Psychiatric Solutions v. Finnerty

• Decision Date: 19 May 2009
• Docket Number: Record No. 2060-08-2.
• Citation: 54 Va. App. 173,676 S.E.2d 358
• Court: Virginia Court of Appeals
• Parties: PSYCHIATRIC SOLUTIONS OF VIRGINIA, INC., d/b/a Whisper Ridge Behavioral Health System—Charlottesville v. Patrick W. FINNERTY, Director, Commonwealth of Virginia Department of Medical Assistance Services.

676 S.E.2d 358

54 Va. App. 173

PSYCHIATRIC SOLUTIONS OF VIRGINIA, INC., d/b/a Whisper Ridge Behavioral Health System—Charlottesville v. Patrick W. FINNERTY, Director, Commonwealth of Virginia Department of Medical Assistance Services.

Record No. 2060-08-2.

Court of Appeals of Virginia, Richmond.

May 19, 2009.

John B. Mumford, Jr. (Kathryn E. Kransdorf; Hancock, Daniel, Johnson & Nagle, P.C., on briefs), Glen Allen, for appellant.

Elizabeth A. McDonald, Special Counsel (Robert F. McDonnell, Attorney General; David E. Johnson, Deputy Attorney General; Kim F. Piner, Senior Assistant Attorney General, on brief), for appellee.

Present: ELDER, POWELL, JJ., and COLEMAN, S.J.

ELDER, Judge.

Psychiatric Solutions of Virginia, Inc. (appellant), doing business as Whisper Ridge Behavioral Health System—Charlottesville, appeals from a decision rendered under the Virginia Administrative Process Act that it was overpaid for services provided to Medicaid patients under a contract with Virginia's Department of Medical Assistance Services (DMAS). Appellant contends DMAS did not contest that the services at issue were provided and complained only about the method appellant used to document the services. Under these circumstances, contends appellant, the only issue is one of contract law, and the evidence compels a holding that, despite these minor deficiencies in documentation of some of the services, it fulfilled its contractual duties to DMAS to an extent entitling it to full payment under the terms of the contract. DMAS contends both that contract law principles are inapplicable in this regulatory matter and, in any event, that the shortcomings in appellant's documentation were more than mere technical deficiencies.

For the reasons that follow, we hold contract principles applied to the interpretation of the provider agreement and that, under settled principles of contract law, appellant would be entitled to payment if its noncompliance did not amount to a material breach of the agreement. Nevertheless, the agency's factual findings, which appellant does not challenge on appeal, compel the conclusion that appellant's ongoing deficiencies in documenting the execution of a specific component of the integrated treatment plan for each of twenty randomly selected patients constituted a material breach of the provider agreement. On this basis, we conclude the circuit court did not err in upholding DMAS's retraction of the general inpatient treatment fees for twenty patients for a period of approximately 29 weeks each.¹ Thus, we affirm.

I. BACKGROUND

DMAS, under the guidance of the Director of Medical Assistance Services, is the state agency responsible for administering Medicaid, a state medical assistance program funded by both the state and federal governments. The director of DMAS is required by statute to "[a]dminister [the] state plan and receive and expend federal funds therefor in accordance with all applicable federal and state laws and regulations." Code § 32.1-325(D)(1); see 42 C.F.R. §§ 430.0, 430.10. The director is also "authorized to ... [e]nter into agreements and contracts with medical care facilities ... and [various] health care providers where necessary to carry out the provisions of [the] state plan." Code § 32.1-325(D)(2). As a condition of the receipt of federal funds, applicable federal regulations require execution of such agreements, which must include the condition that the provider will "[k]eep any records necessary to disclose the extent of services the provider furnished to recipients." 42 C.F.R. § 431.107(b)(1) (emphasis added).

In 2003, appellant acquired the Whisper Ridge facility in Charlottesville, a 60-bed inpatient psychiatric facility for adolescents 13 to 17 years old, and executed a provider participation agreement in which it agreed to care for patients under DMAS's Virginia Medical Assistance Program. The provider agreement contained the following additional terms:

3. The applicant agrees to keep such records as DMAS determines necessary....

4. The provider agrees to care for patients at [a specified rate].

5.... Should an audit by authorized state or federal officials result in disallowance of amounts previously paid to the provider by DMAS, the provider will reimburse DMAS upon demand.

