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Independence Medical Supply, Inc. v. The Montana Department of Public Health And Human Services

Supreme Court of Montana

March 27, 2018

INDEPENDENCE MEDICAL SUPPLY, INC., Petitioner, Appellant and Cross-Appellee,
THE MONTANA DEPARTMENT OF PUBLIC HEALTH AND HUMAN SERVICES, a department of the State of Montana, Respondent, Appellee and Cross-Appellant.

          Submitted on Briefs: December 28, 2017

          District Court of the Eighth Judicial District, In and For the County of Cascade, Cause No. ADV 15-902 Honorable Gregory S. Pinski, Presiding Judge

          For Appellant: Sean Morris, Worden Thane, P.C., Missoula, Montana.

          For Appellee: Theran Fries, Special Assistant Attorney General, Department of Public Health and Human Services, Helena, Montana.


          James Jeremiah Shea Justice.

         ¶1 Independence Medical Supply, Inc., ("IMS") appeals a memorandum and order from the Eighth Judicial District Court, Cascade County, granting in part and denying in part judicial review of the Montana Department of Public Health and Human Services ("DPHHS") Fair Hearing Proposed Decision. DPHHS cross appeals the decision.

         ¶2 We restate the dispositive issues as follows:

         Issue One: Whether the District Court abused its discretion by affirming the Hearing Officer's determination that physician affidavits introduced by IMS did not cure the technical violations of the supply orders.

         Issue Two: Whether the District Court erred by concluding that by sending a letter on January 8, 2014, seeking repayment, DPHHS "commenced" an action for recovery of the alleged overpayments.

         ¶3 We affirm in part and reverse in part.


         ¶4 DPHHS administers contracts with Medicaid medical suppliers and providers, such as IMS. DPHHS conducts audits through its Surveillance and Utilization Review Section ("SURS"), pursuant to its statutory and regulatory authority. In March of 2008, IMS signed a Montana Medicaid Provider Enrollment Agreement ("Enrollment Agreement") to provide incontinence supplies to Montana Medicaid patients in Great Falls and the surrounding area. As part of the Enrollment Agreement, IMS agreed to comply with all applicable laws and regulations pertaining to the Montana Medicaid Program, including: Title XIX of the Social Security Act; the Code of Federal Regulations; the Montana Code Annotated; and the Administrative Rules of Montana. IMS agreed to submit to DPHHS audits as necessary and to repay any payment received under the Medicaid program to which IMS was not entitled.

         ¶5 On April 3, 2013, DPHHS sent a letter requesting IMS's records for the period of January 1, 2010 through December 31, 2012 for purposes of a departmental audit. On January 8, 2014, DPHHS sent a letter to IMS with the results of the audit. The audit concluded that DPHHS overpaid IMS and was entitled to reimbursement in the amount of $670, 152. DPHHS identified several technical violations in the supply orders IMS submitted. DPHHS determined that many orders were incorrectly coded or incomplete and missing one or more of the following: supply description, quantity, diagnosis, length of need, or a physician's signature. DPHHS's letter also alerted IMS that it could request an administrative review of the audit findings. IMS requested administrative review.

         ¶6 DPHHS then held an Administrative Review Conference. After the first Conference, IMS obtained counsel, and the parties agreed IMS would be allowed time to gather additional information. On September 30, 2014, a second Administrative Review Conference was held, at which IMS submitted 60 affidavits signed by physicians and other health care providers. The affidavits were intended to demonstrate that the supplies provided to patients whose claims were the subject of the audit were medically necessary, and were intended to cure the defects in the orders identified by DPHHS.

         ¶7 On December 9, 2014, DPHHS issued an Administrative Review Determination affirming its prior decision. Citing Admin. R. M. 37.85.414(1)(a), DPHHS wrote: "This documentation from physicians attesting to appropriate and medically necessary supplies for the clients of [IMS was] received well beyond the 90 days given to complete a medical record from the date the services were billed to Montana Medicaid."

         ¶8 IMS requested a fair hearing to contest the Administrative Review overpayment determination. IMS moved for summary judgment, contending that the two-year statute of limitations set forth in § 27-2-211(1), MCA, applied to DPHHS's claim for repayment. Because the audit concerned claims submitted between January 1, 2010 and December 31, 2012, IMS contended DPHHS's claims were precluded by the two-year statute of limitations. The Hearing Officer denied IMS's motion for summary judgment. He held that an eight-year statute of limitations applied to the present action because the dispute arose from the contractual relationship between DPHHS and IMS.

         ¶9 On June 9, 2015, the Hearing Officer conducted an administrative hearing ("Fair Hearing"). Over DPHHS's hearsay objection, the Hearing Officer admitted IMS's affidavits into evidence. A DPHHS employee testified, identifying the issues and incompleteness of each individual affidavit. An IMS employee also testified but did not rebut the incompleteness of the supply orders and subsequent attempts to remedy; no physicians testified.

         ¶10 On August 11, 2015, the Hearing Officer issued his Proposed Decision. The Hearing Officer determined that IMS did not meet its regulatory requirements in the supply orders submitted to DPHHS. He found that the physician affidavits failed to cure the deficiencies and had no evidentiary value because:

[The affidavits] were provided to physicians (years after the fact) with tables created by [IMS personnel] from invoices (which were not reviewed at the hearing) which allegedly establish the type of incontinence supply which was medically necessary for each patient, the quantity of each incontinence supply which the physician would have ordered back in 2010 through 2012, and the approximate length of time each type of incontinence supply was medically necessary for each patient.
Without a "crystal ball, " however, which could be used to look back into time to see what each individual patient actually required, it is impossible to fix the defective physician orders which should have included the required information at the time the incontinence supplies were ordered, and allegedly provided to each patient.

         ¶11 The Hearing Officer upheld DPHHS's Administrative Review Determination that DPHHS, under its regulations promulgated under the authority of §§ 53-6-101, -113, MCA, and Title XIX of the Social Security Act, 42 U.S.C. § 1396, et. seq., was entitled to ...

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