Civil Litigation

Medicaid Information System Glitch Surprises Provider with $367k Retraction

Yesterday the Court of Appeals of Virginia released its opinion in LifeCare Medical Transports, Inc. v. DMAS,[1] a case involving a retraction of over $367,000. LifeCare Medical Transports, Inc. (“LifeCare”) provides advanced life support transportation services. Historically, many of LifeCare’s care recipients were dually eligible for benefits from both federal Medicare and state Medicaid. In each of these cases, LifeCare would bill Medicare, who would then automatically forward an invoice to the Virginia Department of Medical Assistance Services (“the Department”) as a “crossover claim.”

Under the federal Balanced Budget Act of 1997, the Commonwealth was authorized to limit certain crossover payments to amount provided under the State Plan. Effective July 1, 1998, the Department promulgated an emergency regulation limiting the payment of crossover claims accordingly. In July 2003, the Department implemented its Medicaid Management Information System (“MMIS”) which automated, in part, the payment of crossover claims.

Eventually, the Department discovered that the MMIS was erroneously paying transportation services providers like LifeCare. On March 1, 2008, a letter was sent to all providers informing them of the overpayments. On September 15, 2008, as a result of an independent audit, DMAS requested that LifeCare repay $367,178, which represented overpayments from April 2005 through August 2008.

LifeCare made several arguments in opposition to this retraction before the Court of Appeals of Virginia, all of which were rejected by the court. First, LifeCare argued that the retractions were unjustified because the Department had not provided sufficient notice to LifeCare of the new limitations placed on crossover payments. Rejecting this contention, the court found that notice was sufficient under state and federal law when the 1998 emergency regulations were published in the Virginia Register.

Second, responding to a related contention from LifeCare, the court clarified that the four-year limitations period provided under Code of Virginia section 32.1-325.1:1(B) governs the retraction of overpayments. Under this Code section, the Department has a four-year lookback period within which it can make an “initial determination” of overpayment and seek a retraction. In a footnote, the court explained that the “initial determination” is the date when an informal fact-finding conference decision is issued.

Third, LifeCare asserted that the retractions were not justified under the equitable doctrine of “detrimental reliance.” In other words, LifeCare urged that it had reasonably relied on the regularity of the Department’s payments, and that the Department’s reversal of position has caused LifeCare an unreasonable financial hardship. The court rejected this argument on the grounds that the Department enjoyed governmental immunity from equitable defenses such as detrimental reliance. The court also noted that the provider agreement fails to provide relief in cases of financial hardship.

The LifeCare decision demonstrates the significant authority enjoyed by the Department in recovering overpayments, even when the retraction of overpayments imposes a significant hardship on the provider. This decision underscores the need for effective risk-management practices to stay abreast of the ever-changing regulatory landscape. Moreover, in the event of a DMAS audit, it is important that the provider engage experienced counsel as early in the process as possible to minimize the risk of a costly retraction.

[1] No. 1586-13-4 (Va. Ct. App. June 24, 2014), available at

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