Smith v. Liberty Nursing Home, Inc.

Decision Date11 January 2000
Docket NumberRecord No. 2926-98-3.
Citation522 S.E.2d 890,31 Va. App. 281
CourtVirginia Court of Appeals
PartiesDennis G. SMITH, Director, Virginia Department of Medical Assistance Services v. LIBERTY NURSING HOME, INC., Beverly Enterprises, Inc. and William J. Lemon.

Paige Selden Fitzgerald, Assistant Attorney General (Mark L. Earley, Attorney General; Siran S. Faulders, Senior Assistant Attorney General, on briefs), for appellant.

Robert T. Adams (Thomas J. Stallings; McGuire, Woods, Battle & Boothe, LLP, on brief), Richmond, for appellees.

Present: FITZPATRICK, C.J., and COLEMAN and BUMGARDNER, JJ.

COLEMAN, Judge.

This appeal involves a dispute between the Director of the Department of Medical Assistance Services (DMAS) and the appellees, who at various times operated Rose Hill Nursing Home in Warren County. The dispute concerns Medicaid payments that DMAS made in 1979 and 1986, respectively, to the appellees for nursing home care and related expenses which the appellees provided for Medicaid recipients at Rose Hill Nursing Home. After the payments had been made by DMAS and pursuant to Code § 32.1-325.1, the Director made "initial determinations" between October 3, 1990 and July 15, 1992, that DMAS had overpaid the appellees $968,875 for excessive depreciation and lease cost reimbursements for the Rose Hill Nursing Home. The Director claimed that the appellees were not entitled to reimbursement for the claimed depreciation on the facility by virtue of Medicaid's "relatedparty" rule and that appellees' claims for lease costs reimbursement were excessive because under DMAS's "cost of ownership" accounting principles, the appellees' lease costs should have been reduced after the appellees refinanced the mortgage loan.

The appellees disputed that DMAS was entitled to reimbursement and requested a formal administrative hearing pursuant to Code § 9-6.14:12 of the Administrative Process Act. An administrative hearing, an appeal to the circuit court, and this appeal followed.

PROCEDURAL BACKGROUND

At the formal administrative hearing, the hearing officer held: (1) that the Director, because he initiated the claims for reimbursement from the appellees, had the burden of proving that the appellees were not entitled to the Medicaid funds under the applicable Medicaid regulations; (2) that the appellees' expert witnesses were more credible than DMAS's expert witness based upon the witnesses' demeanor and their respective explanations of how to apply DMAS's Medicaid regulations; (3) that the major portion of DMAS's reimbursement claims were barred by Code § 32.1-325.1:1(B), enacted in 1990, which provides that the Director's "initial determination [of overpayment] shall be made within the earlier of (i) four years, or (ii) fifteen months after filing of the final cost report by the provider subsequent to sale of the facility or termination of the provider";1 and (4) that DMAS was not entitled to reimbursement of the claimed overpayments, based upon the hearing examiner's interpretation and application of the Medicaid regulations as explained by the appellees' expert witnesses.

The Director rejected the hearing officer's decision and recommendations and rendered a final case decision on August 8, 1997. He ruled that the hearing officer: (1) had erroneously placed the burden of proof on the Director, rather than the appellees; (2) had erroneously found the appellees' expert witnesses more credible; (3) had erroneously ruled that Code § 32.1-325.1:1(B) was a statute of limitation barring all claims that were more than four years old; and (4) had erroneously held that Code § 32.1-325.1:1(B) enacted in 1990 was to be applied retrospectively. Thus, the Director ruled that according to the Medicaid regulations as he interpreted and applied them, DMAS had overpaid the appellees by $968,875. The appellees appealed the Director's decision to the circuit court pursuant to Code § 9-6.14:15-19.

The circuit court ruled that: (1) the appellees, rather than the Director, had the burden of proof in challenging the agency's decision; (2) the Director erred in rejecting the hearing officer's factual findings that the appellees' expert witnesses were more credible based upon their demeanor and explanations as to how the regulations had previously been interpreted and applied; and (3) Code § 32.1-325.1:1(B) is a statute of repose that applies retrospectively to bar the majority of DMAS's reimbursement claims. Accordingly, the circuit court remanded for the Director to reconsider those claims not barred by Code § 32.1-325.1:1(B) and to consider them based upon the hearing examiner's credibility determinations as to the appellees' expert witnesses' evidence, but with the appellees having the burden of proof.

We review the issues on appeal from the circuit court.2

CODE § 32.1-325.1:1(B) STATUTORY TIME LIMITATIONS

In 1986, the legislature enacted Code § 32.1-325.1 in order to create a mechanism for DMAS to recover overpayments that had been made to Medicaid providers. That statute mandates that the Director make an initial determination of overpayment and undertake full recovery. See Code § 32.1-325.1. In 1990, the legislature revisited the statutory mechanism for recapturing overpayments and enacted Code § 32.1-325.1:1. The relevant portion of subsection B of the 1990 enactment provides: "Such initial determination [of overpayment] shall be made within the earlier of (i) four years, or (ii) fifteen months after filing of the final cost report by the provider subsequent to sale of the facility or termination of the provider." Code § 32.1-325.1:1(8).

The statute does not expressly provide a consequence for the Director's failure to determine the overpayment within the specified time. The Director contends that the language of Code § 32.1-325.1:1 is merely directory and that no adverse consequences flow from his inability, unwillingness, or delay in determining or collecting overpayments within the time periods provided by statute. The appellees argue that the statute is mandatory and limits the Director from pursuing any claim for overpayment made more than four years prior to the date of the Director's initial determination that an overpayment had been made.

