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State of Delaware Department of Health and Social Services v. United States Department of Health and Human Services

United States District Court, District of Columbia

August 8, 2017

STATE OF DELAWARE DEPARTMENT OF HEALTH AND SOCIAL SERVICES, DIVISION OF MEDICAID & MEDICAL ASSISTANCE, Plaintiff,
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          COLLEEN KOLLAR-KOTELLY UNITED STATES DISTRICT JUDGE.

         The pending case raises a thicket of regulatory and jurisdictional issues. Plaintiff is the entity charged with administering Delaware's Medicaid program. Due to a technological limitation, Delaware's computer systems were unable to separately report certain collections that the State made from third-parties. Part of these collections were owed to the federal government. Plaintiff addressed this technological limitation by simply netting these collections from its Medicaid expenditures, and only seeking federal funding based on the net amount. The federal government issued two reports warning Delaware that this approach was unacceptable, principally because there was insufficient evidence that the relevant collections were actually being netted, and that the federal government was receiving due credit. Not long after the second report was issued, the federal government “disallowed” $10, 080, 378 in federal funding, equal to what it viewed as the amount that Delaware had failed to credit the federal government from third-party collections. Delaware sees this is a manifest injustice, believing that it has already credited the federal government with this amount, and must now double pay.

         Despite this indignation, however, Delaware missed the deadline to seek administrative review of the disallowance determination by two weeks. After a lengthy period during which Delaware allegedly sought a retroactive extension of the filing deadline, Delaware filed an appeal with the Departmental Appeals Board (the “Board”), which summarily rejected the appeal for untimeliness. Plaintiff sought review of the rejection before this Court, and Defendants moved to dismiss, principally on the basis that judicial review was unavailable. Upon consideration of the pleadings, [1] the relevant legal authorities, and the record as a whole, the Court shall GRANT-IN-PART and DENY-IN-PART the motion to dismiss.

         The Court finds that it has subject-matter jurisdiction under 42 U.S.C. § 1316(e)(2)(C) to exert judicial review over the Board's decision to reject Plaintiff's appeal, and that under a standard of review set by the Administrative Procedure Act (“APA”), Plaintiff has stated a plausible claim that the Board's decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Given the availability of an adequate remedy at law, however, Plaintiff's common law claims for unjust enrichment and for money had and received are dismissed without prejudice because they sound in equity, among other considerations.

         Finally, the alleged APA violations were pled only against Defendants United States Department of Health and Human Services (“HHS”) and the Secretary of the United States Department of Health and Human Services (the “Secretary”). See Compl., Counts I-III. Only the common law claims were brought against the other two Defendants, the Centers for Medicare and Medicaid Services (“CMS”), and the Administrator for the Centers for Medicare and Medicaid Services (the “Administrator”). Id., Counts IV-V. Accordingly, CMS and the Administrator are dismissed from this lawsuit without prejudice.

         I. BACKGROUND

         A. Statutory and Regulatory Background

         1. Medicaid

         Medicaid is a cooperative federal-state program through which the federal government provides financial assistance for States to furnish medical care to low-income families and individuals. Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990). In order to participate in Medicaid, a State must first develop a Medicaid plan “describing conditions of eligibility and covered services.” Bowen v. Massachusetts, 487 U.S. 879, 883 (1988). That plan must then be approved by CMS. 42 U.S.C. § 1396a.

         Once approved, the federal government pays the State on a quarterly basis for a specified percentage of the State's Medicaid expenditures. Id. § 1396b. This financial contribution is called the “federal financial participation” (“FFP”). The quarterly federal contribution is made as an advance payment “based on the State's estimate of its anticipated future expenditures.” Bowen, 487 U.S. at 883-84. Then, within 30 days after the end of the quarter, the State must submit a Form CMS-64, entitled the Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program (“QSE”), on which the State reports its actual expenditures for the quarter. See 42 C.F.R. §§ 430.30(c)(1)-(2).

