MPS HEALTHCARE, INC., d/b/a Continuum Pediatric Nursing Services v. DEPARTMENT OF MEDICAL ASSISTANCE SERVICES/COMMONWEALTH OF VIRGINIA

Record No. 1125-18-2

Court of Appeals of Virginia.

JULY 23, 2019

Belinda Jones (Jonathan M. Joseph, Richmond; Harrison M. Gates ; Christian & Barton, L.L.P., on briefs), for appellant.

Usha Koduru, Assistant Attorney General (Mark R. Herring, Attorney General; Cynthia V. Bailey, Deputy Attorney General; Kim F. Piner, Senior Assistant Attorney General, on brief), for appellee.

Present: Judges Humphreys, Petty and Chafin

OPINION BY JUDGE TERESA M. CHAFIN

*626The Director of the Department of Medical Assistance Services ("DMAS") issued a final agency decision ("FAD") requiring that MPS Healthcare, Inc., doing business as Continuum Pediatric Nursing Services ("MPS"), reimburse DMAS for an overpayment of $63,972.15. The decision was based on a failure to maintain adequate documentation of criminal background checks. MPS appealed to the Circuit Court for the City of Richmond, which affirmed the Department's decision. MPS then appealed to this Court.

On April 9, 2019, we issued an opinion affirming the circuit court in this case. *MPS Healthcare, Inc. v. Dep't of Med. Assistance Servs.*, 70 Va. App. 140, 152, 825 S.E.2d 299, *reh'g granted*, 70 Va. App. 348, 826 S.E.2d 928 (2019). In that opinion we held that the circuit court did not err in (1) affirming the Department's FAD, which rejected the hearing officer's recommendation in favor of MPS concerning the criminal background checks at issue; (2) finding that MPS violated Code § 32.1-162.9:1(A) and 12 VAC 30-120-1730(A)(5) ; and (3) determining that an overpayment amount of $63,972.15 related to Error Code 913 should be returned to DMAS. *Id.*

Pursuant to Rule 5A:33(a), MPS submitted a request that we reconsider our holdings that Virginia law permits criminal background checks to be provided to DMAS for audit purposes and that the FAD properly rejected the hearing officer's decision. By order entered on May 7, 2019, we stayed our prior decision and granted MPS's petition for rehearing. Upon reconsideration of these matters, and for the reasons that follow, we find no reversible error and affirm the judgment of the circuit court.

*627I. *BACKGROUND*

DMAS is the state agency authorized to administer the medical assistance program known as Medicaid, which is a federally and state funded program providing medical assistance to the eligible and medically indigent citizens of Virginia. The Social Security Act requires the state to establish a medical assistance plan setting forth state regulations governing Virginia's Medicaid program. 42 U.S.C. § 1396(a). DMAS is empowered to exercise administrative discretion and to issue rules, regulations, and policies on Department matters. 42 C.F.R. § 431.10(c)(1)(i) and (ii).

The Technology Assisted Waiver Program ("Tech Waiver") is a Medicaid program that *59provides services to persons dependent on a medical device, and therefore, requiring ongoing nursing care for the management of the device and for everyday activities.1 Under such a waiver program, qualifying individuals are enabled "to remain in their homes or communities instead of residing in a nursing home." *1st Stop Health Servs. v. Dep't of Med. Assistance Servs.*, 63 Va. App. 266, 270, 756 S.E.2d 183 (2014).

MPS is an enrolled provider of private duty nursing services under the Medicaid program. In the Provider Participation Agreement, MPS contracted "to provide services in accordance with the Provider Participation Standards published periodically by DMAS in the appropriate Provider Manual(s) ...." In the same agreement, MPS agreed to "keep such records as DMAS determines necessary" and "to comply with all applicable state and federal laws, as well as administrative policies and procedures of [DMAS] as from time to time amended." Pursuant to 12 VAC 30-120-1730(A)(5), providers are required to obtain criminal background checks performed by Virginia State Police on all employees who may have contact or provide services to the waiver individual.

*628DMAS regulations require that providers maintain sufficient records documenting fully and accurately the nature, scope, and details of the services provided. 12 VAC 30-120-930(A)(12). "To ensure accountability, the state conducts after-the-fact audits. In order for these audits to function efficiently, uniformity and clarity of documentation is essential." *1st Stop Health Servs.*, 63 Va. App. at 277, 756 S.E.2d 183.

