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     IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                         DIVISION ONE

ALLEN DENTAL LABORATORIES,               )      No. 75905-1-1
INC., a Washington corporation, and      )
ANDON D. ALLEN, an individual,           )
                                         )
                    Appellants,          )
                                         )
           v.                            )
                                         )
WASHINGTON STATE HEALTH                  )      UNPUBLISHED OPINION
CARE AUTHORITY, a state agency,          )
                                         )      FILED: November 6, 2017
                     Respondent,         )
                                         )

       VERELLEN, C.J. —As a provider in Washington's Medicaid program, Allen Dental
Laboratories, Inc. agreed to comply with applicable agency regulations. Those

regulations require providers to maintain appropriate documentation, including medical

records and charts. The agreement also authorized Washington Health Care Authority

(HCA)to audit Allen Dental's records and recoup Medicaid payments if it failed to

maintain appropriate documentation.

       Because Allen Dental failed to keep complete and accurate medical records,

including "legible, accurate, and complete charts and records to justify the services

provided to each client,"1 the HCA Board of Appeals(Agency) correctly assessed

overpayments.



       1 Former WAG 388-502-0020(1)(a)(2007).
No. 75905-1-1/2

       HCA extrapolated a portion of its audit results, as authorized by WAC 182-502A-

0601. Allen Dental did not challenge the extrapolation in its request for hearing and

failed to present evidence rebutting HCA's extrapolation methods. Allen Dental argues

we should retroactively apply a recent statute limiting extrapolation, but that would

frustrate,the contract between Allen Dental and HCA. Allen Dental's challenge to the

use of extrapolation fails.

       Allen Dental's arguments regarding equitable estoppel and claimed

underpayments also fail.

       Therefore, we affirm.

                                          FACTS

       Andon Allen is a licensed denturist who owns Allen Dental. In 2002, Allen signed

a core provider agreement detailing Allen Dental's obligations under the state Medicaid

program. Those obligations included compliance with applicable regulations and

policies, as well as submission to audits by HCA's Office of Program Integrity. Allen

renewed the agreement in 2008.

       In June 2010, HCA's Office of Program Integrity notified Allen Dental of its intent

to audit claims Allen Dental billed to Medicaid between May 1, 2007 and April 30, 2010.

The audit universe consisted of 12,247 claims. HCA examined 363 specific claims

within that universe. Of these specific claims, 338 were randomly selected, and

overpayments identified in those randomly selected claims were extrapolated to the

audit universe. HCA also conducted a claim by claim audit on the 25 highest paid

claims in the audit universe, but these results were not extrapolated.




                                             2
No. 75905-1-1/3

       Ultimately, HCA issued its final audit report with a total extrapolated overpayment

of $184,347.96. The primary issue identified in the audit concerned insufficient

documentation to support services billed. Allen Dental filed a request for hearing, and

the case was forwarded to the Office of Administrative Hearings.

       HCA moved for partial summary judgment regarding 109 claims lacking any chart

note or other medical documentation to support the billed service. Allen Dental argued

it maintained clerical documents such as appointment books and billings to show it

performed the service. Allen Dental submitted additional documentation for certain

claims. HCA issued a revised final audit report that reduced the overpayment to

$174,909.56.

       The parties stipulated that the issues remaining for the hearing were limited to

whether HCA properly assessed overpayments for 22 specific claims and whether HCA

was equitably estopped from recovering the final extrapolated overpayment amount for

all claims.

       In the initial order, the administrative law judge concluded that, except for one

claim, Allen Dental failed to show it complied with HCA's record-keeping requirements.

The administrative law judge also determined that HCA was not equitably estopped

from recovering the total overpayment sum of $174,358.65.

       Allen Dental requested review of both the order granting partial summary

judgment and the initial order by the Agency. The Agency affirmed both the assessed

overpayments and the rejection of equitable estoppel.

       On Allen Dental's petition for judicial review, the superior court affirmed.

       Allen Dental appeals.



                                             3
No. 75905-1-1/4

                                        ANALYSIS

       The Administrative Procedure Act, chapter 34.05 RCW,governs agency action.

"The burden of demonstrating the invalidity of agency action is on the party asserting

invalidity."2 The panel may only invalidate the order for the specific enumerated

reasons set forth in RCW 34.05.570(3).3 A finding will be upheld if it is supported by

"evidence that is substantial when viewed in light of the whole record before the court."

