Illinois Physicians Union v. Miller

• Decision Date: 13 April 1982
• Docket Number: No. 81-1048,81-1048
• Citation: 675 F.2d 151
• Parties: ILLINOIS PHYSICIANS UNION and Elsy Salazar, M.D., Plaintiffs-Appellants, v. Jeffrey MILLER, Director, Illinois Department of Public Aid and Michael Tristano, Supervisor, Medical Audit Section, Illinois Department of Public Aid, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 151

675 F.2d 151

ILLINOIS PHYSICIANS UNION and Elsy Salazar, M.D., Plaintiffs-Appellants, v. Jeffrey MILLER, Director, Illinois Department of Public Aid and Michael Tristano, Supervisor, Medical Audit

Section, Illinois Department of Public

Aid, Defendants-Appellees.

No. 81-1048.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 8, 1982.

Decided April 13, 1982.

Roger N. Gold, Baum, Sigman & Gold, Ltd., Chicago, Ill., for plaintiffs-appellants.

James C. O'Connell, Sp. Asst. Atty. Gen., Welfare Lit., Ellen P. Brewin, Asst. Atty. Gen., Chicago, Ill., for defendants-appellees.

Before PELL and BAUER, Circuit Judges, and MORGAN, District Judge. ^*

BAUER, Circuit Judge.

Elsy Salazar and the Illinois Physicians Union brought this action challenging the procedures employed by the Illinois Department of Public Aid (Department) to audit physicians who are reimbursed for their medical services through the Illinois Medical Assistance Program. The district court upheld the audit procedures but found that the physicians' due process rights had been violated because the Department had not given the physicians adequate notice of the audit procedures or of their right to rebut the Department's findings based on these procedures. The Department was ordered to promulgate and publicize regulations notifying physicians of the Department's use of sampling and extrapolation and of their right to rebut the Department's findings. Salazar was given 120 days in which to present evidence challenging the recoupment claim or to pay the full $18,508.30. ¹ We affirm.

Salazar has been a participating doctor in the Illinois Medical Assistance Program for many years. In July 1975 the Department conducted a routine audit of Salazar's records. Auditing a sample of 353 records randomly selected from a total of 1,302 records for the audit period, the Department determined that Salazar had been overpaid $5,018.00. The Department extrapolated the overpayment for the 353 cases to the total number of cases for which Salazar had been reimbursed and made a recoupment claim of $18,503.30.

Salazar challenged the claim and an administrative hearing was held to review her challenge. At the hearing the Department introduced evidence relating solely to the audited cases and the mathematical formula used to extrapolate the overpayments. ² No evidence was offered, either by the Department or Salazar, relating to the unaudited cases. The Hearing Officer recommended that the Department recover the entire overpayment; the Director of the Department adopted this recommendation.

Salazar contends that the use of sampling and extrapolation is contrary to the fourteenth amendment and to state law. She asserts that due process requires that an agency's ruling conform to the substantive evidence and argues that, since there was no evidence introduced at the hearing with respect to the unaudited cases, the Department may not presume that any overpayments occurred or estimate the amounts of any alleged overpayments. Additionally, because the Department will not routinely conduct an audit of one hundred percent of the records merely because a physician challenges a recoupment claim, Salazar disputes the Department's assertion that physicians have the opportunity to rebut a finding of overpayment. She maintains that there are "so many onerous preconditions to granting a one hundred percent audit," appellant's br. at 33, that the right to rebut the Department's presumption of liability and estimate of damages does not exist in a meaningful way.

I

Some knowledge of the statutes and regulations providing for subsidized medical services, as well as the Department's audit procedures, is essential to an analysis of the issues in this case. Pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396, needy individuals are eligible to receive "necessary medical services" from physicians who are reimbursed through cooperative federal-state Medicaid programs. In order to receive the federal funds the states must submit a "State plan" for approval by the Secretary of Health and Human Services and assume responsibility for assuring that the Medicaid program is administered in compliance with the federal statute, 42 U.S.C. § 1396a. The state must adopt procedures to safeguard against fraud and abuse. 42 C.F.R. § 447.45(f)(2), § 456.23.

