07-002136RU Custom Mobility, Inc. vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Thursday, August 23, 2007.

Summary: Statistical formula applied by AHCA to calculate Medicaid overpayments when using cluster sampling methodology is a rule, and it is feasible and practicable to adopt formula using rulemaking procedures in 120.54, F.S. Jurisdiction retained for fees.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CUSTOM MOBILITY, INC., )

)

Petitioner, )

)

vs. ) Case No. 07 - 2136RU

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a formal hearing was held in this case

on July 23, 2007, in Tallahassee, Florida, before Patricia M.

Hart, a duly - designated Administrative Law Judge of the Division

of Administrative Hearings.

APPEARANCES

For Petitioner: Maureen McCarthy Daughton, Esquire

Cathy M. Sellers, Esquire

Broad and Cassel

215 South Monroe Street, Suite 400

Post Office Box 11300

Tallahassee, Florida 32302

For Respondent: Debra Fridie, Esquire

Donna LaPlante, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive, Sui te 3431

Tallahassee, Florida 32308 - 5407

STATEMENT OF THE ISSUE

Whether the statistical formula for cluster sampling used

by the Respondent to calculate Medicaid overpayments is a rule

that has not been promulgated in accordance wi th the procedures

set forth in Section 120.54(3), Florida Statutes, in violation

of Section 120.54(1)(a), Florida Statutes.

PRELIMINARY STATEMENT

On May 11, 2007, Custom Mobility, Inc. ("Custom Mobility"),

filed with the Division of Administrative Hearings its Petition

for Administrative Determination That Agency Statement Violates

Section 120.54(1)(a), Florida Statutes, and Is an Invalid

Exercise of Delegated Legislative Authority ("Petition"). 1 In

its Petition, Custom Mobility asserted that the statistic al

formula for cluster sampling used by the Agency for Health Care

Administration ("AHCA") to calculate Medicaid overpayments in

those cases in which cluster sampling is used is an agency

statement of general applicability that has not been enacted as

a ru le, as required by Section 120.54(1)(a), Florida Statutes

(2007). 2 Specifically, Custom Mobility challenged the

statistical formula for cluster sampling set forth in a Final

Agency Audit Report dated December 19, 2005, and applied to the

calculation of a $245,317.83 Medicaid overpayment attributed to

Custom Mobility 3 :

presented in lieu of live testimony; the transcr ipts of the

depositions of Robert Pierce, taken by Custom Mobility on

June 6, 2007, and of Michael West were received into evidence as

Petitioner's Exhibits 44 and 46, respectively. Official

recognition was taken of a number of Final Agency Audit Reports

pursuant to orders granting motions of both Custom Mobility and

AHCA, and official recognition was also taken of Florida

Administrative Code Rule 59G - 7.0331.

Prior to the hearing, each party filed a Motion for Summary

Final Order. These motions were denie d in orders entered

July 13, 2007, and July 18, 2007. At the conclusion of the

Petitioner's case and at the conclusion of the testimony of

Michael West , AHCA moved for entry of a summary final order on

the ground that Custom Mobility had failed to meet it s burden of

proof that the Challenged Statement is a rule. The motion s were

denied.

The one - volume transcript of the proceedings was filed on

July 27, 2007, and the parties filed their proposed findings of

fact and conclusions of law on August 6, 2007.

FI NDINGS OF FACT

Based on the oral and documentary evidence presented at the

final hearing , on the stipulation of facts entered into during

the hearing, and on the entire record of this proceeding, the

following findings of fact are made:

Parties

1. AHCA is the state agency responsible for administering

Florida's Medicaid program, for auditing Medicaid providers, and

for recouping overpayments made to Medicaid providers. See

§ § 409.9 02 and 409.913, Fla. Stat.

2 . Custom Mobility is a corporation that is i n the

business of providing and servicing adaptive wheelchairs and

wheelchair accessories, as well as other types of equipment.

3 . Custom Mobility has been a Medicaid provider operating

under Medicaid Provider Agreement in Florida since in or about

Januar y 1990.

