                                           COURT OF APPEALS OF VIRGINIA


            Present: Judges Humphreys, McCullough and Senior Judge Haley
PUBLISHED


            Argued at Chesapeake, Virginia


            CULPEPER REGIONAL HOSPITAL
                                                                                   OPINION BY
            v.      Record No. 0320-14-2                                  JUDGE STEPHEN R. McCULLOUGH
                                                                                 JANUARY 13, 2015
            CYNTHIA B. JONES, DIRECTOR AND
             DEPARTMENT OF MEDICAL ASSISTANCE SERVICES


                              FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                                           Melvin R. Hughes, Jr., Judge

                            Kathryn E. Kasper (Eileen R. Geller; Hancock, Daniel, Johnson &
                            Nagle, P.C., on briefs), for appellant.

                            Elizabeth M. Guggenheim, Assistant Attorney General (Mark R.
                            Herring, Attorney General; Cynthia V. Bailey, Deputy Attorney
                            General; Kim F. Piner, Senior Assistant Attorney General, on brief),
                            for appellees.


                    The Director of the Department of Medical Assistance Services, DMAS, concluded that

            Culpeper Regional Hospital failed to make a certification required by law before admitting patients

            for treatment. Based on this failure to certify, the Director ordered the Hospital to refund certain

            Medicaid payments. The Circuit Court for the City of Richmond upheld the Director’s decision.

            The Hospital appeals, arguing that: (1) the Hospital’s form admitting a patient for treatment, which

            is signed by a physician, satisfies the certification requirement; (2) alternatively, if the Hospital’s

            certification was deficient, the Hospital’s substantial compliance with its contractual obligations

            excuse the absence of a certification; and (3) finally, the Director and the circuit court should have

            adopted the hearing officer’s recommendation. For the reasons noted below, we affirm.
                                           BACKGROUND

        Culpeper Regional Hospital is a seventy-bed community hospital located in Culpeper,

Virginia. The Hospital is a participating provider in the Medicaid program. DMAS is the agency

charged with administering the Medicaid program for Virginia. According to the Provider

Participation Agreement between the Hospital and DMAS, the Hospital must “comply with all

applicable state and federal laws, as well as administrative policies and procedures of [DMAS] as

from time to time amended.”

        DMAS issues a Hospital Manual that contains applicable policies and procedures. The

Manual specifies that “[p]roviders will be required to refund payments made by Medicaid if they are

found to have . . . failed to maintain any record or adequate documentation to support their claims.”

Hosp. Manual, ch. VI, at 2 (June 12, 2006).1

        On October 24, 2011, DMAS informed the Hospital that an audit identified deficiencies in

the Hospital’s documentation. Specifically, the auditor determined that the Hospital failed to certify

that admitting certain patients for inpatient treatment was medically necessary. Based on this

failure, DMAS claimed it was entitled to recoup $46,760.10 in Medicaid payments it made to the

Hospital. The Hospital argued that a patient’s admission form is sufficient to satisfy the

certification requirement and, in the alternative, that its substantial compliance with the contractual

agreement precluded DMAS from recovering any past payments.

        The Hospital eventually sought a formal appeal hearing pursuant to Code § 32.1-325.1. The

Hospital withdrew its appeal for two of the patients at issue, leaving an amount in controversy of

approximately $36,000. At the hearing, the Hospital contended that the Admission Order Forms,


        1
         The Manual was revised in 2009. The only substantive difference between the 2006
Manual and the 2009 Manual, as relevant here, is that the 2009 Manual provides that the
physician may complete, sign, and date the certification within twenty-four hours of admission
rather than at the time of admission. That change is not at issue in this appeal.

                                                  -2-
which were signed by a physician, satisfied the certification requirement. One of the Hospital’s

physicians testified that, in his eyes, the admission form is “my certification. That’s my word.

That’s my name. And I’m taking responsibility of it.” The hearing officer found in favor of the

Hospital, concluding that the Hospital’s records were satisfactory and that DMAS’s interpretation of

the law was “arbitrary and capricious.” DMAS appealed. The Director overturned the hearing

officer’s decision, finding his conclusion constituted “an error of law and Department policy.” The

Director upheld the retraction of payment. The Hospital appealed to the Circuit Court for the City

of Richmond, which upheld the Director’s decision. The instant appeal followed.

                                               ANALYSIS

          The facts are not in dispute. The questions at issue in this appeal are matters of law. We

review an agency’s legal determinations de novo, while taking “due account of the presumption of

official regularity, the experience and specialized competence of the agency, and the purposes of the

basic law under which the agency has acted.” Code § 2.2-4027. See 1st Stop Health Services, Inc.

v. Department of Medical Assistance Services, 63 Va. App. 266, 276-77, 756 S.E.2d 183, 188-89

(2014).

