                           UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA


GEORGIA DEPARTMENT OF
COMMUNITY HEALTH,

              Plaintiff,

      v.                                             Civil Action No. 13-1281 (GK)

UNITED STATES DEPARTMENT OF
HEALTH & HUMAN SERVICES,
et al.,

             Defendants.


                                  MEMORANDUM OPINION

      Plaintiff          Georgia         Department           of      Community          Health

("Georgia")       brings    this       suit     against      Defendants        United    States

Department       of    Health    and     Human       Services       ("HHS"),      Centers      for

Medicare & Medicaid Services                  ("CMS"),    Kathleen Sebelius,             in her

official capacity as Secretary of HHS,                       and Marilyn Tavenner,              in

her   official        capacity    as     Administrator         for    CMS      (collectively,

"Defendants."),         to recover $90,050,230 that Georgia erroneously

credited to CMS in 2005 and 2006.

      This    matter       is    before        the    Court     on     Cross-Motions           for

Summary Judgment         [Dkt.    Nos.    13 & 14].        Upon consideration of the

Motions,     Oppositions        [ Dkt.   Nos.    15 & 16] ,        Replies     [ Dkt.   Nos.    18

&   19],   the    entire    record       herein,       and    for    the     reasons     stated

below,     Plaintiff's      Motion       for     Summary      Judgment       is    granted      in
•·


     part and denied in part and Defendants' Cross-Motion for Summary

     Judgment is granted in part and denied in part.

     I.     BACKGROUND

            A.         Statutory Background

                  1.              Medicaid Expenditures

            Title           XIX       of    the       Social          Security       Act        ( "SSA") ,    commonly

     referred to as Medicaid,                             is a cooperative federal-state program

     that     provides            medical             assistance          to     low-income            families       and

     individuals.                42        u.s.c.          §      1396     et        seq.       The     program         is

     administered by                  the     states            and     overseen by CMS.                See    id.;     42

     C.F.R.      §     430.0.          If    certain             requirements            are    met,     a    state     is

     eligible          to     receive          federal            funds        for       a    percentage        of     its

     Medicaid program expenditures.                                42 U.S.C.         §       1396(a). The bulk of

     a    state's Medicaid expenditures consist of payments to medical

     providers          for           health              care     services              provided       to      program

     beneficiaries. 42 C.F.R.                         §    430.0.

            The        federal         portion             of     the    funds                "Federal        financial

     participation"               ( "FFP")                 is paid to the states on a quarterly

     basis.      See        42     U.S.C.         §       1396b(a).       Forty-five             days    before        the

     start of each quarter,                           the state submits a                     form CMS-37,           which

     contains the state's estimated Medicaid funding expenses for the

     upcoming quarter.                     42 C.F.R.             430.30(b).      The federal             government,

     through CNS,            provides the state with a "grant award," which is
                                                                  -2-
similar       to       a    line   of     credit.       The      grant      award       authorizes         the

state     to draw federal                funds     as     needed over the                course of the

quarter       to       pay       the     federal        share     of       the     state's          Medicaid

disbursements. Id. at 430.30(d).

        Within 30 days after the end of the quarter, the state must

submit       to    CMS       a   Quarterly        Statement           of   Expenditures             ("QSE"),

also known as a form CMS-64.                        Id.    at§ 430.30(c)(l).                   Unlike the

CMS-37,       which         contains      predicted           expenditures,             the    QSE    is    an

"accounting            of    actual      recorded         expenditures"            for      the     quarter.

Id.    at §       430.30 (c) (2).         The QSE details and reconciles how the

federal grant award monies were spent.

        In addition to the most recent quarter's expenditures,                                             the

QSE    contains            several      entries     for       "increasing"             or     "decreasing"

adjustments to claims from prior quarters.                                      Such adjustments are

necessary          because,        for     a   number       of     reasons,         a       state    is    not

always able to present a complete,                            accurate,          or o-therwise final

accounting within 30-days of the end of the most recent quarter.

In    such    circumstances,              a    state      uses    a    later       quarter's         QSE    to

adjust       retroactively,              either     up     or     down,         expenditure          amounts

reported          in       the   earlier       quarter's         QSE       or    the     federal       share

claimed with respect to those expenditures. 42 U.S.C. 1396b(d).




                                                    -3-
                   2.         Two-year Limitations Period

          Section         1132       of    the       SSA    (codified        at     42       U.S. C.     §   1320b-

2 (a) )    provides            for    a    two-year          window        during        which       states      are

permitted to file claims for expenditures.                                        The Secretary of HHS

has also issued implementing Regulations.                                     See 45 C.F.R. §§ 95.1-

.34. They state that "[CMS]                           will pay a State for a State agency

expenditure .                    only if the State files a claim with                                    [CMS]    for

that      expenditure within                     2   years       after     the    calendar quarter                 in

which the State agency made the expenditure." Id.                                              §   95.7. Claims

made for expenditures after the two-year period has expired are

"disallowed" and not paid.

          There         are     exceptions            to    the        two-year      period          for     court-

ordered retroactive payments,                              audit exceptions,                 and adjustments

to prior year costs,                      42 U.S.C.          §       1320b-2 (a),    as well as "[a]ny

claim for which the Secretary decides there was good cause." 45

C.F.R.         §    95.19.      "[N]eglect or administrative inadequacy" on the

part      of        a   state    does       not       constitute           good     cause.          45   C.F.R.     §

95.22.