Standing

4 . AHCA conducted an audit of the Medicaid claims

submitted for payment by Custom Mobility between January 1,

2001, and December 31, 2003 ("Audit Period") .

5 . A Preliminary Audit Report dated November 3, 2005, was

sent to Custom Mobilit y advising it that the Office of Medicaid

Program Integrity ("OMPI") had completed its review of the

documentation provided by Custom Mobility for Medicaid claims

paid during the Audit Period and that it had preliminarily

determined that Custom Mobility wa s overpaid in the amount of

$593,154.87. The overpayment calculation was performed using

the statistical formula for cluster sampling that is identical

to the Challenged Statement.

6 . In a Final Audit Report dated December 19, 2005, AHCA

advised Custom M obility that it had completed its review of the

documentation provided and that it had determined that Custom

Mobility was overpaid in the amount of $245,317.83. The

overpayment calculation was performed using the statistical

formula for cluster sampling that is the Challenged Statement.

7 . Custom Mobility was notified in the F inal A udit R eport

that it had the right to request a formal or an informal hearing

with respect to the overpayment determination set forth in the

FAR. Custom Mobility requested a f ormal hearing pursuant to

Section 120.57(1), Florida Statutes , and AHCA forwarded the

matter to the Division of Administrative Hearings for assignment

of an administrative law judge. The matter was assigned DOAH

Case No. 07 - 1749MPI and is scheduled for fi nal hearing on

October 18 - 19, 2007.

8 . Custom Mobility has established that it is

substantially affec ted by the Challenged Statement in that the

Challenged Statement was used as the basis for calculating the

amount that AHCA is seeking to recover from Cus tom Mobility as

alleged Medicaid overpayments.

Challenged Statement

9 . AHCA uses both statistical sampling methodologies and

non - statistical methodologies to calculate Medicaid

overpayments. Statistical sampling methodologies are used to

permit the audi tors working with the OMPI to analyze a random

sample from the population of Medicaid recipients and/or claims ,

determine the findings in the sample, and extend the sample

findings to the population of recipients and/or claims.

10 . The decision regarding the methodology to be used in

calculating an overpayment is made by AHCA auditors shortly

before beginning the audit of a Medicaid provider. Among the

factors considered by the auditors in determining which

methodology to use are the way the Medicaid prov ider keeps

records, the type of Medicaid infraction that might be at issue

during the audit, the relationship between claims and

recipients, and the number of claims per recipient.

11 . The statistical sampling methodologies most frequently

used by AHCA in making determinations of overpayments are simple

random sampling, cluster sampling, and two - stage cluster

sampling; AHCA also sometimes uses judgmental sampling,

sequential sampling, and stratified random sampling.

12 . AHCA applies a different statistica l formula to extend

the results of the sam ple to the population of claims for each

of the statistical methodologies used. The statistical formulas

for simple random sampling, cluster sampling, and two - stage

cluster sampling were compiled from statistical reference

sources and included in documents prepared by Robert Pierce,

formerly the Administrator of the OMPI, so that OMPI would have

a record of the formulas that were being used and the way in

which the overpayment calculations were made.

13 . In using the statistical sampling methodology of

cluster sampling, the AHCA auditor draws a random sample of

Medicaid recipients who have received goods or services from a

particular Medicaid provider and evaluates the claims for each

recipient who is included in t he sample. The amount of

overpayment is determined for each claim for each recipient, and

the statistical formula for cluster sampling is used to extend

the overpayment found in the sample to the entire population of

Medicaid claims to determine the total overpayment.

14 . T he Challenged Statement is the only statistical

formula used by AHCA to calculate Medicaid overpayments when the

statistical sampling methodology of cluster sampling is used.

15 . Cluster sampling is an accepted and valid statistical

me thodology.

16 . According to OMPI's Statistical Sampling Internal

Operating Procedure No. 11, revised June 2003, the calculations

extending the sample findings to the population of claims when

cluster sampling is used are made by a qualified person using

c omputer programs and instructions applying the Challenged

Statement to the data collected by the auditor .

