Court Opinion

ID: 4410288
Source: CourtListenerOpinion
Date Created: 2019-06-26 15:47:19.174005+00
Date Added: 2024-06-11T14:51:59.442827
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                    NO. 03-18-00344-CV

                          Personal Care Products, Inc., Appellant

                                              v.

    Charles Smith, Executive Commissioner of The Texas Health and Human Services
   Commission; and Texas Health and Human Services Commission, Office of Inspector
                                 General, Appellees

          FROM THE 200TH DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-15-002103, THE HONORABLE RHONDA HURLEY, JUDGE PRESIDING

                                        OPINION

              Personal Care Products, Inc., appeals the district court’s order affirming a final

administrative order requiring Personal Care Products to repay $2,165,115 in overpayments that

the Texas Health and Human Services Commission made to Personal Care Products, a Texas

Medicaid durable medical equipment provider. We will affirm the district court.

                                      BACKGROUND

              Personal Care Products furnishes medical supplies for incontinence to Medicaid

recipients in several states, including Texas. In 2006, the Texas Health and Human Services

Commission through its Office of the Inspector General (HHSC) audited Medicaid claims that

Personal Care Products submitted from 2004 to 2005. As a result of the audit, HHSC identified
violations of billing and documentation requirements that resulted in potential overpayments

from the Medicaid program to Personal Care Products. All of the files reviewed were initially

found to have at least one of three types of errors: (1) no proof of delivery of products;

(2) excessive quantities were ordered; and (3) the files lacked required documentation or the

documentation was insufficient to support the claims for services. Based on the discovered

errors, HHSC initially sought to recover the entire $4.7 million paid to Personal Care Products in

2004 and 2005. Following negotiations between the parties and the testimony of Jan Spears, the

expert reviewer for Personal Care Products, HHSC abandoned the first two types of errors, and

sought to recoup $1,152,918 in overpayments for the third category of errors. HHSC issued a

Notice of Final Sanctions seeking this reduced amount in 2007. Personal Care Products filed an

administrative appeal.

               Because Personal Care Products did not agree to repay the overpayments and

refused to pledge a security interest to show good faith, HHSC imposed a partial hold on

payments due to Personal Care Products in order to recover the overpayments. Personal Care

Products challenged the payment hold in federal court under 42 U.S.C. § 1983, resulting in a stay

of the administrative appeal until the federal suit was resolved in 2011. See Personal Care

Prods., Inc. v. Hawkins, 635 F.3d 155, 158 (5th Cir. 2011) (holding that a Medicaid provider did

not have a property right in its Medicaid reimbursements withheld pending a fraud

investigation). By the time the administrative appeal again became active, the HHSC reviewer

who initially reviewed the files had retired and was not available to testify at the hearing. HHSC

therefore requested another reviewer, Steven Morgan, to review the files. Morgan found errors

that resulted in a higher overpayment amount than the $1,152,918 that HHSC had noticed in

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2007.   HHSC amended its notice in August 2013, seeking repayment of $2,357,115 in

overpayments in its First Amended Notice of Hearing and Complaint (First Amended Notice).

               Personal Care Products’ expert Spears was deposed in January 2014, and based

on her testimony, Morgan reevaluated some of the errors to the benefit of Personal Care

Products. As of February 13, 2014, the new amount HHSC planned to seek was $2,165,115, but

HHSC’s 2013 pleadings were not updated to reflect this reduced amount. Among the points of

contention, Personal Care Products objected that it was not informed of the $2,165,115 that

HHSC was seeking within the time required by the Administrative Procedure Act (APA). See

Tex. Gov’t Code § 2001.051 (“In a contested case, each party is entitled to an opportunity (1) for

hearing after reasonable notice of not less than ten days; and (2) to respond and to present

evidence and argument on each issue involved in the case.”). The administrative hearing was

held on February 18th and 19th of 2014. The administrative law judge (ALJ) issued a proposal

for decision (PFD) in June 2014, in which the ALJ agreed that HHSC had not provided Personal

Care Products proper notice under the APA but concluded based on Spears’s testimony that

HHSC had nonetheless met its burden of establishing a statistically valid, extrapolated

overpayment by a preponderance of the evidence, thereby entitling HHSC to recover

$1,013,599.82. The ALJ later issued an order withdrawing that PFD. In September 2014, the

ALJ issued a second PFD, concluding that Personal Care Products had sufficient notice under the

APA and that HHSC is entitled to recover $2,165,115.

