Opinion ID: 2180470
Heading Depth: 3
Heading Rank: 3

Heading: Application of the Single State Agency Requirement to These Facts

Text: [¶ 14] Overpayments to a PNMI provider, which were discovered by PRGU, form the basis of PRGU's breach of contract claim against DAFS. A PNMI is a private nonmedical facility that receives Medicaid funds for services to Medicaid recipients. It does so by billing DHS, at an interim rate that is set forth in an agreement between DHS and the PNMI each year and is based on budgets submitted by the PNMI. At the conclusion of the fiscal period, the PNMI files a final cost report with the DHS Division of Audit. The Division of Audit looks at the costs and documentation to determine whether the costs are real, that is, actually incurred. Occasionally, the auditor must review whether a cost is allowable under the Medicaid regulations. The auditor determines the final amount the PNMI is entitled to receive for the fiscal period. The auditor also calculates the amount of interim payments that the PNMI received during the fiscal period. The final amount is compared to the amount paid on the interim basis. If the final amount is more than the amounts paid to the PNMI under the interim rate, DHS owes the difference to the PNMI. On the other hand, if the final amount is less than the interim payments made to the PNMI, the PNMI owes the difference to DHS. [¶ 15] The jury heard evidence that DHS was years behind in auditing the final cost reports. The jury also heard evidence about the several meetings between various DHS officials, employees, and PRGU representatives. The jury heard testimony about the access afforded to PRGU by DHS to the PNMI final cost reports and other data. The jury heard that although there were opportunities for DAFS and DHS to exclude Medicaid or other accounts from PRGU's purview, no restrictions or limitations were imposed. [¶ 16] The very large overpayments to a PNMI at issue in this case were discovered by PRGU when comparing the interim payments with the final cost reports. PRGU did not apply Medicaid regulations or make any determinations as to what costs were allowable. Once PRGU discovered the overpayments, PRGU notified the State Controller with its preliminary report of the overpayments. Although PRGU had taken preliminary steps to verify the overpayments, it had not notified the PNMI about the overpayments or taken other steps to collect them. After PRGU gave the State Controller information about the overpayments, she contacted the DHS Commissioner, who after meeting with the Controller and a PRGU employee stopped PRGU from doing any further work on Medicaid accounts. [¶ 17] DHS subsequently performed a final audit on the PNMI's cost reports and disallowed more than an additional two million dollars of costs; that is, it determined that the overpayments totaled over two million dollars for each year, in contrast to the one million dollar amounts that were found by PRGU. However, the PNMI appealed the DHS determination of overpayments, and after negotiations between the PNMI and DHS, the final amount of overpayments collected from the PNMI was close to the original figures discovered by PRGU. [4] [¶ 18] DAFS contends that DHS, as the single state agency, is prohibited by the federal statutes and regulations from delegating or assigning the task of auditing to another state agency because auditing involves the interpretation of Medicaid regulations. Therefore, the argument goes, DHS could not delegate to DAFS, the authority to enter into a contract for PRGU to audit Medicaid cost reports. However, the review performed by PRGU of the PNMI cost reports did not involve the interpretation of Medicaid regulations or the supervision or administration of the Medicaid program. PRGU found the large discrepancy between the final cost reports and the amounts that had been paid to the PNMI in interim payments. PRGU did not substitute its judgment for that of DHS or usurp the functions of DHS. The contract between DAFS and PRGU did not violate the single state agency requirement of the federal Medicaid statute and regulations.