UNITED STATESDISTRICTCOURT FORTHEDISTRICTOFCOLUMBIA

GEORGIADEPARTMENTOF COMMUNITYHEALTH, Plaintiff,

v. CivilActionNo. 13-1281 (GK) UNITED STATESDEPARTMENT OF HEALTH 

### &HUMAN SERVICES, etal., Defendants.

MEMORANDUMOPINION Plaintiff Georgia Department of Community Health ("Georgia") brings this suit against Defendants United States Department of Health and Human Services ("HHS"), Centers for Medicare 

### &Medicaid Services ("CMS"), Kathleen Sebelius, in her official capacity as Secretary of HHS, and Marilyn Tavenner, in her official capacity as Administrator for CMS (collectively, "Defendants."), to recover $90,050,230 that Georgia erroneously creditedtoCMS in2005 and2006. This matter is before the Court on Cross-Motions for Summary Judgment [Dkt. Nos. 13 &14]. Upon consideration of the Motions, Oppositions [Dkt. Nos. 15 & 16], Replies [Dkt. Nos. 18
& 19], the entire record herein, and for the reasons stated below, Plaintiff's Motion for Summary Judgment is granted in

### •·
partanddeniedinpart

### andDefendants' Cross-Motion for Summary Judgmentisgrantedinpartanddeniedinpart. I. BACKGROUND A. StatutoryBackground 1. MedicaidExpenditures 

### Title XIX of the Social Security Act ("SSA"), commonly referred to as Medicaid, is a cooperative federal-state program that provides medical assistance to low-income families and individuals. 42 

## u.s.c. § 

### 1396 et seq. The program is administered by the states and overseen by CMS. See id.; 42 C.F.R. § 

### 430.0. If certain requirements are met, a state is eligible to receive federal funds for a percentage of its Medicaidprogram expenditures. 42 U.S.C. § 

### 1396(a). The bulk of

a state's Medicaid expenditures consist of payments to medical providers for health care services provided to program beneficiaries. 42 C.F.R. § 

### 430.0. The federal portion of the funds "Federal financial participation" ("FFP") 

### is paid to the states on a quarterly basis. See 42 U.S.C. § 

### 1396b(a). Forty-five days before the start of each quarter, the state submits a form CMS-37, which contains the state's estimatedMedicaid funding expenses for the upcoming quarter. 42 C.F.R. 430.30(b). The federal government, through CNS, provides the state with a "grant award," which is -2-similar to a line of credit. The grant award authorizes the state to draw federal funds as needed over the course of the quarter to pay the federal share of the state's Medicaid disbursements. Id. at430.30(d). Within 30 days afterthe endofthe quarter, the statemust submit to CMS a Quarterly Statement of Expenditures ("QSE"), also known as a form CMS-64. Id. at§ 430.30(c)(l). Unlike the CMS-37, which contains predicted expenditures, the QSE is an "accounting of actual recorded expenditures" for the quarter. Id. at § 430.30(c)(2). The QSE details and reconciles how the federal grantawardmonieswere spent. In addition to the most recent quarter's expenditures, the QSE contains several entries for "increasing" or "decreasing" adjustments to claims from prior quarters. Such adjustments are necessary because, for a number of reasons, a state is not always able to present a complete, accurate, or o-therwise final accountingwithin 30-days ofthe endofthemost recent quarter. In such circumstances, a state uses a later quarter's QSE to adjust retroactively, either up or down, expenditure amounts reported in the earlier quarter's QSE or the federal share claimedwithrespecttothoseexpenditures. 42 U.S.C. 1396b(d).

-3-2. Two-yearLimitationsPeriod Section 1132 of the SSA (codified at 42 U.S.C. § 1320b2(a)) provides for a two-year window during which states are permitted to file claims for expenditures. The Secretary of HHS has also issuedimplementing Regulations. See 45 C.F.R. §§ 95.1- .34. They state that "[CMS] will pay a State for a State agency expenditure

. onlyifthe State files a claimwith [CMS] for that expenditure within 2 years after the calendar quarter in which the State agencymade the expenditure." Id. § 95.7. Claims made for expenditures after the two-year period has expired are "disallowed"andnotpaid. There are exceptions to the two-year period for courtordered retroactive payments, audit exceptions, and adjustments to prior year costs, 42 U.S.C. § 1320b-2(a), as well as "[a]ny claim for which the Secretary decides there was good cause." 45 C.F.R. § 95.19. "[N]eglect or administrative inadequacy" on the part of a state does not constitute good cause. 45 C.F.R. § 95.22. 3. Overpayments An "overpayment" is defined as "the amount paid by a Medicaid agency to a provider which is in excess of the amount that is allowable for services furnished and which is required to be refunded " 42 C.F.R. § 433.304. Stated -4-I i 

