W. Midtown Mgmt. Grp., Inc. v. State

• Decision Date: 26 June 2018
• Docket Number: No. 81,81
• Parties: WEST MIDTOWN MANAGEMENT GROUP, INC., doing business as West Midtown Medical Group, Respondent, v. STATE of New York, Department of Health, Office of the Medicaid Inspector General, Appellant.
• Court: New York Court of Appeals Court of Appeals

31 N.Y.3d 533
106 N.E.3d 726
81 N.Y.S.3d 343

WEST MIDTOWN MANAGEMENT GROUP, INC., doing business as West Midtown Medical Group, Respondent,
v.
STATE of New York, Department of Health, Office of the Medicaid Inspector General, Appellant.

No. 81

Court of Appeals of New York.

Decided June 26, 2018

106 N.E.3d 727

81 N.Y.S.3d 344

Barbara D. Underwood, Attorney General, New York City (Caroline A. Olsen, Eric Del Pozo and Andrew W. Amend of counsel), for appellant.

Goidel & Siegel, LLP, New York City (Jonathan M. Goidel of counsel), for respondent.

OPINION OF THE COURT

FEINMAN, J.

31 N.Y.3d 535

The Office of the Medicaid Inspector General (OMIG) notified petitioner, the operator of a methadone clinic and provider of Medicaid-covered services, that it had been overpaid an estimated $1,857,401 in claims from 2003 through 2007. This number was extrapolated after auditing a random sample of claims paid to petitioner. OMIG informed petitioner that it had 20 days to agree to settle these claims for a lower amount—$1,460,914—or OMIG would begin to withhold a percentage of petitioner's payments. Petitioner was also informed that OMIG was prepared to defend its full $1,857,401 estimate at any hearing. Twenty days elapsed without petitioner agreeing to settle, and OMIG commenced withholding. Petitioner also failed to timely commence an administrative appeal in order to challenge the audit findings. Petitioner now seeks to prohibit OMIG from liquidating the full $1,857,401 in overpayments and a declaration that OMIG can collect only $1,460,914—the amount for which petitioner declined to settle. We hold that OMIG may withhold payments to recover the full $1,857,401 assessed following the audit.

I. Statutory and Regulatory Framework

The Department of Health (DOH) administers the Medicaid program in New York (see Social Services Law § 363–a ; Public Health Law § 201[1][v] ). OMIG was created as an independent office within the Department of Health in 2006 to be the sole state agency focusing on "prevention, detection and investigation of fraud and abuse within the [Medicaid]

31 N.Y.3d 536

program," with the power to refer "appropriate cases for criminal prosecution," and to recover improperly expended Medicaid funds "through a variety of administrative and civil mechanisms" (Senate Introducer’s Mem in Support, Bill Jacket, L 2006, ch 442 at 9, 2006 McKinney’s Session Laws of NY at 1911). OMIG implements the DOH rules and regulations intended to recover unjustified Medicaid payments (see Public Health Law § 32[20] ). One method of recovery is through on-site audits of providers' records based on statistical samplings (see 18 NYCRR part 517; § 519.18 [g] ). An extrapolation of findings based on an audit using a certified valid statistical sampling method is presumed to be an accurate determination of the total overpayments made, "in the absence of

106 N.E.3d 728

81 N.Y.S.3d 345

expert testimony" or other evidence submitted by the provider at a hearing (id. § 519.18[g] ). Where an audit finds overpayments, OMIG issues a draft audit report identifying those items (id. § 517.5). The draft audit report contains the amount of the overpayment "[w]hen feasible," the proposed action and its legal basis, and provides an opportunity for the provider to object (id. § 517.5[a], [b] ). The failure by the provider to timely object "to the proposed action" may result in "the adoption of the proposed action as the final agency action" (id. § 517.5[b] ).

After consideration of the provider's objections, if any, and any supporting documents and materials, or after passage of 40 days from mailing the draft audit report without receiving objections, OMIG may issue a final audit report (id. § 517.6[a] ). The final audit report "and/or the cover letter accompanying it" must "clearly" advise the provider of: (1) the nature and amount of the audit findings, the basis for the agency's action and its legal authority; (2) the action which will be taken; (3) the effective date of the intended action, which will be not less than 20 days from the date of the final audit report; (4) the right to appeal in an administrative proceeding; and (5) the scope of the hearing which is limited to "issues relating to determinations contained in the final audit report" (id. § 517.6[b] ). A provider has 60 days to request an administrative hearing to challenge the final audit report (see Social Services Law § 145–a [2 ]; 18 NYCRR § 519.7 ). The request must be in writing (see 18 NYCRR § 519.7 [b] ). If a hearing is held, the decision becomes "the final agency action and is binding upon the parties" ( 18 NYCRR § 519.22 [c] ). If no hearing is requested within the 60–day time period, the final audit report may be docketed with the County Clerk, whereupon it takes on "the full force and effect of a judgment" ( Social Services Law § 145–a [2 ] ).

31 N.Y.3d 537

Twenty days after the issuance of the final audit report, and upon five days' prior notice, OMIG may "commence recoupment of overpayments" by withholding all or part of a provider's payments that are otherwise payable ( 18 NYCRR §§ 518.7 [b]; 518.8[a] ). Importantly, OMIG may begin withholding payments even before the expiration of the 60–day period for the provider to request an administrative hearing, and before the final audit report has become a final administrative determination. Under these circumstances, the withholding may be extended "until an amount reasonably calculated to satisfy the overpayment is withheld, pending a final determination on the matter" (id. § 518.7[d][2] ).

II. Procedural and Factual Background

Petitioner operates two methadone clinics in Manhattan. It is authorized by the State of New York, Department of Health, Office of Alcohol and Substance Abuse Services to provide outpatient services to chemically dependent patients and to receive payment for those services from Medicaid. By virtue of its enrollment in the Medicaid program as a services provider, its records are subject to audit by OMIG (see 18 NYCRR § 504.3 [g], [i] ).

In January 2010, after auditing a random sample of claims covering the years 2003 through 2007, OMIG issued a draft audit report concluding that petitioner had received more than $6 million in unjustified Medicaid payments. Petitioner challenged the draft audit report. On June 16, 2010, OMIG issued its final audit report (FAR) and, on the same date, delivered it to petitioner with a cover letter.

The cover letter and accompanying FAR informed petitioner that the "extrapolated point estimate" of its overpayments was $1,857,401. Because OMIG estimates

106 N.E.3d 729

81 N.Y.S.3d 346

overpayments based on sampling, it cannot determine with certainty how much it is owed across the entire pool of claims. The "extrapolated point estimate" represents just that—an estimate—based on the subset of claims that were audited. Nevertheless, by regulation, OMIG's extrapolated point estimate would be presumed to be an accurate determination of the total overpayments at any hearing in the absence of expert testimony or evidence to the contrary (see id. § 519.18 [g] ).

The cover letter and FAR also informed petitioner that the "lower confidence limit estimate" of overpayments was $1,460,914. As explained in the letter, this meant that there

31 N.Y.3d 538

was a 95% chance that the true amount of overpayments across the entire pool of claims was greater than $1,460,914.

The FAR contained a section, entitled "Provider Rights," that explained that petitioner could settle the audit within 20 days from the date of the FAR by "repay[ing] the lower confidence limit...