Opinion
No. 3-139 / 02-0866
Filed June 13, 2003
Appeal from the Iowa District Court for Woodbury County, James D. Scott, Judge.
The petitioner appeals from the district court's affirmance on judicial review of an administrative ruling requiring it to repay the Iowa Department of Human Services for therapy services it failed to document. REVERSED AND REMANDED.
Charles L. Corbett and Michael W. Cameron of Corbett, Anderson, Corbett, Poulson, Vellinga Buckmeier, Sioux City, for appellant.
Thomas J. Miller, Attorney General, and Gordon E. Allen, Deputy Attorney General, for appellee.
Heard by Mahan, P.J., and Miller and Vaitheswaran, JJ.
Boys and Girls Home and Family Services, Inc. (Home) appeals from the district court's affirmance on judicial review of an administrative ruling requiring it to repay the Iowa Department of Human Services for therapy services it failed to document. The Home claims: (1) the formula for overpayment improperly considered partial weeks; (2) the department is entitled only to repayment for missed therapy sessions, not the entire per diem; and (3) the formula for repayment constitutes improper rule-making. We reverse and remand.
I. Background Facts Proceedings
The Home entered into a contract with the department to provide "Enhanced Residential Treatment." The contract incorporated administrative rules which provide:
This level of treatment is provided to children who are unable to live in a family situation due to severe social, emotional or behavioral disabilities and who require a high degree of supervision, structure and treatment services.
a.Children in enhanced residential treatment shall receive the following services: restorative living or social skills development several times per day and group or individual therapy or counseling. An average of three hours per week of therapy and counseling services shall be provided to each child.
Iowa Admin. Code r. 441-185.83(3) (1999) (emphasis added).
The Home is required to document the services it provides. The Home is reimbursed per client per day, but sends one billing each month to the department. Before July 1, 1999, the Home received $95.28 per client per day, and after July 1, 1999, it received $97.29 per client per day for Enhanced Residential Treatment.
The department performed a routine audit of the Home's facilities in Sioux City for the year 1999, and discovered problems in documentation to show that the clients in the audit sample received an average of three hours of therapy per week. The contract incorporated a handbook, which provided:
Where widespread overpayment problems are found, the Department may use random sampling and extrapolation to determine the amount of the repayment to be made by a provider. When this procedure is used, all sampling will be performed within acceptable statistical methods, yielding not less than a 95% confidence level. Findings of the sample will be extrapolated to the universe for the audit period.
The audit findings generated through the audit procedure constitute prima facie evidence in all Department proceedings.
In an expanded audit, the department reviewed 1794 files and found errors in 1394, resulting in an extrapolated error rate of 77.7%. The department applied this percentage to the total amount paid to the Home in 1999, $242,599.82, to determine an overpayment of $188,508.44.
Where the department found a failure of documentation for a client in any month, the department demanded repayment of the amount paid for that client for that month, even if the client was only short one therapy session for that month.
The Home disputed the amount of the overpayment. After a hearing, an administrative law judge concluded the department's request for repayment was punitive, because the department was demanding repayment of the entire amount paid for a client for a month if there was any evidence of noncompliance with the contract in that month. The judge concluded, "The repayment for a portion of therapy and counseling services not provided is best expressed as repayment of the portion of services not rendered." In final agency action, the department determined the amount of repayment should be based on a percentage of the amount of therapy actually provided, divided by three hours per week, and then subtracted from 100%. Thus, if a client received two hours of therapy per week, the amount of 66.67% would be subtracted from 100%, and the Home should reimburse the department 33.33% of the amount paid. "The resulting overall percentage of overpayments should be calculated for the audit sample and that sample overpayment percentage should then be applied to the $242,599.82 universe of billed claims for the January 1 through December 31, 1999 audit period." Under this formula, the amount to be reimbursed is $86,015.55.
The error percentage rate was reduced to 35.46% under this formula.
The Home sought judicial review. The district court determined the Home had kept poor records of the therapy given, although it was the Home's responsibility to document all services provided. The court concluded there was substantial evidence to support the department's ruling and affirmed the overpayment award of $86,015.55. The Home appeals, claiming the agency's action was unreasonable, arbitrary, and capricious.
II. Standard of Review
Judicial review of agency action is guided by Iowa Code section 17A.19(10) (Supp. 1999). See Wal-Mart Stores, Inc. v. Caselman, 657 N.W.2d 493, 498 (Iowa 2003). Agency action may be reversed if it is based upon a determination of facts that is not supported by substantial evidence in the record before the court when the record is viewed as a whole, or is otherwise unreasonable, arbitrary, capricious, or an abuse of discretion. Dawson v. Iowa Bd. of Med. Exam'rs, 654 N.W.2d 514, 518 (Iowa 2002) (citing Iowa Code § 17A.19(10)(f), (n)).
An agency action is arbitrary or capricious when it is taken without regard to the law or facts of the case. Dico, Inc. v. Employment Appeal Bd., 576 N.W.2d 352, 354 (Iowa 1998). Agency action is unreasonable when it is clearly against reason and evidence. Id. An abuse of discretion occurs when the agency action rests on grounds or reasons clearly untenable or unreasonable. Id. "An abuse of discretion is synonymous with unreasonableness, and involves lack of rationality, focusing on whether the agency has made a decision clearly against reason and evidence." Schoenfeld v. FDL Foods, Inc., 560 N.W.2d 595, 598 (Iowa 1997).
