Commonwealth v. HealthDrive Corporation, et al. (Lawyers Weekly No. 12-140-16)

The Commonwealth of Massachusetts filed this action against defendants HealthDrive Corporation (HealthDrive) and Alec H. Jaret, D.M.D., P.C. (Jaret) seeking to recover alleged overpayments of approximately $ 1.1 million made by the Massachusetts Medicaid agency MassHealth in connection with dental “house calls” made to certain MassHealth members. The case is now before the Court on cross motions for partial summary judgment as to Count I of the Commonwealth’s Second Amended Complaint. That Count seeks to recover the alleged overpayments under regulations which require a provider to reimburse MassHealth in the event that it is paid more than it is legally entitled to receive. 130 C.M.R. §450.260(A), §450.237. The defendants also move for summary judgment in their favor on Counts X through XIII1 and, if this Court determines that they are entitled to retain the payments at issue, they seek dismissal of the remaining claims asserted against them. After careful review of the summary judgment
1 These Counts are all equitable in nature and are based on the same allegations as Count I. The Commonwealth does not move for summary judgment on these counts, however, because they are not available as equitable remedies if the regulation at issue is valid such that the Commonwealth has a remedy at law.
record, this Court concludes that the Commonwealth’s motion must be Allowed and the defendants’ motion must be Denied.
The summary judgment record reveals the following material facts. MassHealth is the Massachusetts Medicaid program and is administered by the Executive Office of Health and Human Services. It is a cooperative federal and state undertaking that provides payment for medical services to individuals and families unable to pay for their own medical care. Included in the care that MassHealth pays for are dental services for certain low income people.
HealthDrive is a Delaware corporation that, in exchange for a monthly fee, provides business, management, and administrative assistance to health care providers who service geriatric populations living in long-term care facilities. Jaret is one of those providers, furnishing dental services to people covered under MassHealth who live in nursing homes or similar facilities. Pursuant to the agreement that Jaret has with HealthDrive, Health Drive submits claims to MassHealth on behalf of Jaret.
Jaret and others like it enter into contracts with MassHealth in order to be reimbursed for the services they render. 130 C.M.R. §450.101. In those contracts, the providers agree to comply with all federal and state laws, rules and regulations existing at the time of the contract or adopted during its term. 130 C.M.R. §450. 223(C) (1). The regulations require that a provider report and return all overpayments within sixty days of identifying them, 130 C.M.R. §450.235(B), and hold them liable for the full amount of any overpayment. 130 C.M.R. §450.260(A).
Providers submit claims for payment to MassHealth’s electronic claims processing system; they do so by using specific codes that are assigned to each service. For dental services,
MassHealth uses Current Dental Terminology (CDT) codes published by the American Dental Association (ADA). MassHealth dental regulations refer dental providers to Subchapter 6 of the MassHealth Dental Manual, which lists the CDT codes for services that MassHealth covers. The Manual also describes the codes, and where indicated, includes any payment limitations. At issue in the instant case is CDT code D9410. The ADA designed D9410 for use by dental providers who make house calls to patients: it was to compensate them for the extra difficulty associated with delivering dental services outside of a normal dental office setting.
Before 2009, MassHealth did not cover CDT code D9410. Instead, dental providers like Jaret sought private payment from each MassHealth member to whom it made a house call through an adjustment of the “Patient Paid Amount.” The Patient Paid Amount or “PPA” is that portion of monthly income that a member in a nursing facility must contribute to his or her cost of care. Thus, Jaret and other providers were compensated for house/facility calls as a separate charge in addition to the specific dental services that they provided to patients, but this compensation did not come directly from MassHealth. Because the PPA was adjusted downward, however, the amount that MassHealth had to pay the facility for the cost of the member’s care was increased.
Beginning in October 2009, MassHealth began paying its dental providers for house/facility calls to MassHealth members in nursing homes under D9410 on a per-patient basis. From October 2009 to the end of June 2010, the MassHealth billing guidance for CDT code D9410 read: “A visit to a nursing facility. Report separately from any medically necessary services performed. (Code may be billed once per member per day.).” At that time, the payment rate for D9410 was $ 24.00 for MassHealth members who were twenty-one years old and older.