Through its internal auditors, DMAS conducted a "desk audit" of MPS's services provided to twenty-five Medicaid recipients from October 1, 2014, through December 31, 2014.2 On August 18, 2015, the auditors requested information on MPS staff who provided care, including criminal background checks performed by the Virginia State Police. On September 9, 2015, MPS responded with invoices and proof of payment to the Virginia State Police for all but four nurses. The invoices disclosed the names of the MPS employees, the month in which the request for a background check was made, and the dates of the completed searches.

Pat Kaufman, a DMAS Healthcare Compliance specialist, conducted the audit of MPS. On July 13, 2016, she wrote a file memorandum stating that criminal background checks were missing for several employees and a few supervisory employees for whom MPS had not submitted personnel files. On August 5, 2016, Kaufman sent a preliminary findings report to MPS advising it of the preliminary review and requested the submission of additional documentation regarding certain claims within thirty days of the receipt of the letter. An attached report and spreadsheet stated that certain criminal background check information was missing. The report indicated three error codes. Error Code 101 pertained to requirements for written documentation to support claims billed. Error Code 913 pertained to the requirement that a Medicaid provider perform criminal background checks and verify personal references of prospective employees. Under this error *629code, the auditors identified a lack of documentation for criminal record checks for three nurses. Error Code 915 pertained to the lack of personnel files, including criminal background checks, for staff.

Pamela Hubbard, the MPS Director of Nursing, testified that MPS did not receive the August 5, 2016 letter, and thus, MPS did not send the documentation within the thirty days. On September 20, 2016, DMAS allotted five additional days for MPS to submit the missing documentation.

On September 21, 2016, MPS sent additional documentation to DMAS excluding criminal background checks, stating that the criminal background checks were in the personnel files but could not be provided due to Virginia State Police dissemination policies.

*60MPS stated that "[f]or each employee and registered nurse providing the supervisory visits for the recipients in question we have submitted, paid for and received back the information from the Virginia police and are maintained in a file."

On November 14, 2016, Kaufman issued a notification and collection letter to MPS indicating that MPS was responsible for an overpayment of $74,894.25 for services rendered in the audited time frame. The letter indicated that no documentation was submitted showing the completion of a criminal background check for three nurses. Although personnel files were submitted for five registered nurses, the files did not contain a criminal background check, nor were their names noted in the invoices submitted on September 9, 2015. These deficiencies were identified under Error Code 913. Further, the letter stated that no personnel files were submitted for one licensed practical nurse (L.P.N.) and one R.N. These deficiencies were identified under Error Code 915.

MPS filed an appeal of DMAS's findings with the DMAS Appeals Division and requested an informal hearing. An informal appeal decision was issued on May 9, 2016, which upheld the overpayment determinations.3 MPS again appealed and *630requested a formal hearing. On October 4, 2017, the hearing officer issued his recommended decision. He recommended reversing the retractions associated with Error Codes 913 and 915. DMAS and MPS both filed exceptions to the recommended decision. An FAD was filed on December 1, 2017. The FAD upheld the retractions associated with Error Code 913, but reversed the retractions associated with 915. As all administrative remedies had been exhausted, MPS appealed to the circuit court. On June 18, 2018, the circuit court affirmed the FAD and ordered that the overpayment amount of $63,972.15 related to Error Code 913 should be returned to DMAS. MPS appealed to this Court.

II. *STANDARD OF REVIEW*

"Under the [Virginia Administrative Process Act ("VAPA") ], the circuit court reviews an agency's action in a manner 'equivalent to an appellate court's role in an appeal from a trial court.' " *Family Redirection Inst., Inc. v. Dep't of Med. Assistance Servs.*, 61 Va. App. 765, 771, 739 S.E.2d 916 (2013) (quoting *Mattaponi Indian Tribe v. Commonwealth*, 43 Va. App. 690, 707, 601 S.E.2d 667 (2004) (citations omitted)). "The circuit court has no authority under VAPA to reweigh the facts in the agency's evidentiary record." *Id.* "Instead, 'when the appellant challenges a judgment call on a topic on which the agency has been entrusted with wide discretion by the General Assembly, we will overturn the decision only if it can be fairly characterized as arbitrary or capricious and thus a clear abuse of delegated discretion.' " *Id.* at 772, 739 S.E.2d 916 (quoting *Citland, Ltd. v. Commonwealth ex rel. Kilgore*, 45 Va. App. 268, 275, 610 S.E.2d 321 (2005) (citation and quotation marks omitted)).