               In March 2015, HHSC’s Executive Commissioner issued a final order adopting

the findings of fact and conclusions of law from the second PFD. Personal Care Products filed a

motion for rehearing, which was overruled by operation of law. Personal Care Products then

sought judicial review in district court. The district court affirmed the agency’s final order in all

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respects. Personal Care Products requested findings of fact and conclusions of law from the

district court. The district court declined that request. This appeal followed.

                                   STANDARD OF REVIEW

               In an appeal from an agency’s final order, both this Court and the district court

must review the Commissioner’s decision under the “substantial evidence” rule codified in

Section 2001.174 of the APA. See Tex. Gov’t Code § 2001.174 (“Review Under Substantial

Evidence Rule or Undefined Scope of Review”); Tex. Hum. Res. Code §§ 32.039 (k) (providing

for a hearing under the APA), (m) (providing for judicial review of a final order), (q) (“Judicial

review of a commission order . . . under this section assessing a penalty is under the substantial

evidence rule. . . .”). Under this standard, a reviewing court must reverse or remand a case for

further proceedings “if substantial rights of the appellant have been prejudiced because the

administrative findings, inferences, conclusions, or decisions are”:

       (A) in violation of a constitutional or statutory provision;

       (B) in excess of the agency’s statutory authority;

       (C) made through unlawful procedure;

       (D) affected by other error of law;

       (E) not reasonably supported by substantial evidence considering the reliable and
       probative evidence in the record as a whole; or

       (F) arbitrary or capricious or characterized by abuse of discretion or clearly
       unwarranted exercise of discretion.

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Tex. Gov’t Code § 2001.174(2). Under this deferential standard, we presume that HHSC’s order

is supported by substantial evidence, and Personal Care Products bears the burden of proving

otherwise. Texas Health Facilities Comm’n v. Charter Med.-Dall., Inc., 665 S.W.2d 446, 453

(Tex. 1984). “Although substantial evidence is more than a mere scintilla, the evidence in the

record actually may preponderate against the decision of the agency and nonetheless amount to

substantial evidence.” Id. at 452 (internal citation omitted). Substantial-evidence review “does

not allow a court to substitute its judgment for that of the agency.” Railroad Comm’n v. Torch

Operating Co., 912 S.W.2d 790, 792 (Tex. 1995). Whether the agency’s order satisfies the

substantial-evidence standard is a question of law.       Firemen’s & Policemen’s Civil Serv.

Comm’n v. Brinkmeyer, 662 S.W.2d 953, 956 (Tex. 1984). We review legal conclusions for

errors of law and factual findings for support by substantial evidence. Heat Energy Advanced

Tech., Inc. v. West Dall. Coal. for Envtl. Justice, 962 S.W.2d 288, 294-95 (Tex. App.—Austin

1998, pet. denied).

                                           ANALYSIS

               Personal Care Products asserts four points of error on appeal: (1) the district court

erred in declining to issue findings of fact and conclusions of law; (2) the adjustment to the

amount of the administrative overpayment announced during the administrative hearing on the

merits did not provide proper notice of the overpayment pursuant to sections 2001.051 and .052

of the APA and HHSC rules 357.489, 371.1711(c)(2)(D) and (E), and 371.1609(b)(3)(D),

thereby also running afoul of the due process clause of the U.S. Constitution; (3) the ALJ

violated the administrative code and the due process clause of the U.S. Constitution by issuing

the second PFD too late; and (4) the Commissioner’s final order adopting the ALJ’s conclusion

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that HHSC demonstrated by a preponderance of the evidence that it is entitled to recover the

extrapolated overpayment was error as a matter of law.