17 . Between June 1, 2004, and May 31, 2007, AHCA audited

approximately 3500 Medicaid providers. Approximately 3,140

audits were conducted using non - statistical methodologies to

calculate Medicaid overpayments. Approximately 350 providers

were audited using the statistical methodology of cluster

sampling; one was audited using the statistical methodology of

cluster sampling with a delta distribution; and 13 were audited

using the statistical methodology of two - stage cluster sampling.

18 . The Challenged Statement was used to calculate

Medicaid overpayments in all of the audits done between June 1,

2004, and May 31, 2007, in which the statistical method ology of

cluster sampling was used.

19 . The Challenged Statement is generally applicable to

all audits in which the statistical methodology of cluster

sampling is used to calculate Medicaid overpayments.

20 . The Challenged Statement has been used by AHCA for

approximately 20 years to calculate Medicaid overpayments using

the cluster sampling methodology. 4

21 . The Challenged Statement has not been adopted as a

rule pursuant to the procedures set forth in Section 120.54,

Florida Statutes.

22 . According to D. Kenneth Yon, an AHCA Administrator

with OMPI, it would be "extremely difficult" and "extremely

complex" to adopt the Challenged Statement as a rule because

AHCA uses "a lot of auditing methodologies" ; because Medicaid

"fraud and abuse changes" and comb ating fraud and abuse would be

hampered if AHCA were required to include in a rule the

statistical methodologies used by AHCA to calculate Medicaid

overpayments; and because statistical formulas are "highly

technical in nature," so that most people would h ave to go to a

statistician to interpret the formulas in any event. 5

23 . Adoption of the Challenged Statement as a rule

pursuant to the procedures set forth in Section 120.54(1)(a),

Florida Statutes, is both feasible and practicable.

CONCLUSIONS OF LAW

2 4 . The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to Sections 120.56, 120.569, and

120.57(1), Florida Statutes.

Standing

25 . Section 120.54(4)(1), Florida Statutes, requires that

a "person [be] substantially affected by an agency statement

[to] seek an administrative determination that the statement

violates s. 120.54(1)(a)."

26 . Custom Mobility bears the burden of proving by a

preponderance of the evidence that it is substantially affected

by the Challenged Statement . See § 120.57(1)(j), Fla. Stat.

27 . Based on the findings of fact herein, Custom Mobility

has proven by a preponderance of the evidence that it has

suffered an injury - in - fact as a result of the applic ation of the

Challenged Statement to calculate an alleged Medicaid

overpayment assessed against it, and Custom Mobility has also

proven by a preponderance of the evidence that it falls within

the zone of interest protected by the statutory scheme in

Sectio n 409 . 902, Florida Statutes, which authorizes AHCA to make

payments to Medicaid providers for services covered by the

Medicaid Program, and by Section 409. 913 (20) , Florida Statutes,

pursuant to which overpayments are to be calculated using

"accepted and va lid auditing, accounting, analytical,

statistical, or peer - review methods, or combinations thereof."

See Jacoby v. Florida Bd. of Med. , 917 So. 2d 358, 360 (Fla. 1st

DCA 2005).

28 . Custom Mobility has, therefore, met its burden of

proving that it is subs tantially affected by the Challenged

Statement and, therefore, has standing to maintain this

challenge to an agency statement that has not been adopted as a

rule, as provided in Section 120.56(4), Florida Statutes.

The Challenged Statement is a rule that h as not been adopted

pursuant to the rulemaking procedures set forth in

Section 120.54, Florida Statutes.

29 . The Challenged Statement is used by AHCA in carrying

out its responsibilities, as set forth in Sections 409.913 and

409.913(20), Florida Statutes , to audit Medicaid providers and

to determine if a provider has received payments to which it is

not entitled under the Medicaid program.

30 . Section 409.913(20), Florida Statutes, provides as

follows:

(20) In making a determination of

overpayment to a provider, the agency must

use accepted and valid auditing, accounting,

analytical, statistical, or peer - review

methods, or combinations thereof.

