Health Law Daily Overpayment collection not only lacks due process, but common sense
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Friday, June 24, 2016

Overpayment collection not only lacks due process, but common sense

By Harold Bishop, J.D.

Efforts to collect Medicaid overpayments from a resident whose family was erroneously found eligible for benefits due to a mistake by an employee of the state Medicaid agency were found to violate procedural due process. The appellate court remanded the case to the state agency for a new administrative hearing that would (1) allow the beneficiary a reasonable time to examine agency exhibits prior to the hearing, (2) provide an opportunity to object to agency exhibits and obtain rulings on objections, and (3) require the agency to provide an explanation as to how it arrived at the amount of the overpayment claim. The court also suggested that the agency might reconsider pursuing an overpayment claim occasioned by their own error, especially against a low-income family, and instead, use its resources to correct the system and process that caused the error (Dolic v. Missouri Department of Social Services, June 21, 2016, Reno, G.).

Background. On March 15, 2011, a Missouri resident applied for Medicaid benefits for her infant daughter. As part of the application the resident supplied the Missouri Department of Social Services, Family Support Division’s (Division) Medicaid eligibility specialist with her 2010 federal income tax return. The Division worker advised her that based on her income that not only her daughter, but she and her husband also qualified for Medicaid coverage. On March 16, 2011, the Division sent the resident a notice indicating her entire family had been approved for Medicaid coverage.

Approximately one year later, during an annual review, the Division discovered its representative had incorrectly used the resident’s adjusted gross income instead of gross income in determining eligibility. On April 23, 2012, the Division mailed her a notice stating that their Medicaid coverage was discontinued effective April 20, 2012. Then, on August 22, 2012, the Division mailed the resident an Adverse Action Notice seeking to establish a claim of $8,367 for public assistance her family received from March 2011 through April 2012.

Administrative hearing. At an administrative hearing before the Director of the Division, a Division employee offered 12 exhibits to support the Division’s action. The resident initially objected to the admission of the exhibits but upon being told by the Director that she would be able to testify and ask questions about the exhibits after they were entered into evidence, she ceased objecting to the admission of the exhibits. At the hearing, the Division employee did not present any testimony regarding how the Division determined the amount of the alleged claim. Instead, he offered into evidence a computer printout with handwritten entries, which he claimed showed an $8,367 medical claim overpayment. The Director of the Division affirmed the claim.

Circuit court. On appeal to the circuit court, the court entered a judgment affirming the Division’s establishment of a claim for recoupment against the resident. The court, however, reduced the amount of the claim to $7,377 to account for the Division’s admission that the daughter of the resident was, in fact, eligible for benefits during the applicable time period.

Appeal. On appeal of the circuit court’s decision, the resident argued three points: (1) the Division should have collected the overpayment by decreasing, suspending, or entirely withdrawing future Medicaid benefits, rather than seeking to collect the overpayment in cash; (2) the Division was wrong to attempt collection of the overpayment because the benefits were not received through misrepresentation by the resident but due to an error by a Division employee; and (3) the Division violated the due process requirements of the Medicaid Act and the 14th Amendment to the U.S. Constitution by issuing legally insufficient notice of the Medicaid overpayment claim and misleading her regarding her eligibility.

Method of collection. The resident contended that by statute the Division is only authorized to collect Medicaid overpayments through decreasing, suspending, or entirely withdrawing future Medicaid benefits and may not seek recovery of the overpayment in any other manner. The appellate court found that this argument was not ripe for review because at that point, the Division had only sought to establish a claim for overpayment and had not yet attempted to execute on that claim. The court concluded that it could not review the propriety of the Division’s not-yet-determined method of collection.

Lack of misrepresentation. The resident argued that because the overpayment was a result of Division error and not due to a misrepresentation or failure to disclose on her part, it had no statutory authority to collect the overpayment from her. The appellate court found that although there was no dispute that the overpayment of benefits were solely the result of the Division’s error, the statutes do not require the Division to prove misconduct by the recipient for it to collect in the event of an overpayment of benefits. As such, the court found for the Division on this point.

Due process. The appellate court found that while the Adverse Action Notice advised the resident of a right to a hearing if she disagreed with the Division’s decision, this minimal notice combined with the subsequent actions of the Division amounted to a denial of the resident’s right to procedural due process. Specifically, the court took issue with three actions. First, the administrative hearing notice did not notify the resident that she could obtain copies of pertinent documents prior to her hearing. Instead, it advised her to arrive at least 30 minutes prior to her hearing if she wanted to review the Division’s proposed exhibits. This, according to the court, did not allow the resident a reasonable time to examine the exhibits prior to the hearing.

Second, at the hearing, when the resident began objecting to the Division’s exhibits, the Director did not address her objections, but, instead, told her she could address her objections to the exhibits in her testimony. Following this exchange, she ceased exercising her right to object.

Lastly, the court could found that the Division’s exhibits purporting to support its overpayment determination contained no explanation of the figures used in computing the claim. The court found this omission particularly troubling in light of the fact that the resident never received any money, but that payments were made by the Division directly to third-party providers.

The court concluded that the resident was entitled to a new administrative hearing that would comport with due process requirements.

Appellate court’s not-so-subtle suggestion. The court noted that because there is no federal or state mandate requiring the Division to collect the overpayment of Medicaid benefits occasioned by its own error, it might exercise some common sense, equity, and fairness, and consider whether collection against an individual whose income is of such a level that her daughter is, nevertheless, entitled to receive medical benefits from the state, is the optimal use of its resources. The court suggested that the Division’s collection resources might be used to improve the system which caused the unnecessary error and expense.

The case is No. ED103726.

Attorneys: Lucas Caldwell-McMillan, Legal Services of Eastern Missouri, for Sedzida Dolic. Chris Koster (Schuering Zimmerman & Doyle, LLP) for Missouri Department of Social Services.

Companies: Missouri Department of Social Services

MainStory: TopStory CaseDecisions EligibilityNews MedicaidPaymentNews

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