MERCER COUNTY CHILDREN'S MEDICAL DAYCARE, LLC VS. DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES (DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3804-16T3
MERCER COUNTY CHILDREN'S
MEDICAL DAYCARE, LLC,
Petitioner-Appellant,
v.
DIVISION OF MEDICAL
ASSISTANCE AND HEALTH
SERVICES, and OFFICE OF THE
STATE COMPTROLLER,
MEDICAID FRAUD DIVISION,
Respondents-Respondents.
______________________________
Submitted February 11, 2019 – Decided August 8, 2019
Before Judges Fasciale, Gooden Brown and Rose.
On appeal from the New Jersey Department of Human
Services, Division of Medical Assistance and Health
Services.
Law Offices of Edward P. Vidal, attorney for appellant
(Edward P. Vidal, on the briefs).
Gurbir S. Grewal, Attorney General, attorney for
respondents (Melissa H. Raksa, Assistant Attorney
General, of counsel; Arundhati Mohankumar, Deputy
Attorney General, on the brief).
PER CURIAM
Mercer County Children's Daycare, LLC (Mercer), a now defunct
pediatric medical day care facility, appeals from the March 10, 2017 final
agency decision of the Director of the Division of Medical Assistance and
Health Services (DMAHS), adopting, as modified, the initial decision of the
administrative law judge (ALJ). The ALJ determined that Mercer billed
Medicaid for children who did not satisfy the eligibility criteria for pediatric
medical day care (PMDC)1 services, as set forth in N.J.A.C. 8:86. 2 As a result,
1
According to the ALJ, the PMDC program
was created pursuant to [N.J.S.A.] 30:4D-6(b)[(17)],
which gives DMAHS authority "[s]ubject to the
limitations imposed by federal law" to expand medical
assistance services past the traditional doctor and
hospital visits to include "[a]ny other medical care and
any other type of remedial care recognized under State
law, specified by the Secretary of the federal
Department of Health and Human Services, and
approved by the commissioner." The federal authority
for the program is derived from 42 [U.S.C.] § 1396(a)
and 42 [C.F.R.] § 440.90.
2
As of January 2, 2001, N.J.A.C. 8:86-1.1(a) permitted PMDC services "only
for technology-dependent and/or medically unstable children who require[d]
continuous, rather than part-time or intermittent, care of a licensed practical
A-3804-16T3
2
Mercer was required to reimburse Medicaid for overpayments and damages. For
the reasons that follow, we affirm.
I.
By way of background, since 2003, Mercer provided PMDC services to
at-risk and Medicaid eligible children up to the age of five in the Trenton area.
In 2004, the Office of the State Comptroller, Medicaid Fraud Division (MFD),
launched an investigation into Mercer's billing practices after receiving a tip
alleging overbilling. The investigation lasted approximately seven years, during
which MFD reviewed a sample3 of medical records maintained for each child by
both Mercer and the child's pediatrician. As a result of the investigation, in a
March 28, 2011 Notice of Claim, MFD alleged that Mercer "violated the
[p]urpose and [s]cope of Pediatric Day Health Services, pursuant to N.J.A.C.
[LPN] or registered professional nurse [RN] in a developmentally appropriate
environment." Effective February 1, 2006, the eligibility criteria changed.
Then, under N.J.A.C. 8:86-1.5(i), the eligibility criteria for PMDC services
included the requirement that a Medicaid beneficiary be five years of age or
under, require "continuous nursing services available only in a pediatric day
health services facility," and be "technology dependent, requiring life-sustaining
equipment or interventions," or "medically unstable requiring ongoing treatment
administered by a [RN] or [LPN] such as nebulizer treatment, administration of
oxygen, apnea/cardiac monitoring, or intermittent urinary catheterization, to
maintain health . . . ."
3
The files reviewed consisted of a sample of "the universe of the case[s,]"
determined by MFD's Data Mining Unit "to be representative of the whole."
A-3804-16T3
3
8:87-1.1[,]" by enrolling "non-eligible Medicaid recipients" and improperly
billing Medicaid for PMDC services for the period from "March 22, 2004[,]
through December 8, 2010." In addition, the Notice of Claim indicated that
"[u]pon learning that an enrolled recipient no longer met eligibility criteria due
to a change in the child's medication and treatment requirements," Mercer
"failed to discharge the recipient from care and continued to bill . . . Medicaid
for services[,]" in violation of "N.J.A.C. 8:87-3.1 through N.J.A.C. 8:87-3.4."
The Notice of Claim and accompanying Certificate of Debt4 served upon
Mercer sought to recover $3,101,377.95 in overpayments, pursuant to N.J.S.A.
30:4D-7(h), and $9,304,133.85 in treble damages, pursuant to N.J.S.A. 30:4D-
17(e), for a total of $12,405,511.80. The Notice attached "a summary of the
amounts and the number of claims" for which recovery was sought. The Notice
also informed Mercer that pursuant to N.J.S.A. 30:4D-17(i), MFD would
"immediately begin withholding [thirty percent 5] of [Mercer's] future program
reimbursements until the full amount of the overpayment and interest . . . [was]
4
The certificate of debt was filed with the Clerk of the Superior Court and
docketed as a judgment against Charles M. Bunting III and Michelle L. Bunting,
Mercer's principals.
