No. 01-086

IN THE SUPREME COURT OF THE STATE OF MONTANA

2003 MT 176N

MONTANA DEPARTMENT OF PUBLIC 

HEALTH AND HUMAN SERVICES,

Petitioner and Respondent,

v.

AMERICAN MEDICAL OXYGEN,

Respondent and Appellant.

APPEAL FROM: District Court of the First Judicial District,

In and for the County of Lewis and Clark, Cause No. BDV-99-404

The Honorable Jeffrey M. Sherlock, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Vernon E. Woodward, Hendrickson, Everson, Noennig & Woodward,

Billings, Montana

For Respondent:

Barbara Hoffmann, Department of Public Health & Human Services,

Helena, Montana

Submitted on Briefs: March 14, 2002

 Decided: July 1, 2003

Filed:

__________________________________________

Clerk
2

Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1 Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1996 Internal

Operating Rules, the following decision shall not be cited as precedent but shall be filed as

a public document with the Clerk of the Supreme Court and shall be reported by case title,

Supreme Court cause number, and result to the State Reporter Publishing Company and to

West Group in the quarterly table of noncitable cases issued by this Court.

¶2 American Medical Oxygen (AMO), a Medicaid provider and supplier of medical

equipment, appeals a decision by the First Judicial District Court, Lewis and Clark County,

ordering it to repay the Department of Public Health and Human Services (DPHHS or "the

Department") several hundred thousand dollars based on improper billing. We affirm.

¶3 The Montana Medicaid Program is a joint federal-state program that provides medical

assistance to low-income individuals. DPHHS administers the program in accordance with

federal and state law. AMO is an enrolled provider with the Montana Medicaid Program.

It supplies oxygen and related durable medical equipment (DME) to Montana Medicaid

recipients. 

¶4 In 1997, DPHHS conducted a post-payment review of claims submitted by AMO from

January 1993 through January 1997, and concluded that AMO had been significantly

overpaid due to AMO's billing errors. DPHHS notified AMO of the results of its review and

in January 1998, the Department demanded repayment of over $430,000 in erroneously
3

billed charges. DPHHS subsequently acknowledged some calculation errors and reduced

its overpayment claim against AMO to approximately $336,000. 

¶5 DPHHS sought to recover Medicaid overpayment that resulted from a number of

billing errors by AMO. DPHHS makes the following claims about improper billing:

1. AMO should have stopped billing for rental equipment once the rental

payments exceeded the purchase price for the items; 

2. AMO improperly billed for DME provided to nursing home residents

despite the fact that the Medicaid payments had already been issued

directly to the nursing homes, from which AMO should have sought

payment; and

3. AMO billed excessive charges and units of service for hand held

nebulizers.

¶6 Effective October 1, 1995, Rule 46.12.805, ARM, was amended to establish a capped

rental program that limited rental fees to 120% of the purchase price of the rental item.

AMO admits that it billed rental fees in excess of the purchase price both before and after

October 1995. However, AMO contends it was entitled to do so prior to that date because

there was no specific administrative rule tying fees to the purchase price at that time.

¶7 The Department asserts that its Medicaid Provider Manual (provider manual) notified

DME providers that rentals could not be billed in excess of the purchase price during the

entire time for which the overpayment was assessed. Upon enrolling as a Medicaid provider

in 1985, AMO signed a Medicaid Provider Enrollment Form agreeing to abide by the

policies set forth in the provider manual. Thus, DPHHS argues, AMO was contractually
4

bound to comply with policies outlined in the manual--including the purchase price limit on

rentals-- prior to the 1995 establishment of the capped rental program.

¶8 AMO admitted some overpayment, but requested an administrative hearing to dispute

the amount of the overpayment. Hearings Officer Joseph P. Sternhagen conducted two days

of hearings. On February 4, 1999, Mr. Sternhagen issued his Findings of Fact, Conclusions

of Law and Order. He concluded that overpayments to AMO were made and that DPHHS

was legally authorized to collect those overpayments. Further, he found that the

Department's policy not to pay for rental items beyond the purchase price was clearly stated

in the provider manual and that AMO's contractual obligation to adhere to the policies in the

manual rendered improper its consistent billing of DME in excess of the purchase price. 

¶9 Both parties appealed to the Board of Public Assistance (Board). The Board

conducted a hearing and issued its order on May 21, 1999, adopting the decision of the

Hearings Officer with a few minor exceptions. 

