Indiana State Dept. of Welfare, Medicaid Division v. Stagner

• Decision Date: 30 September 1980
• Docket Number: No. 2-580A130,2-580A130
• Citation: 410 N.E.2d 1348
• Parties: INDIANA STATE DEPARTMENT OF WELFARE, MEDICAID DIVISION, Appellant (Defendant Below), v. Harold STAGNER, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 1348

410 N.E.2d 1348

INDIANA STATE DEPARTMENT OF WELFARE, MEDICAID DIVISION Appellant (Defendant Below), v. Harold STAGNER, Appellee (Plaintiff Below).

No. 2-580A130.

Court of Appeals of Indiana, Fourth District.

Sept. 30, 1980.

Theodore L. Sendak, Atty. Gen., Gary L. Shaw, Deputy Atty. Gen., Indianapolis, for appellant.

Paul D. Gresk, Indianapolis, for appellee.

YOUNG, Presiding Judge.

The Indiana State Department of Welfare, Medicaid Division, appeals the issuance of a preliminary injunction ordering the payment of $100,000.00 to Harold Stagner, a qualified provider to Medicaid patients of speech and hearing therapy, pending the resolution of Stagner's underlying suit to recover payment for unreimbursed Medicaid claims. In this interlocutory appeal, the Department asserts several issues for our review, the dispositive issue being whether the trial court erred in taking jurisdiction and granting preliminary injunctive relief before exhaustion of Stagner's administrative remedies. ¹ Because we conclude that the trial court abused its discretion in assuming jurisdiction and granting the preliminary injunction before Stagner had exhausted his administrative remedies, we reverse.

Stagner, a speech and hearing pathologist, certified by the Medicaid Division of the Indiana Department of Welfare as a qualified provider of speech and hearing rehabilitation and training services, has for the past five years provided therapy to geriatric patients in nursing home facilities throughout the State of Indiana. Under the jointly-funded federal-state medicaid program established by Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1976 & Supp. II 1978) and IC 12-1-7-14.9 et seq. (Burns Code Ed., Supp. 1980), he is, as a qualified provider, eligible for reimbursement for the cost of providing medical services to eligible patients. Reimbursement, however, is not automatic. Rather, as required by 42 U.S.C. § 1396a(a)(37) (Supp. II 1978) and 42 C.F.R. § 447.45(a) and (f) (1979), each submitted claim must be reviewed by the Department prior to payment to determine whether the services for which reimbursement is requested were medically reasonable and necessary.

Stagner's business, Special Education Services, is dependent upon Medicaid reimbursement for an estimated 70% of the medical services it provides, 90% of which services are provided to geriatric patients in nursing homes. Stagner employees screen a nursing home's patients to determine whether any might benefit from speech and hearing therapy. If benefit from treatment is indicated, they contact the patient's physician who, if he accepts Stagner's recommendation, prescribes speech therapy. The prescribing physician's order, renewed every thirty days, is then submitted after the prescribed services are performed to the Department for payment.

All claims submitted for payment by Stagner were paid without delay or problem until January, 1980 when the current controversy began. While almost all claims submitted in December 1979 and January 1980 were paid by the Department, approximately 80% of the February-March claims were denied because, as explained in a letter from the Department dated April 15, 1980, they were found to be medically unnecessary.

Apparently, the decision to deny Stagner's claims was the culmination of an inquiry began several months earlier. The Department, in response to complaints received in late 1978 from various county welfare departments regarding the large amount of speech pathology medicaid claims from Stagner, sent staff investigators to several nursing homes to investigate the patient services being provided. Despite the existence of proper documentation for all patient claims, the medical staff were concerned that unnecessary and wasteful therapy was being provided to some patients who, because of age or mental retardation, were not sufficiently benefited by the treatment to justify its cost. In late 1979, therefore, the Department requested its fiscal agent, Blue Cross-Blue Shield, to review the claims for reimbursement submitted by Stagner before payment to determine whether the patient services provided were medically necessary. The fiscal agent's medical staff, in January 1980, requested Stagner to provide them the complete medical records of each patient for whom a claim for therapy was submitted.