5
Ultimately, DMAHS withheld only twenty percent of Mercer's
reimbursements.
A-3804-16T3
4
withheld, or until [a] final adjudication . . . , whichever [was] earlier."
Additionally, the Notice advised Mercer of its right to dispute the claim by
requesting a pre-hearing with the agency, or a formal hearing before the Office
of Administrative Law (OAL), in accordance with N.J.A.C. 10:49-10.3.6
On February 7, 2012, Mercer requested a fair hearing to challenge the
claim. As a result, the case was transferred to the OAL. See N.J.S.A. 52:14B-
1 to -15; N.J.S.A. 52:14F-1 to -13. On October 3, 2013, MFD issued an
Amended Notice of Claim and corresponding Certificate of Debt, limiting the
total recovery sought to $6,202,755.90, based on a reduction of the damages
assessed to "single damages." After several adjournments at both parties'
requests, a six-day hearing was conducted on various dates in 2015 and 2016,7
during which the ALJ adjudicated various discovery disputes and addressed
several legal issues raised by Mercer.
Based on the ALJ's rulings, in a May 1, 2015 letter, MFD notified the ALJ
and Mercer of various changes to its recovery action. Specifically, MFD (1)
"restricted the time frame for which it was seeking recovery" to "2005 through
6
The Notice specified that the "[f]iling of the Certificate of Debt [did] not affect
[Mercer's] hearing rights."
7
During 2015, Mercer changed attorneys twice, ultimately electing to proceed
pro se.
A-3804-16T3
5
2009"; (2) identified the sixteen children involved; (3) changed its reliance on
N.J.A.C. 8:87, as cited in its Notice of Claim, to N.J.A.C. 8:86 "to support the
recovery sought"; and (4) further reduced the amount sought to $1,959,164.22
in overpayments and $1,959,164.22 in damages, for a total of $3,918,328.44.
MFD attributed the change in the regulation to the fact that N.J.A.C. 8:86, rather
than N.J.A.C. 8:87, was the governing regulation "for the years relevant to the
recovery time period," and explained that "[t]he regulation ha[d] been revised
throughout the years[.]"
Notably, in denying Mercer's application to reject the change and limit
MFD "to the allegations and claims set forth in its [Notices of Claim/Withhold],"
the ALJ explained that
even if [MFD] did not clearly articulate its intent to rely
on [N.J.A.C.] 8:86 until somewhere between July 2014
and May 2015, . . . any prejudice to Mercer has been
cured by the lengthy period afforded [to Mercer]
between the second and third day of hearing, a period
in which [Mercer] procured an expert witness whose
testimony incorporated the concepts of [N.J.A.C.] 8:86.
At the hearing, a total of nine witnesses testified, consisting of MFD's
supervising medical review analyst, Kathleen Donnelly 8; MFD's medical review
8
Donnelly's testimony was limited to explaining how the "data mining" process
supported the work of MFD's auditors and investigators by retrieving "claims
A-3804-16T3
6
analysts, Marianne McCafferty and Rita Smith; MFD's medical records analyst,
John Kelly9; and representatives of Medicaid's fiscal agent, 10 Peter Ringel and
Richard Tilghman. The witnesses testified about their respective roles in
Medicaid fraud investigations in general, and their specific involvement with
the investigation of Mercer's alleged improper billings. Beverly Grissom, 11
owner and vice president of Horizon Pediatric Systems, Mercer's parent
company, testified for Mercer. In addition, Dr. Thomas Lind, DMAHS' Medical
Director, and Dr. Steven Kairys, Chairman of Pediatrics at Jersey Shore
University Medical Center and a Professor of Pediatrics at Robert Wood
Johnson Medical School, both testified as experts in pediatrics on behalf of MFD
data" for specific cases to "show whether or not there[ was] variance in the
claims submission behavior from providers within [a particular] peer group."
9
Kelly prepared a spreadsheet summary, which outlined a portion of the
recovery sought by MFD.
10
The fiscal agent was "tasked with certain responsibilities to support the
administrat[ion] of the Medicaid program," including "processing" all claims
submitted for payment. The fiscal agent had the authority to "pay" and "deny"
claims, and had a Fraud and Abuse Unit that worked in cooperation with MFD
to investigate providers suspected of fraud.
11
Grissom and Michelle Bunting, both principals, were permitted to proceed
pro se in accordance with N.J.A.C. 1:1-5.1, 1:1-5.4(b)(4)(vi), and 1:1-2.1.
A-3804-16T3
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and Mercer, respectively. In total, over fifty exhibits were admitted into
evidence.