                   3.         Overpayments

          An        "overpayment"           is       defined          as   "the      amount          paid     by    a

Medicaid agency to a provider which is in excess of the amount

that      is        allowable        for    services             furnished                         and   which     is

required to be                 refunded                          "    42   C.F.R.        §   433.304.        Stated

                                                           -4-
    differently, an overpayment is a payment by a state to a medical

    provider that            is    impermissible         and therefore       not     eligible          for

    FFP under the state's Medicaid plan.

            When a state has claimed FFP for a medical provider payment
I


i   that is later determined to constitute an overpayment, the state

    must return to CMS the federal share of the amount overpaid. The

    state has sixty days 1 in which to return the federal share of the

    overpayment         to        CMS,     regardless       of     whether     the        state        has

    recovered       the      overpayment          from    the     medical    provider.          See     42

    C. F. R.   433.312.       The return of an overpayment is effectuated by

    listing       the   credit       in     the   QSE     (line    lO.C).    See     42       C.F.R.     §


    433.320. This is considered a "decreasing adjustment."

            If,   after a state has credited CMS with the federal share

    of an overpayment,              that overpayment is later adjusted downward,

    the state may reclaim the amount of the downward adjustment on

    the next QSE.            42    C.F.R.    §    433.320(c).       In other words,             if the

    state      later    realizes          that    the     amount     it   overpaid        a    medical

    provider       is     less      than     it     previously       thought,       and       that      it

    therefore       over-credited            CMS,    it    may     reclaim    the     appropriate

    portion of the credit. The two-year filing limit does not apply


    1
      When the events at              issue in this case occurred, the period of
    time to return the               federal share to CMS was 60 days from the
    date of discovery of              the overpayment. The statute has since been
    modified so that the             period is now one year.
                                                -5-
to     downward         adjustments        of     overpayments,         as        the     "downward

adjustment        is    not     considered a       retroactive claim but rather a

reclaiming of costs previously claimed." Id.

       B.      Factual Background

       The parties have no disagreement about the facts that led

to Georgia's inadvertent credit of $90,050,230 to CMS and CMS's

subsequent        refusal        to     refund         the    money.    In        2003,     Georgia

launched a        new Medicaid Management                    Information System            ("MMIS")

to process claims submitted by providers. Georgia Dep't of Cmty.

Health,     HHS      Departmental Appeals               Board     ("DAB"     or    "the     Board")

No.    2521,   5-6       (Jun.    28,    2013)     [hereinafter DAB No.                 2521].     The

new    system        suffered      from     severe           problems   that           resulted     in

significant            delays     in     paying         providers.         Georgia         received

numerous complaints from providers that they could not continue

to operate without payment. Id.

       In response to this crisis and to ensure the availability

of medical        services       for    Georgia's Medicaid recipients,                      Georgia

proposed,      and       CMS     agreed,        that    until     the   MMIS           issues     were

resolved,      Georgia          could    make     "advance"       payments         to     providers

prior to the submission and processing of payment claims for the

services.      Id.     at 6.     It was understood that the advance payments

would later be matched and reconciled with actual payment claims

once    MMIS      could        process     them.        Between     April         1,     2003,     and
                                                 -6-
June 30,      2005,     Georgia made approximately $2 billion in advance

payments to providers under this arrangement. Id.

       For      its        own     internal            accounting            purposes,           Georgia

classified the advance payments as "provider receivables"                                           (i.e.

money to be recouped from Medicaid providers).                                      For purposes of

the    QSE,     Georgia          reported       the       advance        payments          as    current-

quarter expenditures. DAB No. 2521 at 6; Georgia Mot. at 7.

       Advance payments that were not matched and reconciled with

provider       claims      within        60    days       were    treated          as     overpayments.

Just as       with    standard overpayments,                     Georgia had to             refund the

federal share of the advance payments to CMS after 60 days.                                           The

refund to CMS was listed as a decreasing adjustment on line 10.C

of    the     QSE     (along      with        any    other       overpayments             unrelated    to

Georgia's MMIS problems). DAB No. 2521 at 6.

       If,    after Georgia had refunded the                         federal            share to     CMS,

the    advance        payments       were           reconciled      with           medical       provider

claims,      Georgia would report the reconciled amounts as "other"

expenditures          on    its    current-quarter                QSE.       Id.     This       procedure

allowed Georgia to receive payment for the federal share of the

reconciled expenditures, which it had previously and erroneously

refunded back to CMS.                This procedure was                  also consistent with

how   Georgia        routinely       reported          reconciliations               of    the    routine

60-day provider receivables. Dubberly Decl.                              ~   8.
                                                    -7-
      In 2005,       Georgia decided to                include the          federal         share of

its   provider      receivables              balance            $45,025,115.09                 as     a

liability     on    its     financial          statement           for    State       fiscal    year

("SFY")    2005.    DAB No.       2521 at 6. Of this amount,                     $37,402,375.33

represented the federal                share of provider receivables that had

already     been     refunded          to     CMS      (as    required)          as    decreasing

adjustments       on QSEs     submitted between 1989 and June                           2005.       The

majority    of     the    $37.4    million            related       to    refunds      to    CMS     of

advance     payments       made    between          2003      and    2005       in    response       to

Georgia's     MMI S       problems.           Id.      The      remaining            $7,622,739.76

represented provider receivables that were less than 60 days old

and for     which there was not                 yet    any obligation to               refund the

federal share. Id. at 7.

