On July 9, 2020, the Wisconsin Supreme Court handed a landmark victory to Medicaid providers who were subject to an exacting payment recoupment standard imposed on them by the Wisconsin Department of Health Services (the department).
In Papa v. Wisconsin Dep't of Health Servs.,1 the Court unanimously agreed with the Waukesha County Circuit Court that the department lacked statutory authority for what courts have termed its “perfection policy,” by which it had recouped Medicaid reimbursement payments made to providers when audits turned up even minor reporting errors unrelated to the actual and appropriate provision of services.
Medicaid Recoupment and the Perfection Policy
The department’s Office of the Inspector General (OIG) is authorized to audit providers’ records as part of its efforts to combat waste, fraud, and abuse in the Medicaid program. Under Wis. Stat. section 49.45(3)(f)1, the department may require providers to maintain records in order to verify the actual provision of services and the appropriateness and accuracy of claims.
Diane M. Welsh, American University 1998, is an attorney at Pines Bach in Madison. Her practice focuses on government law, health law, and litigation.
Aaron Dumas, U.W. 2015, is an attorney in Pines Bach’s civil litigation practice group in Madison. His practice handles matters involving state and local government actors and policy.
However, several years ago, OIG developed a practice of recouping past payments made to Medicaid providers for days, weeks, or even months of care services that providers had indisputably and appropriately provided, based solely on audit findings related to noncompliance with Medicaid policies and procedures, including imperfect documentation.
For instance, in some cases, OIG demanded thousands of dollars from nurses – representing multiple shifts of their work – because the nurses had neglected to provide documentation that a physician had ordered over-the-counter supplements and medications like vitamin D or Tylenol. In others, OIG demanded recoupment when nurses documented that they had fed patients according to their care plans instead of specifying times and amounts, or when nurses were confused by contradictory department guidance on whether they were required to sign certain pre-authorization documents.
Papa v. Wisconsin Dep't of Health Servs.
Papa was a declaratory judgment action brought in Waukesha County Circuit Court in 2016 by Professional Homecare Providers (PHP), a nonprofit association of nurses who provide home-based care to patients with complex medical needs enrolled in the Wisconsin Medicaid program, and Kathleen Papa, a founding member of the group.
Several PHP members had lost or were in the midst of fighting recoupment actions based on OIG applying this standard of perfection. The nurses challenged the policy as an unpromulgated rule that both lacked and exceeded the department’s statutory authority.
The circuit court ruled in the nurses’ favor, granting an injunction against the department’s enforcement of the policy. The department appealed, and won a split decision before the Wisconsin Court of Appeals, where the majority determined there was no rule that was subject to judicial review.
This set the stage for a showdown in the Supreme Court.2 Before reaching the merits of the case, the Court addressed the threshold issue of ripeness. The department contended that the issue was not justiciable, denying that the policy actually existed and arguing that, because there was no actual formal rule to challenge, providers’ only recourse was to individually challenge any recoupment actions against them. The Supreme Court noted that, regardless of whether the perfection policy was formalized as such, the record supported the conclusion that DHS was actively enforcing it against nurses to recoup payments for services that they actually provided to Medicaid patients. As such, the Court held that the issue was ripe and justiciable.3
Proceeding to the merits, the Court rejected the department’s attempts to rest the perfection policy on various state and federal statutes administrative rules and noted that the policy constituted a standard, requirement, or threshold which, under Wis. Stat. section 227.10(2m), must be “explicitly permitted by statute or by a [promulgated] rule.”4
The Court concluded that section 49.45(3)(f)1-2 makes clear that the department may recoup Medicaid payments from service providers only in three specific circumstances: those where the Department cannot verify:
the actual provision of covered services;
that the reimbursement claim is appropriate for the service provided; or
that the reimbursement claim is accurate for the service provided.
The Court therefore held that the department’s perfection policy exceeded its recoupment authority.5 In other words, so long as the department can verify that a covered service was actually provided, the claim was appropriate for the services provided, and the claim was accurate, it cannot recoup payments based on a record imperfection.
The Court also concluded that the circuit court's order for supplemental relief – which clarified the circumstances under which the department could or could not pursue recoupment – did not expand the scope of its original order and also was permissible.
The only aspect of the Court’s judgment that was not unanimous – and on which the plaintiffs lost – was a ruling that the circuit court had erred in awarding plaintiffs their attorneys’ fees incurred in obtaining the order for supplemental relief.6
In the wake of Papa, Medicaid providers should have new confidence that they can keep serving patients and enrollees without fear of unjust and debilitating recoupment efforts, and that Medicaid patients and enrollees will thus continue to have access to needed care.
PHP, like other provider associations, offered to work with the department to combat fraud, waste, and abuse, and ensure that performance standards remain high among Medicaid providers.
As the Papa plaintiffs observed in their briefing, removing the ability to recoup based on a perfection policy does not affect the department’s ability to recoup for intentional or inadvertent overbilling or billing for services that are not a covered benefit. And, the department retains the ability to police provider noncompliance through sanctions, up to and including suspending or terminating Medicaid certification.
Since the Court’s July decision, the department has yet to lay out a clear path for how OIG intends to wrap up pending recoupment efforts and audits, or how OIG will conduct future audits.
The department put dozens of audits and administrative hearings on hold while Papa worked its way through the courts. In some instances, OIG has reduced recoupment amounts. However, many providers are still awaiting resolution of these matters, which may go back several years.
The department secretary has yet to issue final decisions in matters where proposed decisions have been pending since 2017, including on the question of whether the provider is entitled to be reimbursed for attorney fees when the provider has prevailed in having the recoupment reversed.
On a final note, on Nov. 13, 2020, the Waukesha County Circuit Court ruled on an important aspect of the declaratory judgment action.
The department had moved to vacate the circuit court’s injunction in the wake of the Supreme Court’s ruling. The motion was opposed by the plaintiffs, who saw the injunction as necessary protection against OIG’s overreach. Plaintiffs moved the court to make the injunction permanent. The circuit court ruled in favor of the plaintiffs and against the department, permanently enjoining the department from applying or enforcing the perfection rule. As stated in the order:
The Department may not recoup Medicaid payments made to Medicaid-certified providers for medically necessary, statutorily covered benefits provided to Medicaid enrollees, based solely on findings of the provider’s noncompliance with Medicaid policies or guidance where the documentation verifies that the services were provided.
This post was adapted from the original article on Pines Bach LLP’s blog.
This article was published on the State Bar of Wisconsin’s Health Law Blog. Visit the State Bar sections or the Health Law Section web pages to learn more about the benefits of section membership.
1 Papa v. Wisconsin Dep't of Health Servs., 2020 WI 66, 393 Wis. 2d 1, 946 N.W.2d 17.
2 Justice Brian Hagedorn, who wrote the Court of Appeals decision that was released the day before he joined the Supreme Court, recused himself.
3 Papa, 2020 WI 66 at ¶ 31.
4 Id. at ¶¶ 32, 42 & n. 15.
5 Id. at ¶ 42.
6 Justices Daniel Kelly and Rebecca Grassl Bradley dissented from this portion of the decision. See Papa, ¶¶ 51-60.