### differently, an overpayment is a paymentbya stateto a medical provider that is impermissible and therefore not eligible for FFPunderthe state'sMedicaidplan. When a statehas claimedFFP for a medicalproviderpayment that is later determinedto constitute an overpayment, the state must returntoCMS the federal share ofthe amount overpaid. The statehas sixtydays1 

### inwhichtoreturnthe federal shareofthe overpayment to CMS, regardless of whether the state has recovered the overpayment from the medical provider. See 42 C.F.R. 433.312. The return of an overpayment is effectuated by listing the credit in the QSE (line lO.C). See 42 C.F.R. § 

### 433.320. Thisisconsidereda "decreasingadjustment." If, after a state has credited CMS with the federal share of an overpayment, that overpayment is later adjusted downward, the state may reclaim the amount of the downward adjustment on the next QSE. 42 C.F.R. § 

### 433.320(c). In other words, if the state later realizes that the amount it overpaid a medical provider is less than it previously thought, and that it therefore over-credited CMS, it may reclaim the appropriate portion of the credit. The two-year filing limit does not apply

1 

### When the events at issue in this case occurred, the period of time to return the federal share to CMS was 60 days from the date of discoveryofthe overpayment. The statutehas sincebeen modifiedsothattheperiodisnowoneyear. -5-to downward adjustments of overpayments, as the "downward adjustment is not considered a retroactive claim but rather a reclaimingofcostspreviouslyclaimed." Id. B. FactualBackground The parties have no disagreement about the facts that led to Georgia's inadvertent credit of $90,050,230 to CMS and CMS's subsequent refusal to refund the money. In 2003, Georgia launched a new Medicaid Management Information System ("MMIS") toprocess claims submittedbyproviders. Georgia Dep't of Cmty. Health, HHS Departmental Appeals Board ("DAB" or "the Board") No. 2521, 5-6 (Jun. 28, 2013) [hereinafter DAB No. 2521]. The

new system suffered from severe problems that resulted in significant delays in paying providers. Georgia received

numerous complaints from providers that they could not continue tooperatewithoutpayment. Id. In response to this crisis and to ensure the availability of medical services for Georgia's Medicaid recipients, Georgia proposed, and CMS agreed, that until the MMIS issues were resolved, Georgia could make "advance" payments to providers prior to the submission andprocessing ofpayment claims for the services. Id. at 6. It was understood that the advance payments would laterbematched and reconciledwith actual payment claims

once MMIS could process them. Between April 1, 2003, and -6-June 30, 2005, Georgia made approximately $2billion in advance paymentstoprovidersunderthisarrangement. Id. For its own internal accounting purposes, Georgia classified the advance payments as "provider receivables" (i.e. money to be recouped from Medicaid providers). For purposes of the QSE, Georgia reported the advance payments as currentquarterexpenditures. DAB No. 2521 at 6; GeorgiaMot. at 7. Advance payments that were not matched and reconciled with provider claims within 60 days were treated as overpayments. Just as with standard overpayments, Georgia had to refund the federal share of the advance payments to CMS after 60 days. The refundto CMS was listedas a decreasing adjustment on line 10.C of the QSE (along with any other overpayments unrelated to Georgia'sMMIS problems). DAB No. 2521 at 6. If, after Georgia had refunded the federal share to CMS, the advance payments were reconciled with medical provider claims, Georgia would report the reconciled amounts as "other" expenditures on its current-quarter QSE. Id. This procedure allowed Georgia to receive payment for the federal share of the reconciled expenditures, which ithadpreviously and erroneously refunded back to CMS. This procedure was also consistent with how Georgia routinely reported reconciliations of the routine 60-dayproviderreceivables. DubberlyDecl.**~** 8. -7-In 2005, Georgia decided to include the federal share of its provider receivables balance $45,025,115.09 as a liability on its financial statement for State fiscal year ("SFY") 2005. DAB No. 2521 at 6. Of this amount, $37,402,375.33 represented the federal share of provider receivables that had already been refunded to CMS (as required) as decreasing adjustments on QSEs submitted between 1989 and June 2005. The majority of the $37.4 million related to refunds to CMS of advance payments made between 2003 and 2005 in response to Georgia's MMIS problems. Id. The remaining $7,622,739.76 representedprovider receivables that were less than 60 days old and for which there was not yet any obligation to refund the federal share. Id. at7. In the process of preparing its SFY 2005 statements, Georgia inadvertently included the $45,025,115.09 ("$45million") provider receivables balance in its decreasing adjustment on the QSE for the quarter ended September 30, 2005 ("September 2005 QSE"). Id. This mistake had the effect of recrediting to CMS $37.4 millionthat hadbeenpreviously credited from 1989 to June 2005. Itwas alsopremature to creditthe $7.6

