Odyssey Healthcare Operating A. LP v. Arkansas Department of Human Services
2015 Ark. App. 459
Ark. Ct. App.
2015

Background

  • Odyssey Healthcare Operating, a licensed hospice provider, was audited by a CMS-selected contractor for hospice services from 2006–2009; the contractor reviewed 43 patient records and recommended recoupment for 13 patients totaling $315,473.52.
  • Odyssey appealed; an administrative hearing before a DHS ALJ lasted four days; DHS dismissed two claims and reduced one recoupment; the ALJ issued a 123‑page decision finding 3 services medically necessary and 8 not, recommending recoupment of $242,446.11.
  • The ALJ’s decision became final agency action on February 19, 2014; Odyssey appealed to Pulaski County Circuit Court, which affirmed in a brief order; Odyssey then appealed to the Arkansas Court of Appeals.
  • Central legal standards: Medicaid coverage requires services be both “medically necessary” and for a “terminally ill” person (terminal = ≤ six months prognosis); appellate review of agency decisions is limited to whether substantial evidence supports the agency’s findings.
  • Odyssey raised several challenges: (1) DHS used non‑promulgated external guidelines (NGS) to determine medical necessity; (2) DHS failed to apply the statutory presumption favoring treating physicians (Ark. Code Ann. § 20‑77‑1708(a)); (3) alleged due‑process violations; and (4) claimed DHS lost subject‑matter jurisdiction after statutory amendments shifted adjudicators to the Department of Health.

Issues

Issue Plaintiff's Argument (Odyssey) Defendant's Argument (DHS) Held
Use of non‑promulgated guidelines to determine medical necessity DHS relied on NGS guidelines not adopted by DHS; using them was reversible error — only DHS definitions should control ALJ treated NGS guidelines as one informational tool among many and applied Arkansas’ statutory/regulatory definitions of medical necessity and terminal illness Affirmed: ALJ’s use of external guidelines as part of a full medical review was permissible; substantial evidence supported the findings
Presumption favoring treating physician under Ark. Code Ann. § 20‑77‑1708(a) The statute requires deference to treating physicians, so DHS should have accepted those medical judgments The presumption is rebuttable; ALJ must state how it was overcome, which she did on a patient‑by‑patient basis Affirmed: ALJ complied with statute by explaining when and how the presumption was rebutted; Odyssey did not challenge the specific findings
Due process claim for alleged regulatory/statutory noncompliance DHS’s procedural or regulatory failures deprived Odyssey of due process Issue was not raised before the ALJ or circuit court, so it is not preserved for appeal Dismissed on procedural grounds: unpreserved; appellate court declined to address it
Subject‑matter jurisdiction after Medicaid Fairness Act amendment Because the Act later required DOH ALJs to hear Medicaid provider appeals, Odyssey argued DHS lost jurisdiction before the ALJ decision Section 20‑77‑1704 did not strip DHS of authority; it only changed which agency’s ALJs are to be used and directed that DHS rules govern decisions Affirmed: Not a true subject‑matter‑jurisdiction defect; issue was not preserved and statute did not remove DHS’s jurisdiction

Key Cases Cited

  • Dep’t of Health & Human Servs. v. R.C., 368 Ark. 660, 249 S.W.3d 797 (2007) (appellate review of agency action is limited and directed to agency decision)
  • C.C.B. v. Ark. Dep’t of Health & Human Servs., 368 Ark. 540, 247 S.W.3d 870 (2007) (substantial‑evidence standard governs review of administrative findings)
  • Ark. Dep’t of Human Servs. v. Thompson, 331 Ark. 181, 959 S.W.2d 46 (1998) (scope of judicial review of administrative decisions)
  • Reed v. Arvis Harper Bail Bonds, Inc., 2010 Ark. 338, 368 S.W.3d 69 (2010) (definition and application of substantial evidence standard)
  • Collie v. Ark. State Med. Bd., 370 Ark. 180, 258 S.W.3d 367 (2007) (agency decision supported by substantial evidence cannot be arbitrary or capricious)
  • Mountain Pure, LLC v. Little Rock Wastewater Util., 2011 Ark. 258, 383 S.W.3d 347 (2011) (issues must be raised first at the administrative level to be preserved)
  • Vibo Corp., Inc. v. State ex rel. McDaniel, 2011 Ark. 124, 380 S.W.3d 411 (2011) (distinguishing true subject‑matter‑jurisdiction defects that may be raised at any time)
  • Dunn‑Wright v. Ark. State Bd. of Educ., 2015 Ark. App. 152, 457 S.W.3d 667 (2015) (preservation rules for agency appeals)
  • McClain v. Texaco, Inc., 29 Ark. App. 218, 780 S.W.2d 34 (1989) (definition of subject‑matter jurisdiction)
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