Umbrella Family Waiver Services, LLC v. Indiana Family and Social Services Administration

FOR PUBLICATION
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
ROBERT W. MARKETTE, JR. GREGORY F. ZOELLER
KENDRA L. CONOVER Attorney General of Indiana
Hall, Render, Killian, Heath & Lyman, P.C.
Indianapolis, Indiana KATHY BRADLEY
Deputy Attorney General
Indianapolis, Indiana
Apr 07 2014, 9:14 am
IN THE
COURT OF APPEALS OF INDIANA
UMBRELLA FAMILY WAIVER SERVICES, )
LLC, )
)
Appellant-Petitioner, )
)
vs. ) No. 49A02-1306-PL-525
)
INDIANA FAMILY AND SOCIAL SERVICES )
ADMINISTRATION, )
)
Appellee-Respondent. )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Timothy Oakes, Judge
Cause No. 49D13-1212-PL-47680
April 7, 2014
OPINION - FOR PUBLICATION
BARTEAU, Senior Judge
STATEMENT OF THE CASE
Umbrella Family Waiver Services, LLC (“Umbrella”), appeals the trial court’s
denial of its Verified Petition for Judicial Review. We affirm.
ISSUES
Umbrella raises two issues, which we restate as:
I. Whether the Indiana Family and Social Services Administration (“FSSA”)
deprived Umbrella of due process of law in the course of terminating the
parties’ contract.
II. Whether FSSA’s termination of the contract exceeded its statutory
authority.
FACTS AND PROCEDURAL HISTORY
The facts are undisputed. In 2003, Umbrella executed a contract with FSSA to
provide home- and community-based services under the Medicaid program. The contract
designated Umbrella as the “Provider.” Appellant’s App. p. 3. The contract provided the
following options for termination:
38. That this Agreement may be terminated as follows:
A. By IFSSA or its fiscal agent for Provider’s breach of any
provision in this Agreement;
B. By IFSSA or its fiscal agent, or by Provider, upon 60 days
written notice.
Id. at 7.
On May 1, 2012, FSSA sent Umbrella a letter stating that it was terminating the
contract, effective sixty days after receipt of the letter. The letter cited paragraph 38(B)
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of the contract and did not state a reason for termination. However, the letter advised
Umbrella of its right to seek administrative review.
Umbrella timely requested administrative review, and Umbrella and FSSA both
requested summary judgment. An administrative law judge (“ALJ”) granted FSSA’s
motion for summary judgment and denied Umbrella’s motion for summary judgment.
Umbrella requested review of that decision, and FSSA upheld the ALJ’s decision.
Next, Umbrella filed a Verified Petition for Judicial Review with the trial court.
After oral argument, the court denied Umbrella’s Verified Petition and affirmed FSSA’s
termination of the contract. This appeal followed.
DISCUSSION AND DECISION
In an appeal of a decision by an administrative agency, our standard of review is
governed by the Administrative Orders and Procedures Act, and we are bound by the
same standard of review as the trial court. Dev. Servs. Alts., Inc. v. Ind. Family & Soc.
Servs. Admin., 915 N.E.2d 169, 176 (Ind. Ct. App. 2009), trans. denied. When a court
reviews a decision from an administrative agency, the reviewing court may not substitute
its judgment for that of the agency. Id. We will reverse an agency’s decision if it is:
(1) arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law;
(2) contrary to constitutional right, power, privilege, or immunity;
(3) in excess of statutory jurisdiction, authority, or limitations, or short
of statutory right;
(4) without observance of procedure required by law; or
(5) unsupported by substantial evidence.
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Ind. Code § 4-21.5-5-14 (1987). The burden of demonstrating the invalidity of agency
action is on the party seeking review of the action. Dev. Servs. Alts., 915 N.E.2d at 176.
I. DUE PROCESS
Umbrella argues that under the federal and state constitutions, it had a property
interest in its business relationship with FSSA, and it could not be deprived of its interest
without “the full panoply of protections required by state and federal due process.”
Appellant’s Br. p. 12. FSSA responds that its termination of the contract in compliance
with the contract’s provisions did not amount to a violation of Umbrella’s constitutional
rights. This issue has not previously been addressed in Indiana. 1 Umbrella does not
present an analysis of its Indiana constitutional claims separate from its federal claims.
Its claims under the Indiana Constitution are thus waived. Boczar v. Meridian St. Found.,
749 N.E.2d 87, 93 (Ind. Ct. App. 2001).
Our standard of review for constitutional questions is de novo. State ex rel.
Willard Library v. Evansville-Vanderburgh Pub. Library, 848 N.E.2d 1162, 1164 (Ind.
Ct. App. 2006). Due process challenges require a two-part inquiry. The first question is
whether a party was deprived of a protected interest in property or liberty. Wynkoop v.