-8-million to CMS, as the receivables were less than 60 days old.2 GeorgiaMot. at 9. While preparing its financial statements for SFY 2006, Georgia again inadvertently credited the $45 million to CMS, this time on the QSE for the quarter ended June 30, 2006 ("June 2006QSE"). GeorgiaMot. at 9; DAB No. 2521 at7-8. Combined, Georgia erroneously credited CMS $90,050,230 between 2005 and 2006 ("$90 million"). Georgia did not realize its errors until 2008, when issues identified by its external auditor triggered an in-depth internal review of its financial records and prior QSEs. DAB No. 2521 at 8. It was during this review that Georgia discovered the two $45 million credits it hadmadetoCMS. C. ProceduralBackground Once Georgia discoveredthe errors, it attemptedto reclaim the $90 million by including the amount on the "other" expenditures line ofthe QSE for the quarter endedJune 30, 2009 ("June 2009 QSE"). Id. Georgia included a "footnote" on the first page of the QSE stating that a "significant adjustment of

2 To the extent those receivables remained outstanding after 60 days, they would have been credited on later QSEs as required; iftheywere reconciled, Georgia wouldnot have hadto repaythe federal share. GeorgiaMot. at 9. -9-

### approximately $90M is being claimed this quarter. The basis is

as anadjustmentto 60 dayreceivables."AR 410 [Dkt. No. 20-1]. On December 11, 2009, CMS deferred3 

### Georgia's claimfor the $90 million, asserting that Georgia's request was untimely. AR 416-17. Georgia responded to the deferral with two separate letters, arguing why the two-year limitation was not applicable inthiscircumstance. AR420-28. On June 30, 2011, CMS notified Georgia that it was disallowing the $90 million adjustment. DAB No. 2521 at 8. CMS acknowledged that Georgia was attempting to reverse the two inadvertent $45 million payments, and did not dispute that they

were erroneous, but concluded that the request should be disallowed "because it was submitted more than two years after the quarter in which 'the original Statepayment was made." Id. (citingJune 30, 2011LetterfromCMS toGeorgia, AR 431-32). Georgia appealed CMS's decision to the Board. After the parties submitted their briefs, the Board heard oral argument, and on February 8, 2013, issued a "Preliminary Analysis" rejecting the arguments of both parties and setting forth its view ofthe case. DAB No. 2521 at 9. Bothparties then submitted

3 

### CMS may issuea "deferral,"ortemporarywithholdingofFFP, if the CMS Administrator "questions [the] allowability [of a claim] and needs additional information to resolve the question." 42 C.F.R. § 

### 430.40. -10-written comments to the Preliminary Analysis. Id. On June 28, 2013, the Board sustained the entire $90 million disallowance. SeegenerallyDAB No. 2521. Georgia filed its Complaint with the Court on August 23, 2013 [Dkt. No. 1]. It then filed its Motion for Summary Judgment ("Georgia's Mot.") [Dkt. No. 13] on March 4, 2014. Defendants filed their Cross-Motion for Summary Judgment and Combined Opposition to Georgia's Motion ("Defs.' Mot.") [Dkt. No. 14] on May 5, 2014. On June 4, 2014, Georgia filed' its Combined Opposition to Defendants' Cross-Motion and Reply in Support of Plaintiff's Motion ("Georgia's Reply") [Dkt. No. 17]

