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McAllen Hospitals quarrels with state over Medicaid reimbursement

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A group of hospitals along the Rio Grande are finding out the hard way that when it comes to disputing Medicaid reimbursements with the state, a contested expense isn’t “contested,” a taking isn’t a “taking,” a sanction isn’t a “sanction” and a final decision isn’t “final.”

There is so much double talk going on between the hospitals and the Texas Health and Human Services Commission it would make your head spin.

McAllen Hospitals LP is in this fight as the owner of McAllen Medical Center, Edinburg Regional Medical Center, Edinburg Children’s Hospital, McAllen Heart Hospital and Fort Duncan Regional Medical Center in Eagle Pass.

Health and Human Services (HHS going forward) oversees the Texas Medicaid Program.

Before I go any further, I want to send out a fist-bump to Amarillo Court of Appeals Justice Mackey Hancock--good job on a tangled cluster of issues.

You may be asking, why is a justice from the Amarillo district hearing a case from the Corpus Christi-Edinburg district--where the hospitals are located--that was originally filed in the Austin district where HHS is based? I’m not providing an answer, but in my experience that usually happens because there is at least the appearance of a conflict of interest.

Moving on, Hancock tells us in the opinion issued Monday, Feb. 24, that HHS has an Office of Inspector General that “bears the responsibility for reviewing and determining the payment or denial of claims submitted by enrolled healthcare providers.”

“Within the OIG is the Utilization Review Department, which is governed by … the Texas Administrative Code,” Hancock explains. A Utilization Review can result in a “recoupment” of Medicaid payments that were made two to three years earlier, which is what happened here.

Payments and Actions at Issue:

Between June 2004 and January 2008, the hospitals rendered medical treatment on an inpatient basis to X number of patients that were the subject of Utilization Review. The hospitals were told these patients did not require inpatient care. Treatment could have been provided in an outpatient setting. HHS took back the entire amount of Medicaid that was paid.

The total value amounted to about $320,000. That’s small potatoes in the big picture, but the concern here is that the hospitals consider the method of recoupment unfair.

Hospitals across the state have reason to be concerned that this Utilization Review--which as it’s currently practiced has been in effect for about five years--could wind up costing them millions.

The hospitals appealed the OIG Utilization Review’s decision to the HHS’s Medical & Utilization Review Appeals Unit. The Appeals Unit’s consideration of the appeal consisted of an exchange of letters with no face-to-face argument. A stated reason for the recoupment was “incomplete documentation,” so the hospitals offered more documentation. Nevertheless, the Appeals Unit denied the hospitals’ appeal.

Hancock then quotes the Appeals Unit as stating the denial is “the final administrative decision on your appealed case. Therefore, in accordance with the Medicaid program policies and procedures, this determination is now considered final and the case is closed.”

For our non-lawyer readers, when a state agency administrative appeals judge or panel says its decision is final, this normally opens the door to an appeal to a state trial court. For example, if an employee believes he or she is discriminated against, that employee must first have a complaint heard by an officer of the Equal Employment Opportunity Commission before filing a complaint in state court.

The hospitals were moving in that direction, but they took one extra administrative step first. They asked the OIG Manager of Sanctions to forward their appeal to the Office of General Counsel. The OIG sent a letter back saying that wasn’t going to happen--there were no further avenues of appeal available.

In July 2010, the hospitals filed a lawsuit in Travis County seeking declaratory relief. McAllen Hospitals argued it wasn’t given proper notice and was entitled to a formal appeal before HHS. The hospitals asked for a writ of mandamus compelling HHS “to comply with the formal appeals procedures to which the hospitals maintain they were entitled under their reading of the regulations,” Hancock said.

The hospitals also put forward a “takings” claim. HHS deprived them at least a portion of the reimbursement by not leaving to the hospitals money for expenses that would have been medically necessary on an outpatient basis.

The trial court judge in Austin, Orlinda Naranjo, was told by HHS that she didn’t have jurisdiction. Naranjo granted HHS its plea to jurisdiction on all claims.

Onward to Amarillo. How DID we get here? Nevermind.

Attorney for the hospitals, Doug Turek of Turek Devore in The Woodlands, argued that Naranjo erred in finding the recoupment was not a sanction, in granting HHS’s plea to jurisdiction, and in denying the hospitals’ petition for writ of mandamus.

Hancock addressed the takings claim first and noted this requires that the hospitals have a “vested property interest.” He relied on HHS’s recitation of City of Webster from the Austin Court of Appeals, which said a right is vested when it has some definitive, rather than potential, existence.

“Until such time has passed that their interests are no longer subject to adjustment or recoupment … the hospitals’ interests remain contingent and potential rather than definitive and unconditional,” Hancock said.

McAllen Hospitals v. HHS: The Rematch. Round One to HHS.

Next, the complaint about not having proper notice or a formal hearing were founded on the hospitals’ argument that its right to due process was violated.

