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IN RE: the Application of ABLE HEALTH SERVICES, INC., Petitioner, For a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules v. New York State Office of the Medicaid Inspector General, Respondent.
Petitioner Able Health Care Services, Inc. (“Able”) brings this proceeding under CPLR article 78 challenging a decision of the Office of the Medicaid Inspector General (“OMIG”), which rejected its administrative appeal from an order of the Medicaid Fraud Control Unit of the Office of the New York State Attorney General (“MFCU” or “the Unit”) to withhold 10% of Able's current and future claims under the Medicaid Program during the pendency of MFCU's investigation into alleged fraud by Able.
A. The Verified Petition
The allegations set forth in Able's Verified Petition are as follows:
Able is a Special Needs Home Health Agency (“HHA”) 1 certified by the New York State Department of Health (“DOH”) to provide home care services to individuals with developmental disabilities (Pet. ¶ 10). Most of its patients receive services through Medicaid, and it is compensated through capitated payments received for each patient. Petitioner avers that the payments are insufficient to fully reimburse it for the costs of its patient population, which consists largely of younger, non-geriatric individuals (id. ¶¶ 14–16).
The petition arises out of an investigation of Able by MFCU, which is the principal state agency responsible for the investigation and prosecution of Medicaid provider fraud (Affirmation of Michael T. D'Allaird [“D'Allaird Aff.”] ¶ 7). The investigation commenced in 2013, and has been proceeding for more than 3.5 years. It arose out of one nurse trainer's use of the same copied “competency evaluation” form for multiple trainees, such that the identical photocopied markings and grades indicating certain competency evaluations appear on each form. As set forth in more detail below, petitioner contends that the form was never actually used for evaluations, but rather was signed to document completion of non-mandatory skills training.
During the course of a MFCU investigation, the unit can seek to withhold payments under certain state and federal regulations.2 Under 18 NYCRR § 504.8, Medicaid providers are subject to audit, and can be required to pay reimbursement, restitution or statutory penalties based upon the result of such audit. In regard to withholding, the regulation provides:
“Where the department's 3 routine utilization review procedures, an analysis of claims, or initial onsite audit findings indicate that a provider has claimed or is claiming for care, services or supplies which may be inconsistent with regulations governing the program or with established standards for quality of care, or which are inappropriate to the client's needs, not medically necessary or in excess of the client's medical needs, payment of all claims submitted and of all future claims may be delayed or suspended pending completion of an investigation.”
Section 518.7 provides two additional bases for withholding, one discretionary and one mandatory. Under section 518.7(a)(1), the “Department” (see supra n. 3) may withhold Medicaid payments “when it has determined that a provider has abused the program or has committed an unacceptable practice.” Under section 518.7(a)(2), the Department must withhold such payments “when it has determined or has been notified that a provider is the subject of a pending investigation of a credible allegation of fraud unless the department finds good cause not to withhold payments in accordance with 42 C.F.R. § 455.23.” Such mandatory withholding upon a finding of a credible allegation of fraud is compelled by federal law (see 42 CFR § 455.23[a] ). It is, however, “temporary” and “will not continue after ․ [t]he agency or the prosecuting authorities determine that there is insufficient evidence of fraud by the provider” (id. at § 455.23[c][I] ).
B. The Present Withhold
The withhold at issue in this petition was carried out under the second, mandatory provision (see e.g. Pet. Ex. F at 1 [Letter from OMIG] ). On October 21, 2016, OMIG informed Able by certified letter that it was withholding Medicaid payments for services and supplies, on the ground that Able is “the subject of a pending investigation of a credible allegation of fraud,” which “relates to false documentation of home health aides' continuing competency” (Pet. Ex. A at 2). As the legal basis for this action, OMIG cited its “authority to administer the Medicaid program and specifically 18 NYCRR §§ 504.8(d) and 518.7, and 42 CFR 455.23.” An attached worksheet indicated that OMIG's request was limited to 10% of total Medicaid reimbursements on the basis that such limitation would be in the best interests of the State and Medicaid program (Affidavit of Jayne Marzello [“Marzello Aff.”] Ex. 2). The explanation given was as follows: “Current MFCU findings [i.e., the amount of the alleged fraud under review] total $1.6 million which equals approximately 3.5% of provider's annual billing[;] therefore a 10% withhold would be in the best interest of the State.”
In response to the October 21 letter, Able submitted an appeal pursuant to 18 NYCRR § 518.7,4 arguing that the investigation was baseless.5 In response to the letter, OMIG advised Able that the withhold request had been withdrawn, and all withheld moneys would be refunded (Marzello Aff. Exs. 5 & 6).
On February 3, 2017, MFCU made a second withhold request to OMIG. The letter again stated that MFCU had an ongoing investigation into a “credible allegation of fraud” committed by Able, and that the withholding would “protect the State's ability to recover overbillings and potential multipliers of damages while we complete our investigation” (Marzello Aff. Ex. 7 at 1). Although the letter stated that the investigation was not yet finished, MFCU indicated that it “appeared to involve false documentation of home health aides' continuing competency” (id.). More particularly, it noted that the provider billed Medicaid for about $1.62 million (i.e., the same amount at issue in the first investigation) for aides “whose required competency evaluations (per 42 CFR 484.36(b)(1)—(5) ) were falsified” (id.). The letter asserted specifically that “Able staffers or agents falsified the competency evaluations of  home health aides by photocopying a competency evaluation document, including the results of specific competency checks and re-tests, and only changing the date of the evaluations, and the name of the aide” (id. at 2).