. On July 7, 2014, Defendants filed their Reply in Support of Defendants' Cross-Motion ("Defs.' Reply") [Dkt. No. 19]. II. STANDARDOFREVIEW The Administrative Procedure Act ("APA") requires a court to hold an agency action unlawful if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordan6e with law." 5 U.S.C. § 706(2). The arbitrary and capricious standard of the APA is a narrow standard of review. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). It is well established in our Circuit that the "court's review is highly deferential" and "we are 'not to -11-substitute [our] judgment for that of the agency' but must 'consider whether the decision was based on a consideration of the relevant factors andwhether there has been a clearerror of judgment.'" Bloch v. Powell, 348 F.3d 1060, 1070 (D.C. Cir. 2003) (quoting S. Co. Servs., Inc. v. FCC, 313 F.3d 574, 579-80 (D.C. Cir. 2002)); see also United States v. Paddack, 825 F.2d 504, 514 (D.C. Cir. 1987). However, this deferential standard cannot permit courts "merely to rubber stamp agency actions," Natural Res. Def. Council v. Daley, 209 F.3d 747, 755 (D.C. Cir. 2000), nor be used to shield the agency's decision from undergoing a "thorough, probing, in-depth review." Midtec Paper Corp. v. United States, 857 F.2d 1487, 1499 (D.C. Cir. 1988) (internal citations andquotations omitted). An agency satisfies the arbitrary and capricious standard if it "examine[s] the _relevant data and articulate[s] a satisfactory explanation for its action including a 'rational connection between the facts found and the choice made.'" Motor Vehicle Mfrs. Ass'n v. State FarmMut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)); Lichoulas ,v. Fed. Energy Regulatory Comm'n, 606 F.3d 769, 775 (D.C. Cir. 2010). Finally, courts "do not defer to [an] agency's conclusory or unsupported

-12-

### suppositions." McDonnell Douglas Corp. v. U.S. Dep't of the Air Force, 375 F.3d 1182, 1186-87 (D.C. Cir. 2004). Summary judgment will be granted when there is no genuine issue as to any material fact. See Fed. R. Civ. P. 56(c). Because this case involves a challenge to a final agency decision, the Court's review on summary judgment is limited to the Administrative Record. Holy Land Found. for Relief and Dev.

v. Ashcroft, 333 F.3d 156, 160 (D.C. Cir. 2003) (citing Camp v. Pitts, 411 U.S. 138, 142 (1973)); Richards v. INS, 554 F.2d 1173, 1177 (D.C. Cir. 1977) ("Summaryjudgment is an appropriate procedure for resolving a challenge to a federal agency's administrative decision when review is based upon the administrativerecord."). III.ANALYSIS A. TheBoardDecision 1. The $90MillionRequest Isa ClaimSubjectto the ClaimingLimit 

### Under SSA § 

### 1132, states must file claims for expenditures with CMS within a two-year period. See supra, Section I.A.2; 42 U.S.C. § 

### 1320b-2(a); see also 45 C.F.R. § 

### 95.7. The Regulations define a 

### "claim" as a 

### "request for Federal financial participation," 45 C.F.R. § 

### 95.4, where "Federal financial participation" is "the Federal government's share of an -13-expendituremade by a State agency." Id. Therefore, a claimis a request for the Federal government's share of an expenditure. "Expenditure"isnotexplicitlydefinedintheRegulations. Georgia argues that this two-year limit is inapplicable because its request foT $90 million is neither a "claim" nor a request made "with respect to an expenditure." Georgia Mot. at 15. Instead, Georgia describes its request as one for the recovery of state funds inadvertently credited to CMS. If CMS

were to pay it $90 million, Georgia argues, it would not be on account of any "expenditures" by the State, but in order to remedya bookkeepingerror. Id. at 15-16. In further support of its argument, Georgia notes that it had already timely claimed and received FFP with respect to the 1988-2005 expenditures underlying the erroneous credits. Because it had already been paid for the expenditures, Georgia states that it was not seeking reimbursement for those expenditures, onlyrepayment ofthe inadvertentre-creditingtoCMS. The Board disagreed with Georgia, finding the $90 million request to be a claim and therefore subject to the two-year limitation. The Board stated that the two-year limitation "expressly covers 'any' request for federal funding 'with respect to' a state's expenditures." DAB No. 2521 at 10. Accordingly, under the Board's reasoning, if Georgia's $90 -14-•.



