Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department of Health Services
DATE: April 4, 1991
Audit Control No. A-09-86-60225
Docket No. 90-92
Decision No. 1240
DECISION
This appeal by the California Department of Health Services
(California,
State) arises from a Board-ordered remand in California Dept. of
Health
Services, DAB No. 977 (1988). That decision involved a
disallowance of
$5,081,970 in federal financial participation (FFP)
identified by the
Health Care Financing Administration (HCFA) as overpayments
to Medicaid
providers. The Board upheld the disallowance, subject to
possible
reduction to the extent that California could show that
overpayment
amounts had been settled, reversed, or collected. On
remand, California
asserted that it had properly reduced the overpayment
amounts by
$1,013,061, or approximately $360,000 in FFP, and that the
disallowance
should be reduced accordingly. By letter dated March 30,
1990, HCFA
advised California that no basis had been found for reducing
the
disallowance. 1/ This determination is the subject of the
current
appeal.
As discussed below, we conclude that --
The amount due HCFA is properly reduced by
the
difference between the mean and lower precision
levels
in the case of overpayments which were based
on
statistical samples and calculated using the
mean
precision level rather than the lower precision
level.
California calculated the reduction on this basis as
the
federal share of $160,815.01. We reverse this
portion
of the disallowance subject to verification by HCFA
of
the precise amount of the reduction.
The amount due HCFA is properly reduced to the
extent
that California submits documentation for HCFA
review
that is acceptable to verify California's
counsel's
statements that California had reduced
certain
overpayment amounts based on additional
evidence
furnished by the provider, a reevaluation of the
facts
and applicable law, or on a court or an
administrative
decision. We uphold this portion of the
appeal subject
to reduction by HCFA upon its review of
further
documentation.
California failed to establish that any reductions
other
than those described above were appropriate.
We
therefore uphold the remaining disallowance
without
qualification.
The record for this decision consists of written briefs and
exhibits
submitted by the parties, including responses to an Order to Show
Cause
issued by the Board. In addition, at California's request, parts
of the
record for the Board's decision in DAB No. 977 were incorporated in
the
record for this decision.
Case Background
The original disallowance was based on an audit by the HHS Office
of
Inspector General, Office of Audit (OIGOA), which in turn reviewed
State
audits of payments to providers of pharmacy and laboratory
services.
OIGOA determined that the State audits, which identified
$13,951,875 of
overpayments made from October 1, 1976 through September 30,
1985,
complied with government accounting standards and were
generally
accurate. Accordingly, after making adjustments for changes
which
occurred after the State audits were completed, OIGOA recommended
that
HCFA disallow $5,081,970. HCFA adopted this recommendation
and
California appealed.
In DAB No. 977, California argued, as pertinent here, that some of
the
alleged overpayments had been reduced based on settlement
agreements
between the providers and the State or, where the provider appeal
was
fully litigated, on decisions reversing the State's findings. DAB
No.
977 stated, however, that OIGOA had already considered settlements
and
reversals through March 30, 1987, and had made a finding, not
rebutted
by California, that a large proportion involved bankrupt or
insolvent
providers. Noting its holding in prior decisions that FFP is
not
available in overpayments made during this time period even if a
state
is unable to recover them from the provider, the Board upheld
the
disallowance. However, the Board directed HCFA to consider whether
the
disallowance should be reduced based on documentation which
California
might subsequently provide with respect to overpayments which
were
settled or reversed. 2/
Following the issuance of DAB No. 977, counsel for California sent
HCFA
two letters containing a narrative justification for
California's
reduction of overpayment claims against 13 providers.
California ex. 1
and ex. 2. California took the position that it had properly
reduced
these claims by $1,013,061 (State and federal share), and that
there
should be a corresponding reduction in the amount due HCFA. 3/
HCFA
referred California's narrative justification to OIGOA for review,
and
later advised California that "OIGOA has informed us that
your
Department presented no evidence that would cause a reevaluation of
the
audit conclusions in the final report or our disallowance letter
dated
January 20, 1988 . . . ." California ex. 3, p. 1. 4/ As
previously
indicated, however, HCFA had already reduced the disallowance
by
$254,558 in FFP. See n. 1.
