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                                                       - 134 -
                             Nebraska Court of Appeals Advance Sheets
                                  28 Nebraska Appellate Reports
                                        NEBRASKA MED. CTR. v. STATE
                                            Cite as 28 Neb. App. 134




                               Nebraska Medical Center, appellant, v.
                                  State of Nebraska Department of
                                     Health and Human Services
                                          et al., appellees.
                                                   ___ N.W.2d ___

                                        Filed March 24, 2020.    No. A-19-122.

                 1. Administrative Law: Judgments: Appeal and Error. A judgment or
                    final order rendered by a district court in a judicial review pursuant to
                    the Administrative Procedure Act may be reversed, vacated, or modified
                    by an appellate court for errors appearing on the record.
                 2. ____: ____: ____. When reviewing an order of a district court under
                    the Administrative Procedure Act for errors appearing on the record,
                    the inquiry is whether the decision conforms to the law, is sup-
                    ported by competent evidence, and is neither arbitrary, capricious,
                    nor unreasonable.
                 3. Judgments: Appeal and Error. An appellate court, in reviewing a dis-
                    trict court’s judgment for errors appearing on the record, will not substi-
                    tute its factual findings for those of the district court where competent
                    evidence supports those findings.
                 4. Administrative Law: Appeal and Error. In an appeal under provi-
                    sions of the Administrative Procedure Act governing proceedings for
                    review, a district court conducts a de novo review of the record of
                    the agency.
                 5. ____: ____. In a review de novo on the record, the district court is
                    required to make independent factual determinations based upon the
                    record, and the court reaches its own independent conclusions with
                    respect to the matters at issue.

                 Appeal from the District Court for Lancaster County: John
               A. Colborn, Judge. Reversed and remanded with directions.
                    Steven D. Davidson, of Baird Holm, L.L.P., for appellant.
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                  NEBRASKA MED. CTR. v. STATE
                      Cite as 28 Neb. App. 134

  Douglas J. Peterson, Attorney General, Ryan C. Gilbride,
James D. Smith, and, on brief, David A. Lopez, Deputy
Solicitor General, for appellees.
  Moore, Chief Judge, and Bishop and Arterburn, Judges.
   Arterburn, Judge.
                       INTRODUCTION
   Nebraska Medical Center (NMC) appeals from the order of
the district court for Lancaster County affirming the decision
of the Nebraska Department of Health and Human Services
(DHHS) to recover the full amount of Medicaid payments
made to NMC following postpayment review of a Medicaid
claim. Based on the reasons that follow, we reverse, and
remand with directions.
                         BACKGROUND
   NMC provided medical services to a Medicaid patient suf-
fering from congestive heart failure for a 6-month period
spanning from February 7 through August 7, 2017. In treating
that patient, NMC billed $870,992.14 for its services, which
amount was paid by Medicaid.
   Telligen, Inc., reviews Nebraska Medicaid providers’ service
claims for cost, quality, and utilization. See 471 Neb. Admin.
Code, ch. 2, § 2-001.03 (2015). According to a letter provided
by Telligen to DHHS, a request was made on November 8,
2017, wherein NMC was asked to submit medical records
demonstrating its treatment of the Medicaid patient with con-
gestive heart failure. Telligen sent NMC another letter dated
December 11, 2017, which stated that it was Telligen’s third
request for the patient’s medical records. Telligen noted that
the claim “will be” technically denied because Telligen had not
yet received the requested documentation. However, the letter
also provided that the denial would not become final if the
requested records were provided within 20 days. According to
the letter, if the denial became final, Telligen would send it to
DHHS for further action. According to Telligen, the requested
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                  NEBRASKA MED. CTR. v. STATE
                      Cite as 28 Neb. App. 134