### million request is for federal expenditures, it necessarily falls funding within for the Medicaid two-year limitationstatute. The Boardreasoned that "[a]mounts reported as expenditures

on the QSE are those which a state asks to be charged against the FFP award" for that quarter. Id. (citing 42 C.F.R. § 

### 430.30(c)-(d); State Medicaid Manual § 

### 2500(A)(1). The Board found that Georgia, by reporting the $90 million request on a QSE, was representingto CMS that itwas requesting FFP. Because FFP is "available only for expenditures onmedical assistance or Medicaid program administration," the Board concluded that any request for FFP· must relate to expenditures. Therefore, Georgia's FFP request was a claim and was made with respect to expenditures. DAB No. 2521 at 10 (citing SSA § 

### 1903(a)(1)-(2); 42 C.F.R. § 

### 435.1000 et seq.; 45 C.F.R. § 

### 95.13(d)). The Board's conclusion is bolstered by the fact that Georgia supported its request for $90 million with a schedule showing, as a prior period adjustment, the $90 million as expenditures for inpatienthospital services. AR 528. Given that the Board's interpretation of the relevant statutes is reasonable and rationally connected to the facts, Georgia has failed to demonstrate that the Board acted

-15-

### arbitrarily and capriciously when it found the $90 million requesttobea claimwithrespecttoanexpenditure. 2. The $90 Million Request Is Outside the Two-Year ClaimingLimit 

### Having determined that Georgia's $90 million request was a claimwith respect to expenditures, andtherefore subject to the two-year limit in 42 U.S.C. § 

### 1320b-2, the Board then evaluated whetherthe claimwasmade withintwo years ofthe expenditures. In order to do so, it needed to identify what the expenditures

werethat**trigg~red** 

### applicationofthetwo-yearlimitation. As noted earlier, "expenditure" is not specificallydefined in the SSA. See generally 42 U.S.C. § 

### 1396 et seq. In this context, the Board defined "expenditure" to mean "a Medicaid paymentbythe stateto a healthcareprovider." DAB No. 2521 at 11 (citing45C.F.R. 95.13(b)). To identify the expenditures, the Board reviewed the history of the payments at issue. It explained that Georgia had timely requested and received FFP for the provider payments it madebetween 1988 and 2005. Alargepercentage ofthosepayments

were considered to be overpayments, for which Georgia had also credited back to CMS the federal share on a timely basis. According to the Board, when Georgia made the two $45 million credits, itwasmerelyadjustingthoseprior claims for FFP. The
-16-$45 million credits were not "expenditures" themselves. Similarly, the Board stated that when Georgia·made its $90 million claimonthe June 2009 QSE, it "was the last ina series of prior-period adjustments concerning Medicaid provider payments (expenditures)" made between 1988 and 2005. DAB No. 2521 at 13. Having characterized the mistaken payments and the request for the $90 million refund as prior-period adjustments, the Board concluded that the "expenditures" in question were the provider payments made between 1988 and 2005. Viewing the expenditures as having taken place between 1988 and 2005, the Board concludedthat Georgia's claimfor $90million on the June 2009 QSE was longpastthetwo-yeardeadlineanduntimely. Georgia does not directly contest the Board's determination that the "expenditures" at issue were the underlyingpayments to the medical providers, but instead reiterates its arguments for why its request was not a claim. Georgia also does not suggest

an alternative expenditures limitations. aredefinition or description for that triggered the two-year what statute the of

Georgia does note that the Board's conclusion that the expenditures tookplacebetween 1988 and 2005 creates unworkable result. Georgia points out that because the Board concluded the -17-

### expenditures took place between 1988 

### and 2005, 

### the two-year statutes of limitations began running between 1988 

### and 2005. 

### Therefore, even if Georgia had immediately realized its $45 

### million mistake on the September 2005 

### QSE and tried to recover the $45

### million on the next QSE (or even the very next day), it would have already been time barred for many of the expenditures. Defendant's only response is that CMS may allow a state to revise a QSE to correct an error if the state discovers the

error "within a short time" after submitting the QSE. Defs.' Mot. at 22. 

### Defendants do not cite any authority for this position or define what constitutes a "short time." It appears that, under the Board's interpretation of "expenditure", a state's ability to recover erroneous credits to CMS is left completelytothe discretionofCMS ifthe errors are inanyway derivativeofproviderpaymentsmorethantwoyears old. Though the Court urges CMS to issue guidance to the states

on0hen itwillpermit themto revise QSEs, so as to avoidbeing immediately time-barred from correcting their errors, the Court finds the Board's interpretation of the statutes and regulations to be reasonable. The Board did not act arbitrarily or capriciouslywhen it found the expenditures underlying Georgia's request for $90 

### million to be the 1988-2005 

### medical provider**-18~**

### expenditures. It was also reasonable when it concluded that Georgia's $90millionrequest was a claimfor FFP outside ofthe statutorily required two-year period and affirmed CMS's disallowance. 3. The $90 Million Request Is Not a Downward AdjustmentofOverpayments 