In the narrative justification prepared by counsel for
California,
California identified, for each provider, one or more
"substantive
problems with the original audit findings" which led to either
a
settlement with the provider or an administrative appeal
decision
reducing the overpayment amount. California ex. 1, p. 1. For
most of
these "problems," California identified the specific amount by which
the
overpayment to the provider could be reduced. In three
cases,
California identified amounts in excess of the amount of the
actual
reduction of the provider's overpayment. See California ex. 3,
attached
Exhibit A. Even if it is determined that these justifications
are
acceptable, however, the disallowance clearly may not be reduced by
more
than the federal share of the amount of the actual reduction. In
two
cases, California failed to account at all for a portion of the
proposed
reduction in the provider's overpayment amount: $1,154 for
Torrance
Plaza and $379 for Peninsula Medical Laboratory. Id.
HCFA was clearly
justified in not accepting the reductions for these
unexplained amounts.
Below, we discuss the various bases put forward by California for
reducing
the overpayment amounts for the 13 providers at issue. Some
providers
fall within more than one of the categories discussed.
Difference between mean precision level and lower precision level
In eight cases, State auditors calculated the overpayment amount,
which
was based on a projection from a statistical sample, using the
mean
precision level rather than the lower precision level. 5/ These
terms
are not defined anywhere in the record. The Board's Order to Show
Cause
stated, however, that it appeared that the "lower precision level"
was
the lower confidence limit of an estimate based on a statistical
sample
and that the "mean precision level" was the mid-point between the
upper
and lower confidence limit. Neither party objected to
these
definitions.
California contended that it was justified in reducing the overpayments
in
settlements with the providers by the difference between the mean and
lower
precision levels because administrative law judges routinely used
the lower
precision level in provider appeals. California submitted
excerpts from
nine administrative decisions, arising from audits
conducted from 1979 to
1985, which ordered the use of the lower level of
precision in recalculating
overpayments. California ex. 7. In further
support of its
position, California asserted that it was OIGOA's policy
to use the lower
precision level in its own audits.
HCFA acknowledged that OIGOA's policy was to use the lower precision
level
in its own audits. However, HCFA took the position that,
regardless of
OIGOA's policy, HCFA was justified in relying on the
original State audits,
which used the mean precision level, absent
evidence that the mean precision
level was unreliable. HCFA contended
that the use of the mean precision
level was mandated by the Pharmacy
Audit Manual issued by the California
Department of Health Services, and
that there was a similar State manual
applicable to laboratory audits.
HCFA also contended that the administrative
decisions provided by
California did not invalidate the policy in the State
auditing manuals
since the decisions did not specifically consider that
policy or evince
any intent of establishing State policy in this area.
In addition, HCFA
questioned "how representative" the administrative
decisions were,
noting that "[i]t may well be that there are other decisions
upholding
the use of [the] mean in the face of provider challenges. . . ."
HCFA
brief dated 2/11/91, p. 4. HCFA also noted that few of the
providers in
question here objected to the use of the mean precision level,
and
argued that this suggested that providers did not commonly perceive
the
use of the mean to be contrary to State policy.
We conclude that the amount due HCFA for overpayments to the providers
in
question should be reduced by the difference between the mean and
lower
precision levels. Since OIGOA would have used the lower precision
level
if it had directly audited California instead of relying on
California's
audits, the only basis for holding California to the mean
precision level
would be that State policy required its use. We are not
persuaded that
California had a policy to this effect, however.
Since California would be bound by an administrative decision in
a
provider appeal requiring the use of the lower precision level, it
is
appropriate to look to these decisions as evidence of State policy
on
this matter. Thus, even if State audit procedures called for the use
of
the mean precision level to estimate overpayments, that would not
be
dispositive here. HCFA did not dispute that the
administrative
decisions furnished by California required the use of the
lower
precision level. 6/ As case-by-case adjudications, these
decisions do
not purport to establish statewide policy requiring the use of
the lower
precision level. Nevertheless, to the extent that its
administrative
decisions consistently required this in individual cases,
California
could reasonably have anticipated that its auditors' use of the
mean
precision level would not have been sustained in the cases in
question
here. Under these circumstances, it would be unreasonable to
hold
California to the mean precision level.