These records, MFCU alleged, falsely recorded competency evaluations, but were “kept and maintained and tendered to a government agency as evidence of the competency of direct care providers servicing Medicaid recipients” (id.). In particular, MFCU states that they were “part of a production of records made by the provider after receipt of a demand under [subpoena] or 18 NYCRR 504.3(a), which requires a provider to maintain records demonstrating its right to receive payment” (id.).
The sum of $1.62 million was calculated by MFCU to be improperly billed as follows: MFCU prepared a chart of 52 employees it said were the subject of “false competency evaluations.” It then calculated the amount they were paid for home health services in the two years (2011 and 2012) covered by these evaluations. The total compensation during these years amounted to $1.62 million (Ex. to AAG Lynch Ltr to Ct, Sept 12, 2017).
The letter also introduced a new allegation: “our investigation has revealed that Able provided statutorily required in-service training in English to home health aides whose primary language was not English and thereafter billed and received payment from Medicaid for the services provided by those home health aides” (Marzello Aff. Ex. 7).
The withholding request came before OMIG Management Specialist 2 Jayne Marzello for review, and she recommended that it be granted. The summary and recommendation in her memorandum read as follows:
“DMI [presumably Department of the Medicaid Inspector] has determined this case to be a credible allegation of fraud based on the allegation that this provider falsified Home Health Aides․ evaluations of continued competency. The samples of these evaluations provided by MFCU indicate that the provider did not evaluate the [Aides] on an annual basis as required for participation per 42 CFR 484.36(b)(1)–(5). MFCU provided samples of evaluations of [Aides] that were represented by the provider to be performed annually however a review of these samples indicate that they are merely photocopies of one evaluation with only the dates changed from year to year. A 10% withhold on this provider is justified and in the best interest of the state as MFCUs current findings total $1.6 million and the provider has billed over $40 million for the time period” (id. Ex. 8).
On February 6, 2017, a second Notice of Withholding was issued, materially identical to the first.
C. Able's Administrative Appeal
Again, Able submitted a written appeal, in which it provided the following description of the investigation: former Able nurse educator Louise Passie, a registered nurse, confirmed that the company's aides completed her annual competency skills class via a photocopied form used generally for Competency Evaluations (instead of a blank one), and had the aides who underwent the training sign the form (Pet. Ex. E at 12). According to Able, the “narrow allegation investigated here is whether Nurse Passie was permitted under federal regulation to use a Competency Evaluation form to document annual skills class completion” and whether “she then was required to complete for each aide a Competency Evaluation and document this on the form, even if the form was being used solely to document completion of a skills class” (Pet. Ex. E at 2). Able argued that the form was not a requirement, since an aide must only pass a competency evaluation before initially providing unsupervised services to a client, and no verification of competency is required thereafter; instead, aides must undergo in-service classes and an in-home performance review by a nurse (see id.). Able also maintained that there is a due process right to judicial review within 60 days of the withhold, and thus it was impermissible for MFCU to withdraw and then reinstate its withhold “based on the same allegation of fraud” (id. at 4).
Able's letter states that MFCU's concerns relate to the implementation of 42 CFR § 484.36(b), which provides as follows:
“An individual may furnish home health aide services on behalf of an HHA [Home Health Agency] only after that individual has successfully completed a competency evaluation program as described in this paragraph. The HHA is responsible for ensuring that the individuals who furnish home health aide services on its behalf meet the competency evaluation requirements of this section.”
(ii) The HHA must complete a performance review of each home health aide no less frequently than every 12 months.
(iii) The home health aide must receive at least 12 hours of in-service training during each 12–month period. The in-service training may be furnished while the aide is furnishing care to the patient.”
According to Able's submission, there is no dispute that it conducted and documented the appropriate performance review, competency training, and initial evaluation, and there is no requirement that it carry out an annual competency evaluation, which it distinguishes from the required annual performance review (Pet. Ex. E at 8–9). In support of this contention, petitioner cited the following language from the Centers for Medicare and Medicaid Services (“CMS”) State Operations Manual:
“Home health agencies (“HHA's”) are not required to conduct a yearly competency evaluation of its aides, but are required to do a performance review of each aide at least every 12 months ․ An annual performance review may be completed and documented over a period of time during an aide's two-week visits in a patient's home or during the installation of an aide in a new patient care situation. Any reasonable performance review method that is logical and consistent with the HHA's policies and procedures would meet the intent of this standard”
(id. at 10 [emphasis in original] ).
The photocopied documents at issue in the investigation, according to Able, did not relate to competency evaluations, but rather to non-mandatory skills training (see id. at 12). According to its submission to OMIG, Able asserted (supported by a document identified as the statement of Nurse Passie) that attendance was documented on a sign-in sheet; each aide was required to document their completion; and an assistant was present to confirm attendance (see id.).
The forms used to confirm attendance were, however, labeled “Home Health Aide Competency Evaluation,” and bore check marks to denote that this was done annually (see Pet. Ex. H & Marzello Aff. Ex. 7). Because a photocopy of a completed form was used, each reflected identical competency grades indicating whether the individual's performance was satisfactory or not and whether the individual had satisfactorily performed following remediation, the date on which this had taken place, and a seemingly identical signature by Passie. The differences on the forms were the names and dates listed in a column appearing to indicate that each part of the evaluation was performed on that date (see id.).
Able acknowledged that a completed, photocopied Competency Skills form should not be used to document class participation, but said this problem had been remedied, and in any event was a “human resources issue” that did not relate to matters within the purview of MFCU, since no annual competency evaluation had been required in the first instance (Pet. Ex. E at 13–14).
