Tentative overpayment notice from outside auditing company not final agency decision
A state Medicaid agency is not permitted to withhold alleged overpayments based on an extrapolated tentative notice of overpayment (TNO) issued by an outside company. The Court of Appeals of North Carolina affirmed the trial court’s decision holding that the TNO was not a “final agency decision” issued by the North Carolina Department of Health and Human Services (DHHS) and did not trigger Parker Home Care, LLC’s (Parker) timeframe for filing an appeal (N.C. Department of Health and Human Services v. Parker Home Care, LLC, April 5, 2016, Zachary, V.).
Audit and TNO. The state DHHS hired a private company to conduct audits of various Medicaid claims payments, including Parker. The company found, on two separate instances (resulting in two separate cases, heard together by both the trial and appellate courts), that Parker received overpayments as determined through analysis of a small sample of claims. The company then extrapolated the overpayments and notified Parker through TNOs that Parker owed the Medicaid program sums of $594,741 and $391,797. Parker did not respond to the TNOs, and DHHS suspended all Medicaid payments to Parker in order to recoup the alleged overpayments.
Appeals. DHSS did not allow Parker a reconsidered determination, stating that the TNO triggered the timeframe for an appeal and that Parker did not appeal within its time limits. Parker received a favorable ruling from the North Carolina Office of Administrative Hearings (OAH), in which DHHS was enjoined from withholding Parker’s future Medicaid payments. DHHS appealed to a North Carolina superior court (a trial court), which also ruled in favor of Parker. Throughout the appeals, DHHS did not present a substantive argument, relying instead on its assertion that the TNO served as an adverse determination or final decision and that the OAH and then the superior court lacked subject matter jurisdiction because Parker failed to file a timely OAH appeal.
DHHS authority and delegation. The state appellate court reviewed the federal statutes and regulations governing the Medicaid program, including a state’s requirement to designate a single agency to administer the program under 42 U.S.C. §1396a(a)(5)—in this case, the North Carolina DHHS. The state agency is prevented from delegating its authority to supervise the state’s Medicaid plan and develop policies, rules, and regulations governing the program (42 C.F.R. 431.10(e)). States may enter into contracts to carry out some program integrity activities: provider review, claims audits, overpayment identification, and training (42 U.S.C. §1396u-6).
The state agency’s inability to delegate most of its authority includes discretionary decisions in individual cases. Appropriately, 10A N.C.A.C. 22F.0302 specifically retains the DHSS’ ability to review audits, make tentative decisions, and, among other things, recover improper provider payments. Although DHHS is permitted to contract companies to conduct reviews and audits, it must issue a tentative decision and, if a provider does not respond within a timeframe given requesting reconsideration, the tentative decision becomes final.
TNO as a trigger. The appellate court agreed with DHHS that the auditing activities conducted by the outside company were considered “agency action” because those activities were authorized and able to be delegated. However, the appellate court found that DHHS is not permitted to delegate its administrative supervision of the program, such as choosing how to respond to an audit. The TNO was not a final agency decision because the outside company was not authorized to take such action.
In addition, the court noted that a TNO is not an “adverse determination” unless it clearly informs the provider that it is a “final decision” reached by DHHS itself. The court believed that the TNO heading, containing the word “tentative,” did not suggest that a final determination has been reached. The TNO mentions a small audit and extrapolation conducted by the company, with no mention of DHHS review or tentative agency decision. The court found that a preliminary review of a small number of claims was insufficient to establish that the provider owes hundreds of thousands of dollars in repayment. The trial court’s ruling was affirmed.
The cases are Nos. COA15-1026 and 15-1033.
Attorneys: Michael T. Wood, Special Deputy Attorney General, for N.C. Department of Health and Human Services, Division of Medical Assistance. Brenda Eaddy, Assistant Attorney General, for Division of Medical Assistance, N.C. Department of Health and Human Services. Matthew W. Wolfe (Parker Poe Adams & Bernstein LLP) for Parker Home Care, LLC.
Companies: N.C. Department of Health and Human Services; Division of Medical Assistance; Parker Home Care, LLC
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