         SUPREME COURT OF THE STATE OF NEW YORK
            Appellate Division, Fourth Judicial Department

433
TP 12-02130
PRESENT: SCUDDER, P.J., PERADOTTO, LINDLEY, VALENTINO, AND MARTOCHE, JJ.


IN THE MATTER OF JAYSON BULMAHN, PETITIONER,

                    V                               MEMORANDUM AND ORDER

NEW YORK STATE OFFICE OF MEDICAID INSPECTOR
GENERAL AND NEW YORK STATE DEPARTMENT OF HEALTH,
RESPONDENTS.


STAMM LAW FIRM, WILLIAMSVILLE (GREGORY STAMM OF COUNSEL), FOR
PETITIONER.

ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL, ALBANY (KATE H. NEPVEU OF
COUNSEL), FOR RESPONDENTS.


     Proceeding pursuant to CPLR article 78 (transferred to the
Appellate Division of the Supreme Court in the Fourth Judicial
Department by order of the Supreme Court, Erie County [Frederick J.
Marshall, J.], entered August 30, 2012) to review a determination of
respondents. The determination ordered that respondent New York State
Department of Health was entitled to recover Medicaid overpayments from
petitioner.

     It is hereby ORDERED that the determination is unanimously annulled
on the law without costs, the amended petition is granted, and the
matter is remitted to respondent New York State Office of Medicaid
Inspector General for further proceedings not inconsistent with the
following Memorandum: Petitioner, the owner of Niagara Pharmacy
(Pharmacy), commenced this proceeding seeking to annul the determination
of the Administrative Law Judge (ALJ) following a fair hearing insofar
as it affirmed in part the determination of respondent New York State
Office of Medicaid Inspector General (OMIG) after a final audit of
Medicaid claims paid to the Pharmacy from 2005 through 2008.
Specifically, with the exception of one claim that was withdrawn and
another that was reversed, the ALJ affirmed the OMIG’s determination
that respondent New York State Department of Health (DOH) was entitled
to recover Medicaid overpayments from petitioner, based on an
extrapolation method used by OMIG to calculate the total amount of
overpayments.

     Contrary to petitioner’s contention, Supreme Court properly
transferred the proceeding to this Court pursuant to CPLR 7804 (g)
inasmuch as the challenged determination was “made as a result of a
hearing held, and at which evidence was taken, pursuant to direction by
law” (CPLR 7803 [4]; cf. Matter of Krajkowski v Bianco, 85 AD3d 1577,
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                                                         TP 12-02130

1578, lv denied 17 NY3d 712; Matter of Save the Pine Bush v Planning Bd.
of City of Albany, 83 AD2d 741, 741). “Thus, regardless of the terms
used by petitioner [in the petition], a substantial evidence issue has
been raised, necessitating transfer to this [C]ourt” (Matter of Segrue v
City of Schenectady, 132 AD2d 270, 274; see Matter of Re/Max All-Pro
Realty v New York State Dept. of State, Div. of Licensing Servs., 292
AD2d 831, 831, lv denied 98 NY2d 606).

     We agree with respondents that substantial evidence supports the
ALJ’s determination that the challenged payments were not authorized by
the Medicaid Management Information System Provider Manual for
Pharmacies inasmuch as the claims submitted by the Pharmacy did not
comply with various regulations and generally accepted practices (see 18
NYCRR 519.18 [d]). We thus conclude that the DOH was authorized to seek
recoupment “of the amount determined to have been overpaid” (18 NYCRR
518.1 [b]). We further conclude, however, that the determination
concerning the amount that was overpaid was “ ‘irrational and
unreasonable’ ” (Matter of Marzec v DeBuono, 95 NY2d 262, 266, rearg
denied 96 NY2d 731; see Matter of Gignac v Paterson, 70 AD3d 1310, 1311,
lv denied 14 NY3d 714).

     With respect to medical assistance programs like Medicaid and
Medicare, it is well established that federal and state auditors may use
an extrapolation method to calculate overpayments where, as here, the
number of claims is “voluminous” (CMS [formerly HCFA] Ruling 86-1 [Feb.
20, 1986]; see generally 18 NYCRR 519.18 [g]; Chaves County Home Health
Serv. v Sullivan, 931 F2d 914, 916-922, cert denied 502 US 1091).
Pursuant to the New York regulations, “[a]n extrapolation based upon an
audit utilizing a statistical sampling method certified as valid will be
presumed, in the absence of expert testimony and evidence to the
contrary, to be an accurate determination of the total overpayments made
or penalty to be imposed. The appellant may submit expert testimony
challenging the extrapolation by the [agency] or an actual accounting of
all claims paid in rebuttal to the [agency’s] proof” (18 NYCRR 519.18
[g]). Here, in our view, petitioner submitted expert testimony
rebutting the presumption that the extrapolation method used by
respondents’ expert resulted in an accurate determination of the total
overpayments.

     There is no dispute that the OMIG did not consider an amount the
DOH underpaid the Pharmacy when extrapolating the amount of overpayments
to be recouped. The ALJ, in affirming the OMIG’s extrapolation
methodology, also did not consider the underpayment and gave no credit
to the testimony of petitioner’s expert that the failure to consider the
underpayment resulted in an inaccurate determination of the amount the
DOH had overpaid the Pharmacy. Indeed, the ALJ stated that the OMIG “is
not charged with auditing to detect and correct underpayments to
providers. Providers are entitled to and [are] able to review their own
Medicaid claims for accuracy, have their own avenues of redress for
underpayments, and have the responsibility to pursue them.” It thus
does not appear from the record that the ALJ recognized that it is
permissible for auditors to consider underpayments when extrapolating
the amount that has been overpaid to a provider. The Centers for
Medicare & Medicaid Services, formerly known as the Health Care
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                                                         TP 12-02130

Financing Administration, has set forth in detail the method for
extrapolating overpayments made by medical assistance programs in the
Medicare Program Integrity Manual (MPIM). The MPIM specifically
provides that “[i]n simple random or systematic sampling the total
overpayment in the frame may be estimated by calculating the mean
overpayment, net of underpayment, in the sample and multiplying it by
the number of units in the frame” (§ 8.4.5.1 [emphasis added]; see § 3.1
[A]). We thus conclude that the ALJ’s failure to exercise any
discretion in determining whether to consider the undisputed
underpayment in the extrapolation calculation was irrational and
unreasonable. Even assuming, arguendo, that the OMIG and the ALJ
exercised their discretion and declined to consider the significant
underpayment uncovered in the audit, we conclude that such a
determination would also be irrational and unreasonable inasmuch as the
extrapolated overpayment would not constitute “an accurate determination
of the total overpayments made” (18 NYCRR 519.18 [g]). We therefore
annul the determination, grant the amended petition and remit the matter
to the OMIG for further proceedings not inconsistent with this Court’s
decision.

     In view of our determination, we do not address petitioner’s
remaining contentions.




Entered:   May 3, 2013                          Frances E. Cafarell
                                                Clerk of the Court