          Federal regulations require a physician to “certify for each applicant or beneficiary that

inpatient services in a hospital are or were needed.” 42 C.F.R. § 456.60(a)(1) (emphasis added).

The Provider Participation Agreement further requires the Hospital to “comply with . . .

administrative policies and procedures of [DMAS] as from time to time amended.” The Hospital

Manual issued by DMAS provides that “Medicaid requires that payment for certain covered

services may be made to a provider of services only if there is a physician’s certification concerning

the necessity of the services furnished . . . .” Hosp. Manual, supra, ch. VI, at 2. “A physician must

certify the need for inpatient care at the time of admission.” Id. at 3 (emphasis is original). “The

certification must be dated at the time it is signed.” Id. Furthermore, “[t]he certification must be in

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writing and signed by an individual clearly identified as a physician (M.D.), doctor of osteopathy

(D.O.), or dentist (D.D.S.).” Id.

        Neither the Manual nor applicable regulations specify any particular wording or format for

the required certification. The Manual provides,

                 The certification may be either a separate form to be included with
                 the patient’s records or a stamp stating “Certified for Necessary
                 Hospital Admission” which must be made an identifiable part of the
                 physician orders, history, and physical or other patient records. This
                 certification must be signed and dated by the physician at the time of
                 admission or, if an individual applies for assistance while in the
                 hospital, before payment is to be made by DMAS.

Id.

                  I. THE HOSPITAL DID NOT CERTIFY THE NEED FOR INPATIENT CARE.

        The Hospital first argues that DMAS has imposed an “unwritten, unknown standard” on the

Hospital by faulting the Hospital for failing to include “certifying language” or an “authoritative

attestation” in the Hospital’s records. Opening Br. at 10. It contends that checkboxes on the

Admission Order Form indicating “inpatient status,” along with a physician signature and date, are

sufficient to satisfy its obligation.

        Although the regulation and the Manual do not define the term “certification,” it has a plain

meaning. “Certification” is simply “the act of certifying,” Webster’s Third New International

Dictionary 367 (1981), and to “certify” means “to attest . . . authoritatively or formally.” Id.

Whatever form it takes, the certification is an additional step beyond simply admitting the patient.

Merely admitting a patient does not constitute a formal act declaring that “inpatient services in a

hospital are or were needed.” 42 C.F.R. § 456.60(a)(1). Instead, the admission form only admits

the patient for treatment. The Hospital’s interpretation would render the certification requirement




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superfluous, and we will not construe statutes or regulations in such a manner. See, e.g., Cnty. of

Albemarle v. Camirand, 285 Va. 420, 425, 738 S.E.2d 904, 906-07 (2013).2

        II. THE CONTRACT DISPLACES ORDINARY PRINCIPLES OF SUBSTANTIAL COMPLIANCE.

        Alternatively, the Hospital argues that it substantially complied with the regulations

governing the Medicaid program, that the failure to certify is a minor breach, and that DMAS does

not contend that the Hospital provided unnecessary services.

        The agreement between DMAS and the Hospital is governed by the law of contracts. See

Psychiatric Solutions of Va., Inc. v. Finnerty, 54 Va. App. 173, 176, 676 S.E.2d 358, 359 (2009).

The law of contracts supplies a number of default rules that govern contract interpretation. For

example, the law generally presumes that, in contracts for the sale of real estate, time is not of the

essence. Cranford v. Hubbard, 208 Va. 689, 694, 160 S.E.2d 760, 764 (1968). Nevertheless, the

parties to a contract may agree to displace this default rule, and “‘[t]ime may be made of the

essence of the contract by express stipulation.’” Id. (citation omitted).

        Another default rule is that of “material breach” and “substantial compliance.” The

Supreme Court has recognized that,

                [g]enerally, a party who . . . breach[es] . . . a contract is not entitled
                to enforce the contract. An exception to this rule arises when the
                breach did not go to the “root of the contract” but only to a minor
                part of the consideration.

                If the . . . breaching party committed a material breach, however,
                that party cannot enforce the contract. A material breach is a
                failure to do something that is so fundamental to the contract that
                the failure to perform that obligation defeats an essential purpose
                of the contract.