      In    the    process        of     preparing           its    SFY     2005       statements,

Georgia           inadvertently                included             the          $45,025,115.09

("$45 million")          provider receivables                balance       in    its    decreasing

adjustment on the QSE for the quarter ended September 30,                                        2005

("September 2005 QSE").                Id.    This mistake had the effect of re-

crediting to CMS $37.4 million that had been previously credited

from 1989 to June 2005. It was also premature to credit the $7.6




                                                -8-
million to CMS,           as the receivables were less than 60 days old. 2

Georgia Mot. at 9.

      While       preparing      its     financial     statements         for    SFY      2006,

Georgia     again    inadvertently          credited    the        $45   million     to     CMS,

this time on the QSE for the quarter ended June 30,                             2006      ("June

2006 QSE"). Georgia Mot. at 9; DAB No. 2521 at 7-8.

      Combined,       Georgia        erroneously       credited          CMS    $90,050,230

between 2005 and 2006               ("$90 million").       Georgia did not realize

its   errors      until    2008,     when   issues   identified by its external

auditor triggered an in-depth internal review of its financial

records and prior QSEs.                DAB No.   2521 at      8.     It was during this

review that        Georgia discovered the            two    $45 million credits               it

had made to CMS.

      C.      Procedural Background

      Once Georgia discovered the errors, it attempted to reclaim

the   $90      million      by      including    the       amount        on    the     "other"

expenditures line of the QSE for the quarter ended June 30, 2009

("June     2009    QSE").     Id.      Georgia   included      a     "footnote"        on    the

first page of the QSE stating that a "significant adjustment of




2
  To the extent those receivables remained outstanding after 60
days, they would have been credited on later QSEs as required;
if they were reconciled, Georgia would not have had to repay the
federal share. Georgia Mot. at 9.
                               -9-
approximately $ 90M is being claimed this quarter.                               The basis is

as an adjustment to 60 day receivables." AR 410 [Dkt. No. 20-1].

       On December 11, 2009, CMS deferred 3 Georgia's claim for the

$90 million,       asserting that Georgia's request was untimely.                              AR

416-17.     Georgia       responded       to    the     deferral          with   two     separate

letters,    arguing why the two-year limitation was not applicable

in this circumstance. AR 420-28.

       On   June    30,     2011,     CMS        notified          Georgia       that    it    was

disallowing the $90 million adjustment.                            DAB No.   2521 at 8.        CMS

acknowledged       that    Georgia        was    attempting           to    reverse      the   two

inadvertent $45 million payments,                     and did not dispute that they

were    erroneous,        but    concluded        that         the     request      should      be

disallowed "because it was submitted more than two years after

the quarter in which            'the original State payment was made." Id.

(citing June 30, 2011 Letter from CMS to Georgia, AR 431-32).

       Georgia     appealed      CMS' s    decision           to    the    Board.      After   the

parties submitted their briefs,                  the Board heard oral argument,

and    on   February       8,    2013,         issued     a        "Preliminary         Analysis"

rejecting the       arguments       of both parties                and setting forth           its

view of the case. DAB No. 2521 at 9. Both parties then submitted


3
  CMS may issue a "deferral," or temporary withholding of FFP, if
the CMS Administrator "questions [the] allowability [of a claim]
and needs additional information to resolve the question." 42
C.F.R. § 430.40.
                              -10-
written comments                   to    the       Preliminary Analysis.                       Id.      On    June        28,

2 013,        the Board sustained the entire $90 million disallowance.

See generally DAB No. 2521.

         Georgia         filed          its    Complaint with the                       Court       on August             23,

2013     [Dkt. No. 1]. It then filed its Motion for Summary Judgment

("Georgia's Mot.")                      [Dkt.       No.        13]    on March          4,     2014.         Defendants

filed         their      Cross-Motion                    for     Summary           Judgment            and    Combined

Opposition to Georgia's Motion                                  ("Defs.'          Mot.")       [Dkt.      No.       14]    on

May      5,     2014.         On    June           4,     2014,           Georgia         filed' its          Combined

Opposition to             Defendants'                   Cross-Motion and Reply in Support of

Plaintiff's Motion                  ("Georgia's Reply")                          [ Dkt. No. 17] . On July 7,

2014,         Defendants           filed        their          Reply        in     Support         of    Defendants'

Cross-Motion ("Defs.' Reply")                              [Dkt. No. 19].

II.      STANDARD OF REVIEW

         The Administrative                     Procedure Act                    ( "APA")      requires         a    court

to     hold         an    agency              action           unlawful           if      it      is     "arbitrary,

capricious,              an    abuse            of        discretion,              or       otherwise           not        in

accordan6e           with      law."           5        U.S.C.        §    706(2).          The      arbitrary            and

capricious standard of the APA is a narrow standard of review.

Citizens to Preserve Overton Park,                                        Inc.    v.    Volpe,         401 U.S.        402,

416 (1971).

         It    is     well     established                 in        our    Circuit          that       the    "court's

review         is                       highly           deferential"               and      "we       are      'not       to
                                                           -11-
substitute             [our]     judgment        for    that        of    the     agency'       but     must

'consider whether the decision was based on a                                       consideration of

the relevant factors and whether there has been a clear error of

judgment.'"             Bloch     v.     Powell,       348    F.3d        1060,     1070       (D.C.    Cir.