Included in the response was a statement from Passie (prepared in response to the first withhold), which said that she worked as Able's RN Trainer from October 2008 through February 2013.6 She set forth her understanding of New York and federal regulations: aides must demonstrate initial competency under 42 CFR § 484.36, after which they are eligible to provide home health aide services (Pet. Ex. J ¶ 5). Subsequently, these aides must complete 12 hours of in-service training annually, and their performance must be reviewed each year (see id. ¶¶ 6–7). No law or regulation, according to Passie, requires an aide to repeat the initial training course or to “undergo repeat or formal initial competency training” once certified (id. ¶ 8).
Passie stated that Able complied with these standards: it evaluated the performance of its aides at least once per year and often more frequently (see id. ¶ 10); it required every aide to undergo the mandated in-service training course (see id. ¶ 11); and it required all aides to take an annual skills review class, after which it determined whether the aides had successfully completed the course (see id. ¶¶ 13–14).
According to the Passie statement, she documented the aides' completion of their skills classes by giving them a “Competency Evaluation Form” used in connection with the initial training, and had them sign that form “[r]ather than create a separate Skills Class Diploma” (id. ¶¶ 20–21). She only provided the aide the form to sign if he or she had completed the class (see id. ¶¶ 24–25).
Able argued in its submission: (1) there was no fraud, since the documents were not intended to deceive anybody, and no benefit was sought or received by preparing the forms (Pet. Ex. at 15); and (2) the investigation was not “ongoing,” as every possible witness had been questioned, and all relevant documents submitted (id. at 16). In addition, it contended that in submitting, withdrawing, and re-submitting its withhold, MFCU had exceeded the 60–day review period provided for by regulation.
OMIG ruled on petitioner's objections in a letter dated April 10, 2017 (Pet. Ex. F). It stated that following the second referral, “OMIG reviewed the information and documentation MFCU submitted and determined that Able is the subject of a pending investigation of a credible allegation of fraud” (id. at 2). It found that this second investigation was “a new action, resulting from a new determination by OMIG after a review of new information received from the MFCU” (id.). As to the specific challenges raised by Able, OMIG's letter stated that Able's “characterization of MFCU's allegation does not accurately reflect the scope of the alleged fraud ․” (id.). In regard to the claim that there was no active investigation, the letter cited MFCU's representation that its investigation was ongoing and had “revealed unacceptable practices” by Able, and that the withhold would “protect the State's ability to recover overbillings and potential multipliers of damages” (id. at 3). The letter offers no specific details regarding the foregoing.
Able responded by filing the present petition.
D. The Parties' Arguments
In addition to reiterating the chronology detailed above, the petition alleges that as a result of the withholding, Able cannot meet its costs of care, and is forced “to choose between its mission of ensuring special needs patient access to quality home care services from an agency committed to this population, and settling a claim which on its face has no legal or regulatory basis” (id. ¶ 18). Implicit in this argument is Able's contention that the withholding is a tactic employed by MFCU to force Able to settle, rather than a means to protect the State's ability to recover in any future enforcement action.
Able maintains that none of the elements required for regulatory withholding are present here. First, it asserts there is no ongoing investigation, since the State has received all relevant documents and interviewed all employees regarding the competency evaluation form, and Able has provided a complete list of all Spanish-speaking aides (see id. ¶ 36). Second, it contends that there is no credible allegation of fraud because the documentation at issue was not required by state or federal regulation, and in any case any violation was a technical “paperwork” violation (since the employees received the training intended to be reflected on the sheets) and did not rise to the level of fraud (see id. ¶¶ 66–68, 82).
In response, OMIG submitted affirmations from Marzello and OMIG Associate Attorney Michael D'Allaird, as well as an affidavit of counsel. In her submission, Marzello set forth her reasoning as to why OMIG “had a reasonable basis in both fact and in law” to institute withholding. She avers that based on her training and experience, she has found MFCU “to be a reliable and credible source for allegations of fraud in the Medicaid Program” (Marzello Aff. ¶ 23). She further states that the MFCU letter indicated the presence of “possible violations” of Penal Law § 175.05 (Falsifying Business Record); and § 175.35 (Offering a False Instrument for Filing). In addition, according to Marzello the letter listed “several unacceptable practices,” including possible violations of 18 NYCRR § 515.2(b)(2)(I) (“Making, or causing to be made any false, fictitious or fraudulent statement or misrepresentation of material fact in claiming a medical assistance payment, or for use in determining the right to payment”), 515.2(b)(3) (“Having knowledge of any event affecting the right to payment of any person and concealing or failing to disclose the event with the intention that a payment be made when not authorized or in a greater amount than due”), 515.2(b)(6) (“Failing to maintain or to make available for purposes of audit or investigation records necessary to fully disclose the medical necessity for and the nature and extent of the medical care, services or supplies furnished, or to comply with other requirements of this Title”), and 515.2(b)(12) (“Furnishing medical care, services or supplies that fail to meet professionally recognized standards for health care or which are beyond the scope of the person's professional qualifications or licensure”).
According to Marzello, MFCU provided OMIG with “copies of documents alleged to be falsified records that were provided to a government agency” (id. ¶ 25). Her review of the forms “determined that there were indicia of reliability indicating a credible allegation of fraud,” noting specifically that eight forms provided by MFCU “are identical photocopies, with only the dates filled in” (id. ¶ 26). The “apparent falsified nature of these forms,” according to Marzello “support allegations raised by MFCU in the withhold request” (id. ¶ 26).