The issue as to whether a statute is one of repose that bars a cause of action or one of limitation that bars a remedy, or is merely directory, is a legal question of statutory construction that "`falls outside the area generally entrusted to ... [an] agency, and is one in which courts have a special competence.'" Johnston-Willis, Ltd. v. Kenley, 6 Va.App. 231, 243-44, 369 S.E.2d 1, 8 (1988) (quoting Hi-Craft Clothing Co. v. N.L.R.B., 660 F.2d 910, 914-15 (3d. Cir.1981)). Thus, whether Code § 32.1-325.1:1(B) is directory or is a statute of repose or limitation is a legal issue for the courts to decide without being required to give deference to an agency's construction of the statute. Thus, we decide whether Code § 32.1-325.1:1 is directory or mandatory and whether it is a statute limiting the agency's remedy or cause of action.

Both statutes of limitation and statutes of repose preclude litigation of stale claims. See Commonwealth v. Owens-Corning Fiberglas Corp., 238 Va. 595, 598-99, 385 S.E.2d 865, 867 (1989)

. However, a statute of limitation does not apply to the Commonwealth unless the statute expressly so provides. See id. at 603-04, 385 S.E.2d at 870 (Poff, S.J., dissenting); see also Code § 8.01-231. Here, the statute, whether it be one of repose or limitation, by its terms expressly applies to the Commonwealth and its agency, DMAS. Therefore, because the statute applies to the Commonwealth, it is irrelevant, for our purposes, whether the statute, if mandatory, is one of limitation or repose. Accordingly, the dispositive issues are whether the statute is mandatory or only directory, and, if mandatory, whether the statute applies retrospectively to claims existing prior to its enactment in 1990.

"`A mandatory provision in a statute is one the omission to follow which renders the proceeding to which it relates illegal and void, while a directory provision is one the observance of which is not necessary to the validity of the proceeding.'" Ladd v. Lamb, 195 Va. 1031, 1035, 81 S.E.2d 756, 759 (1954) (quoting 82 C.J.S. Statutes, § 374, at 868 (1953)).

"Generally the rule is where a statute specifies a time within which a public officer is to perform an act regarding the rights and duties of others, it will be considered as merely directory, unless the nature of the act to be performed or the language shows that the designation of time was intended as a limitation of power."

Huffman v. Kite, 198 Va. 196, 200, 93 S.E.2d 328, 331 (1956) (quoting Nelms v. Vaughan, 84 Va. 696, 699-700, 5 S.E. 704, 706 (1888)). From our reading of the statute, the legislature intended Code § 32.1-325.1:1(B) to be a "limitation of power" that restricts DMAS from seeking return of overpayments after the expiration of a certain time period. We construe the time limits in Code § 32.1-325.1:1(B) as being more than merely directory; we hold that the legislature intended to create a mandatory limitation.

In reaching that holding, we believe the statutory framework and chronology of the legislation are indicative of the General Assembly's intent. Furthermore, we assume the legislature enacted the language at issue in Code § 32.1-325.1:1(B) to achieve a purpose. See Williams v. Commonwealth, 190 Va. 280, 293, 56 S.E.2d 537, 543 (1949) ("We must assume that the legislature did not intend to do a vain and useless thing."); Barnett v. D.L. Bromwell, Inc., 6 Va.App. 30, 34, 366 S.E.2d 271, 273 (1988) (en banc). Having mandated in 1986 by enacting Code § 32.1-325.1 that the Director "shall" recover overpayments, the legislature in 1990 revisited the statutory collection scheme by enacting Code § 32.1-325.1:1(B), which provides that the Director "shall" make an initial determination within "the earlier...

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4 cases
  • Finnerty v. Thornton Hall, Inc., Record No. 2082-03-1.
    • United States
    • Virginia Court of Appeals
    • March 9, 2004
    ...Inc., on brief), for appellee. Present: HUMPHREYS, CLEMENTS and KELSEY, JJ. KELSEY, Judge. In Smith v. Liberty Nursing Home, Inc., 31 Va.App. 281, 297, 522 S.E.2d 890, 897-98 (2000), we held that Code § 32.1-325.1:1(B) establishes a "mandatory limitation" period within which the Virginia De......
  • Sabofrekas v. Virginia Board of Medicine, Record No. 2793-06-4 (Va. App. 8/14/2007)
    • United States
    • Virginia Court of Appeals
    • August 14, 2007
    ...regulations, we are bound by the agency's decision unless the decision is arbitrary and capricious." Smith v. Liberty Nursing Home, Inc., 31 Va. App. 281, 294, 522 S.E.2d 890, 896 (2000). See also Jackson v. W, 14 Va. App. 391, 401, 419 S.E.2d 385, 390-91 (1992) (holding that we will accord......
  • Roanoke v. Finnerty
    • United States
    • Virginia Court of Appeals
    • May 4, 2010
    ...858, 866-67 (2003) (rejecting DMAS interpretation contrary to “plain language of the regulation”); Smith v. Liberty Nursing Home, Inc., 31 Va.App. 281, 296-97, 522 S.E.2d 890, 897 (2000) (same). In regard to the DMAS Nursing Home Manual, it is similar to the federal Medicare Provider Reimbu......
  • DEPARTMENT OF MED. ASST. v. Beverly Healthcare
    • United States
    • Virginia Court of Appeals
    • September 9, 2003
    ...correctly interpreted the plain language of the relevant regulation, 12 VAC 30-90-20(C). See, e.g., Smith v. Liberty Nursing Home, Inc., 31 Va.App. 281, 296-97, 522 S.E.2d 890, 897 (2000) (holding that, because the DMAS Director "disregarded the plain language" of the controlling regulation......

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