While HCFA raised the possibility that California might have furnished
a
biased sample of decisions, HCFA did not provide any evidence
which
supported this. It is mere speculation to suggest that the
reason
providers did not challenge the auditors' use of the mean
precision
level was that there were other administrative decisions which
upheld
this auditing procedure.
In its response to the Board's Order to Show Cause, California provided
a
statistical summary of the overpayment calculation for each of the
providers
in question showing the amount by which the original
overpayment would be
reduced using the lower precision level.
California brief dated 2/13/91, ex.
8 - 16. Based on these
calculations, California contended that the
total overpayments should be
reduced by $160,815.01 (State and federal
share). Since HCFA has not
had an opportunity to review these
calculations, we reverse this portion
of the disallowance subject to
verification by HCFA of the precise
amount of the reduction. If
California disagrees with the amount of the
reduction determined by HCFA, it
may return to the Board on this limited
issue. 7/
Administrative hearing and handling costs
California took the position that it was justified in reducing
the
overpayment amounts in settlements with seven of the providers based
on
the estimated cost to the State of conducting an administrative
hearing,
including salaries of the administrative law judge, staff
counsel,
pharmaceutical consultant, and health auditor. 8/ In an eighth
case,
California took into account the estimated cost to the State
of
collection and handling of the overpayment. 9/ California
contended
that this in turn justified a reduction in the amount due HCFA.
HCFA declined to accept these reductions on the ground that California
had
not provided documentation to support its cost estimates. HCFA
also
suggested that California may have charged administrative hearing
and
handling costs as operating costs under its cost allocation plan,
in
which case they could not be used to reduce overpayments.
HCFA
indicated that, in light of these considerations, it was unnecessary
to
determine whether avoidance of administrative hearing and handling
costs
could be considered a valid basis for reducing the overpayment due
HCFA.
California responded that it could not provide documentation of its
cost
estimates because it would compromise the State's position in
future
provider appeals if a provider knew at what point the State
would
consider a case too expensive to be worthwhile. California
nevertheless
offered to make some documentation available to the Board
provided that
it would not be subject to public inspection. California
also argued
generally that HCFA's refusal to recognize administrative hearing
and
handling costs was unreasonable because the effect would be to
require
states to litigate questionable cases in which these costs exceeded
the
overpayment, and ultimately, to discourage states from auditing
other
than "simple, easy-to-win" cases. California brief dated 2/13/91,
p. 5.
We conclude that no purpose would be served by reviewing documentation
of
California's cost estimates. While it may have been reasonable
for
California to take potential administrative hearing and handling
costs
into account in determining whether to settle a claim against
a
provider, this does not mean that the amount of the provider
overpayment
originally found by the State audits was in error.
Administrative
hearing and handling costs are the types of costs properly
treated as
administrative costs for purposes of a state's Medicaid
claims.
However, HCFA is not required to consider such potential
administrative
costs as offsets to provider overpayments originally intended
for
medical services (which were claimed at a higher rate than the
rate
applicable to administrative costs). Moreover, the Board
has
consistently declined to consider the policy implications argued
by
California, which are beyond the scope of the Board's review.
See
California Department of Health Services, DAB No. 1015
(1989);
California Department of Health Services, DAB No. 1152
(1990).
Accordingly, we conclude that HCFA was not required to reduce
the
disallowance to account for administrative hearing and handling
costs
which California avoided by entering into settlements with
the
providers.
Likelihood of prevailing on appeal
California took the position that the reduction of overpayment amounts
due
HCFA was justified to the extent that the settlements were based on
a
determination that, if the provider appeal had been fully litigated,
the
administrative law judge was likely to have ruled against
California.
California argued that, under New Jersey Dept. of Human
Services, DAB No. 683
(1985), overpayments were properly reduced if the
reductions were based on a
state's assessment that its audit findings
were not sufficient to permit it
to prevail in the administrative
process, and that the state was not required
to have actually determined
that the audit findings were incorrect.
California asserted that it
could be assumed that the settlements were based
on such an assessment
unless they were entered into at a time when the
provider had already or
was about to go bankrupt or out of business, and
provided uncontradicted
evidence that this was not the case for any provider
here. California
further asserted that, in New Jersey, the Board had
employed a "flexible
approach" in determining whether a settlement was based
on the merits,
noting that the Board there accepted the reduction of an
overpayment
based on a settlement even though New Jersey had not
"completely
establish[ed] that the [settlement] amount was directly related
to an
overpayment determination. . . ." California brief dated 2/13/91, p.
