Ratanasen v. State of Cal., Dept. of Health Services

• Decision Date: 15 December 1993
• Docket Number: No. 91-16786,91-16786
• Citation: 11 F.3d 1467
• Parties: , Medicare&Medicaid Guide P 42,040 Surabhan RATANASEN, Plaintiff-Appellant, v. STATE OF CALIFORNIA, DEPARTMENT OF HEALTH SERVICES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1467

11 F.3d 1467

25 Bankr.Ct.Dec. 80, Medicare&Medicaid Guide P 42,040

Surabhan RATANASEN, Plaintiff-Appellant, v. STATE OF CALIFORNIA, DEPARTMENT OF HEALTH SERVICES Defendant-Appellee.

No. 91-16786.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 13, 1993.

Decided Dec. 15, 1993.

Richard A. Harris, Andrew D. Craig, Wild, Carter, Tipton & Oliver, Fresno, CA, for plaintiff-appellant.

Barbara Haukedalen, Deputy Atty. Gen., Sacramento, CA, for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before CANBY, BRUNETTI, Circuit Judges, and JONES, ^* District Judge.

ROBERT E. JONES, District Judge:

Surabhan Ratanasen, a doctor who filed for bankruptcy under Chapter 11, appeals the district court's order affirming the bankruptcy court's finding that Ratanasen owed the California Department of Health Services $125,789 under the Medi-Cal program based on an audit conducted through sampling and extrapolation. We find the use of such audit methods proper and that Ratanasen was afforded an opportunity to rebut the audit results, and we affirm the district court.

FACTS AND PROCEEDINGS BELOW

Ratanasen, a physician providing services under the Medi-Cal program, was the subject of an investigation by the California Department of Justice ("DOJ") Medi-Cal fraud unit between October, 1984 and March, 1987. About 275 patient files were seized from the doctor's office in November, 1986; he later voluntarily released a number of additional files to investigators.

Felony charges of presenting false claims in violation of California Welfare and Institutions Code section 14107 were filed against Ratanasen in May, 1987.

In December of 1986, the Department of Health Services ("DHS") audited claims for payments filed by Ratanasen between May, 1984 and March, 1986. Prior to the final audit report, two exit conferences were scheduled with Ratanasen to explain the preliminary findings of the medical review team. Appellees claim that Ratanasen canceled both conferences. Ratanasen claims that in light of the pending criminal charges against him, he requested that either the exit interview be continued until after the criminal proceedings had been resolved, or the attorney general's office stipulate that statements he made at the conference would not be used against him. Ratanasen claims the DOJ denied his request.

In May 1988, Ratanasen pled guilty to four counts of a lesser offense of violating Business and Professions Code section 2261. He stipulated that the basis for his plea was that he falsified patients' medical records and submitted payment claims to Medi-Cal for services he had not actually rendered. He filed a Chapter 11 petition for bankruptcy in July, 1988.

A final DHS audit of the records released in October, 1988, determined that Ratanasen had overbilled the Medi-Cal program $124,268, and that future claims would have to be supported by copies of patient records when submitted for payment. The audit was conducted by selecting a sample of 300 Medi-Cal beneficiaries out of a total of 8,761 beneficiaries for whom Ratanasen had submitted claims during the period in question. The doctor failed to appeal the audit findings and they became final.

Ratanasen filed an objection to the allowance of the claim in bankruptcy court in July, 1989, alleging that the claim was the result of a random sample, which was then used to calculate an estimated overpayment. The objection further alleged that to reach a true overpayment, each file would have to be examined on its own. The bankruptcy court, on its own motion, bifurcated the legal issue of whether or not statistical reports are allowable to prove the existence and amount of a claim in bankruptcy court. It concluded that a creditor may prove the amount of its claim through the use of convincing statistical samplings. The bankruptcy court then held an evidentiary hearing and concluded that the method of statistical extrapolation used by the DHS was valid and in compliance with California law. It further found that the fact that Ratanasen did not receive an exit conference was of his own choosing and thus a hearing was not required in order for the bankruptcy court to enter judgment.

Judgment in the amount of $124,268 was entered for the state in February, 1991. Ratanasen appealed to the district court, which affirmed the decision of the bankruptcy court, and then timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. Sec. 158(d) (Supp.1992).

DISCUSSION

1. Standard of review.

The district court's decision is reviewed de novo. In re Ewell, 958 F.2d 276, 279 (9th Cir.1992). "The factual findings of the bankruptcy court are reviewed for clear error, and its conclusions of law are reviewed de novo." Id.