For his part, D'Allaird notes Able's argument that annual competency evaluations are not required, but does not attempt to rebut it. Rather, he states that “[e]ven assuming arguendo that Petitioner's interpretation of State and Federal law is substantially correct,” it has mischaracterized MFCU's allegations, which “go beyond” the competency evaluation issue (D'Allaird Aff. ¶ 29). Rather, MFCU charges that Able “intentionally falsified Competency Evaluations, falsified business records in violation of Penal Law § 175.05, and provided falsified records to a government agency in violation of Penal Law § 175.35” (id. ¶ 29). He also notes various alleged “unacceptable practices” being investigated in regard to Able, such as making false statements, failing to disclose, “unacceptable recordkeeping” and “failing to meet recognized standards for health care” (id.). D'Allaird does not intimate what the basis of any these violations might be, except for the use of the photocopied evaluation forms.
Oral argument was conducted on August 25, 2017, at which petitioner averred—and respondent did not dispute—that the forms at the heart of the fraud claims were only turned over to MFCU in response to a “subpoena” for the records of 160 aides, after a former employee complained about Able's record-keeping practices. That is to say, they were not part of any regular submission required to demonstrate regulatory compliance, but rather were maintained internally until their production was demanded as part of the investigation at issue, following a MFCU request made pursuant to 18 NYCRR § 504.3(a), which sought “the entire personnel files for all aides having provided care to a simple list of patients during a period of time” (see Ltr of Newfield to Ct 8/31/17 at 1 n 2).7 This is consistent with MFCU's representation to OMIG that the records at issue “were part of a production of records made by the provider after receipt of a demand” (Marzello Aff. Ex. 7 at 2). This assertion was reiterated in a follow-up letter to the Court by Able's counsel.
For its part, in a final letter submission respondent noted that MFCU had reviewed the explanations provided to Able and “still believed the allegations of fraud to be credible” (Ltr of Lynch to Ct 8/31/17 at 1). In regard to the materiality of the forms, respondent pointed out that MFCU “tied the falsified forms to specific dollar amounts of claims paid for services rendered by home health aides reflected in those forms” (id. at 2).
A. The Applicable Legal Standards
An administrative determination will be overturned pursuant to CPLR article 78 only if it is arbitrary, capricious, or an abuse of discretion (see Matter of Heintz v. Brown, 80 N.Y.2d 998, 1001, 592 N.Y.S.2d 652, 607 N.E.2d 799  [citation omitted] ). This standard is met where the decision is “without sound basis in reason and ․ without regard to the facts” (Matter of Local 363, Intl. Bhd. of Elec. Workers v. New York State Dept. of Labor, 230 A.D.2d 440, 443, 659 N.Y.S.2d 518 [3d Dept. 1997], quoting Matter of Pell v. Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 N.Y.2d 222, 231, 356 N.Y.S.2d 833, 313 N.E.2d 321  ). For example, a grant of relief under Article 78 is appropriate where the agency fails to make the findings necessary to support its determination (see Matter of Village Estates Condominium Assn. v. Planning Bd. of Town of Lake George, 298 A.D.2d 665, 666, 748 N.Y.S.2d 431 [3rd Dept. 2002] ), or such findings as are made are unsupported by the record (see Matter of Brynien v. New York State Dept. of Civ. Serv., 79 A.D.3d 1501, 1502, 913 N.Y.S.2d 411 [3d Dept. 2010] ).
My review is limited “solely to the grounds invoked by [the respondent], and if those grounds are insufficient or improper, the court is powerless to sanction the determination by substituting what it deems a more appropriate or proper basis” (Matter of Trump—Equitable Fifth Ave. Co. v. Gliedman, 57 N.Y.2d 588, 593, 457 N.Y.S.2d 466, 443 N.E.2d 940  ).
The specific determination under review in this petition is OMIG's withholding of payments from Able on the ground that MFCU was investigating a “credible allegation of fraud.” State regulation defines a “credible allegation of fraud” to mean “an allegation that has indicia of reliability and has been verified by the department, or the Medicaid fraud control unit, or another State agency, or law enforcement organization.” (18 NYCRR § 518.7[a] ). Fraud itself is defined by the federal regulation, to mean “an intentional deception or misrepresentation made by a person with the knowledge that the deception could result in some unauthorized benefit to himself or some other person,” including “any act that constitutes fraud under applicable Federal or State law” (42 CFR § 455.2).
Any suspension of payments under this provision must be discontinued if OMIG or MFCU determines there is “insufficient evidence of fraud by the provider,” or if the proceedings related to the alleged fraud are complete (18 NYCRR § 518.7[d] ). As respondent acknowledges, the purpose of these criteria is to “ensure that the withholding of Medicaid payments cannot extend into perpetuity” (D'Allaird Aff. ¶ 8).
The law governing this Court's review of a decision by OMIG to suspend payments during the pendency of a MFCU investigation is set forth in the Third Department's decision in Matter of Consumer Directed Choices, Inc. v. New York State Off. of the Medicaid Inspector Gen., 90 A.D.3d 1271, 935 N.Y.S.2d 352 (3d Dept. 2011) [Stein, J.], which addressed regulations governing withholding of Medicaid payments in place prior to March 2011. By a 3–2 decision, the Court found that it was not arbitrary or capricious for DOH to rely on MFCU's findings that it had “reliable information” of fraud (the standard for withholding then in place) “without consideration of factual information from either MFCU or petitioner regarding the merits of MFCU's investigation” (id. at 1272, 935 N.Y.S.2d 352). The entire basis for DOH's withholding in that case appears to have been a letter from MFCU stating that it had an ongoing investigation into fraud, which the Court found sufficient at that time to support DOH's actions.8
During the pendency of that appeal, the regulatory language was changed from that which permitted DOH to withhold payments when it had “reliable information that a provider is involved in fraud or willful misrepresentation involving claims submitted to the program, or has abused the program or committed an unacceptable practice” (see Matter of Kasin v. Novello, 303 A.D.2d 910, 912, 757 N.Y.S.2d 609 [3d Dept. 2003] ), to the present language, which states that DOH shall withhold all payments absent a finding of good cause “when it has determined or has been notified that a provider is the subject of a pending investigation of a credible allegation of fraud.” In Consumer Directed Choices, the Court found that its oversight of a withholding decision by OMIG would have been governed by a different standard under the new regulations; the use of the verb “determine” and the comments in the Federal Register on the new regulations “indicate that [they] require[ ] some independent review of the evidence of fraud” (90 A.D.3d at 1272 n.2, 935 N.Y.S.2d 352). The Court therefore recognized that its analysis of the matter before it “could well be different under the current regulations” 9 (id. at 1272 n.3, 935 N.Y.S.2d 352).
