [Citation.] ‘The problems of government are practical ones and may justify, if they do not require, rough accommodations—illogical it may be, and unscientific.’ [Citation.] ‘A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.’ [Citation.]” (Id. at p. 485 [90 S.Ct. at p. 1161]; Hansen v. City of Buenaventura (1986) 42 Cal.3d 1172, 1190 [233 Cal.Rptr. 22, 729 P.2d 186].)

After observing that DHS failed to present any such governmental interest, and that “budgetary interests” would not suffice (citing AMISUB (PSL), Inc. v. Colorado Dept. of Social Services (10th Cir. 1989) 879 F.2d 789, 800-801, cert. den. 496 U.S. 935 [110 S.Ct. 3212, 110 L.Ed.2d 660]; Tallahassee Memorial Regional Medical Center v. Cook (11th Cir. 1997) 109 F.3d 693, 704), the trial court found that DHS’s differential treatment of in-state and out-of-state hospitals bore no rational relationship to any legitimate state purpose.

DHS contests this ruling not just by renewing its contention that its reimbursement scheme is fair and rational, but also by claiming that, as a practical matter, there is no workable alternative. Respondents point out that the argument that basing their reimbursement on the average rate paid in-state hospitals with which DHS has contracts (as prescribed by subdivision (i)) is fair and rational cannot be squared with the determinations of the federal district court that DHS “gathered no information on the costs incurred by out-of-state hospitals and performed no empirical analysis of the effects of the reimbursement scheme on out-of-state hospitals,” and claim DHS is therefore collaterally estopped from arguing that the scheme is reasonable. (Italics omitted.) We feel it unnecessary to decide the extent to which DHS may be collaterally estopped from defending its scheme because the trial court independently addressed the defense and found it wanting, as we have. Moreover, DHS’s claim that its scheme is rational because no workable alternative exists appears never to have been raised in the federal proceedings.

DHS sums up this argument in its opening brief as follows: “By definition, [out-of-state hospitals] are outside the borders of this state and, in most instances, quite distant. They are not subject to California jurisdiction; they are beyond the control of the California Legislature and the reach of regulations enacted by DHS. Moreover, the vast majority of them treat California residents only on an episodic basis. Whereas . . . the state can contract with in-state hospitals to treat California residents, the state can hardly contract with the 7500 hospitals across the nation which conceivably would have occasion to treat a California resident. And whereas the non-contract hospitals in California submit annual cost data to the state, are subjected to peer grouping, quality of care review, review of staffing levels, and state audits, manifes