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Newcap, Inc. v. Department of Health Services

Court of Appeals of Wisconsin, District III

June 12, 2018

Newcap, Inc., Plaintiff-Respondent,
v.
Department of Health Services, Respondent-Appellant.

          APPEAL from an order of the circuit court for Oconto County: No. 2016CV164, JAY N. CONLEY, Judge.

          Before Stark, P.J., Hruz and Seidl, JJ.

          STARK, P.J.

         ¶1 This appeal involves efforts made by the Wisconsin Department of Health Services (DHS) to recoup payments it made to Newcap, Inc., a family planning clinic. DHS claims it had legal authority to recoup the amounts in question, pursuant to W . S . § 49.45(3)(f) (2015-16), [1] because Newcap failed to "maintain records as required by [DHS] for verification of provider claims for reimbursement." See § 49.45(3)(f)1. In response, Newcap contends it was not actually required to maintain the specific records at issue in this case. Alternatively, Newcap argues its failure to maintain those records provided no basis for recoupment because other records—which were in Newcap's possession either at the time of DHS's audit or at the time of the subsequent hearing—showed that Newcap actually provided the services for which it was paid by DHS.

         ¶2 We conclude Wis.Stat. § 49.45(3)(f) gives DHS authority to recoup payments made to a Medicaid provider when that provider has failed to maintain the records required by DHS, regardless of whether the provider possesses other records that show the provider actually rendered the services in question. We further conclude the provider has an obligation to make the required records available to DHS at the time of DHS's audit, and records subsequently submitted during an administrative hearing are insufficient to defeat DHS's recoupment claim.

         ¶3 Nevertheless, we affirm the circuit court's order, which reversed DHS's decision requiring Newcap to repay DHS $185, 074.80. DHS concluded it was entitled to recover that amount based on two deficiencies in Newcap's recordkeeping: (1) Newcap's failure to retain invoices documenting its purchase of prescription drugs that it subsequently dispensed to Medicaid patients; and (2) Newcap's failure to include correct National Drug Codes (NDCs)[2] on reimbursement claims it submitted to Medicaid. We conclude Newcap was not required to retain the invoices in question, and its failure to do so therefore did not give DHS authority to recoup payments under Wis.Stat. § 49.45(3)(f). We further conclude DHS lacked legal authority to recoup payments based on Newcap's submission of claims with missing or invalid NDCs. We therefore affirm.

         BACKGROUND

         ¶4 "Medicaid is a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals." Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990). DHS administers Wisconsin's Medicaid program, see State v. Abbott Labs., 2012 WI 62, ¶3, 341 Wis.2d 510, 816 N.W.2d 145, which is also referred to as "Medical Assistance" or "MA." See Wis. Stat. § 49.45; Wis. Admin. Code § DHS 101.01 (Dec. 2008). As a general matter, DHS is required to "reimburse providers for medically necessary and appropriate health care services … when provided to currently eligible medical assistance recipients." Wis. A .C § DHS 107.01(1) (June 2017). dmin ode [3]

         ¶5 Newcap operates a Medicaid-certified family planning clinic, which provides reproductive healthcare services to individuals in Brown, Florence, Forest, Marinette, Oconto, and Vilas Counties. On November 5, 2013, DHS initiated an audit of Newcap "to determine whether pharmacy services provided to Wisconsin Medicaid and BadgerCare Plus members were documented and billed appropriately" during the period between January 1, 2010, and December 31, 2011. DHS reviewed Newcap's records from that period during a site visit on November 18 and 19, 2013.

         ¶6 On August 7, 2014, DHS issued its preliminary audit findings. It identified three deficiencies in Newcap's billing and recordkeeping practices: (1) Newcap failed to provide "documentation" listing its "acquisition cost" for drugs that it billed to Medicaid; (2) Newcap billed Medicaid "for drugs at a price that was more than the acquisition cost";[4] and (3) Newcap submitted claims for provider-administered drugs with either missing or incorrect NDCs. Based on these deficiencies, DHS "recommended that Medicaid seek repayment of $1, 169, 837.10 paid to [Newcap] for claims that were billed in error."

         ¶7 Newcap submitted rebuttal materials challenging DHS's preliminary audit findings. On April 15, 2015, DHS issued a "Notice of Intent to Recover" the significantly reduced amount of $185, 074.80. That amount was comprised of: (1) $168, 745.46, for 2, 738 claims for which Newcap had failed to retain invoices documenting its purchase of prescription drugs; (2) $1, 366.64, for eleven claims that Newcap had submitted with invalid or incorrect NDCs; and (3) $14, 962.70, for twenty-seven claims that Newcap had submitted without NDCs. DHS abandoned its claim that it was entitled to recoupment based on Newcap having billed DHS for drugs at prices that exceeded their acquisition cost.

