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The NC MCOs: Jurisdiction Issues and Possible Unenforceable Contract Clauses with Medicaid Providers

According to NC Superior Court, OAH (and I) has (have) been right all along…OAH does have jurisdiction over the MCOs.  And you cannot contract away protections allowable by statute.

Before I went to law school, I do not recall ever thinking about the word “jurisdiction.”  Maybe in an episode of Law and Order I would hear the word thrown around, but I certainly was not well-versed in its meaning. While I was in law school, the word “jurisdiction” cropped up incessantly.

“Jurisdiction” is extremely important to North Carolina Medicaid providers.  Jurisdiction, in the most basic terms, means in which court to bring the lawsuit or appeal of an adverse determination.

In this blog, I am mostly referring to terminations/refusals to contract with providers by the managed care organizations (MCOs), which manage behavioral health, developmental disability, and substance abuse services for North Carolina. Recently, there have been a slew of providers terminated or told that they would not receive a renewed contract to provide Medicaid services. The MCOs tell the providers that, per contract, the providers have no rights to continued participation in the Medicaid system.

The MCOs also tell the providers that the providers cannot appeal at OAH… That the providers have no recourse… That the providers’ contracts are terminable at will (at the MCO’s will)…. I have been arguing all along that this is simply not true. And now a Superior Court decision sides with me.

The MCO have been arguing in every case that OAH does not have jurisdiction over the actions of the MCOs.  The MCOs have pointed to NC Gen. Stat. 108D and Session Law 2013-397, which amends NC Gen. Stat. 150B-23 to read:

“Solely and only for the purposes of contested cases commenced as Medicaid managed care enrollee appeals under Chapter 108D of the General Statutes, a LME/MCO is considered an agency as defined in G.S. 150B-2(1a). The LME/MCO shall not be considered an agency for any other purpose.”

A termination or denial to participate in the Medicaid program is an adverse determination. Adverse determination is defined in NC Gen. Stat. 108C-2 as, “A final decision by the Department to deny, terminate, suspend, reduce, or recoup a Medicaid payment or to deny, terminate, or suspend a provider’s or applicant’s participation in the Medical Assistance Program.”

The Department is defined as, “The North Carolina Department of Health and Human Services, its legally authorized agents, contractors, or vendors who acting within the scope of their authorized activities, assess, authorize, manage, review, audit, monitor, or provide services pursuant to Title XIX or XXI of the Social Security Act, the North Carolina State Plan of Medical Assistance, the North Carolina State Plan of the Health Insurance Program for Children, or any waivers of the federal Medicaid Act granted by the United States Department of Health and Human Services.”

Obviously, per statute, any entity that is acting on behalf of DHHS would be considered the “Department.” Any adverse act by any entity acting on behalf of DHHS, including terminating a provider’s participation in the Medical Assistance Program is considered an adverse determination.

The MCOs have been arguing that the above-referenced amendment to 150B means that the MCOs are not agents of the state; therefore, OAH has no jurisdiction over them.

Until March 7, 2014, these issues have been argued within OAH and no Superior Court judge had ruled on the issue.  Most of the Administrative Law Judges (ALJ), even without Superior Court’s guidance, has, in my opinion, correctly concluded that OAH does have jurisdiction over the MCOs.  A couple of the ALJs vacillate, but without clear guidance, it is to be expected.

On or about March 7, 2014, the Honorable Donald W. Stephens, Senior Resident Superior Court Judge ruled that OAH does have jurisdiction over the MCOsYelverton’s Enrichment Services, Inc. v. PBH, as legally authorized contractor of and agent for NC Department of Health and Human Services (DHHS).

If these MCOs are acting on DHHS’ behalf in managing the behavioral health Medicaid services, it would be illogical for OAH to NOT have jurisdiction over the MCOs.

In the Yelverton Order, Judge Stephens writes, “OAH did not err or exceed its statutory authority in determining that it had jurisdiction over Yelverton’s contested case.”