7,
quoting New Jersey. Finally, California argued that it
would
"compromise future state audits" if the State provided a
further
explanation of the basis for the settlements at issue. Id., p.
8.
HCFA took the position that the reductions were not justified, citing
the
statement in New Jersey that "[t]he mere speculation that audit
findings
would have been revised if a hearing had been held is
insufficient."
New Jersey, p. 14.
We conclude that reductions in the amounts due HCFA were not justified
on
the basis asserted here. California's reliance on New Jersey
is
misplaced. In that decision, the Board first cited the
general
principle, established in earlier decisions, that before HCFA
can
reasonably rely on state audit findings as a basis for a
disallowance,
the state must be provided an opportunity to show that
"adjustments have
been made to the State findings" or that "the findings are
unreliable
for some reason." New Jersey, supra, p. 8. Under this
principle, if a
state made a determination at the time of settlement that its
audit
findings were incorrect, or showed later that the audit findings
were
erroneous or unreliable in some other respect, HCFA could not rely
on
these findings. At the same time, this assures that a state
cannot
preserve its claim for FFP by simply disavowing its audit
findings. New
Jersey's treatment of the provider overpayment noted by
California is
consistent with this principle since the Board found that there
was
sufficient evidence to show "a revision of the State's
original
determination on which HCFA relied" notwithstanding New Jersey's
failure
to account for the full amount of the reduction in the
overpayment.
Id., p. 12 (emphasis added). Thus, contrary to
California's
understanding, New Jersey does not stand for the proposition
that a
state may simply rely on a settlement agreement which was entered
into
without a determination by the state that its audit findings
were
incorrect.
In the cases in question here, there is no evidence that California
ever
determined that any of the audit findings were incorrect. In seven
of
the eight cases, the narrative justification merely states a
conclusion
that California either was unlikely to win or would not win the
provider
appeal. 10/ In the remaining case (Semca Pharmacy), the
narrative
justification simply states that documentary evidence could be
submitted
at the appeal level, leading to a reversal of the audit
findings. This
appears to be pure speculation, since there is no
indication that
documentation was in fact available. Moreover,
California in effect
conceded that there was no certainty that it had made a
specific
determination that the audit findings in any of these cases
were
incorrect, stating --
Most settlements are not based on a determination that
the
original state audit findings were incorrect. In fact if
a
state determines that its initial audit findings were
incorrect,
it could simply modify or withdraw altogether its
initial
findings. A settlement is not really necessary in
this
situation.
California brief dated 2/13/91, p. 6. Thus, even if the ability of
the
providers to repay California was not a consideration in
the
settlements, this does not mean that the settlements were based on
the
merits of the individual cases. California here provided only
very
general and vague explanations of its reasons for settling.
These
explanations are insufficient to call into question the reliability
of
California's original audit findings. Furthermore, as noted
above,
consideration of the policy implications of HCFA's refusal to
recognize
these settlements as a basis for reducing overpayment amounts is
beyond
the scope of this decision. Accordingly, we decline to reduce
the
disallowance based solely on California's unsupported assessments
that
it was unlikely to win on appeal.
Undocumented reductions
According to California's narrative justification, however,
other
overpayment amounts were reduced because California actually
determined
that its auditors had incorrectly identified the amounts in
question as
overpayments to providers. The narrative justification
indicated that
reductions were based on additional evidence submitted by the
providers
11/ or on a reevaluation of the facts and applicable law. 12/
In
addition, the narrative justification indicated that some
reductions
were based on court or administrative decisions. 13/ HCFA
took the
position that the reductions in question were not justified
because
California did not provide any supporting documentation. The
Board's
Order to Show Cause tentatively concluded that HCFA could not
reasonably
be required to rely on California's unsupported allegations
regarding
the bases for the reductions since those allegations were
inconsistent
with California's own audit findings.
In response to the Order, California offered to provide the
documentation
which was used to prepare its narrative justification. 14/
According to
California, for each provider except Peninsula Medical Lab,
there was a
memorandum prepared at or near the time of settlement which
contained a
general explanation of the basis for the settlement.