         ¶8 Newcap sought administrative review of DHS's Notice of Intent to Recover. An administrative hearing took place on February 23, 2016, before an administrative law judge (ALJ). During the hearing, Newcap presented the testimony of Jennifer Waloway, who was hired by Newcap as a nurse practitioner in November 2011 and became its director of community health services in 2014. Waloway conceded Newcap had failed to retain invoices for some of the prescription drugs for which it had billed Medicaid. However, she testified other records in Newcap's possession, such as patient charts, showed the medications in question were actually provided to Medicaid patients. In addition, Waloway testified she worked with Newcap's suppliers after the audit to obtain copies of some of the missing invoices, which were introduced into evidence during the administrative hearing. Waloway also conceded that Newcap had submitted claims to Medicaid with missing or incorrect NDCs. She testified, however, that Newcap had reviewed patient charts and determined Medicaid was properly billed for those medications.

         ¶9 Newcap ultimately raised three arguments in its posthearing brief. First, Newcap argued there was "no statute or regulation—or other Medicaid policy—that require[d] a family planning clinic to retain all invoices for prescription drugs it ha[d] purchased." Second, Newcap argued there was no statute or policy permitting DHS to recoup amounts it had previously paid for claims with missing or incorrect NDCs. Third, Newcap argued DHS was "not authorized to recoup payments made to the provider where the provision of services has been verified." Newcap contended, "The Legislature has not authorized [DHS] to recover funds due to any documentation shortcoming. Imperfections in the provider's paperwork do not necessarily mean the provider received an overpayment, if in fact the service was authorized, the provider actually provided it, and the payment was appropriate for the service."

         ¶10 On June 28, 2016, the ALJ issued a proposed decision upholding DHS's Notice of Intent to Recover. With respect to the missing invoices, the ALJ concluded Newcap was required to retain those invoices under Wis. Admin. Code § DHS 105.02(7)(b)3. (Feb. 2017).[5] The ALJ rejected Newcap's argument that DHS could not recoup payments because other evidence showed that the medications in question were actually provided to Medicaid patients. While acknowledging that argument was "reasonable, " the ALJ stated, in an apparent reference to Wis.Stat. § 49.45(3)(f)2., that DHS "'may recover' previously paid claims where the provider fails to keep records, " and "[i]f [DHS] chooses to recover, the rules do not authorize the Division of Hearings and Appeals to order [DHS] to take a different action."

         ¶11 As for the missing and incorrect NDCs, the ALJ concluded Newcap was required by federal law to include NDCs on its claim forms, and DHS had informed Newcap that its failure to do so would result in the denial of claims. The ALJ conceded there was "no allegation" the drugs in question "were not properly dispensed." The ALJ also conceded DHS was "secondarily at fault in paying [Newcap's] claims that should have been denied." However, the ALJ stated the claims "still were deniable and thus must be recovered regardless of fault."

         ¶12 DHS subsequently adopted the ALJ's proposed decision as its final decision. Newcap petitioned for judicial review, and the circuit court issued an order reversing DHS's decision. The court reasoned that, under Wis.Stat. § 49.45(3)(f), DHS may recoup amounts previously paid to a provider only when "any of the following cannot be verified: (1) the actual provision of services; (2) the appropriateness of the claim; and (3) the accuracy of the claim." The court concluded Newcap had "presented evidence at the [administrative] hearing that services were provided and it was entitled to payments received." The court explained that, to the extent Newcap erred by failing to maintain proper invoices and by submitting claims with missing or incorrect NDCs, "these errors alone do not justify recoupment under the statute, as a matter of law." DHS now appeals.

         DISCUSSION

         ¶13 When a party appeals a circuit court order reviewing a decision made by an administrative agency, we review the agency's decision, rather than that of the circuit court. Gabler v. Crime Victims Rights Bd., 2017 WI 67, ¶24, 376 Wis.2d 147, 897 N.W.2d 384. The scope of our review is set forth in Wis.Stat. § 227.57. As relevant here, that statute authorizes a court to "set aside or modify the agency action if it finds that the agency has erroneously interpreted a provision of law and a correct interpretation compels a particular action." Sec. 227.57(5).