The Order also states that the MCO, in this case, PBH (now Cardinal Innovations), agreed that only DHHS had the authority to terminate provider enrollment. The MCO argued that, while only DHHS can terminate provider enrollment, the MCOs do have the authority “to terminate the participation of the provider in the Medical Assistance Program.”

Talk about splitting hairs! DHHS can terminate the enrollment, but the MCO can terminate the participation? If you cannot participate, what is the point of your enrollment?

Judge Stephens did not buy the MCO’s argument.

On March 7, 2014, Judge Stephens upheld ALJ Donald Overby’s Decision that OAH has jurisdiction over the MCOs for terminating provider contracts.

I anticipate that the MCOs will argue in future cases that the Yelverton case was filed prior to Session Law 2013-397, so Yelverton does not apply to post-Session Law 2013-397 fillings. However, I find this argument also without merit. The Yelverton Order expressly contemplates NC Gen. Stat. 108D and House Bill 320.

House Bill 320 was the bill contemplated by the General Assembly in the last legislative session that expressly stated that OAH does not have jurisdiction over the MCOs. It did not pass.

In Yelverton, the MCO argued that the MCO contracts with the providers allow the MCO to terminate without cause and without providing a reason.

Judge Stephens notes that the General Assembly did not pass House Bill 320. The Yelverton Order further states that no matter what the contracts between the providers and the MCOs states, “[c]ontract provisions cannot override or negate the protections provided under North Carolina law, specifically appeal rights set forth in NC Gen. Stat. 108C.”

Will the MCO appeal? That is the million dollar question…

The Doctrine of Exhaustion of Administrative Remedies and Medicare/caid Providers

What is the doctrine of exhaustion of administrative remedies?  And why is it important?

If you are a Medicaid or Medicare provider (which, most likely, you are if you are reading this blog), then knowing your administrative remedies is vital.  Specifically, you need to know your administrative remedies if you receive an “adverse determination” by the “Department.”  I have placed “adverse determination” and the “Department” in quotation marks because these are defined terms in the North Carolina statutes and federal regulations.

What are administrative remedies? If you have been damaged by a decision by a state agency then you have rights to recoup for the damages.

However, just like in the game of Chess, there are rules…procedures to follow…you cannot bring your castle out until the pawn in front of it has moved.

Similarly, you cannot jump to NC Supreme Court without beginning at the lowest court.

What is an adverse determination?

In Medicaid, NCGS 108C-2 defines “Adverse determination” as “a final decision by the Department to deny, terminate, suspend, reduce, or recoup a Medicaid payment or to deny, terminate, or suspend a provider’s or applicant’s participation in the Medical Assistance Program.”

In Medicare, sometimes the phrase “final adverse action” applies.  But, basically an adverse determination in Medicaid and Medicare is a decision by [whatever entity] that adversely affects you, your Medicare/caid contract or reimbursements.

What is the definition of the Department? 

NCGS 108C-2 defines the “Department,” as “The North Carolina Department of Health and Human Services, its legally authorized agents, contractors, or vendors who acting within the scope of their authorized activities, assess, authorize, manage, review, audit, monitor, or provide services pursuant to Title XIX or XXI of the Social Security Act, the North Carolina State Plan of Medical Assistance, the North Carolina State Plan of the Health Insurance Program for Children, or any waivers of the federal Medicaid Act granted by the United States Department of Health and Human Services.”

On the federal level, the Department would be the Centers for Medicare and Medicaid (CMS) and its agents, contractors and/or vendors.

So, an adverse decision is any final decision by DHHS….OR any of its vendors (Public Consulting Group (PCG), Carolinas Center for Medical Excellence (CCME), HMS, Computer Sciences Corporation (CSC), or any of the 10 managed care organizations (MCOs) (Alliance, Centerpointe, Smokey Mountain Center, Sandhills, East Carolina Behavioral Health, MeckLink, Cardinal Innovations, Eastpointe, CoastalCare, and Partners).

For example, PCG tells a dentist that he/she owes $500,000 in overpayments to the State.  The notice of overpayment is an adverse determination by the Department as defined in the general statutes.