As a result of an economic recession and multiple budgetary crises, there was a move in 2010 to achieve costs savings in the Medicaid program. MassHealth promulgated emergency regulations to achieve these savings; one of the changes was to the MassHealth reimbursement for D9410. Effective July 1, 2010, MassHealth regulations permitted payment under D9410 only once per facility per day, instead of on a per patient basis. 2 130 C.M.R.. § 420.456(G) (“Section 420.456(G)”). In other words, providers like Jaret could no longer use D9410 to bill on a per patient basis for house calls made to a single facility in a single day, but could submit only one bill for a house call, even though the provider treated multiple patients at that facility during that visit.
This change was set forth in Dental Transmitter Letter DEN-84 addressed to dental providers participating in MassHealth (including Jaret). It was also reflected in Subchapter 6 of the MassHealth Dental Manual, which provided the following description for D9410:
A visit to a nursing facility, chronic disease and rehabilitation hospitals, hospice facilities, schools and other residential educational facilities, once per facility per day. Bill in addition to any medically necessary MassHealth covered services provided during the same visit. Code may be billed once per facility per day.”
This description also specifically referenced Section 420.456(G).
In January 2011, the payment rate for D9410 was raised from $ 24 per claim to $ 36 per claim. It continued to be payable only on a once-per-facility-per-day basis, however.
From 2010 to 2013, Jaret provided dental services to MassHealth members living in long-term care facilities in Massachusetts. HealthDrive, pursuant to its contract with Jaret, submitted these claims to MassHealth on behalf of Jaret. With regard to dental patients in long term care where Jaret made house calls, Health Drive submitted tens of thousands of claims on a per patient basis using CDT code D9410. That is, the defendants billed for each patient treated by
2 A similar change was implemented in other states, including Montana, Nebraska, New Jersey, New York, North Carolina and Washington. See fn. 3 of the Commonwealth’s Memorandum in Support of its Motion.
Jaret irrespective of whether two or more such patients were treated at the same long-term care facility on the same day. MassHealth paid these claims through September 2013, despite the change that had been made in July 2010 by Section 420.456(G).
The summary judgment record shows that various government employees were aware that MassHealth was paying more than it should on these D9410 claims, and that the defendants also knew that they were receiving reimbursements under the D9410 code that did not comply with Section 420.456(G). MassHealth representatives discussed the issue among themselves and with representatives of the defendants (who also discussed the issues internally) throughout this time period. Dr. Brent Martin, then director of MassHealth, was one of the officials who was communicating with the defendants about the impact of the change in approach; he also discussed with others within MassHealth what position the agency should take in the face of defendants’ opposition to the change. Of particular note is an email exchange between. Martin and another MassHealth employee in October 2010. In a memo attached to one email, Martin laid out three positions that MassHealth could take. One option was to amend the regulation so as to revert back to the earlier practice of paying on a per patient basis. A second was to enforce the regulation in its revised form and thus refuse to pay the bills as submitted. The third option was to pay the providers who were seeking reimbursement on a per patient basis — thus “knowingly allowing noncompliance with modified regulations” — and seek repayment later. This last option (the option that was taken) would pose a “minimal or no risk to service interruption of patients.” In another briefing memo dated August 22, 2012, Martin reiterated his concern that HealthDrive (and others) were being allowed to bill and be paid under the D9410 code on a per patient basis, “obviously resulting in inappropriate payments/overpayments.” When he had pressed the issue with HealthDrive’s CEO, however, the CEO “shared that this
would almost certainly result in HealthDrive withdrawing form the Massachusetts market,” causing Martin to worry about how that might affect patients’ access to services.
During this same time period, MassHealth’s electronic dental claims processing system was not programmed to deny per-patient-per-day billing of CDT code D9410 claims. MassHealth officials knew about this problem but did not modify the system until July 2013 when MassHealth’s dental claims contractor, DentaQuest, implemented a system edit. Around that same time, MassHealth also made a change to its Office Reference Manual (ORM), a publication that provides guidance to MassHealth providers for the submission of claims. Up until then, the ORM had described the D9410 code as permitting billing on a per patient basis. In June 2013, the ORM was revised to state that D9410 was to be used no more than once per facility, per business day.
