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Commonwealth v. Pediatric Specialist, PLLC

Court of Appeals of Kentucky

November 30, 2018



          BRIEFS AND ORAL ARGUMENT FOR APPELLANTS: Catherine York Cabinet for Health and Family Services Frankfort, Kentucky.

          BRIEF AND ORAL ARGUMENT FOR APPELLEE: Carole D. Christian Louisville, Kentucky.




         Commonwealth of Kentucky, Cabinet for Health and Family Services and Audrey Tayse Haynes in Her Official Capacity as Secretary (hereinafter "the Cabinet") appeal from an opinion and order of the Franklin Circuit Court. In this complex Medicaid recoupment proceeding, the Cabinet argues that the Franklin Circuit Court erred: in failing to accept certain extrapolation methods for determining Medicaid overpayments; that the Secretary for the Cabinet appropriately assigned the burden of proof to Pediatric Specialist, PLLC; and in excluding the testimony of Optum employees as contingency fee paid expert witnesses. For the reasons set out below, we find no error and AFFIRM the opinion and order on appeal.

         In the interest of judicial economy, we adopt the factual and procedural recitation of the Franklin Circuit Court, as follows:

Factual and Procedural Background
This case arises from a decision of the former Secretary of [Cabinet for Health and Family Services (CHFS)], Audrey Tayse Haynes, [2] to reject the Conclusions of Law and Recommended Order of Hearing Officer Susan Gormley Tipton in favor of adopting her own Final Order affirming a demand letter issued to Petitioner [Pediatric Specialist] by CHFS requiring the repayment of $1, 251, 867.58 in alleged overpayments resulting from an audit and extrapolation of findings. The Hearing Officer's Findings of Fact were adopted in whole by the Secretary and are detailed below.
Petitioner, Pediatric Specialist, PLLC was a three-physician practice group in Henderson, Kentucky, consisting of two neonatologists, Iyad Aljabi and Pushkaraj Jadhav, and a pediatric gastroenterologist, Maria Aljabi. The Cabinet for Health and Family Services, Department of Medicaid Services is responsible for administering in the Kentucky Medical Assistance Program in accordance with the requirements of Title XIX of the Social Security Act and [Kentucky Revised Statutes (KRS)] Chapter 205. Petitioner is subject to 907 KAR 1:671, 907 KAR 1:672, and 907 KAR 1:673, which deal with recoupments of funds by the Department that are determined to be overpaid, enrollment for Medicaid providers, and claims processing, respectively. Petitioner is reimbursed by the Department for the costs of certain services provided to Medicaid patients, pursuant to a Provider Agreement entered into with Medicaid in 1998. This Agreement required Petitioner to keep certain Medicaid-related records for a minimum of five years, allow for Medicaid to conduct audits, and agree to return overpayments to the Medicaid program.
In 2010, the Department entered into a contract with OptumInsight f/k/a/ Ingenix Public Sector Solutions, Inc. ("Optum"), at which time Optum became the primary surveillance and utilization review ("SUR") contractor, the program requirement of Section 6034 of the Deficit Reduction Act of 2005 designed to protect the Medicaid program form [sic] fraud and abuse by recipients. Pursuant to this contract, Optum was to identify overpayments to providers for a 12.5% contingency fee. Carl Ishmael, assistant director for the Department's Division of Program Integrity, was "involved and familiar with both the request for proposal issued for the contract and the contract itself, as well as applicable state and federal Medicaid regulations." He oversaw day-today activities, including the auditing process, the implementation of federal requirements, and the handling of communications with the Center for Medicaid Services ("CMS"). In February 2011, CMS amended the Kentucky State Plan to allow for recovery audit contractor ("RAC") service contracts. Optum's contract was thereafter amended to include RAC services, with a contingency fee of 5% for identifying underpayments.
The section of the auditing process regarding underpayment became effective by federal regulation in January 2012. The Department filed an amendment to the Kentucky State Plan requesting CMS approval of a five-year look-back period for the RAC function to allow for RAC audits to pre-date RAC contracts. This was approved by CMS and became effective January 1, 2012.
Optum then identified certain provider areas for auditing purposes. Petitioner was identified as a potential provider for an on-site extrapolation audit after Optum discovered outliers which indicated some of Petitioner's claims were higher than some of their peers. Testimony of Ishmael detailed seeing Optum's request, but that he did not recall whether anyone at the Department posed any questions concerning it. Petitioner's office manager at the time of the on-site audit was Dottie Cunningham, and she performed billing functions for Petitioner. Cunningham worked with personnel to retrieve records from the hospital for the audit, as the majority of Petitioner's work was performed at the hospital, and she provided these records to Optum's staff as requested. Ishmael, though not a certified coder, testified that he was familiar with the approach Optum used to audit Petitioner, and that, prior to the audit, Optum submitted a sampling and extrapolation methodology as a deliverable for its contractual function, which was approved by Ishmael. Ishmael testified that he had no training on sampling and extrapolation, but he recalled discussing it during two to three meetings with Optum personnel.
Further testimony from Ishmael explained that an algorithm was first used to select a random sample of claim lines, which was then stratified, reviewed for error, and the highest paid twenty-five (25) claims were identified. These claims were removed and the remaining claims were used to generate the extrapolation. Optum then prepared a demand letter and explanation of findings to inform Petitioner of the results, and presented the audit to the Department for review. Ishmael testified that he and other Department employees would have reviewed the letter prior to its approval, and, while he did not review any specific medical records or claims pertaining to the audit, it was possible that the Department's coder may have looked at some of the specific claim lines. He further testified that he did not recall any changes made by the Department's personnel prior to the approval of the demand letter, nor did he recall any specific discussions regarding the audit's outcome.
On August 6, 2011, the Department sent the demand letter to Petitioner, which referenced a post payment review of claims paid for the period of June 16, 2006 through June 9, 2011. The review was said to have been conducted in conjunction with Optum, the SUR vendor, and, as a result of the audit, Petitioner was asked to return alleged overpayments amounting to $1, 251, 867.58. Seven schedules detailing alleged billing errors were attached to the demand letter, along with an explanation of findings. After a Medicaid determination involving an appealable issue is made, such as in this case, a provider is entitled to request a dispute resolution meeting ("DRM") under 907 KAR 1:671. This is an informal process used to clarify, or present evidence or testimony to explain errors, and both parties can ask questions. The Department is entitled to waive this meeting, ...

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