Culpeper Regional Hospital v. Cynthia B. Jones, Director , 64 Va. App. 207 ( 2015 )

COURT OF APPEALS OF VIRGINIA
Present: Judges Humphreys, McCullough and Senior Judge Haley
PUBLISHED
Argued at Chesapeake, Virginia
CULPEPER REGIONAL HOSPITAL
OPINION BY
v. Record No. 0320-14-2 JUDGE STEPHEN R. McCULLOUGH
JANUARY 13, 2015
CYNTHIA B. JONES, DIRECTOR AND
DEPARTMENT OF MEDICAL ASSISTANCE SERVICES
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge
Kathryn E. Kasper (Eileen R. Geller; Hancock, Daniel, Johnson &
Nagle, P.C., on briefs), for appellant.
Elizabeth M. Guggenheim, Assistant Attorney General (Mark R.
Herring, Attorney General; Cynthia V. Bailey, Deputy Attorney
General; Kim F. Piner, Senior Assistant Attorney General, on brief),
for appellees.
The Director of the Department of Medical Assistance Services, DMAS, concluded that
Culpeper Regional Hospital failed to make a certification required by law before admitting patients
for treatment. Based on this failure to certify, the Director ordered the Hospital to refund certain
Medicaid payments. The Circuit Court for the City of Richmond upheld the Director’s decision.
The Hospital appeals, arguing that: (1) the Hospital’s form admitting a patient for treatment, which
is signed by a physician, satisfies the certification requirement; (2) alternatively, if the Hospital’s
certification was deficient, the Hospital’s substantial compliance with its contractual obligations
excuse the absence of a certification; and (3) finally, the Director and the circuit court should have
adopted the hearing officer’s recommendation. For the reasons noted below, we affirm.
BACKGROUND
Culpeper Regional Hospital is a seventy-bed community hospital located in Culpeper,
Virginia. The Hospital is a participating provider in the Medicaid program. DMAS is the agency
charged with administering the Medicaid program for Virginia. According to the Provider
Participation Agreement between the Hospital and DMAS, the Hospital must “comply with all
applicable state and federal laws, as well as administrative policies and procedures of [DMAS] as
from time to time amended.”
DMAS issues a Hospital Manual that contains applicable policies and procedures. The
Manual specifies that “[p]roviders will be required to refund payments made by Medicaid if they are
found to have . . . failed to maintain any record or adequate documentation to support their claims.”
Hosp. Manual, ch. VI, at 2 (June 12, 2006).1
On October 24, 2011, DMAS informed the Hospital that an audit identified deficiencies in
the Hospital’s documentation. Specifically, the auditor determined that the Hospital failed to certify
that admitting certain patients for inpatient treatment was medically necessary. Based on this
failure, DMAS claimed it was entitled to recoup $46,760.10 in Medicaid payments it made to the
Hospital. The Hospital argued that a patient’s admission form is sufficient to satisfy the
certification requirement and, in the alternative, that its substantial compliance with the contractual
agreement precluded DMAS from recovering any past payments.
The Hospital eventually sought a formal appeal hearing pursuant to Code § 32.1-325.1. The
Hospital withdrew its appeal for two of the patients at issue, leaving an amount in controversy of
approximately $36,000. At the hearing, the Hospital contended that the Admission Order Forms,
1
The Manual was revised in 2009. The only substantive difference between the 2006
Manual and the 2009 Manual, as relevant here, is that the 2009 Manual provides that the
physician may complete, sign, and date the certification within twenty-four hours of admission
rather than at the time of admission. That change is not at issue in this appeal.
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which were signed by a physician, satisfied the certification requirement. One of the Hospital’s
physicians testified that, in his eyes, the admission form is “my certification. That’s my word.
That’s my name. And I’m taking responsibility of it.” The hearing officer found in favor of the
Hospital, concluding that the Hospital’s records were satisfactory and that DMAS’s interpretation of
the law was “arbitrary and capricious.” DMAS appealed. The Director overturned the hearing
officer’s decision, finding his conclusion constituted “an error of law and Department policy.” The
Director upheld the retraction of payment. The Hospital appealed to the Circuit Court for the City
of Richmond, which upheld the Director’s decision. The instant appeal followed.
ANALYSIS
The facts are not in dispute. The questions at issue in this appeal are matters of law. We
review an agency’s legal determinations de novo, while taking “due account of the presumption of
official regularity, the experience and specialized competence of the agency, and the purposes of the
basic law under which the agency has acted.” Code § 2.2-4027. See 1st Stop Health Services, Inc.
v. Department of Medical Assistance Services, 63 Va. App. 266, 276-77, 756 S.E.2d 183, 188-89
(2014).