III. Method of Calculation
In order to calculate the amount of overpayment, the department auditors used a worksheet which looked at the number of therapy sessions provided to specific clients over a one-month period. To calculate whether the Home was in compliance, the following formula was used:
Total Units of Service Billed _____ ÷ 7 equals ___ weeks of Service. Total Hours of Therapy Counseling Documented ___ ÷ by _____ weeks of Service Results in a Weekly Average of ___ Hours of Therapy Counseling.
"Total Units of Service Billed," refers to the number of days the client was at the Home that month. If the result of the calculation was to show a weekly average which was less than three, the Home was considered to be out of compliance with the contract.
For example, if a client was at the Home for fifteen days during a month, this would be calculated as 2.14 weeks. Then, if the client had six therapy sessions during that time, six would be divided by 2.14, to result in an average of 2.8 hours of therapy per week and a finding of noncompliance for that client for that month.
The Home did not control when clients entered or left the program; this was determined by the department. The clients did not arrive on the first of the month and leave at the end, but came and left at different times during the month. Neither did the clients complete full numbers of weeks at the Home, so that, for example, a client could be at the Home for five weeks and two days.
The problem with the department's application of the formula arises when it is not applied to full weeks. The Home gives the following example which points out the problems with the formula:
Home could structure their program such that all residents would receive one hour of therapy on Monday, Wednesday and Thursday. This clearly seems to satisfy the requirement of an "average of three hours per week." . . . Under such a plan, if a patient comes into Home on Friday (or the month begins on a Friday) Home would be penalized under this formula if the patient left (or the month ended) on a Sunday, Monday, Tuesday, Wednesday, Friday, or Saturday. Only if the patient were discharged on Thursday, after receiving his final therapy (or if the month ended on Thursday) would Home be in compliance. On the other hand if that patient had been admitted on Monday, Home would always be in compliance.
Furthermore, if the month began on a Friday, the Home would be out of compliance under the department's formula for all of its clients on every day except Thursday.
It is clear that the department's application of the formula to anything other than full weeks was unreasonable, arbitrary and capricious. The Home could be found out of compliance with the contract on a random basis, depending on the day of the week the month started, or the day a client entered the Home. The administrative rules require the Home to provide an average of three hours of therapy per week. The department's formula, in effect, required the Home to provide .43 hours of therapy per day (three hours divided by seven days), which is actually a different standard. As the formula was applied, the department could find the Home out of compliance even if the Home was providing and documenting that which was required, an average of three hours of therapy per week.
We determine the formula represents the requirements of the administrative rules only when it is applied to multiples of one week. Michael Thomas, who was in charge of audits for the Rehabilitative and Treatment Support Services Program, noted:
When you have an average, you can't do one week at a time, or it's not an average. An average requires multiple weeks in, in its very nature. That's the-I mean, the concept of an average is at least two or three weeks so you can add them together and divide to come up with an average. So we look at the average for the time period you bill for.
We conclude the case should be reversed and remanded, and the department should consider only multiples of one-week periods of more than one week, which is to say time periods of fourteen, twenty-one, or twenty-eight days, and so on. The consideration of periods of less than one week, or to periods other than full weeks, do not give meaningful information about whether the Home was providing an average of three hours of therapy per week, and so these periods of less than one week should not be considered.
IV. Amount of Overpayment
The Home asserts it should not be required to refund the department the full amount it received for the days it was out of compliance. It claims that even when it did not provide all of the hours of therapy required by the contract, it provided some services every day to its clients. It contends that instead of the full per diem for each day it was out of compliance, it should be required to reimburse the department only for the value of the missed therapy sessions, which it calculates to be $39.87 prior to July 1, 1999, and $40.65 after July 1, 1999.
There is no evidence in the record that the services required for Enhanced Residential Treatment were severable. This level of treatment required the following services, "restorative living or social skills development several times per day and group or individual therapy and counseling. An average of three hours per week of therapy and counseling services shall be provided to each child." A level of services less than this would not constitute Enhanced Residential Treatment, but would be considered a different level of care, subject to different payment rates. We determine the district court and the department properly required the Home to repay the entire per diem it received for each day it was out of compliance with the contract.
V. Improper Rulemaking
The Home contends the formula for repayment established by the department, and affirmed by the district court, constituted improper rulemaking. Agency action is classified into three distinct categories: rulemaking, contested cases, and other agency action. Greenwood Manor v. Iowa Dep't of Health, 641 N.W.2d 823, 833 (Iowa 2002). Rulemaking is the process for adopting, amending, or repealing a rule. Iowa Code § 17A.2(12). A contested case is a proceeding in which the legal rights of a party are determined after an evidentiary hearing. See Iowa Code § 17A.2(5). Other agency action is action that does not constitute rulemaking or a contested case. Greenwood Manor, 641 N.W.2d at 834.
We find the present case is clearly a contested case proceeding. In a contested case proceeding, after an evidentiary hearing, the agency adjudicates disputed facts pertaining to particular individuals in specific circumstances. Id. This is precisely what happened in this case. We determine the department did not engage in improper rulemaking.
VI. Conclusion
We have determined the formula of only full-week periods, consisting of more than one week, should be used to determine whether the Home was complying with the parties' contract. From these time periods, the formula devised in final agency action may be applied to determine the amount of overpayment. Thus, we affirm the conclusion that the amount of repayment should be based on a percentage of the amount of therapy actually provided, divided by three hours per week, and then subtracted from 100%. "The resulting overall percentage of overpayments should be calculated for the audit sample and that sample overpayment percentage should then be applied to the $242,599.82 universe of billed claims for the January 1 through December 31, 1999 audit period."
We reverse and remand to the Iowa Department of Human Services for recalculation of the amount of overpayment in accordance with this opinion.