        2
         Invoking the void for vagueness doctrine, the Hospital argues that its rights to due
process were violated when DMAS “impos[ed] a requirement that was altogether absent from
the relevant Manual provisions and the applicable federal regulation.” Opening Br. at 13. This
argument fails, first, because DMAS has done no such thing. Second, the argument is not
encompassed by any assignment of error. Accordingly, it is barred for that reason as well. See
Rule 5A:20(c); Ceres Marine Terminals v. Armstrong, 59 Va. App. 694, 698 n.1, 722 S.E.2d
301, 303 n.1 (2012); cf. Rule 5A:12(c)(1)(i).
                                              -5-
Horton v. Horton, 254 Va. 111, 115, 487 S.E.2d 200, 203-04 (1997) (quoting Fed. Ins. Co. v.

Starr Elec. Co., 242 Va. 459, 468, 410 S.E.2d 684, 689 (1991)); see also Akers v. James T.

Barnes of Wash., D.C., Inc., 227 Va. 367, 371, 315 S.E.2d 199, 201 (1984). Substantial

compliance is the inverse of the proposition that a breach of the contract must be “material” or

significant before it will excuse non-performance. See Restatement (Second) of Contracts § 237,

cmt. d (1981) (“The considerations in determining whether performance is substantial are those

listed in § 241 for determining whether a failure is material.”).

       We addressed substantial compliance in the context of provider agreements in Psychiatric

Solutions. In that case, we held that “contract principles applied to the interpretation of the

provider agreement and that, under settled principles of contract law, appellant would be entitled

to payment if its noncompliance did not amount to a material breach of the agreement.”

Psychiatric Solutions of Va., Inc., 54 Va. App. at 176, 676 S.E.2d at 359-60. We concluded that

the provider did not substantially comply because, on those facts, its documentation deficiencies

were material. Id. at 190-91, 676 S.E.2d at 367. We rejected the argument that the failures to

document represented a “‘trifling’ technical deficiency in the documentation of those sessions.”

See id. at 191-92, 676 S.E.2d at 367. Instead, as a factual matter, DMAS established that the

documentation failure “significantly impacted” the ability to provide care and, therefore, was a

material breach. See id. at 192, 676 S.E.2d at 367-68.

       We were called upon to revisit the issue of substantial compliance in 1st Stop Health

Services, Inc. We again concluded that the provider’s documentation failures were material. 63

Va. App. at 270, 756 S.E.2d at 185. The provider’s documentation in that case was “‘abysmal’

to the point [that] the auditor [could not] determine that certain payments were justified.” Id. at

280, 756 S.E.2d at 190. We also pointed to the language of the Provider Agreement and the




                                                -6-
applicable DMAS Manual to hold that the retraction of payment was a plainly authorized remedy

for the provider’s failure to maintain the required documentation. Id. at 281, 756 S.E.2d at 191.

        Turning to the case at bar, we find that the language of the agreement controls. The

Provider Agreement requires the Hospital to follow the provisions of the Manual. The Manual

unambiguously requires providers “to refund payments made by Medicaid if they are found to

have . . . failed to maintain any record or adequate documentation to support their claims.” Hosp.

Manual, supra, ch. VI, at 2. The Hospital was required to “certify for each applicant or beneficiary

that inpatient services in a hospital are or were needed.” 42 C.F.R. § 456.60(a)(1). The Hospital

failed to make this required certification. DMAS could enforce the terms of the agreement and

require repayment for patients that were admitted without the required certification. Accordingly,

the Director was entitled to set aside, as contrary to law, the hearing officer’s decision in favor of the

Hospital.

        The retraction of payment under the facts before us, where there is no allegation of

self-dealing or impropriety by the Hospital, may come across as harsh and formalistic.

Nevertheless,

                It is the function of the court to construe the contract made by the
                parties, not . . . to alter the contract they have made so as to
                conform it to the court’s notion of the contract they should have
                made in view of the subject matter and the surrounding facts and
                circumstances. . . . The court . . . is not at liberty . . . to put a
                construction on the words the parties have used which they do not
                properly bear. It is the court’s duty to declare what the instrument
                itself says it says.

Ames v. Am. Nat’l Bank of Portsmouth, 163 Va. 1, 38, 176 S.E.204, 216 (1934) (emphasis in

original). Moreover, courts will not set aside a contractual provision simply because it

constitutes a “‘hard bargain.’” Payne v. Simmons, 232 Va. 379, 384, 350 S.E.2d 637, 640 (1986)

(quoting Long v. Harrison, 134 Va. 424, 441-42, 114 S.E. 656, 661-62 (1922)).

        Accordingly, we affirm the judgment below.
                                                  -7-
                                 CONCLUSION

We affirm the judgment of the Circuit Court for the City of Richmond.

                                                                        Affirmed.




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