records were not received. NMC acknowledges receipt of this
letter but states that it did not receive either of the prior two
notices allegedly sent by Telligen. NMC further alleges that it
responded on December 28 by sending a data storage device
referred to as a “thumb drive” containing 25,000 pages of
records to Telligen. The thumb drive was sent by regular mail,
and NMC has no record that the package was returned by the
post office.
   On April 18, 2018, DHHS program specialist Tara Neeman
requested that the “Medicaid Claims Unit” take the necessary
actions to recover funds from NMC for the claim following
its retrospective review. The reason given was that NMC had
“[c]hosen to not respond to a request for information from
Telligen concerning a Post-Payment Review” pursuant to 471
Neb. Admin. Code, ch. 3, § 3-002.03 (2008).
   DHHS advised NMC in a letter dated June 1, 2018, that a
postpayment review had been completed on unpaid refunds
owed to Medicaid and requested that NMC fulfill its refund
request. On June 22, NMC requested an administrative hear-
ing to prevent the refund. NMC stated that it had received a
request for medical records from Telligen on December 23,
2017, and had complied by sending a thumb drive with 25,000
pages of records to Telligen on December 28. Thus, NMC
requested a hearing to prevent a refund of the $870,992.14 that
Medicaid had previously paid.
   On July 31, 2018, an administrative hearing was held.
Neeman testified on behalf of DHHS and stated that Telligen
sent requests for medical records to NMC on November 8
and December 11, 2017. She stated that according to Telligen,
they never received any records or the thumb drive containing
records. Wendy Hanson testified on behalf of NMC and stated
that NMC sent a thumb drive containing 25,000 pages of medi-
cal records on December 28. She stated the December request
was the first request from Telligen that NMC had a record
of receiving. She further testified that a printout from their
computer system showed staff notes which memorialized the
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                 NEBRASKA MED. CTR. v. STATE
                     Cite as 28 Neb. App. 134

thumb drive’s mailing on December 28. A copy of the screen
shot of NMC’s computer record was received into evidence.
That record indicates that the records were actually sent to
Telligen on December 23 by regular mail. Hanson closed by
asking for the opportunity for a review of the records to be
completed by DHHS, because NMC had already made a good
faith effort to supply the records and because over $870,000
was at stake.
   On August 6, 2018, the hearing officer recommended that
the recoupment action of DHHS be affirmed. On August
8, DHHS’ director of Medicaid and long-term care adopted
the hearing officer’s recommendations and affirmed DHHS’
recoupment action. In so doing, the director found that Telligen
did not receive the records allegedly submitted by NMC.
Because the records were not received, the director found
that NMC had failed to comply with the postpayment review
as required.
   NMC filed a petition for review in the district court for
Lancaster County on September 4, 2018. NMC alleged that
the record showed that it timely responded to Telligen’s
request for information concerning its postpayment review of
a Medicaid claim and further alleged that the record contained
no evidence from which the director could have concluded
otherwise. NMC requested that the district court reverse the
director’s order and remand the matter with directions that
DHHS withdraw its refund request and that Telligen under-
take an ordinary postpayment review of the merits with the
records supplied.
   On November 19, 2018, the district court held a hear-
ing on the appeal. It entered an order on January 15, 2019,
affirming the director’s decision. The district court evaluated
NMC’s argument that it submitted to Telligen “25,000 pages
of electronic copies of [medical] records by regular mail” and
Telligen’s argument that it never received any records from
NMC. The court found that NMC had failed to meet its burden
in establishing that it complied with Telligen’s request. The
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                  NEBRASKA MED. CTR. v. STATE
                      Cite as 28 Neb. App. 134

district court found that it could not consider NMC’s argument
that the regulations do not allow for complete recoupment of
Medicaid payments based on a failure to provide records for
postpayment review because NMC failed to adequately raise
this issue in its petition for judicial review or in the adminis-
trative hearing below. Thus, the district court affirmed DHHS’
recoupment decision.
   NMC now appeals to this court.
                 ASSIGNMENTS OF ERROR
   NMC assigns that the district court erred in finding that
NMC had not complied with the request for medical records,
in refusing to consider and not concluding that DHHS imposed
a remedy not permitted by its regulatory authority, and not
remanding the matter back to DHHS with directions that it
withdraw its refund request and proceed with postpayment
review of the claim on its merits.
                    STANDARD OF REVIEW
   [1-3] A judgment or final order rendered by a district court
in a judicial review pursuant to the Administrative Procedure
Act may be reversed, vacated, or modified by an appellate
court for errors appearing on the record. Tran v. State, 303
Neb. 1, 926 N.W.2d 641 (2019). When reviewing an order of a
district court under the Administrative Procedure Act for errors
appearing on the record, the inquiry is whether the decision
conforms to the law, is supported by competent evidence, and
is neither arbitrary, capricious, nor unreasonable. Tran v. State,
supra. An appellate court, in reviewing a district court’s judg-
ment for errors appearing on the record, will not substitute its
factual findings for those of the district court where competent
evidence supports those findings. Id.
                         ANALYSIS
   NMC first argues that it proved by the greater weight of the
evidence that NMC complied with Telligen’s request for medi-
cal records. In reply, DHHS and its director argue that NMC’s
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                  NEBRASKA MED. CTR. v. STATE
                      Cite as 28 Neb. App. 134