### While Georgia disputes that its $90 million request constitutes a claim, it argues in the alternative that, should the requestbe found to constitute a claim, thenthe request was
a downward adjustment to prior overpayment credits to CMS and thereforenot subjecttothetwo-yearlimitation. As explained above in Section I.A.3, if an overpayment is made to a Medicaid provider, the state must refund the federal share of the amount overpaidto CMS within a specifiedperiodof time. Section 433.320(c) provides that if, after the state has credited the federal share to CMS, the overpayment amount is adjusted downward, then the state may reclaimthe amount of the downward adjustment. For example, if it is determined that a provider was overpaid by $100, and the federal medical assistance percentage for the state is 62%, the state must refund $62 to CMS, regardless of whether it has recouped the $100 from the provider. If it is later determined that the providerwas onlyoverpaidby $75, the $100 overpaymentwouldbe -19-adjusted downward and the statemay reclaimthe relevant federal shareofthe $25 downwardadjustment (62%, or $15.50). Such reclaimings of downward adjustments are not subject to the two-year filing limit. 42 C.F.R. § 433.320(c). The regulation further states that the downward adjustment "is allowed only if it is properlybased on the approved Stateplan, Federal law and regulations governing Medicaid, and the appeals resolution processes specified in State administrative policies andprocedures." Id. The bulk of Georgia's erroneous $45 million credits represented the federal share of the cumulative total of provider receivables (overpayments) going back to 1988 that had been outstanding for over 60 days, which Georgia had already refunded back to CMS. Georgia argues that the $45 million credits were "upward adjustments" to the refund amount due to the federal government, and that the $90 million request was a "downward adjustment to those same previously credited overpayment amounts." DAB No. 2521 at 17 (quoting Feb. 27, 2013 Comments of Ga. Dept. of Cty. Health on Prelim. Analysis, 8) (emphasis omitted)

.

.The Board rejected this argument on several grounds. The first ground was that Georgia did not classify the credits as overpayment refunds on the QSEs. Id. Given that both parties -20-acknowledge that the $45 million credits were inadvertent, limited weight should be given to their classification on the QSE whendeterminingthenatureofthecredits. The Board's second, more persuasive, ground is that there

was no "downward adjustment" (or reduction) to the amount of· provider overpayments. Id. The Board reasonably defined a "downward adjustment" as "a finding or determination by a state that a provider is entitled to receive a Medicaidpayment (or a portion of a Medicaidpayment) that the state earlier identified

as improper, excessive, or otherwise unallowable under the state plan or federal requirements." Id. In other words, because more of the provider payment is found to be permissible, the amount of the impermissible overpayment is reduced, or adjusted downward. Although Georgia's $90 million request relates generallyto overpayments (specifically, erroneously re-crediting refunds of overpayments), it is not a result of downward adjustments. The Board found no evidence that Georgia determined that any of the overpayments to providers, which were previously refunded to CMS, "were in fact allowable under the state plan and federal requirements." Id. at 18. That is to say, the amounts determined to have been overpayments have not changed, and therefore there isnodownwardadjustment. -21-

### Section 433.320(c) addresses disputes to overpayment determinations, the resolution ofwhichmaytake longerthantwo years, and provides an exception to the two-year limit in circumstances where the overpayment amount is adjusteddownward. The Court agrees with the Board that there is nothing to indicate that the two-year limit exception in section 433.320(c)(2) was intended to be so expansive as to include every transaction that relates to overpayments. The Board correctly held that the two-year exception only applies to downward adjustments, as defined as a reclaiming of refunded amounts due to a determination that the overpayment itself was reduced. Georgia's attempt to reclaim what it overpaid to CMS did not involve a reduction in overpayments to medical providers. Therefore, there was no "downward adjustment" of overpayments as definedby § 

### 433.320. The Board's finding that Georgia's request was not a downward adjustment and therefore not exempt from the two-year filingwasnot arbitrary, capricious, oranabuseofdiscretion.