California brief dated
2/13/91, pp. 11-12. (California stated that the
narrative justification
for Peninsula Medical Lab was based solely on
"the recollections of staff in
the Audits & Investigation Division."
Id., p. 11.) However,
California stated that it would release these
documents only "if it is
assured by the Board that the documents can be
reviewed in camera and not
made available for public inspection or
discussed in detail in the Board's
final decision." Id., p. 12.
California also argued that, to the extent that documentation in
support
of the narrative justification was not available, HCFA was estopped
from
objecting to the reductions because it never notified California that
it
would be required to establish the validity of the
settlements.
California asserted that, had it been notified, "documentation
could
have been prepared and saved specifically for the purpose
of
establishing the validity of the settlements." California brief
dated
8/17/90, p. 9. California also argued that, in the case of
several of
the providers at issue, the records retention period set by 45
C.F.R.
74.21(b) expired "prior to the date of the original federal draft
audit.
. . ." California brief dated 12/3/90, p. 3.
We conclude that California's estoppel argument has no merit.
The
traditional elements of estoppel -- reasonable detrimental reliance on
a
misrepresentation intended to be acted on -- are not present
here.
California did not allege that there was any misrepresentation by
HCFA.
Moreover, there was clearly no detrimental reliance if, as
California
alleged, it has contemporaneous documentation of the basis for
the
settlements in all but one case. In addition, as early as 1982,
the
Board held that the burden is on the state to establish why it no
longer
regards its initial audit determinations as reliable. California
Dept.
of Health Services -- Accounts Receivable, DAB No. 334 (1982). In
order
to meet this burden, some level of documentation is
necessarily
required. Thus, California's claim of lack of notice is
disingenuous.
In any event, any lack of notice should not have affected
California's
ability to document the basis for the settlements in some
acceptable
fashion. For example, if, as California alleged, there was a
reduction
based on additional evidence furnished by Peninsula Medical
Laboratory,
the provider should have been able to verify this.
We also reject California's argument that it was excused from
providing
documentation relating to several providers by virtue of the
expiration
of the records retention period. (We note that Peninsula
Medical
Laboratory was not included among the providers named by
California.)
The Board has consistently held that a state is not excused
from
producing relevant documentation unless it shows that specific
documents
relevant to the disallowance actually existed, were retained for
the
requisite three-year period, and then were innocently destroyed by
the
state to its prejudice prior to the start of an audit of the costs
in
question (which would toll the records retention period until the
audit
was resolved). See, e.g., California Dept. of Health Services,
DAB No.
1007 (1989). Here, however, California did not identify the
specific
documents which were presumably lost or destroyed or state when
the
alleged loss or destruction actually occurred. Thus, we conclude
that
California was not prejudiced by the expiration of the records
retention
period.
Furthermore, we cannot accept California's offer of documentation for
our
inspection in camera. The Board's rules require that a copy of
all
documents submitted by a party be served on the other party (45
C.F.R.
16.20(c)) and prohibit the Board from considering any
information
outside the record (45 C.F.R. 16.17). While the Board may,
for example,
review a document in camera to determine if it is properly
subject to
discovery by the other party, all documents on which the Board
relies to
decide a case are public records. Accordingly, we cannot
reduce the
amounts due HCFA based on the provision of additional evidence
by
providers, reevaluation of applicable facts and law, or court
or
administrative decisions since California was not willing to
provide
documentation to support its allegation that it reduced
providers'
overpayments on these bases, in accordance with the Board's
rules.
Although the Board cannot appropriately examine the documentation
under
the conditions specified by California, California could make
available
for the limited purpose of HCFA review during settlement
discussions
documents which would substantiate its narrative justification
but which
would not be a part of the record for this appeal.
Accordingly, we
uphold this portion of the disallowance, subject to reduction
by HCFA
upon its review of any documents provided by California within 30
days
of its receipt of this decision in support of the reductions
specified
in this section of the decision. In all but the three cases
referred to
below, a reduction would clearly be justified if HCFA determines
that
the documents support the statement in the narrative
justification
concerning the basis for settlement since HCFA objected only to
the lack
of underlying documentation, not to the substantive basis for
the
reduction. Nevertheless, in the three cases which involve
reductions in
the providers' overpayments based on a reevaluation of the
facts and
applicable law, a reduction would not be justified if HCFA
determined
that FFP was not available in the amounts in question as a matter
of
federal law. California may appeal any adverse determination
regarding
the proposed reductions discussed here to the Board pursuant to
45
C.F.R. Part 16.