         ¶14 In the discussion below, we first address the parties' arguments regarding whether Wis.Stat. § 49.45(3)(f) permits DHS to recoup payments based on a provider's failure to maintain required records, even if other records demonstrate that the provider actually rendered the services in question. We then address whether a provider may submit additional documentation following the audit period in order to demonstrate its compliance with DHS's recordkeeping requirements. Finally, we address whether Newcap was required to maintain invoices for the medications at issue in this case, and whether DHS had legal authority to recoup payments based on Newcap's submission of claims with missing or invalid NDCs.[6]

         I. Wisconsin Stat. § 49.45(3)(f)

         ¶15 The parties agree that DHS's recoupment authority is set forth in Wis.Stat. § 49.45(3)(f). That statute provides, in relevant part:

1. Providers of services under this section shall maintain records as required by the department for verification of provider claims for reimbursement. The department may audit such records to verify actual provision of services and the appropriateness and accuracy of claims.
2. The department may deny any provider claim for reimbursement which cannot be verified under subd. 1. or may recover the value of any payment made to a provider which cannot be so verified. The measure of recovery will be the full value of any claim if it is determined upon audit that actual provision of the service cannot be verified from the provider's records or that the service provided was not included in s. 49.46(2) or 49.471(11). In cases of mathematical inaccuracies in computations or statements of claims, the measure of recovery will be limited to the amount of the error.

Sec. 49.45(3)(f)1.-2. We conclude the plain language of these provisions demonstrates that DHS has authority to recover payments made to a provider when an audit reveals that the provider failed to maintain records as required by DHS.[7] See State ex rel. Kalal v. Circuit Court for Dane Cty., 2004 WI 58, ¶45, 271 Wis.2d 633, 681 N.W.2d 110 (explaining that statutory interpretation begins with the plain language of the statute).

         ¶16 Wisconsin Stat. § 49.45(3)(f)1. requires providers to "maintain records as required by the department for verification of provider claims for reimbursement." (Emphasis added.) Section 49.45(3)(f)1. further states that DHS may audit "such records to verify actual provision of services and the appropriateness and accuracy of claims." (Emphasis added.) The phrase "such records" clearly refers to the records referenced in the previous sentence of the statute—that is, the records DHS requires a provider to maintain. Thus, by stating DHS may audit "such records" to verify the actual provision of services and the appropriateness and accuracy of claims, § 49.45(3)(f)1. plainly indicates that, during an audit, the provision of services and appropriateness and accuracy of claims is determined only based on the records DHS required the provider to keep.

         ¶17 Wisconsin Stat. § 49.45(3)(f)2. then states that DHS "may deny any provider claim for reimbursement which cannot be verified under subd. 1. or may recover the value of any payment made to a provider which cannot be so verified." (Emphasis added.) This language unambiguously allows DHS to deny a claim or recover a payment that cannot be verified "under subd. 1."—that is, using the audit process discussed in subd. 1. In other words, DHS may deny a claim or recover a payment when the actual provision of services or the appropriateness and accuracy of the claim cannot be verified using the records DHS required the provider to maintain.

         ¶18 Wisconsin Stat. § 49.45(3)(f)2. further states that the "measure of recovery will be the full value of any claim if it is determined upon audit that actual provision of the service cannot be verified from the provider's records." The "audit" referenced in § 49.45(3)(f)2. is plainly the same audit described in § 49.45(3)(f)1. Thus, when read in context with § 49.45(3)(f)1., the term "the provider's records" in § 49.45(3)(f)2. clearly refers to the records subject to the audit discussed in subd. 1—that is, the records DHS required the provider to maintain. See Kalal, 271 Wis.2d 633, ¶46 (explaining statutory language must be read in context, "in relation to the language of surrounding or closely-related statutes").

         ¶19 When read together, Wis.Stat. § 49.45(3)(f)1. and 2. therefore demonstrate the following: (1) a provider must retain records as required by DHS; (2) DHS may audit the records it has required a provider to maintain in order to verify the actual provision of services and the appropriateness and accuracy of claims; and (3) DHS may deny a claim or recover a payment already made to a provider when it cannot verify the actual provision of services or the appropriateness and accuracy of claims based on the records DHS required the provider to maintain. It is self-evident that, if a provider fails to maintain the records DHS requires, DHS cannot use those records to verify the actual provision of services and the appropriateness and accuracy of the provider's claims. Section 49.45(3)(f) therefore grants DHS authority to recoup payments under those circumstances.

         ¶20 Newcap disagrees, arguing Wis.Stat. § 49.45(3)(f) permits DHS "to audit the records maintained by providers to verify that services were actually provided and permits DHS to recover only if the provision of services cannot be so verified." This interpretation, however, fails to account for the fact that § 49.45(3)(f)1. states providers must maintain records "as required by" DHS, and DHS may audit "such records"—i.e., the records DHS required the provider to maintain—in order to verify the actual provision of services. Section 49.45(3)(f)2., in turn, permits recoupment if the provider's claim cannot be verified using the method described in subd. 1—that is, through an audit of the records that DHS required the provider to maintain. Thus, while Newcap contends DHS cannot recoup payments where any record in the provider's possession shows the services in question were actually provided, the statute clearly permits DHS to ...


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