2003)       (quoting S.          Co.    Servs.,      Inc.     v.    FCC,       313 F.3d 574,           579-80

(D.C.       Cir.       2002));    see also United States v.                       Paddack,       825 F.2d

504,     514       (D.C.       Cir.     1987).      However,        this       deferential       standard

cannot       permit        courts       "merely to           rubber       stamp    agency       actions,"

Natural Res.             Def. Council v.            Daley, 209 F.3d 747,                755     (D.C. Cir.

2000),           nor     be    used      to     shield        the        agency's       decision         from

undergoing a             "thorough,       probing,         in-depth review." Midtec Paper

Corp.       v.     United       States,       857    F.2d     1487,       1499     (D.C.       Cir.    1988)

(internal citations and quotations omitted).

        An       agency       satisfies       the    arbitrary           and    capricious        standard

if     it        "examine[s]           the _relevant           data        and      articulate[s]           a

satisfactory             explanation          for    its     action        including       a     'rational

connection between the facts                        found and the choice made.'" Motor

Vehicle Mfrs. Ass'n v.                   State Farm Mut. Auto.                   Ins.    Co.,    463 U.S.

29,    43    (1983)        (quoting Burlington Truck Lines v.                           United States,

371 U.S.          156,     168    (1962));       Lichoulas ,v.            Fed.    Energy Regulatory

Comm'n,          606 F.3d 769,          775    (D.C.    Cir.       2010).       Finally,       courts "do

not      defer           to      [an]         agency's        conclusory            or        unsupported



                                                    -12-
suppositions." McDonnell Douglas Corp. v.                                    U.S.          Dep't of the Air

Force, 375 F.3d 1182, 1186-87 (D.C. Cir. 2004).

        Summary judgment will be granted when there is no genuine

issue     as       to     any       material       fact.       See     Fed.           R.     Civ.      P.     56(c).

Because        this       case        involves          a     challenge           to        a     final      agency

decision,          the Court's review on summary judgment is limited to

the Administrative Record.                        Holy Land Found.                for Relief and Dev.

v. Ashcroft,            333 F.3d 156, 160                   (D.C. Cir.       2003)              (citing Camp v.

Pitts,     411       U.S.       138,    142        (1973));         Richards           v.       INS,     554      F.2d

1173, 1177          (D.C. Cir. 1977)               ("Summary judgment is an appropriate

procedure           for        resolving       a       challenge        to        a        federal          agency's

administrative                 decision           when        review         is            based       upon        the

administrative record.").

III. ANALYSIS

     A.            The Board Decision

              1.          The $90 Million Request Is a Claim Subject to the
                          Claiming Limit

     Under SSA             §    1132,       states must file claims for expenditures

with CMS within a two-year period. See supra,                                              Section I.A.2;           42

U.S.C.    §       1320b-2(a); see also 45 C.F.R.                        §     95.7. The Regulations

define        a      "claim"           as     a        "request         for           Federal            financial

participation,"                45     C.F.R.       §        95.4,     where           "Federal           financial

participation"                 is    "the         Federal           government's                 share       of     an


                                                       -13-
expenditure made by a State agency." Id. Therefore, a claim is a

request    for    the         Federal     government's          share       of    an    expenditure.

"Expenditure" is not explicitly defined in the Regulations.

       Georgia    argues          that     this     two-year          limit       is    inapplicable

because its request foT $90 million is neither a "claim" nor a

request    made       "with       respect      to    an     expenditure."               Georgia      Mot.

at 15.    Instead,            Georgia    describes        its    request          as    one    for    the

recovery of state               funds    inadvertently credited to CMS.                         If CMS

were to pay it $90 million,                    Georgia argues,              it would not be on

account    of    any          "expenditures"        by    the    State,          but    in    order    to

remedy a bookkeeping error. Id. at 15-16.

       In further support of its argument,                            Georgia notes that it

had already timely claimed and received FFP with respect to the

1988-2005 expenditures underlying the erroneous credits. Because

it   had already been paid for                    the expenditures,                 Georgia       states

that   it was     not          seeking    reimbursement          for        those      expenditures,

only repayment of the inadvertent re-crediting to CMS.

       The Board disagreed with Georgia,                         finding the             $90 million

request   to     be       a    claim     and   therefore        subject          to     the   two-year

limitation.       The          Board     stated      that       the     two-year             limitation

"expressly       covers          'any'     request        for     federal             funding        'with

respect    to'        a       state's     expenditures."              DAB     No.       2521 at       10.

Accordingly,      under           the     Board's        reasoning,          if        Georgia's      $90
                                               -14-
•.




     million       request            is         for     federal            funding         for       Medicaid

     expenditures,             it         necessarily           falls        within         the        two-year

     limitation statute.

           The Board reasoned that "[a]mounts reported as expenditures

     on the QSE are those which a state asks to be charged against

     the   FFP     award"           for    that        quarter.      Id.      (citing          42     C.F.R.     §


     430.30 (c)- (d);          State       Medicaid        Manual       §    2500 (A) (1).           The    Board

     found that Georgia,                  by reporting the $90 million request on a

     QSE, was representing to CMS that it was requesting FFP. Because

     FFP is "available only for expenditures on medical assistance or

     Medicaid program administration," the Board concluded that any

     request      for        FFP · must           relate        to      expenditures.                Therefore,

     Georgia's FFP request was a claim and was made with respect to

     expenditures.        DAB No.           2521 at 10          (citing SSA          §     1903 (a) (1)- (2);

     42 C.F.R. § 435.1000 et seq.; 45 C.F.R. § 95.13(d)).

           The     Board's           conclusion          is     bolstered        by        the       fact     that

     Georgia     supported its              request       for     $90 million with a                   schedule

     showing,      as    a     prior        period        adjustment,          the       $90        million     as

     expenditures for inpatient hospital services. AR 528.