-22-B. EquitableClaims In addition to its statutory claim, Georgiamakes equitable claims for money had and received and unjust enrichment. While Georgia asked the Board to consider equitable principles when interpreting the two-year limit, it brought no equitable claims before the Board. Therefore, the Court evaluates Georgia's equitableclaims de novo. 1. AdequateLegalRemedy Before the Court may consider equitable remedies, Georgia must showthat it didnot have an adequate remedy at law. "It is

a basic doctrine of equalityjurisprudence that courts of equity should not act remedy at law when 'the moving party has an adequate

." Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381 (1992). Defendants argue that the statute and its Regulations provide an adequate remedy at law, and "therefore no resort to equitable remedies is necessary." CMS Mot. at 3. The mere existence of a remedy at law is not sufficient to warrant denial of equitable relief. See Council of & for the Blind of Delaware Cnty. Valley, Inc. v. Regan, 709 F.2d 1521, 1550 n.76 (D.C. Cir. 1983); Interstate Cigar Co. v. United States, 928 F.2d 221, 223 (7th Cir. 1991). The legal remedy, both in respect to the final relief and the mode of obtaining -23-

### it, must be "as efficient as the remedy which equity would afford under the same circumstances." Regan, 709 F.2d at 1550, n.76 (citing Gormley v. Clark, 134 U.S. 338, 349 (1890)). Therefore, the Court must evaluate whether Georgia's legal remedyinthis situationisadequate. The Board's interpretation of the facts and regulations renders any attempt by Georgia to recover a portion of the

erroneous credits time-barred the moment it made the mistaken credits. Under the Board's interpretation, requests to recover
erroneous credits to CMS are prior-period adjustments and are evaluated for purposes of the two-year limitation based on the underlying expenditure. Therefore, any erroneous credits that relate to expenditures that occurred more than two years prior

aretime-barredthemomenttheerroneous creditismade. Defendants counter that simply because relief is timebarred does not make a remedy inadequate. Defs.' Mot.· at 31. The Court agrees as a generalmatterthat equitable remedies are not meant to be used as an end-run around statutes of limitation. However, inthe case at hand, therewas literallyno time window in which Georgia could have sought to recover a portion of the erroneous credits. For another portion of the credits, the limitations period was, in practice, less than the twoyears contemplatedbythe statute. -24-When a claim is effectively time-barred the moment it arises, it cannot be said that the legal remedy is "adequate to meet the ends of justice." Regan, 709 F.2d 1550, n.76 (internal citation and quotation omitted). Similarly, there is no adequate remedy at law when the two-year period provided by Congress is truncated, as itwas formany of the expenditures that hadtaken place less than two years before themistaken creditsweremade. Therefore, the Court finds that there is no adequate remedy at law available for Georgia that prevents consideringequitableremedies. 2. UnjustEnrichment the Court from

Georgia's claims for unjust enrichment and money had and received relyon the same principles of restitution, namely that

a "person who is unjustly enriched at the expense of another is subject to liability in restitution." Restatement (Third) of Restitution and Unjust Enrichment § 1. Though the remedies are similar and the parties conflate their arguments for each at times, theywillbe addressedseparately. Recovery under a theory of unjust enrichment requires a showing that "a person retains a benefit

. which injustice and equity belongs to another." United States ex rel. Modern Elec., Inc. v. Ideal Elec. Sec. Co., 81 F.3d 2 40 (D.C. Cir. 1996). Plaintiff'sclaimfits squarelywithinthis definition. -25-Measured against many metrics, Georgia is not considered a wealthy state. Approximately 18.2% of Georgia's population lives in poverty, giving it the undesirable distinction of having the eighth highest poverty level in the 50 United States. See U.S. Census Bureau 2009-2013 American Community Survey 5-Year Estimates [hereinafter "ACS Estimates"]

. The estimated median household income for the state is $49,179. With regard to personal income per capita, Georgia again has the undesirable distinction of ranking 40th out of all 50 states. Id.; Bureauof Economic Analysis, State Personal Income 2013 (Mar. 25, 2014). It was projected that Georgia would spend $2.85 billion on Medicaid and PeachCare4 in 2017, or approximately 15.57% of the state's revenue. See DCH Presentation to 2013 Joint Study Committee on Medicaid Reform, 11 (Aug. 28, 2013) [hereinafter "DCH Presentation"]. The loss of $90 million in credits due to the mistakes of

one Georgia employee,5 Georgia Mot. at 14-15, will harmhundreds of thousands of Georgia's most vulnerable citizens. The population of the State of Georgia**i~** roughly 9.8 million, and approximately 1.89 million of those people were enrolled in