We view the evidence in the light most favorable to the party that prevailed at the final

administrative forum.5 We review the Agency's conclusions de novo to determine

whether it erroneously interpreted or applied the law.6 We give the Agency's

interpretation substantial weight.7

                                I. Adequate Documentation

       Allen Dental argues the Agency erred in affirming the audit report and assessing

overpayments forits dental services.

       Medicaid is a health insurance program jointly funded by federal and state

governments that pays for health care for a specific population of Americans.5 The



       2 RCW   34.05.570(1).
       3 See RCW 34.05.570(3)(d),(e), and (i)("Review of agency orders in adjudicative
proceedings. The court shall grant relief from an agency order in an adjudicative
proceeding only if it determines that. . . the agency erroneously interpreted or applied
the law;[t]he order is not supported by evidence that is substantial... ; [t]he order is
arbitrary and capricious.")(emphasis added).
       4RCW 34.05.570(3)(c).
      5 City of Univ. Place v. McGuire, 144 Wn.2d 640,652, 30 P.3d 453(2001).

      6 Bircumshaw v. Washington State Health Care Authority, 194 Wn. App. 176,
187-88, 380 P.3d 524(2016).
      7 Pub. Util. Dist. 1 v. Dep't of Ecology, 146 Wn.2d 778, 790, 51 P.3d 744 (2002).

       8 Connecticut   Dep't of Soc. Servs. v. Leavitt, 428 F.3d 138, 141 (2d Cir. 2005).


                                             4
No. 75905-1-1/5

HCA administers the Medicaid program in Washington.9 The State is only eligible for

matching funds if it meets the requirements of the federal statute.1°

       States must provide a post-payment review process "to ensure the proper and

efficient payment of claims and management of the program."11 They must also provide

methods to "safeguard against unnecessary utilization of such care and services and to

assure that payments are consistent with efficiency, economy, and quality of care."12

       To comply with this federal mandate, the Washington State Legislature

authorized HCA to "inspect and audit all records in connection with the providing of such

services,"13 and recover overpayments.14

       Allen Dental contends neither the provider agreement nor the regulations require

patient charts as a means of documenting services.

       This court interprets provider agreement provisions de novo.15 We examine the

provisions in the context of "'the contract as a whole, interpreting particular language in

the context of other contract provisions.'"16

       "[T]he department may assess an overpayment for medical services and

terminate the core provider agreement if a provider fails to retain adequate


       9 42 U.S.C. § 1396a.
       10 42 C.F.R. § 430.1.

       11   42 U.S.C. 1396a(37)(B).
       12 42   U.S.C. 1396a(30)(A).
       13 RCW 74.09.200.

       14   RCW 74.09.220.
       15Bircumshaw, 194 Wn. App. at 188; State v. R.J. Reynolds Tobacco Co., 151
Wn. App. 775, 783, 211 P.3d 448(2009).
      16 Bircumshaw, 194 Wn. App. at 188 (quoting Viking Bank v. Firorove Commons
3 LLC, 183 Wn. App. 706, 713, 334 P.3d 116 (2014)).


                                                5
No. 75905-1-1/6

documentation for services billed to the department."17 The agreement acknowledges

HCA's authority to recoup payments if Allen Dental fails to maintain adequate

documentation.18

       The agreement explains that audits can be conducted at any time within six

years of a date of service and that overpayments could be assessed as a result of those

audits. It also provides that Allen Dental shall "[Ileep complete and accurate medical

and fiscal records that fully justify and disclose the extent of the services or items

furnished and claims submitted to the department."19

       Allen Dental contends the agreement does not define the specific medical and

fiscal records that must be maintained to justify or disclose denture services. But the

agreement clearly required Allen Dental to comply with the regulations regarding

documentation.

       The applicable regulations expressly require providers to "keep legible, accurate,

and complete charts and records to justify the services provided to each client,"20 and

"[m]ake charts and records available."21

       In overlapping arguments, Allen Dental contends the regulations do not require it

to maintain a chart for every patient in order to adequately document and justify



        Former WAC 388-502A-0800(2)(2008)(effective June 1, 2007 (these were the
       17
requirements that were in effect throughout Allen Dental's participation in the Medicaid
program). See CP at 1918-1919(agreement renewed in 2008).
       18 CP at 1916 (at 5.b.)("The Provider understands that failure to submit or failure
to retain adequate documentation for services billed to the department may result in
recovery for payments for medical services not adequately documented.").
       19 See   CP at 1916 (at 5.a.).
       29   Former WAC 388-502-0020(1)(a)(emphasis added).
       21   Former WAC 388-502-0020(1)(c)(emphasis added).