Findings of Fact and Conclusions of Law

               In its first issue, Personal Care Products asserts the district court erred in declining

to issue findings of fact and conclusions of law. Personal Care Products asserts that Texas Rule

of Civil Procedure 296 required the district court to issue findings of fact and conclusions of law:

“In any case tried in the district or county court without a jury, any party may request the court to

state in writing its findings of fact and conclusions of law.” Tex. R. Civ. P. 296. Rule 296 gives

a party “a right to findings of fact and conclusions of law finally adjudicated after a conventional

trial on the merits before the court.” IKB Indus. (Nigeria) Ltd. v. Pro-Line Corp., 938 S.W.2d
440, 442 (Tex. 1997). A “trial” under Rule 296 “is an evidentiary hearing to the court or a bench

trial on the merits.” Davis v. State, 904 S.W.2d 946, 949 (Tex. App.—Austin 1995, no writ). In

cases other than those finally adjudicated after a conventional trial on the merits, “findings and

conclusions are proper, but a party is not entitled to them.” IKB Indus., 938 S.W.2d at 442.

               Although administrative proceedings require findings of fact, these findings are

left to the agency, subject to review for abuse. Wylie Indep. Sch. Dist. v. Central Educ. Agency,

488 S.W.2d 166, 168 (Tex. App.—Austin 1972, writ ref’d n.r.e.). “The administrative agency is

the fact-finding body and the question to be determined by the district court on appeal is one of

law.” Id. When, as here, “[o]nly questions of law were presented to the court,” “the trial court

was correct in . . . refusing to make findings of fact.” Id.; see Scally v. Texas State Bd. of Med.

Exam’rs, 351 S.W.3d 434, 450 (Tex. App.—Austin 2011, pet. denied). (“Whether the agency’s

order satisfies the substantial-evidence standard is a question of law.”). The district court was

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not required to issue findings of fact and conclusions of law under Rule 296 after conducting a

substantial-evidence review of an agency’s final order. We overrule Personal Care Products’

first issue.

Proper Notice

                Personal Care Products asserts in its second issue that it did not receive proper

notice under the APA and HHSC’s administrative rules of the alleged violations, the amount of

the overpayments, the extrapolation methodology employed by HHSC, and the calculation of the

overpayments. About six months before the hearing, HHSC served its First Amended Notice

seeking recoupment of $2,357,115 in overpayments. The First Amended Notice included an

attached letter explaining how HHSC determined the amount of the overpayments. The letter

referred to a compact disc that was also sent to Personal Care Products. The disc contained a

spreadsheet showing claims submitted by Personal Care Products from 2004 through 2005 for

which Personal Care Products received $4,794,314.11 in reimbursements. At the hearing,

HHSC’s reviewer Morgan testified that, based on his review of Spears’s deposition testimony, he

could not substantiate about $200,000 worth of the overpayments sought by the First Amended

Notice, and as a result, HHSC could only prove a subset of $2,165,115 of overpayments that had

been detailed in the First Amended Notice.

                Personal Care Products asserts that HHSC’s announcement at the hearing that

HHSC was seeking $2,165,115 based on Spears’s testimony, rather than the full amount listed in

the First Amended Notice, violated the APA, HHSC administrative rules, and the due process

clause of the U.S. Constitution. Personal Care Products argues that the specific amount of

overpayments HHSC sought had to be included in a notice to Personal Care Products at least ten

                                                7
days before the hearing under sections 2001.051 and .052 of the APA and HHSC rule 357.489.

See Tex. Gov’t Code §§ 2001.051-.052; 1 Tex. Admin. Code § 357.489 (2007) (Tex. Health &

Hum. Servs. Comm’n, Notice of Hearing) (requiring compliance with section 2001.052 of the

Government Code). Under section 2001.051, each party in a contested case “is entitled to an

opportunity: (1) for hearing after reasonable notice of not less than 10 days; and (2) to respond

and to present evidence and argument on each issue involved in the case.” Tex. Gov’t Code

§ 2001.051. At the time relevant to the instant case, section 2001.052 required that the notice

include, among other items, “a short, plain statement of the factual matters asserted.” Act of

April 30, 1993, 73rd Leg., R.S., ch. 268, § 1, 1993 Tex. Gen. Laws 739–40 (amended 2017)

(current version at Tex. Gov’t Code § 2001.052). Section 2001.052 further provided: “If a state

agency or other party is unable to state factual matters in detail at the time notice under this

section is served, an initial notice may be limited to a statement of the issues involved. . . .” Id.