           Given        that        the     Board's       interpretation              of       the     relevant

     statutes    is      reasonable          and       rationally connected to                      the     facts,

     Georgia     has         failed         to     demonstrate           that        the       Board         acted



                                                        -15-
arbitrarily        and       capriciously       when    it       found    the     $90    million

request to be a claim with respect to an expenditure.

           2.           The $90 Million Request Is Outside                       the Two-Year
                        Claiming Limit

      Having determined that Georgia's $90 million request was a

claim with respect to expenditures, and therefore subject to the

two-year limit in 42 U.S.C.                §    1320b-2, the Board then evaluated

whether the claim was made within two years of the expenditures.

In order to do so,              it needed to identify what the expenditures

were that       trigg~red      application of the two-year limitation.

      As noted earlier, "expenditure" is not specifically defined

in   the   SSA.        See   generally     42    U.S.C.      §     1396   et     seq.    In   this

context,    the        Board    defined    "expenditure"            to    mean    "a    Medicaid

payment by the state to a health care provider." DAB No. 2521 at

11 (citing 45 C.F.R. 95.13(b)).

      To    identify           the   expenditures,           the     Board       reviewed      the

history of the payments at issue.                     It explained that Georgia had

timely requested and received FFP for the provider payments it

made between 1988 and 2005. A large percentage of those payments

were considered to be overpayments,                     for which Georgia had also

credited        back    to     CMS   the   federal      share       on    a     timely    basis.

According to the Board,               when Georgia made the two $45 million

credits, it was merely adjusting those prior claims for FFP. The


                                               -16-
$45     million         credits     were        not     "expenditures"              themselves.

Similarly,      the      Board     stated      that     when     Georgia· made          its    $90

million claim on the June 2009 QSE, it "was the last in a series

of    prior-period          adjustments             concerning         Medicaid         provider

payments     (expenditures)"            made    between        1988    and     2005.     DAB   No.

2521 at 13.

        Having characterized the mistaken payments and the request

for   the    $90   million        refund       as     prior-period       adjustments,          the

Board     concluded      that     the    "expenditures"          in     question        were   the

provider     payments       made        between       1988     and     2005.       Viewing     the

expenditures       as    having taken place between 1988                       and 2005,       the

Board concluded that Georgia's claim for $90 million on the June

2009 QSE was long past the two-year deadline and untimely.

        Georgia does not directly contest the Board's determination

that the "expenditures" at issue were the underlying payments to

the medical providers,             but instead reiterates its arguments for

why its request was not a claim.                      Georgia also does not suggest

an    alternative          definition          or      description           for       what    the

expenditures       are      that        triggered        the     two-year          statute      of

limitations.

      Georgia      does     note    that       the     Board's        conclusion        that   the

expenditures took place between 1988 and 2005 creates unworkable

result.     Georgia points out that because the Board concluded the
                                               -17-
expenditures             took       place   between       1988       and    2005,       the    two-year

statutes          of    limitations         began      running        between       1988      and    2005.

Therefore,             even    if    Georgia       had    immediately            realized       its    $45

million mistake on the September 2005 QSE and tried to recover

the $45 million on the next QSE                          (or even the very next day),                   it

would        have        already        been       time        barred       for      many       of     the

expenditures.

        Defendant's only response is that CMS may allow a state to

revise       a    QSE    to     correct     an     error       if    the    state      discovers       the

error       "within a          short    time"      after       submitting         the    QSE.       Defs.'

Mot.    at        22.    Defendants         do    not     cite       any    authority         for     this

position or define what constitutes a "short time." It appears

that,       under        the    Board's          interpretation            of    "expenditure",          a

state's          ability       to    recover      erroneous          credits      to    CMS     is    left

completely to the discretion of CMS if the errors are in any way

derivative of provider payments more than two years old.

        Though the Court urges CMS to issue guidance to the states

on 0hen it will permit them to revise QSEs, so as to avoid being

immediately time-barred from correcting their errors,                                         the Court

finds the Board's interpretation of the statutes and regulations

to     be    reasonable.              The   Board        did        not    act     arbitrarily          or

capriciously when it found the expenditures underlying Georgia's

request          for    $90    million      to    be     the    1988-2005         medical      provider
                                                   -18~
expenditures.          It   was    also        reasonable         when      it    concluded        that

Georgia's $90 million request was a claim for FFP outside of the

statutorily           required      two-year           period         and         affirmed       CMS's

disallowance.

           3.          The $90 Million Request                         Is        Not    a    Downward
                       Adjustment of Overpayments

        While        Georgia      disputes          that        its   $90        million      request

constitutes a claim,              it argues in the alternative that,                           should

the request be found to constitute a claim, then the request was

a   downward adjustment to prior overpayment credits to CMS and

therefore not subject to the two-year limitation.

