“Abysmal” Documentation of Services Deemed a Material Breach of the Provider Agreement

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We have previously discussed a line of Virginia case decisions holding that less-than-perfect compliance with the Department of Medical Assistance Services regulations does not always justify a retraction of payments.  Rather, Virginia courts have held that ordinary contract principles govern disputes between the Department and a provider.  Accordingly, a breach of the Provider Agreement does not justify a retraction of payments unless the breach is “material” as opposed to “de minimis.”

This morning, the Court of Appeals of Virginia made a notable addition to this body of law in 1st Stop Health Services, Inc. v. Department of Medical Assistance Services et al. (“1st Stop”).[1]  In 1st Stop, the Department sought a retraction totaling $128,987.64 from a provider (“the Provider”) participating in the Elderly or Disabled with Consumer Direction Waiver program.  Though the record established that each of the services subject to a retraction had actually been performed in accordance with DMAS regulations, the Department asserted that a retraction was nonetheless justified due to the Provider’s failure to adequately document services on form DMAS-90.

Placing special emphasis on the hearing officer’s characterization of the Provider’s documentation as “abysmal,” the Court of Appeals held that the retractions by the Department were justified.  In support of its decision, the Court noted that the Provider Agreement contains “provisions designed specifically to ensure . . . adequate and uniform documentation.”  The Court found that the “uniformity and clarity” achieved through adherence to documentation procedures is essential to the operation of DMAS in “an efficient and fiscally responsible manner.”  Moreover, the Court found it significant that “notations about the care provided enable other caregivers and medical personnel to determine the status or progress of a patient.”

In light of these policy interests, the Court of Appeals determined that documentation requirements “constitute an integral part of the contract.”  The Court also noted that “[t]he hearing officer, the Director, and the circuit court all concluded that [the Provider’s] documentation was so poor that DMAS could not determine what services were rendered during the hours claimed.”  The Court thus held that “[w]hen, as an undisputed factual matter, a provider’s documentation is ‘abysmal’ to the point where the auditor cannot determine that certain payments were justified, then, under those circumstances, the provider is in material breach of the contract.”

The facts in 1st Stop present the extreme case wherein the Provider’s documentation was found to be so “abysmal” that it materially interfered with the efficient administration of Medicaid by the Department.  While most cases will not present these extreme facts, this decision represents a significant victory for the Department in actions where retractions are predicated upon technical regulatory violations and documentation deficiencies—even where a Provider has faithfully billed for services actually performed.

This latest decision underscores the need for effective risk management practices by providers to ensure substantial compliance with the Provider Agreement and DMAS regulations.  In the event of an audit, it is important that the provider involve experienced counsel as early in the process as possible to help minimize the risk.

Topics:  Breach of Contract, Contract Drafting, Healthcare, Risk Management

Published In: Health Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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