(emphasis added).

               Personal Care Products implies in its brief that section 2001.052 required the

amount of the alleged overpayments to be stated in the notice because it is a “detail” under

section 2001.052(b). The First Amended Notice lists the total amount of overpayments as

$2,357,115 and lists nineteen rules that HHSC alleged Personal Care Products to have violated.

Exhibit A to the First Amended Notice contained the following language:

       The violations found can be generally categorized into the following four areas:
       • Missing Title XIX Forms
       • Invalid or Incomplete Title XIX Forms
       • Billing for Services Not Rendered
       • Billing for Services Not Authorized

       The violations we have found resulted in an overpayment to PCP of Medicaid
       dollars, which we have determined to be in the amount of $2,357,115.00. This

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       overpayment was derived from HHSC reviewing claims with dates of service
       from January 1, 2004 through December 31, 2005 through a specific, detailed
       review of a statistically valid random sample. The statistically valid random
       sample contained 70 recipients; 1,468 claims, 1,940 paid claims details, and
       $77,281.00 in Medicaid payments. This sample was derived from a universe of
       5,033 recipients, 95,935 claims, 125,271 paid claims details, and $4,794,314.00 in
       Medicaid payments.

       As shown in the Attachment A, HHSC found program violations and takes
       exception to 1068 of the paid claims details contained in the statistically valid
       sample. These paid claim details total $37,995.00, and reflect an error rate based
       on total dollars paid of 49.16%. HHSC extrapolated the error rate and violations
       found to the universe of claims, which resulted in an extrapolated overpayment
       finding of $2,357,115.00 for dates of service from January 1, 2004 through
       December 31, 2005.

Exhibit A also lists the provisions of the Texas Medicaid Provider Procedure Manual that had

been violated and further incorporated by reference the disc containing the spreadsheet of

Personal Care Products’ reimbursed claims. Personal Care Products does not argue that the First

Amended Notice was insufficient to provide notice of the violations, the amount of the

overpayments, the extrapolation methodology, and the calculation of the overpayments insofar as

they related to the claim of $2,357,115 in overpayments.         Indeed, Spears reviewed this

spreadsheet and the claims for Personal Care Products and was able to understand these

documents and use them to challenge the violations alleged by HHSC. But Personal Care

Products insists that because HHSC lowered the amount of overpayments it was seeking as a

result of its reviewer agreeing with Spears’s deposition testimony, the First Amended Notice was

inadequate.

              The statutory notice requirements of the APA and HHSC’s rules express “the

constitutional guaranty of fundamental fairness implicit in the concepts of ‘notice’ and

‘hearing.’” Madden v. Texas Bd. of Chiropractic Exam’rs, 663 S.W.2d 622, 627 (Tex. App.—

                                               9
Austin 1983, writ ref’d n.r.e.). To be meaningful, “notice” requires previous notice “relative to

the issues of fact and law which will control the result to be reached by the administrative

tribunal.” Id. at 626-27; see Scally, 351 S.W.3d at 447 (“At a minimum, due process requires

notice and an opportunity to be heard at a meaningful time and in a meaningful manner.”). Here,

HHSC lowered the amount it sought to recover based on its reviewer’s concession that Personal

Care Products’ own expert was partially correct in her challenges to HHSC’s allegations. Under

the circumstances, we cannot conclude that First Amended Notice violated sections 2001.051

and .052 of the APA. To the contrary, HHSC provided a statement of the factual matters

asserted in sufficient detail for Personal Care Products to have successfully challenged the exact

subset of items about which it now claims to have been insufficiently notified.