         Because the Medicaid program is a payor of last resort, the State is responsible for recovering payments from third-parties that were legally obligated to cover medical care that was ultimately paid for the by the State. 42 U.S.C. § 1396a(a)(25)(A). If the State receives federal funds for services for which it later recovers monies from third-parties, the corresponding federal contributions are considered “overpayments” and the State must refund those amounts to the federal government. 42 U.S.C. § 1396b(d)(2)(B). The State must report and refund overpayments through a credit to the federal government on its quarterly QSE. 42 C.F.R. § 433.320(a)(1). If a State does not credit the federal government with overpayments, then CMS “will disallow expenditures equal to the determined overpayment amount.” Compl. ¶ 20; see 42 U.S.C. § 1316(d); 42 C.F.R. § 430.42(a) (describing disallowance procedure).

         2. Reconsideration and Appeals Process

         Section 1316(e) and accompanying regulations set forth two routes for the State to contest a disallowance determination. The first route is the reconsideration process, which allows the State to request “reconsideration of the disallowance, provided that such request is made during the 60-day period that begins on the date the State receives notice of the disallowance.” 42 U.S.C. § 1316(e)(1). Within 60 days of receiving the request for reconsideration, the Administrator “shall . . . issue a written decision or a request for additional information . . . .” Id. § 430.42(c)(2). If the State is required to submit additional information, the Administrator “shall issue a written decision, within 60 days from the due date of such information.” Id. § 430.42(c)(5). The final written decision “shall constitute final CMS administrative action on the reconsideration.” Id. § 430.42(b)(6). If the State receives an adverse reconsideration decision, it may then appeal “during the 60-day period that begins on the date the State receives notice of . . . the unfavorable reconsideration . . . to the Departmental Appeals Board.” 42 U.S.C. § 1316(e)(2)(A); 42 C.F.R. § 430.42(b)(5) (“The State may . . . seek reconsideration, and following the reconsideration decision, request a review from the Board.”).

         The second option-the appeal route-permits the State to bypass the reconsideration process and appeal the disallowance decision directly to the Departmental Appeals Board. 42 U.S.C. § 1316(e)(2)(A) (“A State may appeal a disallowance . . . during the 60-day period that begins on the date the State receives notice of the disallowance . . . by filing a notice of appeal with the Board.”); 42 C.F.R. § 430.42(b)(4) (“The State is not required to seek reconsideration before seeking review from the Departmental Appeals Board.”). The State may pursue either the reconsideration route or the appeal route, but may not pursue both at the same time. If the State “elects reconsideration, the reconsideration process must be completed or withdrawn before requesting review by the Board.” 42 C.F.R. § 430.42(b)(6).

         Whether on direct appeal, or following the reconsideration process, the statute directs the Board to “conduct a thorough review of the issues, taking into account all relevant evidence.” Id. The Board's decision of an appeal is “the final decision of the Secretary.” 42 U.S.C. § 1316(e)(2)(B). Either party may then move the Board to reconsider its “final decision” within 60 days of the Board's decision “upon a motion by either party that alleges a clear error of fact or law.” Id.; 42 C.F.R. § 430.42(f).

         Finally, a State may “obtain judicial review of a decision of the Board by filing an action in any United States District Court located within the appealing State . . . or the United States District Court for the District of Columbia, ” by filing such an action within 60 days of the Board's decision. 42 U.S.C. § 1316(e)(2)(C).

         B. Factual and Procedural Background

         Plaintiff is the agency charged with administering Delaware's Medicaid program. Compl. ¶ 23. As a result, Plaintiff is required to collect payments from third-parties who are legally obligated to pay the expenses of Medicaid participants who have received government funding. Id. ¶ 24. Such recoveries are treated as overpayments, and must therefore be credited to the federal government on Delaware's quarterly QSEs. Id. ¶¶ 24- 25.

         Overpayments are supposed to be separately reported on the QSEs. Id. ¶ 25. However, the computer system that Delaware used to track collections from third-parties was unable to distinguish between overpayments and other types of collections. Id. To address this technological limitation, Delaware simply netted all of its collections from third-parties against its total Medicaid expenditures, and reported the net amount as its claim for federal assistance. Id. In Delaware's view, this approach resulted in the federal ...


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