Prompted by the Department's denial of one claim as medically unnecessary in December, 1979, and its initiation of pre-payment review procedures, Stagner requested a meeting with Richard Coryell, Assistant Director of Medicaid. The meeting was held on January 16, 1980 and was attended by Stagner, several of his employees, Coryell and several of the Department's medical staff. At the meeting, Stagner was told by one of the staff physicians that the Department was impressed with about 80% of the patients under treatment at the nursing homes visited and that so long as the patient's attending physician prescribed the speech therapy, the claims would be paid. Satisfied by this assurance, Stagner's business continued as usual until mid-April when Stagner was informed that approximately 80% of his then pending claims were denied as medically unnecessary.

Stagner thereupon initiated this suit in the Marion County trial court on April 18 1980 requesting both a mandatory preliminary injunction ordering the immediate payment of $135,160.00 to Stagner, and judgment for damages in the amount of $135,160.00 plus $1,000,000.00 in punitive damages. ² On May 2, 1980, the preliminary injunction was granted and this appeal by the Department was taken.

The Department argues that, because Stagner failed to exhaust the administrative remedies available to him before resort to the trial court, the court's assertion of jurisdiction was premature and its issuance of the preliminary injunction, therefore, an abuse of discretion.

It is well settled that resort to the judicial process must ordinarily be postponed until administrative remedies capable of rectifying the claimed error have been pursued to finality. Reidenbach v. Board of School Trustees, (1980) Ind.App., 398 N.E.2d 1372. We do not, however, apply this rule mechanistically. Rather, in determining whether or not Stagner should be allowed to bypass available administrative channels, we consider various factors reflecting the policies advanced by the exhaustion doctrine. Wilson v. Board of Indiana Employment Security Division, (1979) Ind., 385 N.E.2d 438. The factors relevant to this appeal are: the character of the question presented and the competency of the administrative agency to answer that question; the avoidance of premature interruption of the administrative process in recognition of the interest of the agency in developing a factual record upon which to exercise its discretion and apply its expertise without the threat of litigious interference; the interest in permitting an agency to correct its own errors, a process by which unnecessary judicial proceedings are obviated; and the avoidance of deliberate or frequent flouting of established administrative processes. Balanced against these considerations is the extent or imminence of harm to Stagner if required to pursue administrative remedies.

Applying these various factors to the present facts we conclude that the policies reflected in the exhaustion requirement are disserved by permitting Stagner to bypass his administrative remedies. Medical necessity is a question of fact properly decidable by the Department. It is important that opportunity be given the Department to develop a factual record for the application of agency expertise. Similarly, the opportunity for self-correction of errors should be afforded the Department. Waste of judicial resources may thereby be avoided.

Stagner contends, however, that he is not bound by the exhaustion rule because no established administrative procedure governing the denial of a Medicaid provider's claims exists. It is true that the exhaustion rule assumes an available statutory remedy at the time the challenged judicial relief is sought. State v. Morand, (1976) Ind.App., 349 N.E.2d 718. We review therefore the statutory and regulatory scheme established to govern provider claim payment denials. The Indiana legislature has given the Department the authority to promulgate rules and regulations to deny payment to any provider for any services provided if the Department after investigation finds that the claims were made for services or materials determined by its licensed medical staff as not medically reasonable and necessary. IC 12-1-7-15.7. The Department pursuant to this delegated authority, promulgated regulations establishing standards for the denial of reimbursement claims submitted by providers. 470 IAC 5-1-3.5 (added by amendment, 2 Ind. Register 8). ³ The regulations vest the claim denial decision in the Administrator of the Department or his duly authorized representative and, while permitting the provider to negotiate with the Department on the claim denial, make final the administrator's decision which is effective on the day received. 470 IAC 5-1-3.5(B) and (C). The regulations also establish a procedure for provider appeals from a final administrative decision by which "... any provider who believes the rate of Medicaid payment or cost settlement is unfair may appeal to the Department ...." 470 IAC 5-1-4(a). Stagner argues that this appeal procedure only covers appeals where the claim's medical necessity is undisputed but the amount of claim payment is contested. However, he provides us no authority or reason for the adoption of such a limiting construction of the regulation's coverage. Generally, the same rules applicable to construction of a statute apply to the construction of administrative rules and regulations 1953 OP. IND. ATT'Y GEN. No. 507. Accordingly, in examining the language used by the Department, we give effect if possible to every word and...