Conclusion
For the foregoing reasons, we reverse the disallowance in part and
uphold
it in part (with part subject to reduction by HCFA based on
documentation
submitted by California).
In order to implement this decision, HCFA should:
(1) Use documentation already available to it
to verify that
California correctly calculated the
amount of the reduction based
on the difference
between the mean and lower precision levels and,
if
necessary, recalculate the reduction (see page 7 above);
(2) Review any documentation submitted by
California within 30
days of its receipt of this
decision to determine if the
documentation
substantiates the statements in California's
narrative description that it reduced provider overpayments
based
on additional evidence furnished by the
provider, a reevaluation of
the facts and applicable
law, or on a court or administrative
decision.
If HCFA finds that the documentation substantiates
the
narrative descriptions, then HCFA should accept
the reduced
overpayment amounts unless it determines
that the reductions are
not permissible as a matter
of federal law (see pages 15 - 16
above).
HCFA should inform California in writing of its determinations in
regard
to (1) and (2) above. Within 30 days of its receipt of a
determination
from HCFA, California can request Board review of the following
limited
aspects of this case:
(1) The calculation of the reduction to
reflect the lower
precision level;
(2) Whether the documentation presented in
fact substantiates
California's narrative
justification;
(3) Any question of federal law raised by
California's reduction
of provider overpayments
based on its reevaluation of the facts and
applicable law.
Judith A. Ballard
Norval D. (John) Settle
Cecilia Sparks Ford Presiding Board Member
1. HCFA later corrected this statement,
documenting that, shortly
after the issuance of DAB No. 977, it reduced the
disallowance amount by
$254,558 in FFP to reflect adjustments it
accepted. Letter from Stein
to Ford dated 3/20/90. These
adjustments are not a part of the
$1,013,061 in dispute here.
2. The remand in DAB No. 977 was predicated on the
assumption that
California had already given the auditors information about
settlements
or reversals prior to March 30, 1987. However, the decision
did not
preclude California from providing on remand information about
any
earlier settlements or reversals not previously considered by
the
auditors. California indicated that the information it provided
for
eight of the 13 providers at issue involved settlements prior to
1987.
California brief dated 12/3/90, Appendix 1. HCFA did not assert
that
any of this information had previously been considered by the
auditors.
3. This figure comes from a summary of California's
narrative
justification prepared by OIGOA. California ex. 3, p.
2. The total of
the audit reductions shown by California in Appendix 1
to its reply
brief is different due to errors by the State in calculating
the
reductions for Garfield Prescription Pharmacy and Semca
Pharmacy.
Compare California ex. 1 (Semca Pharmacy) and ex. 2
(Garfield
Prescription Pharmacy).
4. California contended on appeal that the overpayment amount
shown
for Bio-Med Labs in the notes prepared on remand by OIGOA was
$168,000,
that this figure was incorrect and that OIGOA's audit report
correctly
identified the amount as $16,269. California brief dated
8/17/90, p.
12. The overpayment amount shown in OIGOA's notes as well
as in the
audit report is $184,269, not $168,000 as stated by
California.
California ex. 3, pp. 2-3; Docket No. 88-37, ex. A, p. 8.
In any event,
it appears that California confused Bio-Med Labs with another
provider
identified in the audit report -- Biomedical Resources Lab -- which
had
an overpayment amount of $16,269. California apparently intended
to
contest the overpayment for the latter provider since the
narrative
justification refers to a $16,269 audit demand for "Biomedical
Resources
Corp." California ex. 2, p. 1.
California also contended on appeal that the $56,727 overpayment
for
Berliner's Pharmacy shown in both OIGOA's notes and audit report
was
overstated by $14,400, the amount of the settlement agreement with
the
provider. California brief dated 3/17/90, p. 12. However,
HCFA
provided documentation, not challenged by California, which
established
that the overpayment originally identified by State audit was
$71,127.