For example, Smokey Mountain Center (SMC) tells a provider that it will no longer contract with the provider as of March 15, 2014.  SMC’s decision to not contract with the provider is an adverse determination by the Department as defined in the general statutes.

For example, CCME tells you that you are subject to prepayment review under NCGS 108C-7, which results in DHHS withholding Medicaid reimbursements.  The notice of suspension of payments is an adverse determination by the Department, as defined in the general statutes (not the fact that you were placed on prepayment review because the placement on prepayment review is not appealable, but the determination that Medicaid reimbursements will be withheld).

The doctrine of exhaustion of administrative remedies is, in essence,  a party must satisfy five conditions before turning to the courts: “(1) the person must be aggrieved; (2) there must be a contested case; (3) there must be a final agency decision; (4) administrative remedies must be exhausted; and (5) no other adequate procedure for judicial review can be provided by another statute.”  Huang v. N.C. State Univ., 107 N.C. App. 710, 713, 421 S.E.2d 812, 814 (1992) (citing Dyer v. Bradshaw, 54 N.C. App. 136, 138, 282 S.E.2d 548, 550 (1981)

Move your pawn before moving your castle.

Typically, if a party has not exhausted its administrative remedies, the party cannot bring a claim before the courts.  However, NC courts have recognized two exceptions that I will explain in a moment.

If you bring a lawsuit based on the adverse determination by the Department, do you go to state Superior Court?  No.

In North Carolina, we are lucky to have the Office of Administrative Hearings (OAH).  OAH is fantastic because the judges at OAH, Administrative Law Judges (ALJs) have immense Medicaid experience.  OAH is a court of limited jurisdiction, meaning that only if a NC statute allows OAH to hear the case is OAH allowed to hear the case.  One facet of OAH’s jurisdiction is adverse determinations by DHHS, its agents, vendors or independent contractors.  Not all states have an administrative court system, and we are lucky to have an accomplished administrative court system.  Our ALJs are well-versed in Medicaid, so, most likely, your issue you bring to OAH will be one already heard by the court.

Another great thing about OAH, is that OAH publishes some opinions.  So you can review some published opinions prior to your hearing.  For the most part, the ALJs are quite consistent in rulings.  For the published opinions of OAH, click here.  And, BTW, if you want to review only cases involving the Department of Health and Human Services, scroll down to the cases with the acronym: DHR.  As you can see, OAH listens to cases involving many different state agencies.

So, let’s review:

If you receive an adverse determination by any state or federal agency, its contractors, vendors and/or independent contractors, you have the right to appeal the adverse determination.  However, you MAY need to exhaust your administrative remedies prior to bringing the action in OAH.  In other words, if the agency’s contractor, vendor, and/or independent contractor notifies you of an adverse determination, check with the contractor, vendor and/or independent contractor for informal appeals. 

There are, however, some small exceptions. (Remember the knights can jump over your pawns.  So can the Queen).

Number 1: Inadequacy.

If the informal administrative appeal process would be inadequate for your remedies then you are not required to exhaust the administrative remedies prior to going to the courts.

A remedy is inadequate “unless it is ‘calculated to give relief more or less commensurate with the claim.’”  Huang v. N.C. State Univ., 107 N.C. App. 710, 713, 421 S.E.2d 812, 814 (1992) (citing Dyer v. Bradshaw, 54 N.C. App. 136, 138, 282 S.E.2d 548, 550 (1981).

An example of inadequacy would be if you are seeking monetary damages and the agency is powerless to grant such relief.

The phrase “monetary damages” means that you are seeking money.  The agency owes you money and you are seeking the money.  Or if you were caused monetary damages because of the agencies actions.  For example, your Medicaid reimbursements were suspended. As a result, you fired staff and closed your doors.  You would want to sue for the money you lost as a result of the reimbursement suspension.  If the agency cannot give money damages or is powerless to give such money damages, then informal agency appeals would be in adequate to address you needs.

Number 2: Futility.

Futility refers to situations where an agency “has deliberately placed an impediment in the path of a party” or where agency policies “are so entrenched that it is unlikely that parties will obtain a fair hearing.”