        As explained above in Section I. A. 3,                         if an overpayment is

made to a Medicaid provider,                    the state must refund the federal

share of the amount overpaid to CMS within a specified period of

time.    Section 433.320(c)             provides that if,                after the state has

credited       the    federal      share       to    CMS,       the   overpayment           amount    is

adjusted downward,             then the state may reclaim the amount of the

downward       adjustment.        For     example,         if    it   is    determined         that    a

provider        was     overpaid        by      $100,       and       the        federal      medical

assistance       percentage         for      the     state       is   62%,        the    state     must

refund    $62    to CMS,        regardless           of whether        it has           recouped the

$100    from     the    provider.         If    it    is    later        determined         that     the

provider was only overpaid by $75, the $100 overpayment would be


                                                -19-
adjusted downward and the state may reclaim the relevant federal

share of the $25 downward adjustment                                 (62%, or $15.50).

        Such reclaimings of downward adjustments are not subject to

the     two-year            filing          limit.         42        C.F.R.      §    433.320 (c).         The

regulation           further           states       that        the     downward        adjustment         "is

allowed only if it is properly based on the approved State plan,

Federal law and regulations governing Medicaid,                                        and the appeals

resolution processes                   specified in State administrative policies

and procedures." Id.

        The     bulk        of     Georgia's              erroneous            $45    million       credits

represented           the        federal           share        of     the     cumulative       total       of

provider receivables                    (overpayments)               going back to 1988 that had

been    outstanding              for    over        60    days,        which    Georgia      had    already

refunded        back        to    CMS.        Georgia           argues        that    the   $45     million

credits        were    "upward adjustments"                      to    the     refund amount         due    to

the federal           government,            and that the $90 million request was a

"downward            adjustment              to      those           same      previously          credited

overpayment amounts." DAB No.                            2521 at 17           (quoting Feb.        27,   2013

Comments        of    Ga.    Dept.          of     Cty.    Health        on    Prelim.      Analysis,       8)

(emphasis omitted) .

       . The   Board        rejected         this        argument        on    several      grounds.       The

first    ground was              that       Georgia did not              classify the         credits       as

overpayment           refunds          on    the    QSEs.        Id.     Given       that   both    parties

                                                         -20-
acknowledge      that     the   $45      million    credits    were     inadvertent,

limited weight         should be given to          their classification on the

QSE when determining the nature of the credits.

       The Board's       second,    more persuasive,        ground is that there

was    no    "downward    adjustment"      (or   reduction)    to     the    amount    of·

provider       overpayments.       Id.    The    Board     reasonably        defined     a

"downward adjustment" as "a finding or determination by a state

that a provider is entitled to receive a Medicaid payment                         (or a

portion of a Medicaid payment)             that the state earlier identified

as improper, excessive, or otherwise unallowable under the state

plan or federal requirements." Id.                 In other words,      because more

of the provider payment is found to be permissible,                          the amount

of     the    impermissible        overpayment       is   reduced,      or     adjusted

downward.

       Although Georgia's $90 million request relates generally to

overpayments      (specifically,         erroneously re-credi ting refunds              of

overpayments) ,     it is not a result of downward adjustments.                        The

Board found no evidence that Georgia determined that any of the

overpayments      to     providers,      which   were     previously    refunded        to

CMS,    "were in fact       allowable under the           state plan and federal

requirements." Id. at 18. That is to say, the amounts determined

to have been overpayments have not changed,                   and therefore there

is no downward adjustment.
                                          -21-
        Section        433.320(c)           addresses             disputes         to    overpayment

determinations, the resolution of which may take longer than two

years,      and    provides          an     exception            to     the    two-year       limit    in

circumstances where the overpayment amount is adjusted downward.

The     Court     agrees       with        the    Board          that     there     is    nothing      to

indicate        that         the      two-year           limit          exception        in     section

433. 320 (c) (2)       was     intended          to    be    so       expansive     as    to    include

every     transaction              that    relates          to        overpayments.       The     Board

correctly       held      that       the    two-year             exception        only    applies      to

downward      adjustments,            as    defined         as    a     reclaiming       of    refunded

amounts due to a determination that the overpayment itself was

reduced.      Georgia's        attempt to              reclaim what           it overpaid to CMS

did     not     involve        a      reduction             in    overpayments           to     medical

providers.        Therefore,          there       was       no    "downward        adjustment"         of

overpayments as defined by                  §    433.320.

      The       Board's       finding           that     Georgia's            request    was     not    a

downward adjustment and therefore not exempt from the two-year

filing was not arbitrary, capricious, or an abuse of discretion.




                                                  -22-
       B.     Equitable Claims

       In addition to its statutory claim,                            Georgia makes equitable

claims for money had and received and unjust enrichment.                                           While

Georgia      asked       the    Board to           consider     equitable       principles          when

interpreting the two-year limit,                        it brought no equitable claims

before      the    Board.             Therefore,        the     Court     evaluates         Georgia's

equitable claims de novo.

              1.        Adequate Legal Remedy

       Before      the      Court may consider                equitable       remedies,       Georgia

must show that it did not have an adequate remedy at law.                                      "It is

a basic doctrine of equality jurisprudence that courts of equity

should      not    act                     when 'the       moving     party     has    an    adequate

remedy at         law                 . " Morales v.          Trans World Airlines,                Inc.,

504 U.S.      374,      381     (1992).       Defendants argue that the statute and

its    Regulations             provide         an     adequate         remedy     at        law,     and

"therefore        no     resort       to    equitable         remedies    is    necessary."          CMS

Mot. at 3.