Appropriate statistical methods may include,

but are not limited to, sampling and

extension to the population, parametric and

nonparametric statistics, tests of

hypotheses, and other generally accepted

statistical methods. Appropriate analytical

methods may include, but are not limited to,

reviews to determine variances between the

quantities of products that a p rovider had

on hand and available to be purveyed to

Medicaid recipients during the review period

and the quantities of the same products paid

for by the Medicaid program for the same

period, taking into appropriate

consideration sales of the same products to

non - Medicaid customers during the same

period. In meeting its burden of proof in

any administrative or court proceeding, the

agency may introduce the results of such

statistical methods as evidence of

overpayment.

(Emphasis added.)

31 . Custom Mobili ty bears the burden of proving by a

preponderance of the evidence that the Challenged Statement

"constitutes a rule under s. 120.52 and that the agency has not

adopted the statement by the rulemaking procedure provided by

s. 120.54. " See §§ 120.56(4)(a) a nd (b) and 120.57(1)(f), Fla.

Stat.

32 . Section 120.52(15), Florida Statutes, provides in

pertinent part: " ' Rule ' means each agency statement of general

applicability that implements, interprets, or prescribes law or

policy or describes the procedure and practice requirements of

an agency and includes any form which imposes any requirement or

solicits any information not specifically required by statute or

by an existing rule. "

33 . Based on the findings of fact herein, Custom Mobility

has met its burden of proving that the Challenged Statement is

an agency statement of general applicability that is used by

AHCA in all audits in which cluster sampling is the statistical

methodology by which Medicaid overpayments are calculated

pursuant to Section 409.913(2 0), Florida Statutes. AHCA's

contention that the Challenged Statement is not a statement of

general applicability because it is not used to calculate

Medicaid overpayments in all audits of Medicaid providers is an

overly - broad interpretation of "general a pplicability" in the

circumstances of this case.

34 . Based on the findings of fact herein, the Challenged

Statement implements the requirement in Section 409.913(20),

Florida Statutes, that AHCA

must use accepted and valid auditing,

accounting, analytical , statistical, or

peer - review methods, or combinations

thereof " and that "a ppropriate statistical

methods may include, but are not limited to,

sampling and extension to the population,

parametric and nonparametric statistics,

tests of hypotheses, and other generally

accepted statistical methods. "

35 . Section 120.54, Florida Statutes, provides in

pertinent part:

1) GENERAL PROVISIONS APPLICABLE TO ALL

RULES OTHER THAN EMERGENCY RULES. --

(a) Rulemaking is not a matter of agency

discretion. Each agency statement defined

as a rule by s. 120.52 shall be adopted by

the rulemaking procedure provided by this

section as soon as feasible and practicable.

36 . It is undisputed that the Challenged Statement has not

been adopted as a rule pursuant to Section 120. 54 (1)(a) , Florida

Statutes , and that AHCA has not instituted any of the rulemaking

procedures prescribed in Section 120.54, Florida Statutes.

It is feasible and practicable for AHCA to adopt the Challenged

Statement in accordance with the rulemaking proced ures set forth

in Section 120.54, Florida Statutes .

37 . Once the petitioner in a challenge instituted under

Section 120.56(4), Florida Statutes, has met its burden of

proving that an agency statement is a rule that has not been

adopted pursuant to the ru lemaking procedures set forth in

Section 120.54, Florida Statutes, the burden shifts to the

agency to prove by a preponderance of the evidence "that

rulemaking is not feasible and practicable under

s. 120.54(1)(a). "

38 . Section 120.54(1)(a), Florida Statu tes, provides in

pertinent part:

1. Rulemaking shall be presumed feasible

unless the agency proves that:

a. The agency has not had sufficient time

to acquire the knowledge and experience

reasonably necessary to address a statement

by rulemaking;

b. R elated matters are not sufficiently

resolved to enable the agency to address a

statement by rulemaking; or

c. The agency is currently using the

rulemaking procedure expeditiously and in

good faith to adopt rules which address the

statement.