For example, if by appealing informally within the administrative agency, you will not receive a fair hearing because no independent decision maker exists, you can make the argument that the informal appeal process would be futile.

Here’s the “small print:”

If you claim futility and/or inadequacy, then you must include the futility and/or inadequacy allegations in the Complaint; AND you bear the burden of proving futility and/or inadequacy.

If, however, you exhaust your adminastrative remedies, go to OAH.

Checkmate!

Medicaid Jurisdictional Questions? Answer is OAH, OAH, OAH!!

Jurisdiction…ugh…what a dry, boring topic.  But wait!! Legal jurisdiction is imperative information for all my health care provider readers. Let me explain:

  • Say you disagree with a Medicaid denial of services for one of your patients; or
  • Say you disagree with the denial of your Critical Access Behavioral Health Agencies (CABHA) certification; or
  • Say you disagree with being placed on prepayment review or undergoing a post-payment audit.

In what venue do you have to legally pursue the claim?  Right now, some DMA-contracted companies are claiming that OAH does not have jurisdiction over them. In fact, I even have an Order signed by a Judge directing the contracted company to act, yet the company argues that OAH has no control over it.  However, the State Plan states differently….

The Office of Administrative Hearings (OAH) has jurisdiction (meaning OAH can hear lawsuits against) state agencies.  “Agency” is statutory defined as an agency or an officer in the executive branch of the government of this State and includes the Council of State, the Governor’s Office, a board, a commission, a department, a division, a council, and any other unit of government in the executive branch. A local unit of government is not an agency.

The state court system, instead is for civil actions.  The district court division is the proper division for the trial of all civil actions in which the amount in controversy is ten thousand dollars ($10,000) or less; and the superior court division is the proper division for the trial of all civil actions in which the amount in controversy exceeds ten thousand dollars ($10,000).

Whether you are required to proceed legally at OAH or state court will impact your claim A TON!

The OAH Mission Statement is:

To serve the citizens of North Carolina, with quality and efficiency, by providing an independent forum for prompt and impartial resolution of administrative law contested cases involving citizens and state agencies; investigating alleged acts of unlawful employment practices in state government; functioning as the State’s codifier and publisher of all administrative rules; and reviewing rules before the Rules Review Commission.

Daily, OAH decides cases against the state government.  Therefore, the judges at OAH are intimately involved in state legislation and the state governments limits.  Also, OAH is a much faster process.  A Contested Case Hearing filed in OAH will be heard in months (a preliminary injunction, even quicker); whereas a complaint filed in Wake County Superior Court may not be heard for years (it may be faster or slower in rural areas. I just don’t know).

From my cursory explanation of OAH, it would appear that any Medicaid issue against the state government would automatically be heard at OAH, right? Well, recently, I have encountered a number of Division of Medical Assistance’s agents arguing that (1) these agents are not agents, they are independent contractors; and (2) that OAH does not have jurisdiction over the agents.

Specifically, DMA contracts with companies to manage Medicaid, conduct audits, conduct investigations, etc.  The Managed Care Organizations have been contracted with DMA to manage Medicaid behavioral health.  Remember, since Western Highlands was consumed by Smokey Mountain, North Carolina now has 10 MCOs.  They are, in no particular order:

  • Coastal Care
  • East Carolina Behavioral Health
  • Alliance Behavioral Health
  • Cardinal Innovations HealthCare Solutions
  • CenterPointe Human Services
  • Smokey Mountain Center
  • Partners Behavioral Health Management
  • Sandhills
  • MeckLink Behavioral Healthcare
  • EastPointe

So what if you have a legal disagreement with an MCO? State court or OAH?  So far, all MCOs have declared themselves to be out of OAH jurisdiction.

However, remember my blog, “Final Agency Decision No Longer Needed in Appeals” from March 5, 2013? If not, feel free to go back and read it.

The point is, unless North Carolina receives a specific Waiver from the federal government, NC must follow federal law which requires a single state agency to administer Medicaid. If OAH is allowed a final decision, then, in essence, another entity is deciding a Medicaid issue.