argument is based on the wrong standard of review and that
competent evidence supports the district court’s decision.
   [4,5] In an appeal under provisions of the Administrative
Procedure Act governing proceedings for review, a district
court conducts a de novo review of the record of the agency.
See, Neb. Rev. Stat. § 84-917(5)(a) (Reissue 2014); Tyson
Fresh Meats v. State, 270 Neb. 535, 704 N.W.2d 788 (2005).
In a review de novo on the record, the district court is
required to make independent factual determinations based
upon the record, and the court reaches its own independent
conclusions with respect to the matters at issue. See Medicine
Creek v. Middle Republican NRD, 296 Neb. 1, 892 N.W.2d
74 (2017).
   In the present case, the district court reviewed the record
and made independent factual determinations and independent
conclusions with respect to the medical records issue:
      At the hearing, Hanson testified that NMC sent a thumb
      drive to Telligen with over 25,000 pages of records by
      regular mail on December 28, 2017. While NMC sub-
      mitted a screen shot from its electronic medical record
      management system purportedly showing that the records
      were placed on a thumb drive and mailed to Telligen,
      this evidence does not establish that NMC furnished the
      records. In fact, there is contrary evidence reflecting that
      Telligen did not receive any record or a thumb drive.
      Accordingly, the Court finds that NMC failed to meet its
      burden of establishing that it complied with Telligen’s
      request in a timely manner.
(Emphasis supplied.)
   Under our standard of review, we are precluded from now
supplanting our own factual determinations and conclusions
for those of the district court. An appellate court, in reviewing
a district court’s judgment for errors appearing on the record,
will not substitute its factual findings for those of the district
court where competent evidence supports those findings. Tran
v. State, supra. We are tasked with determining whether the
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                 NEBRASKA MED. CTR. v. STATE
                     Cite as 28 Neb. App. 134

decision is supported by competent evidence. In this case, we
find that there is no competent evidence supporting the district
court’s finding.
   At the administrative hearing, DHHS supplied copies of
two letters from Telligen addressed to NMC in November and
December 2017 which requested the production of medical
records in order to complete its review of the $870,992.14
claim that NMC billed for treatment of the Medicaid patient.
Neeman testified that she initiated an action in April 2018 to
recoup funds from NMC because NMC had “[c]hosen to not
respond to a request for information from Telligen concerning
a Post-Payment Review.” Neeman testified that “Telligen”
had reported that no medical records had been received
from NMC.
   We note that the primary focus of NMC’s argument is
that Telligen’s statement to Neeman is not competent in that
it constitutes hearsay. DHHS and its director argue and the
district court noted that no hearsay objection was interposed
by NMC to this evidence. In addition, DHHS and its director
accurately note that NMC did not request that the rules of evi-
dence apply to the administrative hearing. See, Neb. Rev. Stat.
§ 84-914(1) (Reissue 2014); 465 Neb. Admin. Code, ch. 6,
§ 6-007.05B (1995). As such the director and the district court
were entitled to consider the hearsay statement and determine
the weight that should be accorded to it. The district court
ultimately gave great weight to Neeman’s hearsay testimony of
Telligen’s report.
   Our analysis is influenced by our opinion in McKibbin v.
State, 5 Neb. App. 570, 560 N.W.2d 507 (1997). In McKibbin,
the State initiated an action to withhold income from the
wages of Michael McKibbin based on his owing back child
support. At that time, in order to withhold income directly
from a person’s wages, the arrears had to be equal to or greater
than 1 month’s child support obligation. After receiving a
“‘Notice of Intent to Withhold Income’” with a stated amount
of $762.30 in back child support owed, McKibbin returned the
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                  NEBRASKA MED. CTR. v. STATE
                      Cite as 28 Neb. App. 134