¶10 AMO and DPHHS cross-petitioned for judicial review to the District Court. The

District Court, Judge Jeffrey M. Sherlock presiding, issued its decision on November 28,

2000. It essentially agreed with the decision of the Hearings Officer, holding that "the

Department is entitled to recover any Medicaid overpayments made during the [entire]

review period . . . regardless of whether the overpayment was made due to Department or

AMO error and without having to prove any intentionally wrongful act on the part of AMO."

AMO sought reconsideration and the court issued a second opinion on February 5, 2001,

making no significant changes to its earlier decision. AMO appeals.
5

¶11 In November 2001, while this case was under review, we issued our decision in State

v. Vainio, 2001 MT 220, ¶ 33, 306 Mont. 439, ¶ 33, 35 P.3d 948, ¶ 33, holding that David

Vainio could not be convicted of the criminal offense of Medicaid fraud based on violations

of policies stated in the Medicaid Provider Manual which had not been adopted in

accordance with the Montana Administrative Procedure Act (MAPA). Vainio bears factual

similarities to this case, as DPHHS seeks to recover payments billed by AMO in violation

of policies contained in the Medicaid Provider Manual, which were not themselves adopted

in a rule pursuant to MAPA.

¶12 Given the factual similarities between the cases, we asked the parties to submit

supplemental briefs addressing what impact, if any, Vainio should have on the case at bar.

As DPHHS presents it, the question is whether AMO can be required to repay Medicaid

claims which were billed in violation of policies contained in the Medicaid Provider Manual,

but not adopted in accordance with MAPA.

¶13 Upon thorough review, we conclude that our decision in Vainio is not germane here.

AMO inappropriately equates our conclusion in Vainio that "a charge of Medicaid fraud

cannot be based on the violation of a policy which has not been adopted in compliance with

MAPA" (Vainio, ¶ 33) with a rule that would prohibit DPHHS from relying on policies

articulated in its provider manual to collect overpayments made to suppliers. Vainio is a

criminal case about Medicaid fraud. Here, we have a purely civil dispute at the center of

which is a voluntary contract between DPHHS and AMO, which incorporates and requires

adherence to the policies set forth in the Medicaid Provider Manual. There are no allegations
6

of intentional wrongdoing or threat of criminal sanctions here. DPHHS is merely seeking

to recover funds paid to AMO based on erroneous billing; it is not attempting to criminalize

AMO's conduct, as the State was doing in Vainio. Thus, MAPA has no application in this

context. 

¶14 A central tenet of contract law is that parties should be free to contract as they wish.

Duffy v. Butte Teachers' Union (1975), 168 Mont. 246, 252, 541 P.2d 1199, 1202. AMO

chose to become a Medicaid supplier in Montana. A representative of the company signed

a contractual agreement with DPHHS that required AMO to comply with the policies set

forth in the provider manual. The policies in question here require suppliers to provide

services in a cost effective manner and allow the Department to recover overpayments if

suppliers fail to meet that obligation. There is no legal or public policy justification for this

Court to interfere with the rights of these parties as set forth in their contract. Thus, we

decline to apply our decision in Vainio to this civil contract dispute.

¶15 We now turn to the merits of this appeal. AMO presents multiple fact-intensive issues

for review on appeal. However, the dispositive issue is whether the court's findings of fact

are supported by substantial evidence and are, therefore, not clearly erroneous and whether

the court's conclusions of law are correct. Ray v. Nansel, 2002 MT 191, ¶¶ 19-20, 311 Mont.

135, ¶¶ 19-20, 53 P.3d 870, ¶¶ 19-20.

¶16 Here, the District Court's findings of fact and conclusions of law include

comprehensive and well reasoned analysis. The dispositive factual findings and legal

conclusions echo those of the Hearings Officer and the Montana Board of Public Assistance,
7

both having heard the dispute before it reached the District Court. On the face of the briefs

and the record on appeal, and without rehashing the fact-driven components of the District

Court order, there is clearly sufficient evidence to support the court's findings of fact. The

conclusions of law are likewise well-reasoned and supported by precedent. Therefore, we

affirm the judgment of the District Court.

/S/ PATRICIA COTTER

We Concur:

/S/ KARLA M. GRAY

/S/ JAMES C. NELSON

/S/ W. WILLIAM LEAPHART

/S/ JIM REGNIER

/S/ JIM RICE