Grissom, who served as Mercer's regulatory compliance officer along with
outside counsel, testified that each year, the Department of Health sent a team
to Mercer to evaluate its records. The first three years, the Department noted
deficiencies that the facility promptly rectified. According to Grissom, during
these evaluations, no Department representative notified Mercer that it was
enrolling children who did not meet the eligibility criteria. Grissom stated that
although MFD evaluated Mercer's records in 2004 and again in 2007, it was not
until 2011 that MFD notified Mercer that there was a problem.
According to Smith, MFD's audit of Mercer was a lengthy process because
of "the volume." She testified that she personally audited files for fifty children.
Upon completing her examination, she provided notes summarizing her findings
and ultimately identified eighteen children she believed did not qualify for
PMDC services. When questioned about the eligibility criteria she used in
evaluating the records, she responded that "[i]t could have been a combination
of both [N.J.A.C. 8:87 and 8:86] because they d[id] overlap."
After Smith left MFD in 2011, McCafferty took over and reviewed the
records from Mercer as well as the corresponding pediatrician records,
A-3804-16T3
8
"focus[ing] on the care rendered to the children while they were at [Mercer], the
medications [and treatments] administered, . . . [and] any type of assessments
. . . that would relate to their diagnosis." She reviewed the records "to determine
if what [was] billed [was] supported by documentation." Ultimately, based on
"medical necessity" and the "medical eligibility" requirements of N.J.A.C. 8:86,
she concluded that none of the eighteen children "were technology dependent,"
required "continued monitoring" or "ongoing care of a professional [l]icensed
or [r]egistered [n]urse" as "evidenced by the rare occasion of medication
administration." McCafferty explained that the regulation required "a need for
continued monitoring by a professional nurse, not intermittent [care]" as
reflected in the records. When asked on cross-examination whether Mercer
should have discharged the children when they no longer met the medical
eligibility criteria, McCafferty responded that there should have been "other
arrangements made for the children, for example, a regular day[ care] or another
caregiver." She added that, "in most of the cases[, MFD] gave a [thirty] day
grace period" for the child to be "transitioned to other care if necessary."
Both McCafferty and Smith agreed that the "asthma treatment records for
the . . . children only reflected prescriptions for medication PRN, meaning to be
administered as needed, and—based on [Mercer's] notes—'as needed' turned out
A-3804-16T3
9
to be rarely or even never." According to McCafferty, "all of the children . . .
submitted for recovery . . . had time approved prior to the period of the
recovery[.]" Because a doctor had initially prescribed PMDC services for each
of the eighteen children under review, McCafferty referred the matter to Dr.
Lind for peer review because "only a physician . . . can deny . . . service[s] . . .
or limit a service requested by another physician."
Dr. Lind reviewed the records of the eighteen children who met "the age
criteria" for evidence of "technology dependence" or "medical instability" in
accordance with the eligibility criteria in N.J.A.C. 8:86. According to Dr. Lind,
"medical instability was defined [in the regulations] as requiring . . . ongoing
care to maintain health" by "a [RN] or a [LPN]." After recounting in detail the
medical history and treatment of each of the eighteen children, all of whom had
an initial diagnosis for asthma, he concluded that only two of the children
qualified as medically unstable, primarily due to "overwhelming psycho[-]social
stressors" caused by homelessness, where the family was unable "to deliver the
care . . . [the] child need[ed] within a home setting."
Dr. Lind acknowledged that while several children presented with
extremely challenging problems and had significant physical and mental
disabilities, the use of medical pediatric day care centers was limited to children
A-3804-16T3
10
who needed ongoing nursing care. Otherwise, Dr. Lind believed the program
would be unsustainable. He indicated that to determine which social stressors
were sufficiently egregious to qualify, "a provider" should "look at whether care
delivery in the home [was] a possibility" to determine clinical eligibility. When
challenged on cross-examination about the subjective nature of such an
approach, Dr. Lind responded that "[t]echnically, if you read the regulation
narrowly, there are no social stressors that will qualify a patient for medical day[
care] at all." Dr. Lind explained that "social stressors by themselves [were] not
an admission criteria." However, he tried to "take as broad a view as possible"
because "technically," none of the children "[met] the criteria if you look[ed] at
a narrow interpretation of the regulation." Ultimately, based on Dr. Lind's
opinions, which were consistent with the investigative findings, MFD concluded
that sixteen of the eighteen children did not meet the regulatory standards for
clinical eligibility to receive PMDC services, and filed the ensuing Notice of
Claim against Mercer.
In contrast to Dr. Lind, after reviewing the files of the eighteen children,
Dr. Kairys opined that all but four of the children met the clinical eligibility
criteria under N.J.A.C. 8:86. Dr. Kairys described the eligibility criteria as
requiring "technology dependence," and "a need for continuous nursing
A-3804-16T3
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involvement and care," as well as consideration of "the tremendous social
stresses, pressures, [and] behavioral issues that may have impacted that
particular child." According to Dr. Kairys, "overwhelming social, family, [and]
behavioral stressors, . . . directly impact[] medical stability," and continuous
nursing services encompassed more than daily medication administration.