2. Rulema king shall be presumed practicable

to the extent necessary to provide fair

notice to affected persons of relevant

agency procedures and applicable principles,

criteria, or standards for agency decisions

unless the agency proves that:

a. Detail or precis ion in the establishment

of principles, criteria, or standards for

agency decisions is not reasonable under the

circumstances; or

b. The particular questions addressed are

of such a narrow scope that more specific

resolution of the matter is impractical

outside of an adjudication to determine the

substantial interests of a party based on

individual circumstances.

39 . Based on the findings of fact herein, AHCA has failed

to meet its burden of proving by a preponderance of the evidence

that rulemaking w ith respect to the Challenged Statement is not

feasible or practicable, as defined in Section 120.54(1)(a)1.

and 2., Florida Statutes. The evidence AHCA presented on these

points was insufficient to rebut the presumptions that

rulemaking with respect to t he Challenged Statement would be

feasible and practicable. T hat rulemaking would be "extremely

difficult" and "extremely complex" does not satisfy the

requirements necessary to rebut the presumptions.

CONCLUSION

Based on the foregoing Findings of Fact an d Conclusions of

Law, it is ORDERED :

(1) The Challenged Statement violates

S ection 120.54(1)(a), Florida Statutes, and the Agency for

Health Care Administration shall immediately discontinue all

reliance upon the statement or any substantially similar

sta tement as a basis for agency action;

( 2 ) Custom Mobility , Inc., is entitled to an award of

reasonable costs and reasonable attorneys' fees pursuant to

Section 120.595(4), subject to the limitation stated in therein.

The parties are accorded 30 days from the date of this Final

Order to resolve Custom Mobility's entitlement to and the amount

of such award. If the parties have not resolved Custom

Mobility's entitlement to and the amount of the award within the

designated period of time, the parties shall so advise the

Administrative Law Judge, and a hearing will be scheduled to

resolve such issues.

DONE AND ORDERED this 23rd day of August, 200 7 , in

Tallahassee, Leon County, Florida.

S

____________________ ______________

PATRICIA M. HART

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 23rd day of August, 2007 .

ENDNOTES

1 / On June 11, 2007, Custom Mobility filed a Notice of

Withdrawal of Request for Administrative Determination of

Invalidity of Rule Pursuant to Section 120. 56(3), F.S. This

case, therefore, has proceeded only under the claim under

Section 120.54(1)(a), Florida Statutes.

2 / References herein to the Florida Statutes shall be to the

2007 edition, unless otherwise indicated.

3 / This statement will be referre d to throughout this

Recommended Order as the "Challenged Statement."

4 / Former Florida Administrative Code Rule 59G - 9.030 set forth

the procedures by which AHCA would determine overpayments of

Medicaid claims. Florida Administrative Code Rule 59G -

9.030 (4)(b) included general procedures for statistical

calculations, but it did not contain any statistical formulas

such as the Challenged Statement. The rule was repealed

effective December 7, 1998.

5 / Transcript of the proceedings at pages 156 - 57 and 165 .

COPIES FURNISHED:

Lester J. Perling, Esquire

Broad and Cass el

2700 Financial Plaza, Suite 2700

100 Southeast 3rd Avenue

Fort Lauderdale, Florida 33394

Debora E. Fridie, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

Maureen McCarthy Daughton, Esquire

Broad and Cassel

215 South Monroe Street, Suite 400

Post Office Drawer 11300

Tallahassee, Florida 32302

Scott Boyd, Executive Director/General Counsel

Joint Administrative Procedures Committee

120 Holland B uilding

Tallahassee, Florida 32399 - 1300

Liz Cloud, Chief

Bureau of Administrative Code

The Elliott Building, Suite 201

Tallahassee, Florida 32399 - 0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitl ed to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original Notice of Appeal with the agency clerk of

the Division of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be fi led within 30 days of rendition of the order to

be reviewed.