July 20, 2020 – The Wisconsin Supreme Court has ruled in favor of healthcare providers who challenged a Wisconsin Department of Health Services’ (DHS) Medicaid recoupment policy, restricting DHS’s ability to recoup payments for imperfect records.

Medicaid provides free or low-cost healthcare for vulnerable populations, including the elderly, people with disabilities, and pregnant women. The federal government provides financial assistance to Wisconsin’s Medicaid program.

DHS must reimburse providers “for medically necessary and appropriate health care services … when provided to currently eligible medical assistance recipients.” Under federal law, DHS must audit provider records, if necessary, to ensure proper payments.

DHS may conduct audits “to verify the actual provision of services or items available under the medical assistance program and the appropriateness and accuracy of claims for reimbursement submitted by providers participating in the program.”

In 2015, Professional Homecare Providers (PHP), a professional organization for independent nurses, filed a lawsuit challenging DHS’s Medicaid reimbursement policy.

PHP argued that nurses provided services to Medicaid-eligible patients and obtained reimbursement, but then post-payment DHS audits determined that the reimbursements were improper because provider records were not perfect.

This so-called “Perfection Policy” was inconsistent with Medicaid law and regulations, PHP argued, and amounted to an unconstitutional taking of the reimbursements.

Specifically, PHP argued the policy was an unpromulgated rule and/or guidance document that DHS lacked authority to enforce through recoupments from providers.

Several nurses testified that DHS’s Office of Inspector General (OIG) sought to recoup amounts between $15,000 and $58,000 from them. OIG did not dispute that authorized services were provided, but sought recoupment based on imperfect records.

For instance, OIG sought recoupment because nurses did not counter-sign patients’ care plans or failed to document the supervision requirement for registered nurses.

A circuit court ruled for PHP, concluding DHS can only recoup reimbursements if DHS “is unable to verify from a provider’s records that a service was actually provided” or “the amount claimed was inaccurate or inappropriate for the service provided.”

The circuit court granted a temporary injunction that blocked DHS from applying or enforcing the Perfection Policy.

In 2017, after PHP asserted DHS was violating the injunction, the court ruled DHS could not seek recoupments “if the provider's records verify that the services were provided and the provider was paid an appropriate amount for such services, notwithstanding that an audit identified other errors or noncompliance with [DHS] policies or rules.”

In July 2019, an appeals court reversed. But in Professional Homecare Providers Inc. v. Wisconsin Department of Health Services, 2020 WI 66 (July 9, 2020), the supreme court unanimously ruled (6-0) that DHS exceeded its recoupment authority.

DHS Perfection Policy Exceeds Authority to Recoup

After rejecting DHS’s claim that a challenge to the Perfection Policy was not ripe, and thus not justiciable, the supreme court examined DHS’s authority to recoup payments from Medicaid providers after the providers are reimbursed for authorized services.

The court noted DHS has authority – an obligation – “to recoup improper or erroneous Medicaid payments and overpayments,” under Wis. Stat section 49.45(2)(a)10.a.

“That grant of authority raises two questions: What makes a payment improper, erroneous, or an overpayment?; and, how does DHS so determine? We find the answers a little further down in the same statute,” wrote Justice Annette Ziegler.

The supreme court noted that DHS providers must maintain records for verification of provider claims and DHS “may audit such records to verify actual provision of services and the appropriateness and accuracy of claims.”

As for DHS authority to recoup reimbursements after an audit, DHS may deny a provider claim for reimbursement or recover payments which cannot be verified.

The court ruled that this authority allows DHS to recoup payments for Medicaid services “only when an audit of a service provider's records cannot verify the ‘actual provision of services,’ ‘the appropriateness’ of claims, and the ‘accuracy of claims.”

“The plain language of Wis. Stat. § 49.45(3)(f)1.-2. does not explicitly require or permit DHS to enforce a Perfection Policy,’” Justice Ziegler wrote.

The supreme court also ruled that a DHS regulation requires providers to “prepare and maintain” records that would allow DHS to verify the provision of services, but it “does not state that mere record imperfections of any kind may be grounds for recoupment.”

“Rather, it states that the complete failure or refusal ‘to prepare and maintain records or permit authorized [DHS] personnel to have access to records’ at all constitutes grounds for recoupment,” Justice Ziegler wrote. “The difference between imperfect records and no records at all is a significant one. Thus, § DHS 106.02(9)(g) does not explicitly require or permit DHS to enforce its Perfection Policy either.”

“Thus, so long as DHS can verify that a covered service was actually provided, the claim was appropriate, and the claim was accurate, DHS cannot recoup payments based on a record imperfection,” Justice Ziegler wrote. “A record imperfection alone is not an independent basis for recouping payments.”

The court also ruled that the circuit court committed no error in issuing a supplemental order that blocked DHS from enforcing is Perfection Policy.

However, a majority (4-2) ruled that the circuit court erred in granting PHP costs and attorneys’ fees because state agencies are immune from such costs and attorneys’ fees unless a statute expressly authorizes it, and no statute authorized it here.

Dissent

Justice Daniel Kelly concurred in part and dissented in part, joined by Justice Rebecca Bradley. Justice Kelly (and R. Bradley) agreed that DHS exceeded its authority to recoup payments based on a Perfection Policy, but thought PHP was entitled to costs.

“The legislature expressly chose to subject the state to a proceeding in which costs could be awarded. The question is whether, in doing so, it manifested consent to the imposition of costs ‘as may seem equitable and just.’ I think it did,” Justice Kelly wrote.

Justice Brian Hagedorn did not participate.