Rather, continuous nursing services required "general health oversight and
surveillance and monitor[ing of] the child's condition . . . and . . . health status
for that particular day."
Dr. Kairys agreed with Dr. Lind that for at least two of the children, "their
social needs were so overwhelming that it met the medical instability" criteria.
However, Dr. Kairys believed that the additional children he identified as
eligible "were just as medically unstable" because of their "overwhelming"
"social[,] . . . behavioral[,] and family issues." Based on his experience working
closely with pediatricians in Mercer County, Dr. Kairys explained that, based
on the pressing "[social] issues," the "pediatricians had nowhere to go with these
kids" and "[s]o when there was an option like medical day[ care], where they
thought the kids would get more comprehensive services, . . . they latched on to
that as a great resource for these kids." Dr. Kairys believed Mercer "did a
wonderful job with the kids . . . and they were not out to defraud anybody[.]"
A-3804-16T3
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Following the hearing, on January 5, 2017, the ALJ issued an initial
decision allowing recovery for only five of the sixteen children based on factual
findings consistent with the witnesses' testimony and the judge's interpretation
of the governing regulation. Initially, the ALJ posited that the issue was
"whether [Mercer] knowingly provided care and billed Medicaid for sixteen
children whose medical conditions were not so severe as to require nursing
intervention." In that regard, the ALJ explained the parties' respective positions,
noting that MFD characterized all sixteen children "as having asthma that did
not require daily treatment with medicine at the facility." On the other hand,
Mercer contended "that all the children had prescriptions for their care from
physicians[,]" a fact the ALJ found undisputed, and many "suffered from
conditions that required an unusual level of care, and had social stressors at
home that rendered the likelihood of appropriate treatment there highly
uncertain."
The ALJ acknowledged Mercer's contention that the regulation was "not
. . . clear," as well as Mercer's interpretation of the regulation, finding medical
instability in children who came from "households where the psycho-social
stressors . . . impact[ed] the child's health" and "reduc[ed] the likelihood of
A-3804-16T3
13
adequate monitoring in the home." The ALJ also acknowledged Mercer's
fundamental argument
that doctors, not day care center administrators and
nurses, evaluate the health of children and write
prescriptions based on medical definitions. Therefore,
since Mercer had a proper prescription for all sixteen
children, Mercer [could not] be held financially
responsible for what [was] either a dispute with a doctor
over medical necessity, or a long-after-the-fact
alteration to the interpretation of the core regulations.
Nonetheless, the ALJ expressly rejected Mercer's attempt to confine any
recovery to violations of N.J.A.C. 8:87, as cited in MFD's Notice of Claim.
According to the ALJ, MFD "stated clearly and repeatedly that they narrowed
the scope of the original demand letter," to "sixteen cases" encompassing "the
time period from 2005 through 2009." The ALJ explained that because N.J.A.C.
8:86 "governed the eligibility requirements for the PMDC program from 2001
to 2010, when it was replaced by [N.J.A.C.] 8:87[,]" "which was not effective
until November 16, 2009, and not operative until April 1, 2010," see 41 N.J.R.
4257(a), any recovery was "wholly based on violations of [N.J.A.C.] 8:86-
1.1[(a)] and [N.J.A.C.] 8:86-1.4(b)[(6)(i)]."
The ALJ recounted in detail the regulatory history of N.J.A.C. 8:86 and
8:87, noting that in 2005, the Department of Health and Senior Services (DHSS)
A-3804-16T3
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first attempted "to strengthen" N.J.A.C. 8:86, by adopting new rules which
became operative on February 1, 2006. Specifically,
DHSS maintained the existing "technology dependent"
requirement but changed the "need ongoing treatment"
criterion to "[b]e medically unstable requiring ongoing
treatment." [N.J.A.C. 8:86-1.5 (2006)] (former[ly]
[N.J.A.C.] 8:86-1.5(j)). Those rules also newly
provided that "[t]he Department may, at its discretion,
require prior authorization of eligible Medicaid
beneficiaries by professional staff designated by the
Department prior to the provision of services in a new
or existing pediatric day health services facility."
[]Ibid.[] (former[ly] [N.J.A.C.] 8:86-1.5(k)). However,
DHSS could, "for reasons of administrative
convenience, authorize staff of the facility to perform
the eligibility assessment on the Department's behalf."
[]Ibid.[] (former[ly] [N.J.A.C.] 8:86-1.5(e)).
The ALJ explained that, notwithstanding these changes, the dramatic rise
in program costs prompted DHSS to replace N.J.A.C. 8:86 with N.J.A.C. 8:87,
which DHSS described as "new rules . . . to 'establish clinical eligibility and
prior authorization standards that are more rigorous and stringent than the
[existing] standards' for the PMDC program." See 41 N.J.R. 4257(a).