In accordance with the federal provisions, Illinois requires physicians participating in its Medicaid program to maintain detailed records of the nature and scope of the health care they provide to patients receiving assistance under the Illinois Public Aid Code, Ill.Rev.Stat. ch. 23, § 5-5. Physicians are paid periodically on the basis of the billing forms they submit to the Department. Post-payment audits are then conducted so that the Department can recoup any excess compensation paid because of improper billing practices. Department Rule 4.017 states that "(t)he Department's procedure for auditing providers may involve the use of sampling and extrapolation." Under Rules 9.51 and 9.55 physicians may rebut the Department's finding by presenting evidence to establish that the sample used by the Department is invalid or by conducting an audit of one hundred percent of the medical records for which payments were received.

The Department conducts its initial audit by examining the randomly selected records for discrepancies. Discrepancies exist when no medical records are available to verify the submitted bills or when a billing code has been misused. The sample audited in Salazar's case, representing twenty-seven percent of the total cases for the audited period, uncovered four types of discrepancies: (1) bills for which there were no available medical charts; (2) bills indicating that services had been provided for a patient on a particular day but which were not recorded on the patient's medical chart; (3) bills which did not accurately reflect the type of medical treatment rendered; ³ and (4) bills for services for which Salazar received payment but which had actually been rendered by another medical provider. The overpayment for these discrepancies were averaged and applied to the total universe of cases.

Salazar states that the issue is whether overpayments may be presumed. She asserts that the burden of proof on the issues of whether there have been overpayments and the amount of those overpayments rests on the Department and may not be shifted. Relying heavily on Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 51 S.Ct. 248, 75 L.Ed. 544 (1931), Daytona Beach General Hospital, Inc. v. Weinberger, 435 F.Supp. 891 (M.D.Fla.1977), and Florida Builders, Inc. v. Stephenson Tile, Inc., 167 So.2d 58 (Fla.App.1964), Salazar strenuously argues that due process requires that liability be proven in each individual case in which an overpayment is claimed and that the Department's audit and recoupment procedures are unconstitutional because they shift the burden of proof.

We disagree with Salazar's characterization of the issue. As we see it, the issue is not whether overpayments may be statistically presumed, but whether the state, in attempting to preserve its welfare monies, may place the burden on the physician to demonstrate that the Department's calculations are inaccurate. We begin our analysis by noting that this case does not involve an irrebuttable presumption ⁴ for the Department does not automatically presume liability. Rather, it conducts an initial audit on a substantial portion of the physician's records by examining each individual record in the sample. Thus, overpayments are actually proven with respect to the audited cases.

Section 1396a requires physicians to keep records necessary to fully disclose the extent of services rendered and to make such records available to state and federal governments as a condition of receiving Medicaid payments. 42 U.S.C. § 1396a(a)(27). Payment is made only after the billing forms are submitted evidencing the right to reimbursement. At all times the burden is on the physician to prove entitlement to welfare monies. Thus, the Department's presumption that the percentage of error in the total number of cases is the same as the percentage of error in the audited cases does not have the procedural effect of shifting any burden.

Although not cited by either party, we believe that Lavine v. Milne, 424 U.S. 577, 96 S.Ct. 1010, 47 L.Ed.2d 249 (1976), is analogous to the situation here and, thus, controls. In Lavine the Supreme Court upheld a New York statute which presumed that, in absence of evidence to the contrary, any applicant for welfare assistance who voluntarily terminated employment and applied for aid within seventy-five days of the termination did so to establish or increase the applicant's need for state welfare. The Court held that this provision carried with it no procedural consequence because "(d)espite the rebuttable presumption aura that the ... (language of the statute) ... radiates, it merely makes absolutely clear the fact that the applicant bears the burden of proof ...." 424 U.S. at 584, 96 S.Ct. at 1015. It noted that "(t)he only 'rebuttable presumption-if, indeed, it can be so called-at work here is the normal assumption that an applicant is not entitled to benefits unless and until he proves his eligibility." Id. The Lavine rationale is equally applicable in this case for, like the statute in Lavine, the sole purpose of the Department's procedure requiring the physicians to establish that all bills submitted are for covered services is to assure eligibility for state monies.

The Lavine rationale recently has been applied in a situation involving eligibility for Medicaid. Drogolewicz v. Quern, 74 Ill.App.3d 862, 30 Ill.Dec. 865, 393 N.E.2d 1212 (1st Dist. 1979), concerned a statutory presumption that a transfer of property for less than cash market value within five years of an application for Medicaid assistance was made with the...