               Personal Care Products further cites three sections of the Administrative Code 1 to

support its contention that HHSC must provide notice of the amount of the overpayment, the

calculation of the overpayment, and the extrapolation methodology HHSC used. See 39 Tex.

Reg. 360 (2014) (requiring OIG notices of proposed recoupment of an overpayment to include

the extrapolation methodology), adopted by 39 Tex. Reg. 2833, (former 1 Tex. Admin. Code

§ 371.1609(b)(3)(D) (Tex. Health & Hum. Servs. Comm’n, Notice and Service)), amended by 40

Tex. Reg. 6585 (2015), amended by 41 Tex. Reg. 2941 (2016); 39 Tex. Reg. 376 (2014)

(requiring OIG notices of proposed recoupment of overpayments to include the extrapolation

methodology and the calculation of the overpayment amount), adopted by 39 Tex. Reg. 2833

(former 1 Tex. Admin. Code § 371.1711(c)(2)(D)&(E) (Tex. Health & Hum. Servs. Comm’n,

       1
           Personal Care Products has not cited the specific version of each of these rules that
applies, but this Court has deduced from the substance of Personal Care Products’ arguments and
the subsections cited the versions that are consistent with the argument. Because we determine
that HHSC satisfied the notice requirements raised by Personal Care Products, we need not
address whether these versions of each rule actually applied.
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Recoupment of Overpayments and Debts)), amended by 40 Tex. Reg. 6585 (2015), amended by

41 Tex. Reg. 2941 (2016); 37 Tex. Reg. 5900 (2012) (requiring OIG’s final notice of assessment

to include a statement of the amount of the damages, a statement of the effect of the assessment,

and a statement of the person’s right to appeal), adopted by 37 Tex. Reg. 7989; (former 1 Tex.

Admin. Code § 371.1715(c)(3)(B)-(D) (Tex. Health & Hum. Servs. Comm’n, Damages and

Penalties)), amended by 39 Tex. Reg. 2833 (2014); amended by 41 Tex. Reg. 2941 (2016).

Personal Care Products does not dispute that the First Amended Notice notified it of the amount

of the overpayments, the calculation, and the extrapolation method as to the initial amount, but

they urge that they should have received ten days’ notice of the lower amount when HHSC

abandoned some of the overpayments based on Spears’s testimony. Notably, the calculation and

extrapolation methods for the amount of the overpayments did not change; only the result

changed because HHSC did not meet its burden of establishing some of the overpayments it

alleged. On these facts, where the amount sought by HHSC was wholly a subset of the amount

noticed and the difference resulted from an explanation provided by Personal Care Products’

witness, we cannot conclude that the First Amended Notice was insufficient to satisfy the

requirements Personal Care Products gleaned from the rules it cited. Cf. Brown v. American

Transfer & Storage Co., 601 S.W.2d 931, 937 (Tex. 1980) (“To be reversible the variance must

be substantial, misleading, constitute surprise, and be a prejudicial departure from the

pleadings.”). To hold otherwise would discourage HHSC from making reasonable reductions

based on evidence brought forward in the litigation process. Because we determine that the First

Amended Notice provided fair notice relative to the controlling issues of fact, we also conclude

that HHSC did not violate Personal Care Products’ right to due process. We overrule Personal

Care Products’ second issue.

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Issuing a Second PFD

              Personal Care Products next asserts the ALJ violated the HHSC rules and the due

process clause of the U.S. Constitution by withdrawing the first PFD and issuing the second PFD

too late. HHSC argues that the ALJ’s withdrawal and reissuance of a different PFD is authorized

under the ALJ’s general power to issue orders. See 1 Tex. Admin. Code § 357.483 (2007) (Tex.

Health & Hum. Servs. Comm’n, Powers and Duties of the Judge) (allowing an ALJ to issue

“default, final and other orders”; adopted at the same time as section 357.497). However, neither

HHSC’s rules nor the APA expressly mention “withdrawing” or “reissuing” a PFD. Instead, rule

357.497 allows an ALJ to amend the PFD within 45 days of issuing it:

       (b) Exceptions. A party must file exceptions to the proposal for decision within 15
       days of the issuance of the proposal for decision, in accordance with section
       §357.488 of this title (relating to Filing and Service of Documents).