"According to DHSS, '[i]mplementation of a system of prior authorization by
the Department based upon use of a functional assessment and more precise
eligibility criteria would provide a reasonable solution to ensure proper use of
A-3804-16T3
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PMDC services' and 'result[] in some PMDC facilities realizing a lower
participation rate.'" See 40 N.J.R. 6328(a).
Relying on Metromedia, Inc. v. Director, Division of Taxation, 97 N.J.
313, 337 (1984), the ALJ explained "fairness dictates that regulations must be
'sufficiently definite' and, generally 'prospective in nature[,]'" "'subject to certain
exceptions,'" none of which applied in this case. See Seashore Ambulatory
Surgery Ctr., Inc. v. N.J. Dep't of Health, 288 N.J. Super. 87, 98 (App. Div.
1996) (explaining that "retroactive application can only apply if such application
will not result in 'manifest injustice' to a party adversely affected" (quoting
Gibbons v. Gibbons, 86 N.J. 515, 523 (1981))). However, according to the ALJ,
contrary to Mercer's claim of selective enforcement, "an agency is generally not
prevented from enforcing an existing regulation that it had previously failed to
enforce."
Applying these principles, the ALJ found that
the regulatory history of the PMDC regulations
indicates that in rejecting the eligibility of the sixteen
children for the period sought, [MFD was], for the most
part, prospectively applying a rule that did not take
effect until 2010. While [MFD] allege[d] . . . that
Mercer "knew that the children . . . did not require
continuous nursing care . . . as required by [N.J.A.C.]
8:86," the regulatory history of the PMDC eligibility
regulations includes an apparent concession by DHSS
that [N.J.A.C.] 8:86 was not sufficiently definite, and
A-3804-16T3
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that at all times relevant to this matter the regulations
"allowed the admission of children to PMDC facilities
based solely on an asthma diagnosis, regardless of [the]
severity of the condition and need for ongoing skilled
nursing intervention." DHSS acknowledged that, under
[N.J.A.C.] 8:86, "the fact that pediatric day health
services facilities admitted many children based solely
on an asthma diagnosis was problematic" and,
accordingly, replaced [N.J.A.C.] 8:86 with [N.J.A.C.]
8:87 to "establish clinical eligibility and prior
authorization standards that are more rigorous and
stringent than the [existing] standards" for the PMDC
program.
Thus, the ALJ determined that for the 2005 claims, MFD was bound by
the provisions of N.J.A.C. 8:86, prior to the 2006 changes. Because the
regulation at that time "allowed the admission of children to PMDC facilities
based solely on an asthma diagnosis, regardless of [the] severity of the condition
and need for ongoing skilled nursing intervention," with respect to the children
admitted by Mercer during that period, the ALJ concluded "there was no
violation to penalize." The ALJ continued that "[b]ased on the February 1, 2006[
rule] change, [DHSS] could have moved to pre-authorization for the children
entering Mercer, but chose not to do so." However, according to the ALJ, "[i]ts
election not to pre-authorize does not negate the fact that going forward from
February 1, 2006, providers were on notice that the clinical standard had notched
A-3804-16T3
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up from 'need ongoing treatment' to 'medically unstable requiring ongoing
treatment'" and so "[c]learly[,] after 2006, some sort of instability was required."
Acknowledging that "DHSS never defined 'ongoing'" in the regulation,
the ALJ looked to dictionary definitions, as prescribed in Macysyn v. Hensler,
329 N.J. Super. 476, 485 (App. Div. 2000), to discern its "common meaning."
See Darel v. Pa. Mfrs. Ass'n Ins. Co., 114 N.J. 416, 425 (1989) ("When a popular
or common word is used in a statute [or regulation], but is not defined, the word
should be given its common meaning." (internal quotation marks and citation
omitted)). Relying on dictionary definitions, the ALJ concluded that
"[t]reatment that does not exist cannot be ongoing."
Applying the February 1, 2006 clinical standard to the medical records of
the sixteen children, as recounted in detail by the experts, the ALJ determined
that "two of the children—A.A. and Z.C.—received no asthma treatment at all
in their time at Mercer, and three others—T.C., K.P., and S.P.—no treatments
for two or more years." The ALJ explained:
The prescribing physician was not in the best position
to assess how much daily treatment the child actually
was receiving from a[n] [RN] or [LPN] at the center.
[Mercer] was in that position, and at some point had a
duty under the regulations to discharge the child, or at
[a] minimum, address the issue explicitly with the
prescribing physician. There is no evidence it did so.
Therefore, I [conclude] that for these five children,
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[MFD] ha[s] carried [its] burden. . . . For the two who
received none, after the first year at the center, they
clearly were ineligible. For the three others, after a year
without treatment, they also clearly ceased to be
eligible.
With regard to the rest, however, while asthma
treatments were irregular, they did exist. Moreover, as
noted by Dr. Kairys, for at least eight of the children,
the physicians were prescribing based on the glaringly
problematic overall state of the child, and the
significance of problems at home that made adequate
medical attention there a dicey proposition. For the
eleven children who had ongoing prescriptions and did
receive treatment, however sporadic, I [conclude] that
they remained eligible until the Department finally
changed the rules in 2010.
