1st Stop Health Services, Inc., etc. v. Department of Medical Assistance Services, etc.
63 Va. App. 266
| Va. Ct. App. | 2014Background
- 1st Stop Health Services (provider) billed Medicaid under the EDCD Waiver for personal care and respite services; DMAS conducted a utilization/financial audit and found documentation deficiencies.
- The audit identified mismatches/missing DMAS-90 forms and unclear labeling between personal care and respite care, producing a recommended retraction of roughly $128,000; 1st Stop returned the funds and appealed.
- At the administrative hearing, 1st Stop admitted its records were commingled and imperfect but produced additional billing summaries and testimony (its manager) asserting services billed were actually provided and preauthorized. The hearing officer called the records "abysmal" but concluded 1st Stop had in fact provided authorized services and reversed the retraction.
- The DMAS Director reversed the hearing officer, holding that the EDCD Manual and Provider Agreement require contemporaneous, separate DMAS-90 documentation and that post-audit reconstruction cannot substitute for the required records; the Director ordered reinstatement of the full retraction.
- The Circuit Court affirmed the Director in part and reversed in part; the Court of Appeals affirmed the circuit court, holding the Director’s decision was supported by substantial evidence and that failures to maintain required documentation breached the Provider Agreement materially in this context.
Issues
| Issue | 1st Stop's Argument | DMAS's Argument | Held |
|---|---|---|---|
| Whether the Director’s Final Agency Decision (FAD) is supported by substantial evidence | Hearing officer found facts undisputed and that post-audit evidence proved services were provided; Director ignored that and rejected the RD | Director relied on statutory/regulatory contract terms and record showing inadequate contemporaneous documentation; reversal of RD was legal/policy disagreement | Held: FAD supported by substantial evidence; Director adopted legal/policy view and explained rejection with particularity |
| Whether deference to hearing officer (demeanor findings / RD) required reversal | 1st Stop: hearing officer credibility findings and RD should have been adopted under Va. Code §§2.2-4020(C) and 32.1-325.1(B) | DMAS: hearing officer based decision on legal analysis, not demeanor; Director may reject RD for legal/policy error and must state reasons | Held: Deference inapplicable here; Director properly rejected RD as a legal/policy conclusion and satisfied particularity requirement |
| Whether post-audit evidence and testimony can cure missing/commingled DMAS-90s so as to defeat retraction | 1st Stop: supplemental billing records and testimony show no overbilling; remedy is too extreme where services were provided | DMAS: the Provider Agreement and EDCD Manual require contemporaneous, separate DMAS-90s; audits must verify claims at time of review; post-hoc reconstruction cannot replace required records | Held: Post-audit reconstruction does not cure failure to maintain required records; DMAS entitled to retract payments when claims cannot be verified at audit |
| Whether 1st Stop's documentation failures were a non-material breach (i.e., contract principles require compensation analysis) | 1st Stop: any breach was immaterial; services were actually delivered and harm to DMAS/recipients was absent or compensable | DMAS: in Medicaid context documentation is fundamental; regulatory scheme mandates retraction for insufficient documentation; ordinary contract materiality analysis yields to regulations | Held: Assuming contract principles apply, failures here were material because adequate contemporaneous documentation is essential to the Medicaid program; retraction permitted by agreement/regulations |
Key Cases Cited
- Louis Latour, Inc. v. Va. Alcoholic Bev. Contr. Bd., 49 Va. App. 758 (statutory construction de novo)
- John Doe v. Virginia Bd. of Dentistry, 52 Va. App. 166 (substantial-evidence standard for agency factfinding)
- Johnston‑Willis, Ltd. v. Kenley, 6 Va. App. 231 (standard for reviewing agency factual findings)
- Virginia Real Estate Comm’n v. Bias, 226 Va. 264 (deference and finality to agency fact-findings)
- Bank of Southside Va. v. Candelario, 238 Va. 635 (parties bound to clear contract terms)
- Psychiatric Solutions of Va., Inc. v. Finnerty, 54 Va. App. 173 (definition and analysis of material breach)
- Morris v. City of Virginia Beach, 58 Va. App. 173 (decide cases on narrowest dispositive ground)
- Horton v. Horton, 254 Va. 111 (use of Restatement factors in material-breach analysis)