4 PeachCareisGeorgia'sChildren'sHealthInsurance Program.
5 Georgiarefers severaltimesto "aStateemployee" anddoes notmentiontheinvolvement ofanyotheremployees. -26-Medicaid in 2013. SeeACS Estimates; DCH Presentation at 11. Put in perspective, close to 20% of Georgia's population is enrolledinMedicaid. These are thepeoplewho willbe hurt the most by Georgia's administrative errors and the subsequent crediting of $90 million of Georgia's Medicaid credits to CMS. It is Georgia's poor, elderly, disabled, and pregnant populations that will suffer the most should these administrativeerrors standuncorrected. Defendants do not claim that CMS is entitled to the $90 million in credits, but rather that Georgia is precluded from recoveringthecredits. Defendants argue that Georgia's negligence in failing to timely file its claim for the return of the $90 million in credits is relevant to the evaluation of its unjust enrichment claimbecause the "good cause" exception to the two-year filing limit explicitly states that neglect and administrative inadequacies do not constitute good cause. See Defs.' Mot. at 34. First, the Court has already determined that the relevant statutes and regulations do not provide an adequate remedy at law, and therefore the Court's unjust enrichment analysis is not boundbytheircontours, includingthegoodcauseexception.

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Second, Defendants' argument focuses on the incompetence of Georgia in failing to file for the return of the $90 million in credits within the two year statute of limitations. However, as discussed previously, under the Board's interpretation, the statute of limitations had already run for a portion of those expenditures the moment Georgia established each of the inadvertent $45millioncredits. While it is not disputed that Georgia was at fault in making the two $45 million payments in the first place, that fact is of limited relevance. In cases where a benefit is conferredbymistake, "the fact that the claimantmay have acted negligently in making a mistaken payment is normally irrelevant to the [unjust enrichment] claim." Restatement (Third) of RestitutionandUnjustEnrichment § 6 cmt. a (2011). Defendants contend that Georgia's claim that the erroneous credits "resultedin unjust enrichment fails because CMS has not been any more unjustly enriched than it would have been had Georgia failed to claim the $90 million in expenditures within the two-year limit." Defs.' Mot. at 32-33. The two situations

aretotallydifferent andthereforenot comparable. In the case of time-barred reimbursements for expenditures,

a state would have had to have failed tomake any timely filing for the expenditures. Here, Georgia did timely file for -28-reimbursement for all the expenditures, only to, years later, inadvertently refund to CMS a portion of the reimbursements. In addition, the statutes and regulations clearlyprovide for how a state can and must seek reimbursement for expenditures. Significantly, there is no comparable guidance for recovering mistakenpayments. The foundation of Georgia's unjust enrichment claimis that the credits are in essence the equivalent of money rightfully belonging to the State and should never have been given to CMS. While it is not disputedthat Georgia is inits currentposition

as a result of the very egregious errors itmade, that does not change the fact that CMS is now in possession of $90 million of Georgia's creditstowhichitisnot entitled. While the Court does not lose sight of the fact that Georgia'spredicament is one of its ownmaking, it alsobears in mind the distressing financial environment Georgia Medicaid faced that ledto the $90millioninerroneous credits. Thebulk of the $90 million was the result of Georgia making advance payments to its providers in 2003-2005 who were threatening to stop treating their Medicaid patients unless they were paid. Moreover, with CMS's knowledge, and its approval, Georgia began making advance payments to Medicaid providers (a practice not normallypermitted). DAB No. 2521 at 6. -29- This "requiredcomplexreconciliation of advance payments to providers with actual claims" and greatly inflated Georgia's provider receivables. GeorgiaReplyat 18. In this uncharted territory, Georgia was trying to comply. with CMS's provider overpayment regulations, as well as accurately represent the situation in the State's internal financial statements. Id. Taking into account all these considerations, the Court concludes that the balance of equities weighs in favor of Georgia and that Defendants have been unjustly enriched by Georgia's crediting of $90 million to CMS. CMS does not even claim, nor has it shown, that the $90 million in credits rightfully belongs to it. While the Court recognizes the importance of timeliness and CMS's ability to plan its budget,

as well as Georgia's role in causingthemistake, the realityis that the credits are Georgia's and the United States Government would be unjustly enriched if permitted to keep them. Georgia's ineptitude in making errors and delay in discovering them is confounding, but does not justify permitting the federal government keeping the $90 million in credits to the detriment ofGeorgia's 1.89millionMedicaidrecipients.

-30-Because Georgia prevails

.on its claim for unjust enrichment, the Court need not address its second claimofmoney hadandreceived.



### IV. CONCLUSION For all of the foregoing reasons, Georgia's Motion shall be granted and Defendants' Cross Motion shall be denied. An Order shallaccompanythisMemorandumOpinion.

February 10, 2015 Gladys Ke sler • UnitedStates District Judge CopiesviaECF toallcounselofrecord

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