A Rule of Reason Emerging From OMIG?

In a potentially groundbreaking decision issued last month by Administrative Law Judge ("ALJ") John Harris Terepka, OMIG's ("Office of the Medicaid Inspector General") dogmatic and unyielding approach to audits and reviews was criticized and rejected as a basis for OMIG's issuance of extreme sanctions against Statewide Ambulette Service, Inc. ("Statewide"), a downstate Ambulette Provider.

After OMIG issued a Notice of Agency Action ("NOAA") excluding Statewide from the Medicaid Program on twenty days notice, Linda J. Clark and Colm P. Ryan obtained a Temporary Restraining Order and Injunction in New York State Supreme Court, Bronx County prohibiting OMIG from immediately excluding Statewide and permitting Statewide to continue operations during the pendency of the administrative hearing.

In a detailed 29-page decision, Judge Terepka thoroughly addressed each of the bases offered by OMIG to justify what was initially a complete exclusion of Statewide, its owner and affiliates, together with recoupment of over $2 million in alleged overpayments. The recoupment sought by OMIG represented every dollar of Medicaid payments received by the provider for the approximately seven-month review period.

At the heart of the dispute was Statewide's alleged violation of the Transportation Manual Policy Guidelines purportedly limiting certain types of subcontracting. The use of vehicles that are not owned by the enrolled provider and the use of drivers who are not on the enrolled provider's payroll is a controversial issue within the non-emergency medical transportation industry that has been subject to haphazard and informal regulatory evolution. OMIG has attempted to implement a regulatory standard through the issuance of Medicaid updates that are incorporated in the Transportation Manual Policy Guidelines without input or comment from the providers subject to the proposed standard.

During the administrative hearing, Statewide maintained that its creation of three sub-companies within Statewide's corporate structure to manage some aspects of Statewide's operations did not violate Medicaid regulations or guidelines. Further, Statewide contended that any alleged violation of the subcontracting guidelines was technical in nature and did not justify the sanction and recoupment sought by OMIG.

After several days of hearings, OMIG, acknowledging the extreme nature of the proposed exclusion under the circumstances, withdrew the sanction of exclusion and several key categories of findings representing hundreds of thousands of dollars in overpayments. The case was submitted with respect to the proposed reduced penalty of censure of Statewide, its owner and its affiliates and recoupment of disputed Medicaid payments..

In this remarkable decision, Judge Terepka reviewed the regulatory background and OMIG's justification for sanctions and recoupment of overpayments and found: 

1. That recoupment of overpayments based upon unacceptable practices was discretionary and that the accusation that a provider submitted an inaccurate Medicaid claim should be applied within reason. Recoupment was not warranted in this case because there was "no reason in [the] hearing record to conclude that the unacceptable practices"¦ were motivated by dishonesty or corner-cutting, resulting in any inappropriate care or took any financial advantage of the Medicaid Program or that [Statewide] engaged in the subcontracting knowing or intending it to be an unacceptable practice."


2. That OMIG's findings of unacceptable practices could not be justified by Statewide's inadvertent clerical errors in claiming documentation, especially since these errors were identified, corrected and explained during the review process. OMIG's refusal to consider and review this information including "contemporaneous documentation" supporting the claims was improper and contrary to its responsibilities, since the give and take of information is "precisely what an audit or claims investigation is for."


3. That OMIG's findings contained in its Notice of Proposed Agency Action ("NOPAA") which were re-issued, nearly verbatim, in the NOAA, without consideration of Statewide's response to the NOPAA, was indicative of OMIG's failure to consider its obligations under 18 NYCRR 515.6(a)(4)&(b)(1). In a stern rebuke of OMIG's failure to consider Statewide's initial response to the NOPAA, Judge Terepka chided "With hundreds of thousands of dollars and a provider's Medicaid enrollment, even its existence, at stake, the OMIG surely can be expected to discharge, with a little more care, a responsibility specifically referenced in its own regulations to review a provider's responses to a notice of proposed agency action."


4. That the six factors OMIG must consider pursuant to 18 NYCRR 515.4(b) before issuing a sanction weighed in Statewide's favor and that the limited sanction of censure, with no recoupment of overpayments, was appropriate for Statewide and its sub-companies. Neither the proposed sanction of censure nor the recoupment of over two million dollars was upheld with respect to the individual owners or affiliates of Statewide.

Judge Terepka's decision represents a significant victory for the provider community, providing, at last, a salient, cogent analytical framework for review of OMIG's determinations. It undermines OMIG's rigid position that all inaccurate claims are unacceptable practices and requires OMIG to make an accusation of unacceptable practices within reason. Where the provider's inaccurate claims did not cause (and were not intended to cause) any excessive or unearned payments by the provider or harm to recipients, reason suggests that the provider did not engage in unacceptable practices and recoupment is unwarranted.