Applying this standard, I find that in this case that OMIG failed to subject the withholding request to sufficient “independent review” as the Third Department found to be required under the governing regulations, and that a review of the record does not provide sufficient basis to support MFCU's assertion that there was a credible allegation of fraud in this case.
B. Application to the Present Record
At the outset, I note something striking about the submissions before me. The crux of MFCU's investigation, by its own description as presented to OMIG, was that Able engaged in fraud when it “falsified Home Health Aides ( [“Aides”] ) evaluations of continued competency” (Marzello Aff. Ex. 7 at 1). OMIG initially upheld the withholding request on precisely this basis, and found specifically that “the provider did not evaluate the [Aides] on an annual basis as required for participation per 42 CFR 484.36(b)(1)—(5)” (id. Ex. 8 at 1 [emphasis added] ).
Able then argued that it was not required to prepare or submit annual competency evaluations, citing language which appears directly on point from the CMS manual. And from that point on, the finding that Able created false documentation of required annual competency evaluations—the explicit basis for OMIG's initial withholding decision—simply evaporates. In its response to Able's claim in its administrative appeal that the sole allegation against it concerned the misuse of competency evaluation forms, OMIG stated that its characterization “does not accurately reflect the scope of the alleged fraud” (i.e., Able wrongly claims the scope of the fraud was how OMIG itself described it in the withholding notice). But OMIG nowhere discloses what other fraud it believed MFCU might be looking into, nor did it set forth the basis for such belief. Instead, it cites various statutes which it claims were violated by Able's use of the photocopied forms, while the original assertion regarding the ostensible purpose of these forms—to document required annual competency evaluations—is conspicuous by its complete absence. Indeed, in its submission in opposition to the petition, respondent makes no attempt to defend the position it took in its original withholding notice that such annual competency evaluations are required, but instead argues that “[t]he question of whether competency evaluations are required annually or only one time is ancillary to the question of whether the competency evaluations submitted by Petitioner for 52 home health aides may have been falsified” (Resp Mem of Law at 17).
For reasons set forth below, I find that Able has shown that annual competency evaluations are not required by the governing regulations. Moreover, the absence of any legal requirement that Able carry out such evaluations and consequently, maintain and submit documentation that it has done so in order to qualify for Medicaid reimbursement, is fatal to OMIG's findings that there was a credible allegation of fraud under investigation in this case. For those reasons, I grant the petition.
On the first point, although the language of the relevant regulations is not crystal clear, a close reading supports petitioner's understanding that neither federal, nor state regulations require the conduct of annual competency evaluations for home health aides. Federal regulations require aides to receive an initial “competency evaluation and in-service training,” as provided for in 42 CFR § 484.36(b). That regulation states that an individual may serve an HHA as a home health aide “only after that individual has successfully completed a competency evaluation program as described in this paragraph” (id. § 484.36[b] ). The regulations go on to state the subjects that must be addressed at “[t]he competency evaluation,” and require that the HHA “complete a performance review of each home health aide no less frequently than every 12 months” (id. § 484.36[b][I]-[ii] [emphasis added] ). Certain subject areas are to be evaluated “after observation of the aide's performance of the tasks with a patient,” while others may be “through written examination, oral examination, or after observation of a home health aide with a patient” (id. § 484.36[b][iii] ).
A home health aide is “not to be considered competent in any task for which he or she is evaluated as ‘unsatisfactory’ ” during the competency evaluation, and cannot perform the task “without direct supervision by a licensed nurse until after he or she receives training in the task for which he or she was evaluated as ‘unsatisfactory’ and passes a subsequent evaluation with ‘satisfactory’ ” (id. § 484.36[b][I] ). Finally, the regulation requires that the HHA “maintain documentation which demonstrates that the requirements of this standard are met,” and “may use only those aides that have been found to be competent in accordance with § 484.36(b)” (id. § 484.36[b] &  ).
Able's argument is that the regulations differentiate between a “competency evaluation,” which must be carried out at the outset of the aide's work and entails training in certain delineated subject matters, and a “performance review,” which involves on site observation and must be carried out every year. This interpretation receives support from the fact that the regulations refer to “the competency evaluation” and set forth no time frame for its repetition, while they specifically provide for a performance review “every 12 months.” Moreover, the HHA has the option of carrying out the performance review entirely through observation.
Further, the CMS interpretive guidelines are unequivocal in this regard. They state: “HHAs are not required to conduct a yearly competency evaluation of its aides, but are required to do a performance review of each aide at least every 12 months” (Centers for Medicare and Medicaid Services, State Operations Manual, Interpretive Guidelines § 484.36[b] ), at G215, in https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/som107ap_b_hha.pdf). Such guidelines, even though “relatively informal,” nevertheless “warrant respectful consideration due to the complexity of the [Medicaid] statute and the considerable expertise of the administering agency” (Matter of Jennings v. Commissioner, N.Y.S Dept. of Social Servs., 71 A.D.3d 98, 109, 893 N.Y.S.2d 103 [2d Dept. 2010]; see also Matter of Balzarini v. Suffolk County Dept. of Social Servs., 16 N.Y.3d 135, 919 N.Y.S.2d 474, 944 N.E.2d 1113  [looking to CMS manual in construing Medicaid regulations] ).