Turek argued that HHS’s “practices are essentially requiring the hospitals to provide services to Medicaid recipients on a zero charge basis and with no meaningful method of challenging the recoupment.”

However, the hospitals could have rebilled for services rendered on an outpatient status, HHS said.

“Because the hospitals fail to show that they availed themselves of the procedures available to them … we cannot conclude they have asserted a viable procedural due process claim,” Hancock said.

Round Two to HHS.

Hancock then addressed the hospitals argument about HHS’s recoupment being a final agency decision. If so, are they not entitled to judicial review, as provided by the Administrative Procedure Act?

HHS acknowledged that the APA creates a statutory right of judicial review for contested cases. Hancock said the APA defined a contested case, but it doesn’t provide a right to a contested case hearing.

This is where this case gets into the gnarly weeds.

“The particular agency’s enabling act determines whether rights are to be determined after an opportunity for adjudicative hearing, and agency rules may decide whether that opportunity may include a contested case hearing,” Hancock said.

HHS claims the disposition of the Utilization Review appeal was “not a final decision resulting from a hearing or other contested case proceeding.”

Hmm, maybe this is why Utilization Review only wanted to exchange letters. It’s not a “contested hearing” if we don’t have to look you in the eye.

“Not every dispute between an agency and another party constitutes a ‘contested case’ proceeding,” Hancock said. “To illustrate, the Texas Historical Commission’s proceedings resulting in the agency’s decisions to ‘award’ or not ‘award’ a marker, approve or reject text or historical content … were not ‘contested cases’ within the meaning of the APA and were, therefore, not subject to judicial review.”

Therefore, the Utilization Review appeal decision was not a final decision in a contested case. To the contrary, Hancock added, the Texas Administrative Code defines the Utilization Review appeal here as specifically “not a hearing,” and the APA defines a “contested case” as an adjudicative hearing.

Hancock then made a similar comparison about discharge permits given by the state to corporate polluters. Maybe it’s just me, but I have a problem with putting hospitals who devote valuable resources to indigent patients on the same level as corporate polluters and land brokers seeking historical markers for the sake of vanity and the enhancement of property values.

Round Three to HHS.

That leaves the denial of the writ of mandamus. The hospitals argued the trial court should have directed HHS to forward its appeal to the Office of General Counsel because the Utility Review appeal was based on “preliminary technical denials” as defined within the Texas Administrative Code. Therefore, when Utility Review said its decision was final, it was wrong. It wasn’t final, but not for the reason HHS claims.

On this one, Hancock said Naranjo got it wrong. While she was correct in concluding the trial court didn’t have jurisdiction to makes its own call on who was right, she could still tell HHS how to do its job.

The recoupment issue and whether that is a “sanction” goes to the substantive “duty” element of the mandamus claim. Likewise, the method of documenting the appeal deals with the nature of HHS’s duty. The Amarillo Appeals Court reversed on the mandamus issue.

Round Four to McAllen Hospitals, and the challenger wasn’t knocked out.

Eugene Clayborn, assistant attorney general, handled this case for HHS. I find it instructive how he warned the appeals court to avoid the hospitals’ “invitation to blend or mush together discrete subchapters of the applicable regulations.”

Utility Review falls under Subchapter C of HHS’s rules, while Legal Action Relating to Providers of Medical Assistance falls under Subchapter G.

Subchapter C deals with the utilization review process, admission denials, recoupment, and an opportunity for appeal.

Subchapter G deals with OIG enforcement of Medicaid waste, fraud, abuse, and program violations. The OIG has broader enforcement powers, that include “referral for criminal, civil, or licensure or certification investigation and judicial action regarding program violations.”

By comparison, Clayborn describes Utility Review in more genteel terms. It’s something like a quality control situation.

“Identified problems may result in an educational visit or action such as recoupment or referral to HHS OIG MPI or Sanction Unit,” Clayborn said. “In this case, the recoupments were based on hospital inpatient admission denials and not based on fraud, abuse, waste, or program violations.”

Turek considers Clayborn’s version a sleight of hand. He notes Subchapter C, which addresses Utilization Review, is found within Chapter 371 of the “Medicaid and Other Health and Human Services Fraud and Abuse Program Integrity.”

“If (HHS) intended to create a separate Utilization Review program that was not part of the fraud and abuse program and subject to sanctions, the (HHS) could have inserted the Utilization Program within another chapter of Title 1 of the Texas Administrative Code.”

Clayborn’s argument sounds a lot like this to my ears: First, there is no contest because we write the rules. This is our casino and the house always wins. Second, hey, you were clipped by our 60-year-old constable on one of his good days. Be grateful we only took your pinky. We could have sent special forces and taken your head clean off, but we think you’re good people.

You’re bitching about Subchapter C? Come on! That’s not a knife. THIS is a knife!

Drop the mic. THUMP!

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