Visiting Nurse Service of New York Home Care v. New York State Department of Health

During the time frame relevant to this appeal (October 1993 to September 1998), VNS billed Medicaid for approximately $1.7 billion in health care services. After conducting the Med-Max review and finding that certain recipients were dually eligible, CMA concluded that $38.2 million of those Medicaid payments should have qualified for reimbursement by Medicare or other third-party payors. Upon resubmission to Medicare, the federal program paid about $28.4 million to VNS and, in turn, VNS refunded an almost identical amount to the State to satisfy the improper Medicaid charges. Medicare did not, however, accept the remaining approximately $10 million of VNS claims because too much time had elapsed from the date the health care services were rendered,^[1] or due to errors by the provider. These so-called “provider liability” claims—those disputed Medicaid payments for which VNS was not able to receive compensation by Medicare or another payor—are the subject of this dispute.

DOH began to offset the outstanding $10 million in alleged improper Medicaid payments by withholding other Medicaid revenue due VNS. As a consequence, by December 2002, DOH had recouped over $2 million. VNS responded by initiating this CPLR article 78 proceeding challenging the State’s withholding of Medicaid funds, asserting that it was not obligated to repay Medicaid unless it had actually received payment for the services provided from Medicare or some other source. VNS also contested DOH’s recoupment procedures on the ground that no administrative hearing had been available for VNS to contest DOH’s actions.

Supreme Court granted the provider’s petition, concluding that VNS had a property interest in the Medicaid payments that was protected by due process and, as such, DOH was required to conduct a hearing before recovering Medicaid funds from VNS. The Appellate Division affirmed, similarly ruling that VNS was entitled to a hearing to determine if reasonable measures had been undertaken to assess whether the disputed claims were eligible for payment by Medicare or other third-

DOH argues that notice and an opportunity to be heard need not be provided to VNS before recoupment efforts are undertaken because Medicaid payments to home health care providers are conditional pending postpayment MedMax review. But this contention is inconsistent with the regulatory scheme promulgated by DOH. Nothing in the relevant regulations indicates that payments to home health care providers are contingent on postpayment audits (see 18 NYCRR 505.23 [e]; see also 18 NYCRR parts 517, 518, 519). DOH’s reliance on the regulatory provisions that govern payments to nursing homes is misplaced since those regulations specifically state that reimbursement rates are “provisional” until an “audit is performed and completed” (10 NYCRR 86-2.7; see Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169 , 178-179 [1985]). A similar condition does not appear in the regulations pertaining to home health care providers (see 18 NYCRR 505.23 [e]).

Instead, the regulations that cover home health care providers state that if DOH “determine^] that any person has submitted or caused to be submitted claims for medical care, services or supplies for which payment should not have been made, it may require repayment of the amount determined to have been overpaid” (18 NYCRR 518.1 [b]). “Overpayment” is defined as “any amount not authorized to be paid under the medical assistance program, whether paid as the result of inaccurate or improper cost reporting, improper claiming, unacceptable prac

DOH contends that its “overpayment” definition is a term of art that it has interpreted to exclude provider liability claims and, consequently, VNS does not have a right to a hearing under 18 NYCRR 518.5 (a). Although it is true that an agency’s interpretation of its own regulation generally is entitled to deference, courts are not required to embrace a regulatory construction that conflicts with the plain meaning of the promulgated language (see Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d 337 , 342 [2004]). The funds sought to be recovered by DOH fall within the broad definition of “overpayment” in 18 NYCRR 518.1 (c) and, therefore, deference to DOH’s interpretation is not warranted under the circumstances. As a result, VNS has the right to “notice of the overpayment and an opportunity to be heard” on the issue of overpayment recoupment (18 NYCRR 518.5 [a]; see 18 NYCRR 519.4 [a]).^[3]

We next address whether DOH was properly ordered to cease recoupment pending the administrative hearing. VNS concedes that, as a general proposition, DOH is not required to conduct a hearing prior to seeking recoupment of Medicaid funds (see Clove Lakes Nursing Home v Whalen, 45 NY2d 873 , 875 [1978]). Departmental regulations permit recoupment efforts to commence prior to a hearing (see 18 NYCRR 518.8). Significantly, the same regulation further provides that “if the department is unable to proceed within 90 days of receipt of [a] request [for a hearing], any recovery . . . will be stayed pending the commencement of the hearing” and “any delays . . . occasioned by or attributable to the department will forestall the commencement or continuation of recoupment” (18 NYCRR 518.8 [b]). In light of DOH’s failure to comply with the prescribed 90-day time frame, it was properly barred from continuing to withhold the Medicaid payments in this case pending an administrative hearing.