Town of Cedar Lake, 970 N.E.2d 230, 233 (Ind. Ct. App. 2012), trans. denied. Only after
1
In Magnant v. Ambulatory Renal Servs., Inc., 575 N.E.2d 1029, 1032 (Ind. Ct. App. 1991), a panel of
this Court stated in passing, “Medicaid was not enacted for the benefit of health care providers, and
providers have no property interest in their continuing eligibility as providers.” However, the provider in
that case did “not assert any property interest in its status as a provider.” Id. Magnant does not resolve
the key question in this case, and its statement on whether Medicaid service providers have property
interests in their contractual relationships is dicta.
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finding the deprivation of a protected interest do we determine whether the State’s
procedures comport with due process. Id.Property interests are not created by the federal constitution. Id. at 234. To have a
property interest in a benefit, a party must have a legitimate claim of entitlement to it that
is derived from statute, legal rule, or mutually explicit understanding such as a contract.
All-Star Constr. & Excavating, Inc. v. Bd. of Pub. Works, 640 N.E.2d 369, 371 (Ind.
1994). A party must have more than an abstract need, desire, or unilateral expectation of
receiving or continuing to receive a benefit. Charnas v. Estate of Loizos, 822 N.E.2d
181, 185 (Ind. Ct. App. 2005).
We must first determine whether the contract granted Umbrella a property interest
in continuing to serve as a Medicaid provider. We find persuasive the reasoning set forth
in Senape v. Constantino, 936 F.2d 687 (2nd Cir. 1991). In that case, a physician
challenged the State of New York’s rejection of his application for reenrollment as a
Medicaid provider. The court noted,
Where the state provisions bestow a right that cannot properly be
eliminated except for cause, that right constitutes property protected by
procedural due process. On the other hand, the existence of provisions that
retain for the state significant discretionary authority over the bestowal or
continuation of a government benefit suggests that the recipients of such
benefits have no entitlement to them.
Id. at 690 (quoting Plaza Health Labs., Inc. v. Perales, 878 F.2d 577, 581 (2nd Cir. 1989)
(citations omitted)). Noting that New York’s Medicaid regulations permitted the State to
terminate a Medicaid provider without cause on thirty days’ notice, the court concluded
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the physician had no property interest in continuing his status as a Medicaid service
provider. Id. at 691.
Here, the General Assembly has given FSSA broad discretion in drafting provider
agreements, stating that such agreements must “include information that [FSSA]
determines necessary to facilitate carrying out of [the statutes governing the Medicaid
program].” Ind. Code § 12-15-11-3 (1992). The contract at issue here grants FSSA two
methods for termination. Under paragraph 38(A), FSSA could terminate the contract
immediately if Umbrella breached any of the contract’s provisions. Alternatively, under
paragraph 38(B), FSSA (or Umbrella) could terminate the agreement, without cause, if
sixty days’ advance written notice was provided.
In light of the discretion granted to FSSA by statute in drafting contracts with
service providers, and the discretion granted to the parties under the contract as to
termination, we cannot conclude that Umbrella had a legitimate expectation that FSSA
would be required to state a reason for terminating the contract under paragraph 38(B) or
that Umbrella would be entitled to additional processes beyond the sixty-day notice
requirement. Consequently, Umbrella failed to establish that it had a property interest in
continuing its status as a Medicaid provider. See Senape, 936 F.2d at 691; see also Diaz
v. State of Fla., Agency for Health Care Admin., 65 So. 3d 78, 82 (Fla. Dist. Ct. App.
2011) (Medicaid provider agreement may be terminated without cause, and such
termination did not affect a valid property interest).
Umbrella cites Hathaway v. Mathews, 546 F.2d 227 (7th Cir. 1976), in support of
its claim that it has a property interest in continuing to serve as a Medicaid provider, but
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that case is not on point. In Hathaway, the United States Department of Health,
Education, and Welfare (“HEW”) twice inspected a nursing home over the course of
three months and found multiple alleged violations, but it did not inform the nursing
home of the violations. Id. at 231. Instead, HEW waited three months to inform the
nursing home that it was terminating Medicaid payments to the facility and provided no
pre-termination hearing. The United States Court of Appeals for the Seventh Circuit
determined that principles of due process required a pre-termination hearing.
The current case is different from Hathaway in that FSSA does not allege that
Umbrella has breached the contract, violated any statutes or regulations, or had an
unfavorable inspection. Instead, FSSA seeks to terminate the contract without cause.
That distinction alone is enough to distinguish Hathaway. Furthermore, the Seventh
Circuit has sharply limited Hathaway’s precedential value. In Americana Healthcare
Corp. v. Schweiker, 688 F.2d 1072, 1083 (7th Cir. 1982), the court noted that in
Hathaway, the nursing home had not received advance notice of the alleged deficiencies
and could not seek a post-termination hearing. The court further stated, “To the extent
that Hathaway remains good law within the circuit it is limited to its unique factual
situation, including a lack of prior notice of deficiencies from the terminating agency and
the absence of post-termination appeal procedures.” Id. In the current case, Umbrella
was provided with post-termination appeal procedures.