       The mere existence of a remedy at law is not sufficient to

warrant     denial       of     equitable           relief.     See    Council    of    &     for    the

Blind of      Delaware Cnty.                Valley,     Inc.    v.     Regan,    709    F.2d 1521,

1550   n.76        (D.C.       Cir.     1983);        Interstate        Cigar    Co.    v.     United

States,     928      F.2d      221,     223    (7th     Cir.     1991).    The    legal       remedy,

both in respect             to the         final     relief and the mode              of obtaining
                                                    -23-
it,    must       be        "as    efficient           as    the     remedy       which        equity    would

afford under the same circumstances." Regan,                                        709 F. 2d at 1550,

n.76    (citing             Gormley        v.     Clark,        134       U.S.     338,     349     (1890)).

Therefore,          the           Court       must     evaluate           whether       Georgia's        legal

remedy in this situation is adequate.

       The     Board's             interpretation             of     the    facts        and    regulations

renders       any       attempt           by    Georgia        to     recover       a    portion        of    the

erroneous         credits           time-barred the moment                   it made           the mistaken

credits.      Under the Board's interpretation,                                  requests        to recover

erroneous         credits           to    CMS    are prior-period adjustments                       and are

evaluated for purposes of the two-year limitation based on the

underlying          expenditure.                Therefore,          any    erroneous           credits       that

relate to expenditures that occurred more than two years prior

are time-barred the moment the erroneous credit is made.

       Defendants             counter           that        simply     because          relief     is    time-

barred does            not make           a     remedy inadequate.                Defs.'       Mot.· at       31.

The Court agrees as a general matter that equitable remedies are

not    meant           to     be     used        as     an     end-run           around        statutes        of

limitation. However, in the case at hand, there was literally no

time   window          in     which        Georgia          could have           sought    to     recover       a

portion      of     the       erroneous          credits.           For    another        portion       of    the

credits,      the limitations period was,                            in practice,          less than the

two years contemplated by the statute.
                                                       -24-
      When        a    claim       is    effectively        time-barred         the      moment      it

arises,     it cannot be said that the legal remedy is "adequate to

meet the ends of justice." Regan,                         709 F.2d 1550, n. 76               (internal

citation and quotation omitted). Similarly, there is no adequate

remedy at law when the two-year period provided by Congress is

truncated, as it was for many of the expenditures that had taken

place less than two years before the mistaken credits were made.

Therefore,        the Court finds that there is no adequate remedy at

law      available           for       Georgia     that     prevents        the        Court      from

considering equitable remedies.

             2.            Unjust Enrichment

      Georgia's             claims      for    unjust    enrichment       and money had and

received rely on the same principles of restitution, namely that

a "person who is unjustly enriched at the expense of another is

subject     to        liability         in    restitution."       Restatement           (Third)      of

Restitution and Unjust Enrichment §                         1.    Though the remedies are

similar     and       the     parties         conflate    their    arguments           for    each   at

times, they will be addressed separately.

      Recovery             under   a    theory     of    unjust        enrichment       requires      a

showing that "a person retains a benefit                                   . which in justice

and   equity belongs               to    another."       United    States       ex     rel.    Modern

Elec.,     Inc.       v.     Ideal      Elec.    Sec.    Co.,     81    F. 3d   2 40     (D.C.    Cir.

1996). Plaintiff's claim fits squarely within this definition.
                                                  -25-
      Measured against many metrics,                  Georgia is not considered a

wealthy state. Approximately 18.2% of Georgia's population lives

in poverty,    giving it the undesirable distinction of having the

eighth highest poverty level in the 50 United States.                                See U.S.

Census     Bureau      2009-2013         American          Community        Survey        5-Year

Estimates     [hereinafter        "ACS    Estimates"] .           The     estimated       median

household     income       for    the    state       is    $49,179.       With      regard    to

personal    income     per    capita,     Georgia         again     has    the    undesirable

distinction of ranking 40th out of all 50 states.                              Id.; Bureau of

Economic Analysis,         State Personal            Income 2013          (Mar.    25,    2014).

It   was   projected       that    Georgia         would     spend       $2.85     billion    on

Medicaid and PeachCare 4 in 2017,                  or approximately 15.57% of the

state's     revenue.       See    DCH    Presentation          to       2013      Joint    Study

Committee    on Medicaid Reform,              11     (Aug.    28,       2013)     [hereinafter

"DCH Presentation"].

      The loss of $90 million in credits due to the mistakes of

one Georgia employee, 5 Georgia Mot. at 14-15, will harm hundreds

of   thousands       of      Georgia's        most        vulnerable        citizens.        The

population of the State of Georgia                    i~     roughly 9.8 million,            and

approximately       1.89     million     of    those       people        were     enrolled    in


4
     PeachCare is Georgia's Children's Health Insurance Program.
5
   Georgia refers several times to "a State employee" and does
not mention the involvement of any other employees.
                               -26-
Medicaid in 2013.                 See ACS      Estimates;          DCH    Presentation at             11.

Put     in    perspective,         close       to    20%    of     Georgia's          population       is

enrolled in Medicaid.                These are the people who will be hurt the

most     by    Georgia's          administrative            errors        and    the        subsequent

crediting of $90 million of Georgia's Medicaid credits to CMS.