Thus, the ALJ determined that MFD may recover funds and associated penalties
for claims "improperly billed by Mercer for A.A. and Z.C. one year after
admission, and for T.C., K.P., and S.P. for periods following one year after the
last treatment for asthma."
Both Mercer and MFD filed exceptions to the ALJ's decision. On March
10, 2017, the Director of DMAHS issued a final agency decision, adopting "the
findings, conclusions[,] and recommended decision of the [ALJ,]" but
modifying "the decision to include one additional [child]" for which MFD
"[could] recover overpayment and penalty." The Director explained:
In [e]xceptions, MFD notes that the standard
applied by the ALJ also encompasses J.L. I agree.
A-3804-16T3
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J.L.[] . . . attended Mercer from February 2005 until
August 2009. She received three nebulizer treatments
in 2005, three in 2006, none in 2007, none in 2008[,]
and none in 2009. As no evidence was presented that
J.L. was receiving ongoing or even intermittent
treatment for three years, she should also be included
in the awarded recovery for the period following one
year after her last treatment for asthma.
In rejecting "Mercer's argument that MFD should not be able to recover
for [any of the children] because [N.J.A.C.] 8:86 permitted admission 'solely on
an asthma diagnosis, regardless of the condition and need for ongoing skilled
nursing intervention[,]'" the Director stated:
The ALJ correctly noted that effective February 1,
2006, [N.J.A.C.] 8:86 included the requirement that
candidates for PMDC be "medically unstable requiring
ongoing treatment." [N.J.A.C.] 8:86-1.15(i) and (j).
All of the [children] at issue were admitted on a
diagnosis of asthma. A.A. and Z.C.[] never received
treatment for asthma during their time at Mercer and
T.C., K.P., S.P., and J.L.[] ceased to be treated for
asthma for two or three years. I agree with the ALJ that
treatment that does not exist or had ceased to exist for
more than a year's time cannot be ongoing or even
intermittent.
This appeal followed.
On appeal, Mercer argues that DMAHS' decision to hold Mercer
"responsible for ensuring that the PMDC services provided to the [six] [c]hildren
were 'medically appropriate,'" and for "discharging [c]hildren" who "have prior
A-3804-16T3
20
authorization from the DHSS to receive PMDC services" and "were deemed
eligible via their physician orders," violate "both express and implied legislative
policies governing the [a]gency." Further, Mercer asserts that DMAHS' decision
that it violated N.J.A.C. 8:86 "is totally unsupported by competent substantial
evidence[,]" and "the recovery of overpayments sought under the final decision
is arbitrary, capricious[, and] unreasonable" because "the ALJ did not allow
[N.J.A.C.] 8:87 to be considered at the hearing," despite MFD's reliance on that
regulation in its Notice of Claim. Further, according to Mercer, "the principal
recovery amount of $319,403 cannot be substantiated." We disagree.
II.
We begin by addressing our standard of review and the governing legal
principles. Our role in reviewing an agency decision is limited. In re Stallworth,
208 N.J. 182, 194 (2011) (citing Henry v. Rahway State Prison, 81 N.J. 571, 579
(1980)). Indeed, we will "intervene only in those rare circumstances in which
an agency action is clearly inconsistent with its statutory mission or other state
policy." In re Musick, 143 N.J. 206, 216 (1996). In particular, "[d]elegation of
authority to an administrative agency is construed liberally when the agency is
concerned with the protection of the health and welfare of the public." Barone
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v. Dep't of Human Servs., Div. of Med. Assistance & Health Servs., 210 N.J.
Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J. 355 (1987).
Thus, our task is limited to deciding
(1) whether the agency's decision offends the State or
Federal Constitution; (2) whether the agency's action
violates express or implied legislative policies; (3)
whether the record contains substantial evidence to
support the findings on which the agency based its
action; and (4) whether in applying the legislative
policies to the facts, the agency clearly erred in
reaching a conclusion that could not reasonably have
been made on a showing of the relevant factors.
[A.B. v. Div. of Med. Assistance & Health Servs., 407
N.J. Super. 330, 339 (App. Div. 2009) (quoting George
Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27
(1994)).]
We have previously stated that "[w]here [an] action of an administrative
agency is challenged, 'a presumption of reasonableness attaches to the action
. . . [,] and the party who challenges the validity of that action has the burden of
showing that it was arbitrary, unreasonable[,] or capricious.'" Barone, 210 N.J.
Super. at 285 (quoting Boyle v. Riti, 175 N.J. Super. 158, 166 (App. Div. 1980)).
Furthermore, an agency's interpretation of its own regulations "is entitled to
great weight since [it] is in the best position to understand what was meant by
the regulation when it was promulgated." In re Hosps.' Petitions for Adjustment
of Rates for Reimbursement of Inpatient Servs. to Medicaid Beneficiaries, 383
A-3804-16T3
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N.J. Super. 219, 239 (App. Div. 2006) (citation omitted). However, we are "in
no way bound by the agency's interpretation of a statute or its determination of
a strictly legal issue." R.S. v. Div. of Med. Assistance & Health Servs., 434 N.J.