                                              6
No. 75905-1-1/7

services, it actually provided the services, and it adequately documented each service

by means of ledgers and appointment books. But Allen Dental ignores WAC provisions

that reject using a provider's "bill for services, appointment books, accounting records,

or other similar documents" as adequate documentation.22 "At the least, the [provider]

contract requires keeping and submission of any records listed in former WAC 388-502-

0020(1)that were relevant to the provision of a particular billed service."23 Complete

charts are required.

       Alternatively, Allen Dental contends the Agency erroneously interpreted or

applied the law because Allen Dental actually performed the billed services. But this is

not a fraud case. HCA's audit findings relate to inadequate documentation, not willful

misrepresentation. It is clear that the State may assess an overpayment for lack of

adequate documentation even if there is some collateral evidence regarding services

provided.

       In Bircumshaw v. Washington State, Health Care Authority, the provider argued

HCA could not recoup payments purely on the failure to keep adequate records without

determining that the provider failed to provide services. 24 But the Bircumshaw court

recognized the requirements of the agreement and the code are intended to protect the

integrity of the Medicaid program:

              Were we to hold otherwise, the potential for fraud on the Medicaid
       system would be too great. An optometrist could send fraudulent orders
       to Airway for eyeglasses or contact lenses without actually seeing a
       patient or without determining that ordered hardware is medically

       22 Former WAC 388-502A-0700(3)(2008)(effective       June 1, 2007); see also
former WAC 182-502A-0700(3)(2013).
       23   Bircumshaw, 194 Wn. App. at 195.
       24 194 Wn. App. 176, 187, 380 P.3d   524 (2016).


                                            7
No. 75905-1-1/8

      necessary. If those orders were sufficient to prove the provision of
      services, HCA would be effectively unable to uncover the fraud. This is
      directly contrary to the policy rationale supporting Medicaid's audit
      requirement.125]

The court concluded payments could be recouped for the failure to keep updated

patient charts.

      Allen Dental argues findings of inadequate documentation are not supported by

substantial evidence because it has adequate documentation consisting of ledgers and

appointment books. But HCA's auditor testified about the records at issue explaining

why Allen Dental's documentation did not justify each claim. The auditor explained,

"They may be business records and they may indicate that something was billed, but we

want to see that the service was provided, and that would be a medical record or chart

note indicating what was done and authenticated by the provider."26 The auditor also

testified, "They're not chart notes. The simple patient ledger is a billing document. The

appointment book... doesn't meet the criteria."27 And HCA expects to see

authenticated chart notes showing the fabrication and delivery of the dentures.28 Allen

Dental failed to maintain adequate, authenticated charts as required by the regulations it

agreed to comply with. Consistent with former WAC 388-502A-0700(3), billing

statements, appointment books, and similar business records are not adequate




       25   Id. at 200.
       26   CP at 304.
       27 CP   at 304.
       28 "We expect to see an authenticated chart note indicating the fabrication and
delivery, and I don't see that in your records." CP at 307; see also Bircumshaw, 194
Wn. App. at 199-201 (recognizing order forms and appointment schedules are
inadequate to prove medical necessity).


                                            8
No. 75905-1-1/9

documentation.29 Viewed in a light most favorable to HCA, who prevailed in the final

administrative forum, the record supports the findings in the final order.

                                     II. Extrapolation

       Allen Dental suggests recently adopted RCW 74.09.199° should be applied

retroactively. Statutes may be applied retroactively if they relate "to practice, procedure

or remedies and do not affect a contractual or vested right"31 or impose a penalty.32

       Here, RCW 74.09.195 adds new limits on the use and admissibility of

extrapolation.33 The statute is arguably procedural in that it addresses the process of

using an audit, and remedial because it addresses the use of extrapolation to determine

overpayments. But even a remedial statute cannot apply retroactively to impair a

contract right.34 A retroactive application of RCW 74.09.195 to an audit conducted long

before the new statute would impair HCA's contractual right to require compliance with