New York regulations do not provide for a different result. They require that “an annual assessment of the performance and effectiveness of each person [be] conducted and documented in writing, including at least one home visit to observe performance if the person provides services in the home” (10 NYCRR § 763.13[k] ). This is consistent with the conduct of an annual “performance review,” as no reference is made in the regulations to an annual competency evaluation. The regulation also sets forth recordkeeping requirements, including that the agency maintain such documents as “records of professional licenses and registrations; verifications of employment history and qualifications for the duties assigned; signed and dated applications for employment,” and other matters (10 NYCRR § 763.13[h] ). It does not require that the agency keep documentation of annual competency evaluations.
Perhaps there is some other reasonable reading of the regulations at odds with that given by CMS and petitioner. But respondent does not advance one—it simply declines to join issue on the question. And neither MFCU, nor OMIG have engaged in any such analysis anywhere in the record. Initially, they merely cited generally to 42 CFR § 484.36(b)(1)–(5) (Marzello Aff. Ex. 5), and then in OMIG's final determination, dropped the issue altogether. Nor does OMIG or MFCU argue, anywhere in the record, that these documents had any other allegedly fraudulent purpose except to misrepresent the results of annual competency evaluations.10
Respondent instead argues that “the forms are alleged to be falsified, no matter the title of the forms or what they were intended to document” (Resp Mem of Law at 17). While this may be true as far as it goes, it begs a different question: whether the mere preparation of false documents maintained internally, even if they are not required to be kept, provides some possible credible basis for fraud under one of the statutes relied on by respondent. Under the circumstances of this case, I find that it does not.
In support of its argument, respondent cites boilerplate that the investigation had “indicia of reliability” and that MFCU explained that its investigation “uncovered several possible violations of New York State Penal Law involving fraud” (Resp Mem of Law at 6). But virtually all of those alleged violations involved falsification of the competency evaluations,11 and the statutes or regulations at issue require scienter, i.e., fraudulent intent (see Penal Law § 175.05 [falsifying business records; must be done with “intent to defraud”]; Penal Law § 175.35 [offering false instrument for filing; occurs when person “knowing that a written instrument contains a false statement or false information, and with intent to defraud the state or any political subdivision, public authority or public benefit corporation of the state, he or she offers or presents it” ro a public entity for filing] ). Moreover, the fraud must have the potential to “result in some unauthorized benefit to himself or some other person” (42 CFR § 455.2). MFCU apparently asserts that the unauthorized benefit under investigation is Medicaid reimbursement for the work of aides who did not meet the required level of competence, but it is not clear how this could be, if the allegedly fraudulent documents did not concern a competency evaluation required by law.
For its part, OMIG says that any fraud regarding the evaluation records is material because “MFCU tied the falsified forms to specific dollar amounts of claims paid for services rendered ․” (AAG Lynch Ltr to Ct, Sept 12, 2017 at 2). And so it did. But an “independent review” must mean more than OMIG pointing to a legal claim made by the Unit, without any analysis as to whether it is correct.
OMIG's argument is premised on the assertion that the false evaluations show that Able wrongfully sought compensation for aides not legally qualified to render services, resulting in improper billing for their work (see Marzello Aff. Ex. 7 at 1). Indeed, that is the basis for MFCU's calculation of the dollar value of the fraud (see Ex. to AAG Lynch Ltr to Ct, Sept 12, 2017). But if those records had no relevance to whether petitioner's employees were legally authorized to perform their work, they had no connection to Able's right to seek reimbursement for such. Put simply: Able could not engage in Medicaid fraud by falsifying records of evaluations that the Medicaid rules did not require.
Moreover, crucial to OMIG's finding that it had before it a “credible allegation of fraud” is MFCU's contention (which respondent cited at oral argument) that Able did not just maintain these records, but “tendered [them] to a government agency as evidence of the competency of the direct care providers servicing Medicaid recipients” (Marzello Aff. Ex. 7 at 2). But as MFCU also states, that tendering took place because it asked OMIG for the documents at issue, and it nowhere indicates that Able represented the contents of such documents to be correct, or demonstrated its entitlement to payment. Nor does respondent proffer an argument as to why the submission of forms that were not required in response to a document request for personnel records—that is, because they fell within the scope of an investigative request—could possibly implicate the provisions of the Penal Law cited in its withholding notice, which require that the submission be part of an effort to defraud the government.
Under the pre-March 2011 standard articulated by the majority in Consumer Directed Choices, the evidence before OMIG might have been sufficient, since a generalized representation by MFCU that it was investigating fraud was found to meet the threshold for withholding, even in the face of the provider's rebuttal. But under the regulations now in force as construed by the Third Department, OMIG was required to determine that there was a “credible allegation of fraud” against Able, possessing “indicia of reliability” which were “verified by the department,” after “some independent review” (see supra p. 766). It is unclear how OMIG can meet this standard without any understanding as to the context in which the allegedly offending documents were submitted to MFCU, and more importantly, how documents reflecting evaluations not required by the regulations could be used to defraud the government.
MFCU also argued that the records at issue were held in violation of 18 NYCRR § 504.3, which requires a provider participating in the Medicaid program maintain records “demonstrating its right to receive payment under the medical assistance program” and to keep them for six years (see Marzello Aff. Ex. 7 at 2). But here, too, it enters the same cul-de-sac. The records at issue are only relevant to payment if annual competency evaluations of its employees are required before a provider may receive reimbursement for such employees. But that is a position respondent makes no effort to defend.