Super. 250, 261 (App. Div. 2014) (quoting Mayflower Sec. Co. v. Bureau of
Sec. in Div. of Consumer Affairs of Dep't of Law & Pub. Safety, 64 N.J. 85, 93
(1973)).
The federal Medicaid Act, under Title XIX of the Social Security Act, 42
U.S.C. §§ 1396 to 1396v, authorizes a joint federal-state program to provide
financial assistance to individuals whose income and resources are insufficient
to meet the costs for necessary medical services. 42 U.S.C. § 1396a.
Participation in the Medicaid program is optional for states; however, "once a
State elects to participate, it must comply with the requirements" of the Medicaid
statute and federal regulations in order to receive Medicaid funds. Harris v.
McRae, 448 U.S. 297, 301 (1980). New Jersey's participation in the federal
Medicaid program was authorized by the enactment of the New Jersey Medical
Assistance and Health Services Act, N.J.S.A. 30:4D-1 to -19.5. Under its
enabling legislation, the Director of the New Jersey Department of Human
Services has the authority to promulgate the rules, regulations, and
A-3804-16T3
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administrative orders necessary to administer the Medicaid program. N.J.S.A.
30:4D-17.1(c).
DMAHS is the agency within the state Department of Human Services
specifically charged with the administration of the Medicaid program. N.J.S.A.
30:4D-4. Under this authority, DMAHS is responsible for protecting the interest
of the New Jersey Medicaid Program and its beneficiaries. N.J.A.C. 10:49 -
11.1(b). To that end, among other things, DMAHS implements a State fraud
detection and investigation program for the identification, investigation, and
referral of suspected fraud and abuse cases involving Medicaid providers under
a federally approved plan. See 42 C.F.R. § 455.1 to -.3. Once approved, the
state must follow the plan, or risk losing federal funding. 42 U.S.C. § 1396c.
We agree with the ALJ's and the Director's interpretation of N.J.A.C. 8:86,
to support the recovery for the six children for the time period 2005 to 2009, and
we agree with their determination that N.J.A.C. 8:86, rather than N.J.A.C. 8:87,
governed the eligibility requirements for the PMDC program for that period.
"The general rule is that . . . regulations have prospective effect." Seashore
Ambulatory, 288 N.J. Super. at 97. "Prospectivity is favored because
'retroactive application . . . involves a high risk of being unfair.'" Ibid. (quoting
Gibbons, 86 N.J. at 522). Although "the prospectivity rule is subject to certain
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24
exceptions[,]" none of those exceptions applies here. Ibid. (explaining that
"regulations may be retroactively applied where 'the Legislature has expressed
its intent, either explicitly or implicitly,' that they should be so applied, 'when
the reasonable expectations of those affected by the [regulations] warrant such
application,' or when the regulation is ameliorative or curative") (alteration in
original) (quoting Twiss v. State, Dep't of Treasury, 124 N.J. 461, 467 (1991))).
Here, the six children in question did not satisfy the eligibility criteria of
N.J.A.C. 8:86 because they did not receive "ongoing" treatment while at Mercer.
Thus, we are satisfied there was no violation of legislative policies. On the
contrary, in applying the legislative policies to the facts, the agency reached a
conclusion that was amply supported by substantial evidence in the record. R.
2:11-3(e)(1)(D). Therefore, Mercer has failed to meet its burden of showing
that the agency action was arbitrary, unreasonable, or capricious.
We also reject Mercer's argument that the ALJ abused her discretion,
"violated Mercer's federal rights to due process[,]" and "erred in allowing
[MFD] to change the regulatory scheme upon which it was relying" after the
hearing commenced. As the ALJ noted, any prejudice to Mercer was cured by
the protracted hearing dates, during which Mercer was able to fully litigate the
case and procure an expert to rebut MFD's claims of clinical ineligibility under
A-3804-16T3
25
N.J.A.C. 8:86. Indeed, the ALJ relied heavily on the testimony of Mercer's
expert to reject MFD's claims of ineligibility under N.J.A.C. 8:86 for eleven of
the sixteen children. Moreover, we are hard pressed to conclude that Mercer
was prejudiced by the change because Mercer would have fared no better had
the heightened criteria of N.J.A.C. 8:87 applied.
Thus, we are satisfied there was no abuse of discretion under the
circumstances presented herein. See Hisenaj v. Kuehner, 194 N.J. 6, 20 (2008)
("[A]buse of discretion only arises on demonstration of 'manifest error or
injustice'") (quoting State v. Torres, 183 N.J. 554, 572 (2005)); Jacoby v.
Jacoby, 427 N.J. Super. 109, 116 (App. Div. 2012) ("An abuse of discretion
'arises when a decision is made without a rational explanation, inexplicabl y
departed from established policies, or rested on an impermissible basis .'"