The Commonwealth argues that the issue before the Court is a straightforward one that involves the interpretation of a regulation and the application of that regulation to the undisputed facts. In opposing the motion and in bringing their own motion, the defendants argue that the regulation is invalid. It also argues that MassHealth made a deliberate decision not to enforce the regulation for three years and is now equitably barred from seeking to recoup amounts it knowingly paid. This Court is persuaded by the Commonwealth’s position.
A. The Validity of Section 420.456(G)
Because regulations are presumed valid, the burden falls on the defendants to show the opposite, and that is a formidable burden indeed. The Court must apply all rational presumptions in favor of the regulation’s validity. Massachusetts General Hospital v. Comm’r of the Division of Medicaid Assistance, 66 Mass.App.Ct. 485, 493 (2006), quoting Consolidated
Cigar Corp. v. Dep’t of Public Health, 372 Mass. 844, 855 (1977). This Court may not declare a regulation void “unless its provisions cannot, by any reasonable construction, be interpreted in harmony with the legislative mandate.” Id. Where the area of law is a complex one, considerable deference is given to the administrative agency charged with interpreting the governing statute. See e.g. King by King v. Sullivan, 776 F.Supp. 645, 649 (D.R.I. 1991) (where the court described the Medicaid Act as one of the “most intricate of all federal laws,” with a “labyrinthine complexity”). In order to show that Section 420.456(G) is invalid, the defendants must prove that the regulation is illegal, arbitrary or capricious. Massachusetts Hospital Ass’n v. Dep’t of Public Welfare, 419 Mass. 644, 652 (1995). The defendants have not sustained that burden here.
The defendants do not contest the fact that the legislature granted MassHealth the power to issue appropriate regulations to administer a medical assistance program for eligible individuals and families who are unable to pay for their own medical care. See G.L. c. 118E, § 9. The defendants also do not challenge MassHealth’s authority to limit or eliminate coverage for house calls, provided that such limitations comply with federal law. They argue, however, that MassHealth’s redefinition of the services described by D9410 is prohibited by federal law and MassHealth’s license agreement with the ADA. This Court will discuss each of the defendants’ arguments in turn.
As this Court understands it, the defendants’ principal argument regarding the invalidity of Section 420.456(G) is as follows. Before 2009, providers like Jaret were permitted to collect for house calls to MassHealth members by billing the members directly. They did so through an adjustment of the Patient Paid Amount or PPA, which is that portion of monthly income that a member in a nursing facility must contribute to his or her cost of care. Beginning in October
2009, MassHealth began paying its dental providers for such house calls in nursing homes on a per-patient basis under CDT code D9410. When Section 420.456(G) was adopted in its present form and limited reimbursement under D9410 to once per facility per day, MassHealth interpreted that to mean that not only could providers no longer be paid under D9410 for house calls made to other patients at the same facility on the same day, but they also could not bill MassHealth members privately through an adjustment to their PPA. The upshot was that no one was paying for these services. The only possible justification for this interpretation is that this is a payment not for services but for travel to and from the facility. In adopting that interpretation, MassHealth went too far: it meant that D9410 was redefined as a “travel code,” which is directly contrary to the definition given to that Code by the ADA.
Even assuming that MassHealth uses D9410 in a manner different from what the ADA intended, this Court fails to see how this supports the defendants’ position that Section 450.456(G) is invalid. Governmental agencies use code definitions provided by the ADA pursuant to license agreements. As the Commonwealth points out, MassHealth’s relationship to the ADA under this license agreement — and any breach of that agreement — – has nothing to do with MassHealth’s ability to promulgate regulations that all providers are required to follow pursuant to their provider agreements with MassHealth. Moreover, the licensing agreement itself states that it confers no rights to any third party contractor, including any health care provider. See Exhibit 37 of Joint Appendix. Indeed, the ADA has described it as a “copy right license” that “does not dictate how a procurement code is to be reimbursed and cannot be used as a tool to force payers to use the [CDT Codes] in a particular manner.” See Exhibit 170 of Joint Appendix. Accordingly, this Court fails to perceive the fatal flaw in a regulation that reimburses the dental provider for the added expense of traveling to the facility to render dental treatment on a per
facility per day basis, as opposed to one that permits the provider to bill that same charge for each patient he serves at that facility that that same day, regardless of how the ADA views the CDT code.