OMIG also argues that the withhold was based on certain “unacceptable practices” by Able, and that the withhold was necessary to “protect the State's ability to recover overbillings and potential multipliers of damage while we conclude our investigation” (Pet. Ex. F at 2).
This is problematic for two reasons. First, the withholding notice did not cite “unacceptable practices,” as the basis for withholding; it stated that it was based on a “determination that [Able was] the subject of a pending investigation of a credible allegation of fraud” (Pet. Ex. D ¶ 5). Petitioner was entitled to administrative review, as provided by federal regulation (see 42 CFR § 455.23 [“a provider may request, and must be granted, administrative review where state law so requires”] ). But it could not have challenged an allegation of “unacceptable practices” on its administrative appeal, since it was never told this was one of the grounds for OMIG's partial suspension of payment in the first place.
Second, MFCU presented no more basis to indicate it had evidence of “unacceptable practices” than it did of fraud. An unacceptable practice is defined as one in violation of the state or federal rules and regulations governing the Medicaid program (see 18 NYCRR § 515.2[a] ). Respondent states that such practices by Able included (1) the making of false statements of material fact “for use in determining right to payment,” (2) failure to disclose information “with the intention that a payment be made when not authorized or in greater amount than due,” (3) failure to maintain records “necessary to fully disclose the medical necessity for and the nature and extent of the medical care, services or supplies furnished, or to comply with other requirements of this Title,” and (4) providing services that “fail to meet professionally recognized standards for health care or which are beyond the scope of the person's professional qualifications or licensure” (see Marzello Aff. Ex. 7 at 3, citing 18 NYCRR § 515[b],,  and  ). In regard to the first three, for the reasons set forth above, the records of annual competency evaluations are neither used in determining the right to payment or to show payment was owed in excess of that due, nor are they necessary to comply with any requirement of the Medicaid program. As to the last, to the extent there is some medical standard which is not being met by these evaluations, MFCU did not disclose it (or even allege that it was being investigated), and OMIG does not cite one in its submissions to this Court.
Finally, MFCU stated in its submission to OMIG that Able had provided statutorily required in-service training in English to aides whose primary language was Spanish, rendering their training meaningless, yet OMIG was subsequently billed for their services. However, the record is devoid of even the allegation that any of these aides lacked the English capability needed to understand the training, or failed their initial competency or subsequent performance evaluation; does not indicate what provision might have been violated; and does not say how this might constitute fraud or what the potential cost of this fraud might be. And OMIG proffers no evidence that it conducted any “independent review” whatsoever of this aspect of the investigation, which is not mentioned in its ruling on administrative appeal.
Finally, Able also alleges that the investigation was not “ongoing,” as it must be to sustain the withholding. This argument implicates competing concerns. On the one hand, the purpose of a withhold is to protect the rights of the State to ultimately recover lost funds while an investigation is complete. On the other, for a provider dependent on Medicaid reimbursements, the withholding power could be used as a cudgel to force settlement without the need for the State to prove its case in a legal proceeding. For this reason, the withholding must be of limited duration (see Pressley Ridge Schools, Inc. v. Stottlemyer, 947 F.Supp. 929, 940 [S.D. W. Va. 2000] [federal regulations do “not authorize indefinite suspension of payments”] ).
The record before me gives some basis for Able's concern that the withholding is being used to pressure it into settling a claim it believes are not legally viable, for the reasons stated above. To the extent MFCU disagrees, its submissions do not provide any indication as to the legal foundation for its argument, or what other information it needs after more than three years of investigation to bring an enforcement action on the basis of the photocopied documents.
But the drafters of the governing regulations also recognized that the danger of exposing the agency's investigative plans, and thus provided that the notice of withholding “need not include specific information concerning an ongoing investigation” (see Resp Mem of Law at 15; 18 NYCRR § 518.7[b] ). In light of this regulation, and MFCU's representation that it was continuing to investigate the issue, I cannot find respondent's determination that an investigation was ongoing to be arbitrary and capricious. Rather, the danger that a suspension of payment will be used to extract a settlement is addressed in the regulations, as they have been construed, by requiring why some independent review of the basis for the withhold request. That requirement was not met in this instance.
In the end, respondent's argument distills to this: MFCU has said certain practices are fraudulent, and has cited a myriad of statutes that it claims may have been violated, and OMIG need not look behind these claims. But if “independent review” has any meaning, it must consist of more than the investigating body reciting the incantation of “fraud,” and OMIG relying thereon. There must instead be some hint of an explanation as to who might have been defrauded, to what end, and how that might have deprived the State of funds which it must protect via its withholding power. I cannot see how this could be the case here if the alleged fraud concerns documentation of an evaluation that Able was never required to perform. Yet search as I might through respondent's submissions, I see no argument that contests this assertion.
In light of the foregoing, the petition is granted. Respondent is hereby directed to nullify its February 6, 2017 notice and imposition of a 10% withholding, and to refund all Medicaid payments that have been withheld from Able since February 6, 2017 within 20 days of service upon it of this Decision and Order.12
This constitutes the judgment of the Court. The original judgment is returned to the attorney for petitioner. A copy of the judgment and the supporting papers have been delivered to the County Clerk for placement in the file. The signing of this judgment, and delivery of a copy of the judgment shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provisions of that rule respecting filing, entry and notice of entry.
SO ORDERED AND ADJUDGED.