       29 Allen Dental refers to x-rays and photos, but the record does not reflect that
the limited x-rays and photos made available by Allen Dental documented fabrication
and delivery of dentures.
       30 LAWS OF 2017, ch. 242,§ 1, eff. July 23, 2017.
       31 Godfrey v. State, 84 Wn.2d 959, 961, 530 P.2d 630(1975).
       32 Tomlinson v. Clarke, 60 Wn. App. 344, 351, 803 P.2d 828 (1991), aftd, 118
Wn.2d 498, 825 P.2d 706(1992).
       33 See RCW 74.09.195(1)(e)("A finding of overpayment to a provider in a
program operated or administered by the authority may not be based on extrapolation
unless there is a determination of sustained high level of payment error involving the
provider or when documented educational intervention has failed to correct the level of
payment error. Any finding that is based upon extrapolation, and the related sampling,
must be established to be statistically fair and reasonable in order to be valid. The
sampling methodology used must be validated by a statistician or person with
equivalent experience as having a confidence level of ninety-five percent or greater."
(emphasis added)).
       34 See 1000 Virginia Ltd. P'ship v. Vertecs Corp., 158 Wn.2d 566, 146 P.3d 423
(2006)(claims that spring from contracts are vested rights, not subject to remedial
statutes).
No. 75905-1-1/10

the adequate documentation regulations.35 We decline to apply RCW 74.09.195 in this

setting.

       Allen Dental also contends HCA offered inadequate evidence supporting the

validity of its extrapolation. Cases from other jurisdictions approve extrapolation in

overpayment cases involving Medicare and Medicaid.36

       In Ratanasen v. State of California, Department of Health Services, the California

Department of Health Services audited claims by a physician who provided services

under the Medi-Cal program.37 To conduct the audit, the Department selected a sample

of 300 beneficiaries out of a 8,761 beneficiary universe and extrapolated the results of

the sample to the universe.38 The Ninth Circuit upheld the use of statistical sampling

and extrapolation, observing:

              We now join other circuits in approving the use of sampling and
       extrapolation as part of audits in connection with Medicare and other
       similar programs, provided the aggrieved party has an opportunity to rebut
       such evidence. To deny public agencies the use of statistical and
       mathematical audit methods would be to deny them an effective means of
       detecting abuses in the use of public funds. Public officials are
       responsible for overseeing the expenditure of our increasingly scarce



       35 42 C.F.R. § 456.22; WAG    182-502A-0601; 42 U.S.C. 1396a(30);
ROW 74.09.200, .220.
       36 State of Ga., Dep't of Human Res. v. Califano, 446 F. Supp. 404, 409-10(N.D.
Ga. 1977); Goldstar Med. Servs. Inc. v. Dep't of Soc. Servs., 288 Conn. 790, 814-17,
955 A.2d 15 (2008); see Illinois Physicians Union v. Miller, 675 F.2d 151, 156 (7th Cir.
1982)("We find nothing in this procedure, however, to suggest that extrapolation
inherently works to the detriment of the physician. Sampling and extrapolation is no
more likely to result in a situation where the physician will be required to return monies
when there has been no overpayment than in a situation where the Department will not
recoup the full amount overpaid. The audit procedures are not arbitrary, capricious or
invidiously discriminatory.").
       37 11   F.3d 1467, 1468 (9th Cir. 1993).
       38   Id. at 1468-69.


                                             10
No. 75905-1-1/11

      public resources and we must give them appropriate tools to carry out that
      charge."
             [ ]

      As in Ratanasen, this case involves sampling and extrapolation in a public

assistance program. Allen Dental had an opportunity to rebut the statistical evidence

presented by HCA.4° Beyond cross-examining HCA's witness, the record does not

reveal that Allen Dental disputed the statistical method used. Allen Dental neither

presented testimony to rebut HCA's evidence nor identified this issue in its request for

an administrative hearing.

      We conclude Allen Dental failed to rebut HCA's extrapolation evidence.

                                 Ill. Equitable Estoppel

      Allen Dental contends HCA should be equitably estopped from recovering the

overpayments.

      A party seeking to assert an equitable estoppel defense against HCA at an

administrative hearing must prove five elements by clear and convincing evidence:

      (a) HCA made a statement or took an action or failed to take an action,
          which is inconsistent with a later claim or position by HCA.

      (b) The party reasonably relied on HCA's original statement, action or
          failure to act.

      (c) The party will be injured to its detriment if HCA is allowed to contradict
          the original statement, action or failure to act.