In asserting that this does indeed violate federal law, the defendants argue that, because MassHealth is using the D9410 code in a manner that is contrary to the definition allocated to it by the ADA, Section 420.456(G) violates the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Among other things, that statute mandated the implementation of standardized codes for all health claims. Federal regulations promulgated thereunder appoint the ADA as the sole source of the meaning and definition of the CDT codes. In the Office Reference Manual, the publication that gives guidance to MassHealth providers for the submission of claims, it is stated that MassHealth Dental Program agrees to conduct its activities “in accordance with the applicable provisions of HIPAA.” The defendants then make a leap in logic and contend that HIPAA prevents MassHealth from making any changes in the CDT codes that deviate from the ADA definitions and that, as a consequence, Section 420.456(G) is invalid. Neither the facts nor the law support this rather extraordinary proposition. Indeed, the ADA has itself rejected any contention that the designation of the CDT as a transaction code set under HIPAA preempts payer limitations on such codes or forces a payer (like MassHealth) to use a code in a particular way; this holds true for D9410 in particular. See Exhibit 12 of Joint Appendix ( where CDT guide published by ADA states that: although “D9410 may be reported for each patient receiving services at the facility on a given day…benefit plan limitations and exclusions may place limits on reimbursement – e.g. once per facility visit, not per patient.”)
In the alternative, the defendants argue that the “once per facility per day” policy results in arbitrary treatment among MassHealth enrollees in violation of 42 U.S.C. §1396a(a) (10(B) –
the so-called “comparability requirement – and in violation of 42 U.S.C. §1396(a)(17) — the so-called “reasonability requirement.” This Court concludes that the defendants have misconstrued both provisions and that neither are applicable to the change in reimbursement that is the subject of this lawsuit. The defendants’ argument rests on the fact that the provider can submit only one D9410 claim even if it treats multiple patients at a single facility. According to the defendants, this means that some Mass Health members receive “greater coverage” than others, in violation of these federal provisions. The reality, however, is that MassHealth continues to pay dental providers for medically necessary dental care rendered to each patient at the facility. That is, the frequency with which the dentist can bill or be reimbursed for a D9410 expense has no bearing on the type of dental services each individual receives when the provider is at the facility. Moreover, MassHealth is not treating any patients as categorically ineligible for services or making any change whatsoever in the eligibility requirements for medically necessary dental services. Every patient at a facility remains eligible to receive a house call together with any additional covered services; MassHealth has simply decided to reimburse the provider for the added inconvenience of delivering dental services in a setting outside of a dental office on a one visit/one facility basis. In short, this Court can discern no violation of the federal requirements.
Finally, the defendants argue that MassHealth was required under federal law to submit a state plan amendment (SPA) related to its revision to Section 420.456(G). Such an amendment would have to be submitted only if there were a material change to the plan. The Commonwealth explains at pages 12-13 of its Opposition why no such material change took place. Even assuming such a material change had occurred, this process failure is not a basis to
strike down an otherwise valid regulation. In any event, it is enforceable only by the federal government.
B. The Equitable Defenses
Even if the regulation is determined to be valid, the defendants argue that the Commonwealth cannot now seek to recoup those amounts it overpaid because of the equitable doctrines of in pari delicto, laches, and equitable estoppel. Acknowledging that equitable defenses are rarely successful against a government entity, they maintain that the undisputed facts of the instant case place it within that small category of cases where the application of these equitable doctrines is warranted. In support of their position, the defendants point out that MassHealth continued to pay HealthDrive on a per patient basis for each of the D9410 claims it submitted for three years after the change in reimbursement was made. MassHealth made these payments knowing full well that they were in excess of the amounts allowed for D9410 claims submitted after Section 420.456(G) took effect.