notice indicating he wanted to exercise his right to an admin-
istrative hearing. Id. at 572, 560 N.W.2d at 509. At that time,
McKibbin’s monthly child support obligation was $375. At the
administrative hearing, a number of documents were received
into evidence demonstrating McKibbin’s obligation and pay-
ments that had been received. However, the only evidence
adduced which substantiated that McKibbin at some point
had an arrearage in excess of his monthly obligation was the
testimony of the authorized attorney who filed the withholding
action. That attorney testified that he sent McKibbin the notice
of intent to withhold income after the clerk’s office “indicated”
that McKibbin was $762.30 in arrears. Id. The director of
the Department of Social Services affirmed the action of the
authorized attorney, and the district court affirmed the initia-
tion of income withholding.
   On appeal in McKibbin, we reversed. In so doing, we noted
that the testimony regarding the clerk’s “‘indication’” was
surely hearsay, but we also recognized that the rules of evi-
dence had not been invoked and did not apply to the admin-
istrative hearing. Id. at 577, 560 N.W.2d at 511. However, we
noted that even though the rules of evidence did not apply,
§ 84-914(1) did. Section 84-914(1) provides in part: “An
agency may admit and give probative effect to evidence which
possesses probative value commonly accepted by reasonably
prudent persons in the conduct of their affairs and exclude
incompetent, irrelevant, immaterial, and unduly repetitious evi-
dence.” We found that the indication of the arrearage by some-
one in the clerk’s office to the authorized attorney did not rise
to a level of evidence which possesses probative value com-
monly accepted by reasonably prudent persons in the conduct
of their affairs. We noted that there was no evidence as to how
or when the “‘indication’” occurred and that no documented
or certified evidence of an arrearage exceeding the monthly
obligation was received. McKibbin, 5 Neb. App. at 577, 560
N.W.2d at 511. The Nebraska Supreme Court utilized a similar
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                 NEBRASKA MED. CTR. v. STATE
                     Cite as 28 Neb. App. 134

analysis in McCray v. Nebraska State Patrol, 271 Neb. 1, 710
N.W.2d 300 (2006).
   The evidence in the present case is similarly flawed. The
only evidence produced at the hearing supporting a finding
that Telligen did not receive the records from NMC was from
Neeman, an employee of DHHS. She testified that “Telligen”
told her it did not receive the records. This too was a hearsay
statement. Even though the rules of evidence did not apply
at the administrative hearing, we must nonetheless analyze
whether Neeman’s statement rises to a level of evidence which
possesses probative value commonly accepted by reasonably
prudent persons in the conduct of their affairs. Neeman pro-
vided no letters, affidavits, or other documents from a rep-
resentative of Telligen which corroborate that the medical
records were not received. Neeman’s testimony does not state
how, when, or from whom she received her information. Her
testimony at best tells us that at some point, someone from
Telligen told her that Telligen had received no medical records
from NMC.
   In contrast, Hanson who is an employee of NMC, testi-
fied that NMC had timely responded to the December 2017
request for medical records by mailing a thumb drive contain-
ing 25,000 pages of records to Telligen. She further provided
a screenshot from NMC’s computerized record of outgoing
mail that states the thumb drive was mailed to Telligen on
December 23, well within the 20-day request. On these facts,
we cannot find that competent evidence existed to support
the director’s finding. The bare statement of Neeman that an
unnamed person at Telligen at some unidentified time told
her Telligen had not received the medical records does not
rise to a level of evidence which possesses probative value
commonly accepted by reasonably prudent persons in the
conduct of their affairs as required by § 84-914(1). Therefore,
we find that the decision of the director was not based on
competent evidence and we must reverse the order of the
district court.
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                 NEBRASKA MED. CTR. v. STATE
                     Cite as 28 Neb. App. 134

                         CONCLUSION
   The director’s finding that NMC did not submit the
requested medical records to Telligen are not supported by
competent evidence in the record. The order of the district
court affirming the director’s finding therefore cannot stand.
Thus, we reverse the judgment and remand the cause to the
district court with directions to order the director to withdraw
the refund request of DHHS and proceed with a postpayment
review of NMC’s claim.
                 Reversed and remanded with directions.