       (c) Replies. A party must file a reply to exceptions within 15 days of the filing of
       the exception, in accordance with section §357.488 of this title.

       (d) Amendments. The judge shall make any amendments to the proposal for
       decision within 15 days of the deadline under subsection (c) of this section.

1 Tex. Admin. Code § 357.497 (b)-(d) (2007) (Tex. Health & Hum. Servs. Comm’n, Proposals

for Decision, Exceptions, and Replies). Both parties filed exceptions to the first PFD. Under

rule 357.497, any amendment to the PFD issued on June 26 would have been due no later than

August 10, 2014, which fell on a Sunday. As a result, the last date for the ALJ to amend the

PFD under rule 357.497 would have been August 11, the first day following the Sunday

deadline. See Tex. R. Civ. P. 4 (Computation of Time); 1 Tex. Admin Code § 357.481(b)(2)

(Tex. Health & Hum. Servs. Comm’n, Application of this Subchapter) (allowing application of

                                               12
the Texas Rules of Civil Procedure). The ALJ withdrew the initial PFD on August 11.

Withdrawing the opinion was within the ALJ’s power to amend it. Having withdrawn the

opinion, it follows that the ALJ was empowered and obligated to reissue a PFD to the final

decision maker, which, in this case, was the Commissioner. See Ronald L. Beal, 2 Texas

Administrative Practice & Procedure § 8.1 at 8-3 (2018) (“The APA does not expressly provide

for the timing or the issuance of a proposal for decision by the ALJ” but “the procedural rules

adopted by agencies . . . clearly contemplate the issuance of a written proposal for decision to be

rendered by the presiding officer for consideration by the agency.”) The second proposal for

decision, issued on September 9, 2014, satisfied the requirements of the APA and HHSC’s rules.

We overrule Personal Care Products’ third issue.

Whether HHSC Met its Burden

               In its final issue, Personal Care Products argues that HHSC failed to prove by a

preponderance of the evidence that it is entitled to recover an extrapolated overpayment. See 1

Tex. Admin. Code § 357.493(b) (2007) (Tex. Health & Hum. Servs. Comm’n, Conduct of

Hearing). Personal Care Products bases this contention on its conclusion that none of HHSC’s

witnesses’ testimony was admissible because the First Amended Notice was insufficient and the

initial PFD was correct in concluding that only Spears’s testimony should be considered. Having

overruled those issues, our review of this last issue is limited to determining whether substantial

evidence supported the ALJ’s conclusion that, “[o]n the basis of the evidence presented at the

hearing on the merits, including witness testimony and exhibits, Respondent HHSC-OIG

demonstrated by a preponderance of the evidence that HHSC-OIG is entitled to recover from

PCP the amount of $2,165,115.” The record reflects that three witnesses testified as to the

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method and manner of calculating the overpayments that HHSC sought. The testimony of these

witnesses explains how HHSC calculated the amount of the overpayment based on a sample of

claims submitted by Personal Care Products. The record also contains the spreadsheet of all of

the claims submitted by Personal Care Products for the years at issue, along with records from

Personal Care Products that were subject to review. The testimony of the witnesses explained

various types of errors with Personal Care Products’ claims, such as forms that were missing

doctors’ signatures or forms containing names of doctors that did not match the names associated

with the medical license number provided on the forms. The testimony of the three witnesses

constituted more than a scintilla of evidence supporting the Commissioner’s final order

determining that HHSC met its burden. We overrule Personal Care Products’ final issue.

                                       CONCLUSION

              Having overruled Personal Care Products’ appellate issues, we affirm the district

court’s judgment.

                                            __________________________________________
                                            Gisela D. Triana, Justice

Before Chief Justice Rose, Justices Triana and Kelly

Affirmed

Filed: June 26, 2019

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