This Court "afford[s] DMAS 'great deference' in its administrative 'interpretation and application of its own regulations.'

*631" *Id.* (quoting *Finnerty v. Thornton Hall, Inc.*, 42 Va. App. 628, 634 n.2, 593 S.E.2d 568 (2004) (citation omitted)).

> "This deference stems from Code § 2.2-4027, which requires that reviewing courts 'take due account' of the 'experience and specialized competence of the agency' promulgating the regulation." [ *Bd. of Supervisors v. State Bldg. Code Tech. Review Bd.*, 52 Va. App. 460, 466 [663 S.E.2d 571] (2008) ] (quoting *Real Estate Bd. v. Clay*, 9 Va. App. 152, 160-61 [384 S.E.2d 622] (1989) ). However, " 'deference is not abdication, and it requires us to accept only those principles of agency interpretations that are reasonable in light of the principles of construction courts normally employ.' " *Id.* (quoting *61*EEOC v. Arabian American Oil Co.*, 499 U.S. 244, 260 [111 S.Ct. 1227, 1236-37, 113 L.Ed.2d 274] (1991) ).

*Avante at Roanoke v. Finnerty*, 56 Va. App. 190, 197, 692 S.E.2d 277 (2010) ; *see also**Appalachian Voices v. State Air Pollution Control Bd.*, 56 Va. App. 282, 293 n.2, 693 S.E.2d 295 (2010) ; *Avalon Assisted Living Facilities, Inc. v. Zager*, 39 Va. App. 484, 503, 574 S.E.2d 298 (2002).

Thus, this Court gives no deference to an agency's interpretation of its own regulation that is "arbitrary and capricious," meaning an interpretation that is " 'unreasonable' " or " 'without determining principle.' " *Williams v. Commonwealth of Va. Real Estate Bd.*, 57 Va. App. 108, 135, 698 S.E.2d 917 (2010) (quoting *Sch. Bd. of the City of Norfolk v. Wescott*, 254 Va. 218, 224, 492 S.E.2d 146 (1997) ).

III. *ANALYSIS*

On appeal, MPS contends that the circuit court erred in affirming the DMAS Director's FAD. Specifically, MPS argues that the FAD arbitrarily and capriciously reversed the retractions associated with Error Code 913. Next, MPS contends that the circuit court erred in finding that MPS violated Code § 32.1-162.9:1(A) and 12 VAC 30-12-1730(A)(5). Lastly, MPS argues that the circuit court erred in determining that the overpayment amount of $63,972.15 associated with Error *632Code 913 should be remitted to DMAS. For the reasons that follow, we affirm the decision of the circuit court.4

MPS contends on appeal that the Error Code 913 retractions "arose as a result of the [a]uditor arbitrarily setting new and inconsistent standards not supported by Virginia law." Specifically, MPS refers to the auditor advising MPS that proof of criminal background check requirements could be met by simply a written statement saying that the criminal background checks were completed, then later requiring MPS to submit copies of invoices from the Virginia State Police or the actual criminal record checks.

The hearing officer ruled in MPS's favor concerning the Error Code 913 retractions, concluding that MPS acted appropriately based on Virginia law and the auditor's direction. Code § 2.2-4020(C) states that "[t]he agency shall give deference to findings by the presiding officer explicitly based on the demeanor of witnesses." However, Code § 32.1-325.1(B) states,

> The Director shall adopt the hearing officer's recommended decision unless to do so would be an error of law or Department policy. Any final agency case decision in which the Director rejects a hearing officer's recommended decision shall state with particularity the basis for rejection.

Here, the hearing officer ruled that *1st Stop Health Services* did not apply to the facts of this case, stating that " *1st Stop* does not address when [required] documentation must be *633submitted in order to be considered in the appeals process." The hearing officer found that the required records existed, were in MPS's files, and "ultimately were submitted." In making his decision, he found that MPS justifiably relied on the auditor's advice as to acceptable documentation for criminal background checks. *1st Stop* does, in fact, apply and controls the decision in this case.