HCFA ex. D, p. 5. Thus, HCFA took the $14,400 settlement amount
into
account in calculating the $56,727 which it identified as
the
overpayment.
5. The providers in question are Avalon Slauson Pharmacy,
Duz-Mor
Diagnostic Laboratory, Torrance Plaza, Mini Fox Pharmacy, Noubar's
El
Adobe Pharmacy, Peninsula Medical Laboratory, University Pharmacy
and
Garfield Prescription Pharmacy.
6. HCFA did state that the decisions "may well be distinguishable
from
the circumstances of the audits at issue here for reasons which are
not
apparent either because of the State's editing or because the
unedited
decision did not address such distinctions." HCFA brief dated
2/11/91,
pp. 4-5. However, the issue here -- the use of the mean versus
the
lower precision level -- is sufficiently clear-cut that any
such
distinctions are unlikely.
7. Since California has had ample opportunity to document the
amount
of the reductions, HCFA would be justified in not accepting
those
reductions which cannot be verified based on the documentation
already
provided by California or prepared by OIGOA.
8. The providers in question are Avalon Slauson Pharmacy,
Semca
Pharmacy (no amount specified), Torrance Plaza (no amount
specified),
Noubar's El Adobe Pharmacy, Peninsula Medical Laboratory,
Biomedical
Resources Lab (no amount specified) and ICN Pharmacy (no
amount
specified).
9. The provider in question is Duz-Mor Diagnostic Laboratory.
10. The providers in question and the relevant language are as follows:
Avalon Slauson Pharmacy -- "There were several audit
adjustments
involving lack of records and excessive services with
a
potential loss of $11,437 if the case was taken through the
full
appeal process."
Berliner's Pharmacy -- "The Department also determined
that
success was unlikely if it continued to pursue excessive
service
exceptions for some other drugs."
Duz-Mor Diagnostic Laboratory -- "It was determined that
the
Department would not prevail in administrative appeal on
a
billing issue worth $22,262."
Torrance Plaza -- "The loss factor if a hearing was held
was
$2,400."
Mini Fox Pharmacy -- "A total of $88,216 was reduced for
an
ingredient cost issue that the Department determined it
would
likely lose on appeal."
Peninsula Medical Lab -- "The Department determined that
it
would likely lose on appeal a mis-billing issue worth $62,503."
ICN Pharmacy Inc. -- "Because of the complicated nature of
the
case, there was a good deal of uncertainty concerning
whether
the department would prevail as to the provider's appeal . .
.
."
See California ex. 1 and ex. 2.
11. The providers in question are Noubar's El Adobe Pharmacy,
Peninsula
Medical Laboratory and Garfield Prescription Pharmacy. State's ex.
1, p.
4; State's ex. 2, p. 2.
12. HCFA identified the providers in question as Berliner's
Pharmacy,
University Pharmacy, and Biomedical Resources Corp. (Lab).
HCFA brief
dated 10/17/90, p. 9. It appears that HCFA intended to refer
only to
item #1 of the narrative justification for Berliner's Pharmacy, and
that
item #2 is governed by the discussion in the prior section. Item
#1
involves a reduction based on a determination by Department
medical
staff that the cost of a particular drug was covered by Medicaid
under
the circumstances presented. According to the narrative
justification,
the reductions for University Pharmacy and for Biomedical
Resources
Corp. (Lab) were based on the fact that the guidelines on which
the
original adjustments relied were not in effect during the
relevant
period.
13. According to the narrative justification, the overpayment to
Daven
Drug was reduced "pursuant to court decision," while $9,124 of
the
overpayment to Mini Fox Pharmacy was reduced "[p]ursuant to
adjustments
ruled in favor of the provider by the administrative law
judge."
State's ex. 1, pages 2 -3. California also claimed that the
overpayment
for Mini Fox Pharmacy was reduced by an additional $35,856
"[p]ursuant
to the decision of an administrative law judge." Id., p.
3. However,
since the $35,856 reduction of the Mini Fox Pharmacy
overpayment
represents the difference between the mean and lower precision
levels,
it is justified regardless of whether California can establish
the
reduction was specifically required by an administrative decision.
14. This clarified an earlier offer of proof by California, which
the
Board had not understood to pertain to the settlements in question
here.
See Order, p. 11, n.