Following the evidentiary hearing, the bankruptcy court issued a memorandum opinion, which contained the following statements under the heading, "Findings of Fact:"

9. The Simple Random Sampling Method of statistical extrapolation utilized by the Department in calculating the liability of the Debtor pursuant to the audit was valid and in compliance with California law, Title 22, California Code of Regulations, Sec. 51458.2. The sample size, level of competence, and other measures of the extrapolation method used were appropriate and convincing ...

12. The fact that Dr. Ratanasen did not receive an exit conference was of his own choosing and not required in order for this Court to enter the judgment that follows.

Ratanasen maintains that No. 9 contains conclusions of law, or at least involves mixed issues of law and fact. His latter assertion is correct. As explained further below, whether the use of sampling and extrapolation is proper is a question of law, while whether the sample size, etc., were appropriate is a question of fact.

He further alleges that No. 12 involves mixed issues of law and fact and as such merits de novo review. We determine that whether or not Ratanasen had the opportunity to rebut the state's findings is solely a question of law.

A conclusion of law cannot be turned into a finding of fact simply by labeling it as such. In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1262 (9th Cir.1982). However, because we review the bankruptcy court's mixed findings, and the district court's decision, de novo, any error that may have occurred from the bankruptcy court's inaccurate classification of its determinations, or the district court's application of the wrong standard of review, is "completely harmless." In re Marquam Inv. Corp., 942 F.2d 1462, 1464 (9th Cir.1991).

2. Validity of using sampling methods.

Whether or not the DHS could prove its claim by using statistical information is a matter of law. The use of sampling and extrapolation as part of audits to determine [T]he use of statistical samples was not improper. Projection of the nature of a large population through review of a relatively small number of its components has been recognized as a valid audit technique and approved by federal courts in cases arising under Title IV of the Social Security Act. Moreover, mathematical and statistical methods are well recognized as reliable and acceptable evidence in determining adjudicative facts.

                overpayments to parties who receive publicly-funded reimbursements has not been addressed by this circuit.  A Georgia district court addressed this issue in State of Georgia Dept. of Human Resources v. Califano, 446 F.Supp. 404 (N.D.Ga.1977), which involved the Department of Health, Education and Welfare's ("HEW") refusal to reimburse Georgia for $3.5 million the state paid to doctors who provided services to Georgia Medicaid recipients for three years in the 1970s.  An audit, conducted on the basis of random statistical samples of claims paid during a five-quarter period, revealed that Georgia had paid some claims in excess of ceilings imposed by federal statutes.  Id. at 406.   As a result, HEW's Social Rehabilitation Services ("SRS") regional commissioner disallowed $2.8 million in matching federal funds and made a demand for a refund of that money.  Following an appeal to the SRS administrator, some claims were found allowable, but a disallowance of $1.5 million was upheld.  Id.  Georgia appealed, claiming that the administrator's decision was arbitrary and capricious because the amount of overpayment was determined by use of a statistical sample rather than by an individual, claim-by-claim review.  In finding for defendant HEW, the district court concluded
                

Id. at 409 (citations omitted).

The Seventh Circuit cited Georgia in upholding the auditing procedures used by the state of Illinois in auditing physicians who are reimbursed with public funds for medical services. Illinois Physicians Union v. Miller, 675 F.2d 151, 156 (7th Cir.1982). The state audited a sample of 353 records randomly selected from a total of 1,302 records for the audit period, and determined a participating doctor had been overpaid $5,018. Id. at 152. Plaintiff doctor contended any formula for sampling and extrapolation is improper per se. Id. at 155. The court disagreed and concluded that "the use of sampling and extrapolation is proper provided there is an opportunity to rebut the initial determination of overpayment." Id. at 156.

The Sixth Circuit also cited Georgia in a case where the Department of Education found, as a result of an audit conducted through random, stratified sampling, that the Michigan Department of Education misspent federal funds in the conduct of its vocational rehabilitation program. Michigan Dept. of Educ. v. United States Dept. of Educ., 875 F.2d 1196 (6th Cir.1989). The Michigan court found, as in Georgia, that audits of thousands of cases "comprising the universe of cases" would be impossible. Id. at 1205. Additionally, as in Georgia, the final determination of the invalid expenditures was not made until the state had a chance to present its own evidence of...