It is equally apparent from the summary judgment record, however, that the defendants were aware of the change in policy as early as June 2010 and actually discussed the change at several HealthDrive board meetings thereafter; with this knowledge, submitted D9410 claims on a pear patient basis anyway.3 These bills were paid because a software database had not been adjusted to accommodate the change – something that defendants also appeared to be aware of. See Exhibit 148 (where it was noted at a March 2011 HealthDrive board meeting that MassHealth was “in a pickle in that they cannot administer the D9410 in the way required by the July ’10 regulation change”). As they continued to submit bills on a per patient basis,
3 Discovery in this case to date was limited to the question of the validity and interpretation of Section 420.456(G) so that the Commonwealth’s ability to explore the extent of the defendants’ knowledge and their reasons for proceeding as they did even with this knowledge has been quite limited. Even with the limited discovery, however, it is apparent that the defendants were not misled nor were they operating under some misimpression about D9410 during the relevant time period.
defendants tried to persuade MassHealth over the next couple of years that Section 420.456(G) should be amended, or alternatively that they should be able to revert to their earlier practice of billing the Patient Paid Accounts of those patients for whom they were not allowed a separate house call charge. Although there was much discussion, MassHealth ultimately refused to change the regulation and also made it clear to the defendants that they could not bill patients privately as long as they were being paid for the house call expense on a per facility basis under the D9410 code. That MassHealth representatives kept open a dialogue with defendants during this time period does not mean that MassHealth thereby forfeited its right to seek recoupment because it waited too long. Rather the defendants themselves assumed the risk that MassHealth would take action against them if they were not successful in their lobbying efforts to get MassHealth to amend Section 420.456(G).
This Court is also mindful of that well established body of case law holding that equitable estoppel and similar doctrines cannot be used against a governmental entity in the performance of its duties. See Ridgeley Mgmt. Corp. v. Planning Bd. of Gosnold, 82 Mass. App. Ct. 793, 801 (2012). That is because the public interest in the lawful work of the Commonwealth’s governmental offices and agencies overrides the unfairness or injury to a private complainant. Id. See Doris v. Police Commr. Of Boston, 374 Mass. 443, 449 (1978) (inattention or inactivity of government officials does not render a statute unenforceable so as to “deprive the public of the benefits or protections bestowed by the Legislature”). New City Hotel Co. v. Alcoholic Beverages Control Comm’n, 347 Mass. 539, 542 (1964) (public’s right to enforcement of liquor laws cannot be forfeited by the action of agency officials). Even where a governmental agency or officer has acted in bad faith, courts have declined to apply estoppel principles. Ridgeley Mgmt. Corp. v. Planning Bd. of Gosnold, 82 Mass. App. Ct. at 801. “Those who deal with the
Government are expected to know the law and may not rely on the conduct of Government agents contrary to law.” Heckler v. Community Health Svcs. Of Crawford County, Inc. 467 U.S. 51, 67 (1984). This is particularly true where the private entity actually obtains (as here) some benefit that it was not lawfully entitled to receive in the first place.
In the instant case, there is clearly a public interest in recouping millions of dollars in public funds. And there is a striking lack of evidence that the delay in taking action against the defendants was due to any bad faith on the part of MassHealth. At best, the delay in enforcement was because MassHealth representatives feared that the defendants would carry out a threat to withdraw their participation in MassHealth. See Exhibit 148 of Joint Appendix. Because HealthDrive served nearly 70 percent of nursing facilities in Massachusetts, this would have resulted in a serious disruption of services to very vulnerable population.
For all of the foregoing reasons, the Commonwealth’s Motion for Partial Summary Judgment is ALLOWED as to Count I of the Complaint. Although the Commonwealth has attempted to calculate the amount it overpaid to the defendants under D9410 during the relevant time period and those calculations suggest that the amount is $ 1,163,452, the precise amount of damages cannot be determined without a hearing. A Rule 16 conference is scheduled for October 20, 2016 at 2:00 p.m. to discuss a schedule for going forward.
Janet L. Sanders
Justice of the Superior Court
Dated: October 5, 2016

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