Federal regulations require a physician to “certify for each applicant or beneficiary that
inpatient services in a hospital are or were needed.” 42 C.F.R. § 456.60(a)(1) (emphasis added).
The Provider Participation Agreement further requires the Hospital to “comply with . . .
administrative policies and procedures of [DMAS] as from time to time amended.” The Hospital
Manual issued by DMAS provides that “Medicaid requires that payment for certain covered
services may be made to a provider of services only if there is a physician’s certification concerning
the necessity of the services furnished . . . .” Hosp. Manual, supra, ch. VI, at 2. “A physician must
certify the need for inpatient care at the time of admission.” Id. at 3 (emphasis is original). “The
certification must be dated at the time it is signed.” Id. Furthermore, “[t]he certification must be in
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writing and signed by an individual clearly identified as a physician (M.D.), doctor of osteopathy
(D.O.), or dentist (D.D.S.).” Id.
Neither the Manual nor applicable regulations specify any particular wording or format for
the required certification. The Manual provides,
The certification may be either a separate form to be included with
the patient’s records or a stamp stating “Certified for Necessary
Hospital Admission” which must be made an identifiable part of the
physician orders, history, and physical or other patient records. This
certification must be signed and dated by the physician at the time of
admission or, if an individual applies for assistance while in the
hospital, before payment is to be made by DMAS.
Id.
I. THE HOSPITAL DID NOT CERTIFY THE NEED FOR INPATIENT CARE.
The Hospital first argues that DMAS has imposed an “unwritten, unknown standard” on the
Hospital by faulting the Hospital for failing to include “certifying language” or an “authoritative
attestation” in the Hospital’s records. Opening Br. at 10. It contends that checkboxes on the
Admission Order Form indicating “inpatient status,” along with a physician signature and date, are
sufficient to satisfy its obligation.
Although the regulation and the Manual do not define the term “certification,” it has a plain
meaning. “Certification” is simply “the act of certifying,” Webster’s Third New International
Dictionary 367 (1981), and to “certify” means “to attest . . . authoritatively or formally.” Id.
Whatever form it takes, the certification is an additional step beyond simply admitting the patient.
Merely admitting a patient does not constitute a formal act declaring that “inpatient services in a
hospital are or were needed.” 42 C.F.R. § 456.60(a)(1). Instead, the admission form only admits
the patient for treatment. The Hospital’s interpretation would render the certification requirement
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superfluous, and we will not construe statutes or regulations in such a manner. See, e.g., Cnty. of
Albemarle v. Camirand, 285 Va. 420, 425, 738 S.E.2d 904, 906-07 (2013).2
II. THE CONTRACT DISPLACES ORDINARY PRINCIPLES OF SUBSTANTIAL COMPLIANCE.
Alternatively, the Hospital argues that it substantially complied with the regulations
governing the Medicaid program, that the failure to certify is a minor breach, and that DMAS does
not contend that the Hospital provided unnecessary services.
The agreement between DMAS and the Hospital is governed by the law of contracts. See
Psychiatric Solutions of Va., Inc. v. Finnerty, 54 Va. App. 173, 176, 676 S.E.2d 358, 359 (2009).
The law of contracts supplies a number of default rules that govern contract interpretation. For
example, the law generally presumes that, in contracts for the sale of real estate, time is not of the
essence. Cranford v. Hubbard, 208 Va. 689, 694, 160 S.E.2d 760, 764 (1968). Nevertheless, the
parties to a contract may agree to displace this default rule, and “‘[t]ime may be made of the
essence of the contract by express stipulation.’” Id. (citation omitted).
Another default rule is that of “material breach” and “substantial compliance.” The
Supreme Court has recognized that,
[g]enerally, a party who . . . breach[es] . . . a contract is not entitled
to enforce the contract. An exception to this rule arises when the
breach did not go to the “root of the contract” but only to a minor
part of the consideration.
If the . . . breaching party committed a material breach, however,
that party cannot enforce the contract. A material breach is a
failure to do something that is so fundamental to the contract that
the failure to perform that obligation defeats an essential purpose
of the contract.