In *1st Stop*, as in this case, the applicable waiver manual was incorporated by reference into the Provider Participation Agreement, and explicitly permits the retraction of payments if the billed services do not meet regulatory requirements *at the time of the audit* . Technology Assisted Waiver and Private Duty Nursing Services Manual, Chapter VI, page 2 (2015); 12 VAC 30-120-1720(A)(4).

*62Further, through the Provider Participation Agreement, MPS contracted to "keep such records as DMAS determines necessary," and "to comply with all applicable state and federal laws, as well as administrative policies and procedures of [DMAS] as from time to time amended."

The Tech Waiver Manual specifically states that, "[a]ny paid provider claim that cannot be verified *at the time of review* cannot be considered a valid claim for services provided, and is subject to retraction." Tech Waiver Manual, Chapter VI, page 4 (2015) (emphasis added). In addition, on November 12, 2015, DMAS issued a memo to all participating providers in response to our decision in *1st Stop*, reaffirming the DMAS policy "that all provider documentation required to support claims for reimbursement must be maintained *prior to* and submitted by the provider *at the time of the audit* ." The memo further advises that "[d]uring the audit and appeal processes, DMAS shall only consider documentation submitted by the provider during the course of the audit and prior to the deadline stated in the preliminary findings letter."

12 VAC 30-120-1720(A)(4) states that "[p]roviders shall be required to refund payments to DMAS if they ... have failed to maintain records to support their claims for services." "The required documentation must be maintained prior to and at the time of the audit, not through reorganizing and explaining following a failed audit."

*634*1st Stop Health Servs.*, 63 Va. App. at 280, 756 S.E.2d 183. To accept post-audit documentation "would ignore the plain terms of the Provider Agreement and the Manual, incentivize sloppy recordkeeping, and increase the cost and complexity of audits." *Id.* at 279, 756 S.E.2d 183. The documents submitted by MPS on December 16, 2016, during the informal appeal proceedings could not be considered even though they would have satisfied the regulatory requirements if submitted at the time of the audit. Therefore, the Director's FAD properly rejected the hearing officer's decision based on an error of law and policy. Code § 32.1-325.1(B).

IV. *CONCLUSION*

For the above-stated reasons, we withdraw the prior opinion in this case and affirm the circuit court's decision to retract payments associated with Error Code 913. "[T]he regulations warn providers that 'noncompliance with DMAS policies and procedures may result in a retraction of Medicaid payment or termination of the provider agreement, or both.' " *1st Stop Health Servs.*, 63 Va. App. at 272, 756 S.E.2d 183 (quoting 12 VAC 30-120-930(A)(17) ). As MPS failed to comply with policies and procedures concerning criminal background checks on employees, MPS shall reimburse DMAS the overpayment amount of $63,972.15.

*Affirmed.*

1

As of July 1, 2017, the Technology Assisted Medicaid Waiver and the Elderly or Disabled with Consumer Direction Medicaid Waiver combined into one Medicaid Waiver and became the Commonwealth Coordinated Care (CCC) Plus Medicaid Waiver.

2

During a "desk audit," the auditors make written requests to the Medicaid provider for documents that the auditors deem necessary for review.

3

MPS also submitted additional documentation to DMAS on December 12, 2016, during the informal appeal process. DMAS admitted at the informal hearing that this documentation would have satisfied the criminal background check requirements. MPS was not given credit for the submissions, however, because they were submitted post-audit.

4

MPS also maintains on appeal, as it did throughout the entire audit and agency appeals process, that pursuant to Code § 19.2-389, the criminal background check results for nurses who were part of the audit could not be released to DMAS. Although we do not reach this argument on appeal, we do note that Code § 19.2-389(A)(2) unquestionably permits MPS to obtain criminal background checks on potential employees as well as disseminate the results of such to DMAS. Code § 19.2-389(A)(2) states in pertinent part that

> Criminal history information shall be disseminated, whether directly or through an intermediary, only to ... [s]uch other individuals and agencies that require criminal history record information to implement a state or federal statute ... that expressly refers to criminal conduct and contains requirements or exclusions expressly based upon such conduct ....