* * * * * *

7. The applicant agrees to comply with all applicable state and federal laws, as well as administrative policies and procedures of DMAS as from time to time amended.

* * * * * *

9. All disputes regarding provider reimbursement ... shall be resolved through administrative proceedings conducted at the office of DMAS.... These administrative proceedings and judicial review of such administrative proceedings shall be pursuant to the Virginia Administrative Process Act.

In 2006, DMAS audited appellant's records for services billed to Medicaid for twenty randomly selected patients covering various periods between August 1, 2004, and February 27, 2006. DMAS audited an average total of about 29 weeks of records for each of those twenty patients. In the course of the 2006 audit, DMAS identified multiple problems it denoted as "[b]illing errors," including "fail[ure] to properly document with respect to certain of the residents at issue that a minimum of 21 distinct treatment intervention sessions [as required by DMAS's Psychiatric Services Manual, hereinafter the manual, the 2004 manual, or the 2005 manual,²] (excluding individual and family therapy) were provided each week." DMAS auditors noted as follows in their written report:

None of the records reviewed contained documentation of the required weekly interventions. [Appellant's] Therapeutic Group Activities [Weekly Grid] Form is not sufficient. Documentation of the treatment intervention ... must be child-specific, [and] describe how the activities of the session relate to the recipient-specific treatment goals, ... and the child's level of participation which will indicate the child's response to the intervention. ... Very few treatment interventions were child-specific and/or related to issues identified in the child's treatment plan as required.

DMAS disallowed payment for each seven-day period in which the 21 distinct treatment intervention sessions were not properly documented to have occurred. It concluded that error alone resulted in an overpayment to appellant of $761,135.60 in Medicaid funds, as documented by a detailed spreadsheet of errors noted in the records of specified patients.³

Appellant disagreed with DMAS's determination and requested an informal fact finding conference, following which the informal appeals agent upheld DMAS's retraction of payments.

Appellant filed an agency appeal, and the hearing officer heard testimony and argument in February 2007. Appellant argued its therapeutic group activities grid form provided sufficient documentation of the 21-interventions requirement but that, even if it did not, the form entries "substantially compl[ied]" with the manual's requirements and entitled it to full payment. Appellant offered testimony from Whisper Ridge employee Victoria Waterfield, a licensed clinical social worker who worked first as a therapist and then as clinical coordinator at Whisper Ridge. DMAS offered the testimony of Shelley T. Jones, one of two DMAS employees who performed the audit at Whisper Ridge. Jones's primary job responsibilities included "oversee[ing] residential treatment," "manag[ing] ... the Psychiatric Services Manual" and "doing updates."

Jones testified, inter alia, that, although the 21 interventions had no "professional requirement" and could be provided by high-school-educated mental health technicians, the manual required these interventions to be client-specific, such that "if you have a child who doesn't have a substance abuse problem, we wouldn't expect to see a substance abuse treatment group for that child. If you have a child who has anger management problems, we would expect to see an anger management group for that child." (Emphasis added). Jones also explained that documentation for the 21-interventions-per-week requirement was not "just a paper thing" and was necessary to provide information for other staff to review following a shift change and for "the physician [overseeing the adolescent's treatment], who is not on site every day or not on site twenty-four hours a day, to be able to review the documentation and to be able to make judgments about medication, to make judgments about treatment plan changes." Jones testified that other than group psychotherapy notes from about three sessions per week per child, and some substance abuse treatment records at the rate of one or two per child per month, the only documentation she and her co-auditor found for the 21-interventions-per-week requirement was the weekly grid-formatted "therapeutic group activity reports," forms Jones said "were filled out by the children." These forms were deficient, she testified, because they were not developed for the particular child, did not "describe how the activities of the session [held] relate[d] to the Recipient-specific goals" or set out "a plan for the next session," and did not provide "a staff person who did not participate in th[e] session ... any idea what occurred in this session."

After the parties submitted briefs on the issue, the hearing officer issued a written decision in which she concluded appellant failed to carry its burden of proof on "the 21-per-week planned therapeutic interventions issue." She noted that although "reimbursement for all audited weeks of residential services for the sample of twenty patients ... was retracted," "reimbursement for individually billed professional sessions, such as individual psychotherapy, family psychotherapy, and group psychotherapy" for those twenty patients was not retracted. The hearing officer found as follows:

8. [Appellant's witness] Waterfield ... discussed the facility's form grid for documentation of "Group...