Umbrella next argues that the termination of the contract amounts to a
punishment, and due process requires that FSSA should be required to state a cause for
termination and provide evidence. We cannot agree that termination without cause under
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paragraph 38(B) implies wrongdoing on the part of the party against whom the contract is
terminated, particularly when either party to the contract may terminate it in that manner.
Furthermore, on the record before us, FSSA did not allege any malfeasance by Umbrella,
in the termination letter or any other communication. In the absence of an allegation of
wrongdoing, we cannot conclude from the plain language of the contract that FSSA’s
termination amounts to a punishment, even though termination may deprive Umbrella of
some or all of its business. See Diaz, 65 So. 3d at 82 (termination was permissible even
though Medicaid provider had been a longtime provider, had expected to continue as a
provider, and may have been put out of business due to the termination of its contract).
Umbrella finally asserts that if FSSA’s termination of the contract under paragraph
38(B) is upheld, then going forward FSSA will utilize paragraph 38(B) for all
terminations of service providers, thereby insulating the reasons for its decisions from
judicial review. Appellant’s Br. p. 21. We think this concern is misplaced. If a
Medicaid provider has breached the contract to the point that FSSA deems termination an
appropriate sanction, it is unlikely to wait the sixty days required under paragraph 38(B)
if the wellbeing of Medicaid recipients is at risk. Rather, FSSA is more likely to
terminate under paragraph 38(A), which requires a statement of cause but does not
impose a sixty-day waiting period.
Umbrella has failed to establish a property interest in continuing its business
relationship with FSSA. Consequently, we do not reach the question of whether the
procedures FSSA provided here comport with principles of due process.
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II. STATUTORY AUTHORITY
Umbrella argues that FSSA’s decision to terminate the contract without stating a
reason exceeds its statutory authority. The primary goal in statutory construction is to
determine, give effect to, and implement the legislature’s intent. Dev. Servs. Alts., 915
N.E.2d at 181. A statute must be construed as a whole, looking to its object and policy.
Id. Words and phrases are taken in their plain, ordinary, and usual meaning unless a
different purpose is manifested by the statute. Id.Umbrella cites Indiana Code section 12-15-22-1 (1992), which provides:
If after investigation the office determines that a provider has violated a
Medicaid statute or rule adopted under a Medicaid statute, the office may
impose at least one (1) of the following sanctions:
(1) Denial of payment to the provider for Medicaid services
provided during a specified time.
(2) Rejection of a prospective provider’s application for participation
in the Medicaid program.
(3) Termination of a provider agreement permitting a provider’s
participation in the Medicaid program.
(4) Assessment of a civil penalty against the provider in an amount
not to exceed three (3) times the amount paid to the provider in
excess of the amount that was legally due.
(5) Assessment of an interest charge, at a rate not to exceed the rate
established by IC 24-4.6-1-101(2) for judgments on money, on the
amount paid to the provider in excess of the amount that was legally
due. The interest charge accrues from the date of the overpayment to
the provider.
Umbrella contends that under this statute, termination of a Medicaid service provider’s
contract is always a sanction and must always be preceded by an investigation and
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identification of violations. Umbrella thus concludes that paragraph 38(B) exceeds
FSSA’s statutory authority under Indiana Code section 12-15-22-1 and is invalid.
We take a different view of the statute. The plain, ordinary, and usual meaning of
Indiana Code section 12-15-22-1 provides that if FSSA determines that a provider has
violated a statute or rule, it may select termination as a sanction. The statute cannot
reasonably be read as stating that every termination is necessarily a sanction. 2
Furthermore, Indiana Code section 12-15-22-1 does not bar FSSA from adding to
provider agreements a paragraph allowing either party to terminate the contract without
cause. To the contrary, the General Assembly has given FSSA broad authority to prepare
provider agreements, as noted above. See Ind. Code § 12-15-11-3. Umbrella has failed
to demonstrate that FSSA exceeded its statutory authority.
CONCLUSION
For the reasons stated above, we affirm the judgment of the trial court.
Affirmed.
VAIDIK, C.J., and CRONE, J., concur.
2
Umbrella also cites 405 Ind. Admin. Code 1-1-6 and 455 Ind. Admin. Code 2-6-7 to support its claim
that FSSA cannot terminate the contract without cause, but, like Indiana Code section 12-15-22-1, we do
not read those rules as barring termination without cause. See Senape, 936 F.2d at 691 (“That [the State]
must issue regulations governing the ‘for cause’ termination of providers in no way precludes the [State]
from issuing other regulations reasonably necessary to advance the objectives of the program.”).
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