It      is     Georgia's          poor,        elderly,          disabled,            and     pregnant

populations           that        will         suffer        the         most     should         these

administrative errors stand uncorrected.

        Defendants do          not      claim that         CMS     is    entitled to           the    $90

million       in    credits,      but     rather that          Georgia      is precluded from

recovering the credits.

        Defendants         argue     that      Georgia's         negligence       in        failing    to

timely       file    its    claim       for    the    return       of     the    $90        million    in

credits is relevant to the evaluation of its unjust enrichment

claim because the "good cause" exception to the two-year filing

limit        explicitly        states          that        neglect        and     administrative

inadequacies         do     not    constitute           good      cause.        See    Defs.'        Mot.

at 34.

        First,      the Court has already determined that the                                 relevant

statutes      and     regulations         do    not   provide an adequate                    remedy at

law, and therefore the Court's unjust enrichment analysis is not

bound by their contours, including the good cause exception.



                                                -27-
•·


             Second,       Defendants' argument focuses on the incompetence of

     Georgia in failing to file for the return of the $90 million in

     credits within the two year statute of limitations.                                    However,     as

     discussed          previously,        under     the        Board's    interpretation,              the

     statute of limitations had already run for                                a portion of those

     expenditures             the     moment    Georgia          established           each      of     the

     inadvertent $45 million credits.

            While        it    is   not    disputed     that       Georgia       was       at   fault    in

     making       the    two    $45    million payments            in    the    first      place,      that

     fact    is     of     limited        relevance.       In    cases     where       a    benefit      is

     conferred by mistake,                "the fact that the claimant may have acted

     negligently in making a mistaken payment is normally irrelevant

     to     the     [unjust         enrichment]       claim."       Restatement             (Third)      of

     Restitution and Unjust Enrichment § 6 cmt. a                              (2011).

            Defendants contend that Georgia's claim that the erroneous

     credits "resulted in unjust enrichment fails because CMS has not

     been    any    more       unjustly      enriched       than    it    would        have     been    had

     Georgia failed to claim the $90 million in expenditures within

     the two-year limit."                 Defs.' Mot.       at 32-33.           The two situations

     are totally different and therefore not comparable.

            In the case of time-barred reimbursements for expenditures,

     a state would have had to have failed to make any timely filing

     for    the         expenditures.        Here,     Georgia          did      timely         file    for
                                                     -28-
reimbursement           for    all    the       expenditures,         only to,       years     later,

inadvertently refund to CMS a portion of the reimbursements.                                       In

addition, the statutes and regulations clearly provide for how a

state       can     and       must        seek      reimbursement         for        expenditures.

Significantly,           there       is    no     comparable         guidance    for    recovering

mistaken payments.

        The foundation of Georgia's unjust enrichment claim is that

the    credits      are       in essence the equivalent of money rightfully

belonging to the State and should never have been given to CMS.

While it is not disputed that Georgia is in its current position

as a result of the very egregious errors it made, that does not

change the fact that CMS is now in possession of $90 million of

Georgia's credits to which it is not entitled.

       While      the     Court       does        not    lose    sight    of     the    fact     that

Georgia's predicament is one of its own making,                                 it also bears in

mind     the      distressing             financial       environment         Georgia     Medicaid

faced that led to the $90 million in erroneous credits. The bulk

of    the   $90    million       was        the    result       of   Georgia     making      advance

payments to its providers in 2003-2005 who were threatening to

stop    treating        their     Medicaid          patients         unless     they   were     paid.

Moreover,      with CMS's knowledge,                    and its approval,            Georgia began

making      advance       payments         to Medicaid providers                (a   practice     not

normally permitted).                 DAB No. 2521 at 6.               This "required complex
                                                   -29-
reconciliation           of     advance       payments          to     providers       with       actual

claims"     and     greatly        inflated         Georgia's              provider    receivables.

Georgia Reply at 18.

       In this uncharted terri tory,                      Georgia was trying to comply.

with     CMS' s     provider           overpayment          regulations,              as        well      as

accurately        represent           the     situation         in     the     State's          internal

financial statements. Id.

       Taking      into       account       all    these        considerations,             the       Court

concludes       that      the     balance         of     equities           weighs    in        favor     of

Georgia     and     that        Defendants         have     been           unjustly    enriched           by

Georgia's     crediting          of    $90 million to                CMS.     CMS    does       not     even

claim,    nor      has     it     shown,       that       the        $90    million        in    credits

rightfully        belongs        to     it.       While     the        Court        recognizes           the

importance of timeliness and CMS' s                        ability to plan its budget,

as well as Georgia's role in causing the mistake, the reality is

that the credits are Georgia's and the United States Government

would be unjustly enriched if permitted to keep them.                                       Georgia's

ineptitude        in making        errors         and    delay        in    discovering          them     is

confounding,        but        does     not        justify           permitting       the        federal

government keeping the $90 million in credits to the detriment

of Georgia's 1.89 million Medicaid recipients.




                                                  -30-
      Because   Georgia   prevails     . on   its   claim   for     unjust

enrichment, the Court need not address its second claim of money

had and received.


IV.   CONCLUSION

      For all of the foregoing reasons, Georgia's Motion shall be

granted and Defendants'   Cross Motion shall be denied.           An Order

shall accompany this Memorandum Opinion.




February 10, 2015
                               Gladys Ke sler   •
                               United States District Judge


Copies via ECF to all counsel of record




                                -31-