1. Some of the documentary record before me, as well as caselaw and regulatory materials, use the abbreviation “HHA” for “home health aide” as well. To avoid confusion, I have replaced any reference to a home health aide with “[Aide],” and have used HHA to refer only to a Home Health Agency.
2. The Medicaid program is a cooperative federal-state program. Participating states must comply with federal regulations (see 42 USC §§ 1396 and 1396a).
3. The regulations at issue refer to the “Department.” While at one time this was an apparent reference to the now non-existent New York State Department of Social Services, for which this title of the regulations is named, at present it refers to the Department of Health, which administers the Medicaid program in New York, and houses OMIG (see Public Health Law § 31; D'Allaird Aff. ¶¶ 2–3). It appears that OMIG for all intents and purposes plays the role of the “Department” under the regulations governing the case at hand.
4. Under this provision, a provider subject to withholding “is not entitled to an administrative hearing, but may, within 30 days of the notice, submit written arguments and documentation that the withhold should be removed” (18 NYCRR § 518.7[e] ). OMIG then has 60 days to review the determination, which may be affirmed, reversed or modified, in whole or in part (see 18 NYCRR § 518.7[e] ).
5. Since Able submitted essentially identical papers in response to the second withholding notice, and it is the latter notice that is at issue in this proceeding, Able's arguments are summarized in the discussion of its second response, below.
6. The document is referred to in the petition as an affidavit, but it is not notarized. Its contents are set forth here to describe the nature of the documents placed before OMIG, not as an indication that it has evidentiary value. In any case, this opinion is not based on the representations made by Passie that the copied documents did not concern competency evaluations, but rather on petitioner's uncontested argument that the evaluations MFCU said were fraudulently documented were not required at all, and thus could not have been the basis for defrauding Medicaid.
7. Under this regulation, a Medicaid provider is required to “keep for a period of six years from the date the care, services or supplies were furnished, all records necessary to disclose the nature and extent of services furnished and all information regarding claims for payment submitted by, or on behalf of, the provider and to furnish such records and information, upon request, to the department ․ the Deputy Attorney General for Medicaid Fraud Control and the New York State Department of Health.”
8. The two dissenting judges found that although the withholding was initially proper, petitioner had subsequently presented information showing “that the underlying practices alleged were neither fraudulent nor improper,” which submission MFCU failed to refute (Matter of Consumer Directed Choices, Inc., 90 A.D.3d at 1274, 935 N.Y.S.2d 352 [Garry, J., dissenting] ). On that basis, they would have annulled DOH's decision to implement the withholding.
9. In its determination in the case before me, OMIG noted language in responses to the comments stating that the “reliable evidence” standard in the prior regulation was a “heightened requirement” (Marzello Aff. Ex. 10 at 3, citing 76 Fed Reg 5932 ; see also 76 Fed Reg 5932 [“This threshold by which a State agency investigation may give rise to a payment suspension is a somewhat lesser threshold than that in the current regulation”] ). This is reflected, as well, by the change in the prior provision that withholding is discretionary during a fraud investigation, to what is now a mandatory withhold (absent good cause) in such cases. But the statements by the US Department of Health and Human Services in promulgating the regulation also make clear, in the comments referenced by the Court in Consumer Directed Choices, that some review by the withholding authority regarding the merits of the basis for the investigation is necessary before a suspension can be ordered. For example, the Department stated: “Due to the potential for not just false allegations, but also for good faith mistakes, misunderstandings, and misinterpretations regarding reports of alleged fraud as well as data analysis errors, we encourage States not to rely on any singular allegation or data run but rather States should review all allegations, facts, and data carefully and act judiciously on a case-by-case basis, mindful of the potential impact a payment suspension may have on a provider” (76 Fed Reg 5936; see also id. [“we expect States to gauge the credibility of allegations through a lens after reviewing all allegations, facts, data, and evidence carefully and that State action will be exercised judiciously on a case-by-case basis”] ). In any event, whether the overall impact of the new regulations was to narrow or broaden suspension authority, or to do both depending on the particular language change, the key point for present purposes is that upon review of the regulatory history, the Third Department found explicitly that the regulations now in effect require “some independent review” of the basis for the investigation. Thus, it is no longer enough—to the extent it was prior to March 2011—for OMIG simply to rely on MFCU's representation that it has an ongoing investigation into a credible allegation of fraud, particularly where the provider provides a submission that undermines that assertion.
10. Two other possibilities would be that the documents falsified the required initial competency evaluation, or falsified the required performance reviews. But neither MFCU in its administrative submissions, nor OMIG, argues that either might be the case here. Indeed, in regard to the former, MFCU specifically notes that some of the competency evaluations were identical “from year to year” (Manzello Aff. Ex. 7 at 2), and thus could not have only reflected the initial competency evaluation. As to the latter, while many of the skills listed could be characterized as “performance” measures (i.e., weighing the patient, assist with dressing), they are graded for “competency” in the manner that is set forth in the regulations for competency evaluations—as satisfactory or unsatisfactory, with an indication as to whether unsatisfactory findings have been remediated (see 42 CFR § 484.36[b][i] ). These distinctions are not meaningless. To the extent the allegedly falsified documents involve competency evaluations—and no one argues otherwise—they do not appear to be required for aides after the initial evaluation made a satisfactory finding.
11. The sole exception involves the one brief mention of training in English for aides whose native language was Spanish, discussed below.
12. In light of this ruling, I need not address Able's argument that respondent exceeded the time frame for responding to its objections to the withhold by permitting MFCU to withdraw its first withholding request, and then later submit a substantially similar second request.
David A. Weinstein, J.
Response sent, thank you
Docket No: 3244–17
Decided: November 30, 2017
Court: Supreme Court, Albany County, New York.
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