So, is NC in violation of federal law? Well, yes, as to other federal laws, but not in this case.  NC submitted a State Plan Waiver, which was granted on December 27, 2012.

The Waiver states, in pertinent part, OAH acknowledges and also agrees that the issue to be determined at final hearings conducted in accordance with this waiver is whether a single state Medicaid agency or one of its contractors or agents exceeded its authority or jurisdiction, acted erroneously, failed to use proper procedure, acted arbitrarily or capriciously, and/or failed to act as required by law or rule…”

According to the Waiver, it does not matter if the MCO is a contractor or agent. Either way, OAH has jurisdiction.

MCO Rebuffs ALJ Order That Expressly States “Binding on [MCO];” Don’t Fret; This is Not the End!

Can an Managed Care Organization (MCO) refuse to comply with a Judge’s Order? Are MCOs above such Orders? Are MCOs, which handle federal and state Medicaid funds, beyond the supervision or reach of the very entities of which contract them? If Division of Medical Assistance (DMA) contracts out to a private company, does that allow DMA to say, “Hey, if you have a complaint, take it to the private company. Even though we supposedly manage the North Carolina Medicaid system, since we gave authority to a private company, we are no longer liable for the Medicaid’s system’s problems?”

This is the question that I am encountering. My answer? Heck No! (I didn’t want to use an explicative). DMA manages Medicaid. Period. Any entity acting on DMA’s behalf is an agent of the State. Until proven otherwise (and maybe even then), I refuse to accept lack of accountability between DMA and the MCOs.

Yet, a couple weeks ago, we were successful in arguing to an Administrative Law Judge (ALJ) that, by contract, an MCO acted as an agent of the DMA when the MCO rescinded or refused to offer a health care provider a contract with the MCO to provide Medicaid services to Medicaid recipients.

In fact, the Order explicitly states (I am removing the MCO’s name), “[The MCO] contracts with the Respondent’s Division of Medical Assistance (DMA) to act on Respondent’s behalf as a Medicaid managed care organization (“MCO”) for mental health, intellectual/developmental disability and substance abuse services in Durham county and other surrounding counties.”

Can it get any clearer? Remember when John Hancock signed the Declaration of Independence large enough for the King to read his signature without his glasses? Maybe the Judge, when drafting this Order, should have used larger font.

The Judge explicitly Ordered that the MCO acts as an agent of DMA. The Judge explicitly Ordered this in a signed, executed Preliminary Injunction Order.

Thus, I forwarded this signed and executed Order to the MCO.  This is what I received (in an email with all names removed, except mine:) ):

“Knicole:  Thank you for your email.  [MCO] was not a party to this litigation and the Office of Administrative Hearings does not have the authority (or jurisdiction) to direct us to enroll a provider into our Network.”

What? Double-take. Jaw dropping.

Ok, well, I disagree. Anyone else?

I know the Judge agrees with me. The Order also states, “Such STAY is binding on Respondent’s officers, agents, servants, employees, and attorneys pending on the decision of this pending litigation, including [the MCOs] refusal to contract with Petitioner to provide Medicaid funded services through [the MCO].”

Don’t worry, we are planning to pursue the MCOs’ email refusing to abide the Order. 🙂

But, meanwhile, this whole argument of mine (the agency relationship between DMA and the MCOs) is at issue in the General Assembly in House Bill 320.  House Bill 320 states, in part, “Jurisdiction of OAH. – The Office of Administrative Hearings does not have jurisdiction over a dispute concerning a grievance or managed care action, except as expressly set forth in this Chapter.”

First, this House Bill has NOT been passed into law. (Which obviously begets the logical response: If a statute is needed to determine that the MCOs are NOT agents of DMA, obviously, as of now, MCOs are agents of DMA).

If this House Bill is passed, the fact that this proposed statute states that OAH does not have jurisdiction over the MCOs, the statute is indirectly stating that the MCOs are NOT agents of DMA.  (Because OAH only has jurisdiction over state agencies and its agents).

Guess who proposed this statute?

Guess.

Biting your nails?

Holding your breath?

An MCO.  Shocker.