      (d) Equitable estoppel is needed to prevent a manifest injustice. Factors
      to be considered in determining whether a manifest injustice would occur
      include, but are not limited to, whether:

       39   Id. at 1471.
        40 See WAC 182-502A-0901(2)("At the adjudicative proceeding, the entity bears
the burden of proving by a preponderance of the evidence that it has complied with
applicable laws, rules, regulations, and agreements."); see RCW 34.05.570(1)(a)("The
burden of demonstrating the invalidity of agency action is on the party asserting
invalidity").


                                            11
No. 75905-1-1/12

               (i) The party cannot afford to repay the money to HCA;

               (ii) The party gave HCA timely and accurate information when required;

               (iii) The party did not know that HCA made a mistake;

               (iv) The party is free from fault; and

               (v) The overpayment was caused solely by an HCA mistake.

      (e) The exercise of government functions is not impaired.[41]

       Allen Dental argues that granting preauthorizations to Allen Dental without

asking for charts at any time before the audit commenced is inconsistent with now

requiring charts.

       But preauthorization for certain services is not inconsistent with an overpayment

claim based on a lack of adequate documentation. By definition, a preauthorization

takes place before the services are actually provided and before the completion of those

services could be documented.42 Allen Dental's proposition that preauthorization

amounts to advanced absolute approval would render the audit process meaningless.

       And paying for services is not inconsistent with HCA's later audit findings that

services were not adequately documented. The agreement provides that Allen Dental

must follow all applicable rules and that overpayments can be recovered by HCA for up

to six years after a given claim's date of service.

       Allen Dental referred to one patient chart it maintained that may have been

reviewed by an individual outside of HCA's program integrity section before the audit.

But that chart was not offered as evidence, and Allen Dental does not establish whether

it adequately documented the necessity and provision of the services billed.


       41   WAC 182-526-0495(2).
       42   Former WAC 388-535-1280 (2007), recodified as WAC 182-535-1280.

                                               12
No. 75905-1-1/13

       Allen Dental contends it reasonably believed it was entitled to payment for

services rendered without maintaining patient charts because it "reasonably relied" on

its office records as adequate documentation. But Allen Dental does not establish a

prior inconsistent action or inaction by HCA supporting such a claim of "reasonable"43

reliance.

       HCA contends precluding recoupment of these payments would impair the

exercise of government functions. We agree. The Washington State Legislature

expressly found it is in the public interest that "a proper regulatory and inspection

program be instituted in connection with the providing of medical, dental, and other

health services to recipients of public assistance and medically indigent persons."44 To

accomplish this, the HCA is authorized to "inspect and audit all records in connection"

with providing Medicaid services.45

       If Allen Dental can prevent HCA from recouping overpayments because HCA

paid for services, granted prior authorizations, or had some unrelated prior interaction,

HCA's record-keeping requirements and post-payment review process would be greatly

diminished. Such an expansive extension of equitable estoppel would interfere with

HCA's ability to fulfill its mandate under state and federal law:46




       43 SeeLaymon v. State Dep't of Nat. Res., 99 Wn. App. 518, 527, 994 P.2d 232
(2000)("Reasonableness    is founded on the notion that the party claiming estoppel did
not know the true facts and had no means of discovering them.")(emphasis added).
       44   RCW 74.09.200.
       45   RCW 74.09.200.
       46   RCW 74.09.200; 42 U.S.C.§ 1396a(37)(B).


                                             13
No. 75905-1-1/14

      We conclude Allen Dental failed to establish by clear and convincing evidence an

inconsistent action or statement by HCA, reasonable reliance, and that the exercise of

government functions would not be impaired. Its equitable estoppel argument fails.

                              IV. Evidence of Unpaid Claims

      Allen Dental contends the Agency erred in excluding two of its proposed exhibits

documenting unpaid claims.

      The scope of an administrative appeal is limited, and an administrative law judge

does not have any inherent or common law powers.47 In overpayment cases, the

specific authority granted is to determine the amount of overpayment.48 Allen Dental

does not establish that this audit was a comprehensive financial audit extending to

underpayments.

       We conclude Allen Dental failed to establish that the administrative law judge had

the authority to review the unpaid claims.

      Therefore, we affirm.




WE CONCUR:



      14H
       47 WAC    182-526-0216(1).
       48   RCW 41.05A.170(4).


                                             14