2
Invoking the void for vagueness doctrine, the Hospital argues that its rights to due
process were violated when DMAS “impos[ed] a requirement that was altogether absent from
the relevant Manual provisions and the applicable federal regulation.” Opening Br. at 13. This
argument fails, first, because DMAS has done no such thing. Second, the argument is not
encompassed by any assignment of error. Accordingly, it is barred for that reason as well. See
Rule 5A:20(c); Ceres Marine Terminals v. Armstrong, 59 Va. App. 694, 698 n.1, 722 S.E.2d
301, 303 n.1 (2012); cf. Rule 5A:12(c)(1)(i).
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Horton v. Horton, 254 Va. 111, 115, 487 S.E.2d 200, 203-04 (1997) (quoting Fed. Ins. Co. v.
Starr Elec. Co., 242 Va. 459, 468, 410 S.E.2d 684, 689 (1991)); see also Akers v. James T.
Barnes of Wash., D.C., Inc., 227 Va. 367, 371, 315 S.E.2d 199, 201 (1984). Substantial
compliance is the inverse of the proposition that a breach of the contract must be “material” or
significant before it will excuse non-performance. See Restatement (Second) of Contracts § 237,
cmt. d (1981) (“The considerations in determining whether performance is substantial are those
listed in § 241 for determining whether a failure is material.”).
We addressed substantial compliance in the context of provider agreements in Psychiatric
Solutions. In that case, we held that “contract principles applied to the interpretation of the
provider agreement and that, under settled principles of contract law, appellant would be entitled
to payment if its noncompliance did not amount to a material breach of the agreement.”
Psychiatric Solutions of Va., Inc., 54 Va. App. at 176, 676 S.E.2d at 359-60. We concluded that
the provider did not substantially comply because, on those facts, its documentation deficiencies
were material. Id. at 190-91, 676 S.E.2d at 367. We rejected the argument that the failures to
document represented a “‘trifling’ technical deficiency in the documentation of those sessions.”
See id. at 191-92, 676 S.E.2d at 367. Instead, as a factual matter, DMAS established that the
documentation failure “significantly impacted” the ability to provide care and, therefore, was a
material breach. See id. at 192, 676 S.E.2d at 367-68.
We were called upon to revisit the issue of substantial compliance in 1st Stop Health
Services, Inc. We again concluded that the provider’s documentation failures were material. 63
Va. App. at 270, 756 S.E.2d at 185. The provider’s documentation in that case was “‘abysmal’
to the point [that] the auditor [could not] determine that certain payments were justified.” Id. at
280, 756 S.E.2d at 190. We also pointed to the language of the Provider Agreement and the
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applicable DMAS Manual to hold that the retraction of payment was a plainly authorized remedy
for the provider’s failure to maintain the required documentation. Id. at 281, 756 S.E.2d at 191.
Turning to the case at bar, we find that the language of the agreement controls. The
Provider Agreement requires the Hospital to follow the provisions of the Manual. The Manual
unambiguously requires providers “to refund payments made by Medicaid if they are found to
have . . . failed to maintain any record or adequate documentation to support their claims.” Hosp.
Manual, supra, ch. VI, at 2. The Hospital was required to “certify for each applicant or beneficiary
that inpatient services in a hospital are or were needed.” 42 C.F.R. § 456.60(a)(1). The Hospital
failed to make this required certification. DMAS could enforce the terms of the agreement and
require repayment for patients that were admitted without the required certification. Accordingly,
the Director was entitled to set aside, as contrary to law, the hearing officer’s decision in favor of the
Hospital.
The retraction of payment under the facts before us, where there is no allegation of
self-dealing or impropriety by the Hospital, may come across as harsh and formalistic.
Nevertheless,
It is the function of the court to construe the contract made by the
parties, not . . . to alter the contract they have made so as to
conform it to the court’s notion of the contract they should have
made in view of the subject matter and the surrounding facts and
circumstances. . . . The court . . . is not at liberty . . . to put a
construction on the words the parties have used which they do not
properly bear. It is the court’s duty to declare what the instrument
itself says it says.
Ames v. Am. Nat’l Bank of Portsmouth, 163 Va. 1, 38, 176 S.E.204, 216 (1934) (emphasis in
original). Moreover, courts will not set aside a contractual provision simply because it
constitutes a “‘hard bargain.’” Payne v. Simmons, 232 Va. 379, 384, 350 S.E.2d 637, 640 (1986)
(quoting Long v. Harrison, 134 Va. 424, 441-42, 114 S.E. 656, 661-62 (1922)).
Accordingly, we affirm the judgment below.
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CONCLUSION
We affirm the judgment of the Circuit Court for the City of Richmond.
Affirmed.
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