(internal quotation marks omitted) (quoting Flagg v. Essex Cty. Prosecutor, 171
N.J. 561, 571 (2002)).
Further, there was no due process violation. Under 42 C.F.R. § 455.23(a),
a "[s]tate Medicaid agency must suspend all Medicaid payments to a provider
after the agency determines there is a credible allegation of fraud," and "[a]
provider may request, and must be granted, administrative review where [s]tate
law so requires." Upon suspending payments based on credible fraud
A-3804-16T3
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allegations, the state "must send notice" advising the provider "that payments
are being suspended" and "the circumstances under which the suspension will
be terminated"; "the general allegations"; "[the] types of Medicaid claims"
affected; "the right to submit written evidence for consideration by [the] [s]tate
Medicaid [a]gency"; and "the applicable [s]tate administrative appeals process
and corresponding citations to [s]tate law." 42 C.F.R. § 455.23(b)(2).
N.J.A.C. 10:49-9.10 is the corresponding State regulation governing the
withholding of Medicaid payments based on "reliable evidence of fraud or
willful misrepresentation by a provider" and mirrors 42 C.F.R. § 455.23(b)(2)'s
notice requirements. N.J.S.A. 30:4D-17(i) authorizes "the division or its fiscal
agents . . . to withhold funds otherwise payable" to a provider who has received
payments to which he or she is not entitled "[i]n order to satisfy any recovery
claim asserted against [the] provider . . . , whether or not that claim has been the
subject of final agency adjudication[.]"
Here, MFD complied with the statutory notice requirements, and Mercer
received all the process it was due. The original time frame for which MFD
sought recovery encompassed a time frame during which N.J.A.C. 8:87 was
operative. MFD changed the regulation it initially relied upon when it narrowed
the time frame, a change that benefitted Mercer. Although MFD changed the
A-3804-16T3
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regulation initially relied upon in its Notice of Claim, the "types of Medicaid
claims" affected remained the same. "[D]ue process is flexible and calls for
such procedural protections as the particular situation demands." Morrissey v.
Brewer, 408 U.S. 471, 481 (1972). Moreover, "[t]he fundamental requirement
of due process is the opportunity to be heard 'at a meaningful time and in a
meaningful manner.'" Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (quoting
Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). Thus, even assuming the
notice was inadequate, inadequate notice is a procedural irregularity that may
be "'cured' by a subsequent plenary hearing at the agency level[,]" Ensslin v.
Twp. of N. Bergen, 275 N.J. Super. 352, 361 (App. Div. 1994), as occurred here.
Likewise, we reject Mercer's contention, raised for the first time on
appeal,12 that the final decision should be vacated pursuant to Rule 4:50-1(e) and
(f). In pertinent part, the rule permits "the court . . . [to] relieve a party . . . from
12
Mercer also contends for the first time on appeal that "the principal recovery
amount of $319,403 cannot be substantiated" because MFD failed to "provide
the total number of overpayments to be recovered." We decline to consider the
argument because it was not raised during the administrative appeal process.
See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (explaining that
well-settled principle that "appellate courts will decline to consider questions or
issues not properly presented to the trial court when an opportunity for such a
presentation is available 'unless the questions so raised on appeal go to the
jurisdiction of the trial court or concern matters of great public interest'"
(quoting Reynolds Offset Co. v. Summer, 58 N.J. Super. 542, 548 (App. Div.
1959))).
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a final judgment or order" if "the judgment or order has been satisfied, released
or discharged, or a prior judgment or order upon which it is based has been
reversed or otherwise vacated," Rule 4:50-1(e), or "any other reason justifying
relief from the operation of the judgment or order." R. 4:50-1(f). Our Supreme
Court has cautioned that "[c]ourts should use [Rule] 4:50-1 sparingly, in
exceptional situations[] . . . designed to provide relief from judgments in
situations in which, were it not applied, a grave injustice would occur." Hous.
Auth. of Morristown v. Little, 135 N.J. 274, 289 (1994).
To support its argument regarding Rule 4:50-1(e), Mercer asserts that the
"changed circumstances" required under the rule arise from the fact that the
previously filed "Certificate of Debt" does not correspond with the recovery
authorized under the final agency decision and has therefore been "otherwise
vacated[.]" This argument is devoid of merit. Regarding Rule 4:50-1(f), Mercer
asserts "the exceptional circumstances" required under the rule are met by
MFD's attempt to "[use] the final decision to circumvent federal Medicaid law"
by essentially "withhold[ing] Medicaid payments under [N.J.S.A.] 30:4D-17(i)"
without providing Mercer with due process. Having previously rejected
Mercer's due process argument, Mercer's reliance on Rule 4:50-1(f) to achieve
the same result must also fail.
A-3804-16T3
29
To the extent any argument raised by Mercer has not been explicitly
addressed in this opinion, it is because the argument lacks sufficient merit to
warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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