New York State Administrative Law Judge Finds Office of Medicaid Inspector General Audit Findings Invalid

Nov 30, 2009

Cadwalader, Wickersham & Taft LLP represented the Metropolitan Jewish Geriatric Center (“Metropolitan”), a not-for-profit nursing home located in Brooklyn, New York, in its administrative challenge to audit findings by the New York State Office of the Medicaid Inspector General (“OMIG”).  In this audit, OMIG disallowed payments made to Metropolitan based on allegedly missing documentation supporting “bed hold” payments.  Following an evidentiary hearing and two rounds of post-hearing briefs, the ALJ reversed OMIG’s audit findings in their entirety and directed OMIG to refund to Metropolitan approximately $930,000 in Medicaid reimbursement recouped by OMIG on audit.  A copy of the ALJ’s decision is attached.  This ruling establishes an important precedent, most immediately for the many other New York State nursing homes subjected to similar bed hold audit adjustments and, more broadly, for other Medicaid providers in the State facing other OMIG audit recoupments for technical noncompliance with alleged documentation requirements.


With a mandate to identify and recoup alleged overpayments by the Medicaid program, OMIG in 2006 began a broad audit initiative directed at the State’s nursing homes, concerning Medicaid’s payments to nursing homes for holding beds for residents who are temporarily hospitalized.  The purpose of “bed hold” is to ensure that nursing home residents, temporarily discharged to a hospital for acute medical care, are able to return “home” and have their room and bed waiting for them following their hospital stay.  Under the Department of Health’s bed-hold regulations, a nursing home has an obligation, enforceable by sanctions and fines, to reserve the bed at the time the resident is discharged to the hospital, unless medically contraindicated, or it is “clearly evident” that the resident will not return within 15 days.  The clear regulatory presumption then is to hold the bed, in deference to the resident’s rights.

On audit, however, OMIG asserted that Metropolitan was not authorized to bill for 2,006 bed hold days in 2002 through 2004 on the ground that, on audit, it did not have in its files documentation that the hospitals (where Metropolitan’s residents were transferred) were supposed to furnish, confirming that the residents would be discharged back to the nursing home within 15 days.  The regulation cited by the auditors, however, did not impose a duty on the nursing home to obtain and maintain the hospital documentation.  18 N.Y.C.R.R. § 505.9(d)(6)(i)(c).  Moreover, Metropolitan showed that the Department of Health, at one time, did require nursing homes to obtain a form from the hospital reporting the status of residents on bed hold, which was known as Department of Social Services Form 3074 (the “DSS Form 3074”).  That form had to be completed and submitted in order to obtain prior State approval to extend bed hold beyond the initial 15-day period, for up to an additional 5 days.  However, as far back as 1996, the Department of Social Services and the Department of Health communicated to nursing homes that they were no longer required to obtain prior authorization for bed-hold extensions, and that the DSS Form 3074 was being eliminated.  No other form was ever issued to replace DSS Form 3074.

In its audit report, OMIG not only disallowed 2,006 bed hold days for lack of hospital documentation.  OMIG also recalculated Metropolitan’s vacancy rate on the dates that the residents were transferred to the hospital and counted the beds associated with the disallowed days as “vacant”, resulting in an additional disallowance of another 817 days.  In addition, OMIG assessed interest on the alleged overpayments, extending back to the 2002-2004 audit period.  The resulting audit disallowance totaled $947,000.

ALJ’s Decision After Hearing Annulling OMIG Audit Findings

In the Decision After Hearing issued on November 4, 2009, the ALJ annulled OMIG’s audit adjustments in full.  ALJ Lynch held that there was no basis in the operative regulations for imposing a duty on nursing homes to secure and maintain documents that the hospitals under the regulation are responsible for preparing.  The ALJ also relied on the testimony of one of Metropolitan’s witnesses, Elliott Frost, the former Department of Health official responsible for the bed-hold program in the audited years.  The ALJ found that “Mr. Frost credibly testified that nursing homes were only required to maintain census information and records of admissions and discharges,” not the hospital documentation.

On the other hand, the ALJ noted inconsistencies in OMIG’s position and in the auditors’ testimony on exactly what kind of documentation would be considered acceptable.  The ALJ also addressed the contention of OMIG’s attorneys that the bed hold program in New York State was a “veritable economic boon” to nursing homes.  In this regard, the ALJ observed that “[i]f the OMIG believes it to be the case, it can attempt to amend the bed-hold regulations.  It cannot retroactively reinterpret regulations that have not materially changed during the past several decades.”  (Emphasis added).

At the hearing, Metropolitan also showed that, from its own records, the audited residents by and large were expected to return within 15 days, consistent with the bed hold regulations, but did not return within that time frame because of medical events -- beyond the nursing home’s control -- occurring during their hospital stay that delayed or prevented their return.  However, the ALJ did not have to consider that evidence as an alternative basis for annulling the audit findings, as he granted Metropolitan complete relief based on OMIG’s flawed reading of the regulations.

ALJ Lynch’s decision was adopted by the Department of Health’s Acting Director of the Bureau of Adjudication, in his capacity as the Commissioner of Health’s designee.  Accordingly, under the Department of Health’s hearing regulations, the ALJ determination is now final, and represents the State’s binding determination on this issue.

Potential Implications

Metropolitan’s administrative hearing served as essentially a “test case” for scores of pending nursing home bed-hold audits undertaken by OMIG that had been held in abeyance pending the outcome of Metropolitan’s hearing.  As such, the favorable ruling in Metropolitan’s case will likely have ramifications for the many nursing facilities that received final audit reports from OMIG based on allegedly missing hospital documentation, or were facing bed-hold audit adjustments of similar magnitude.

Beyond the discrete issue of bed hold, the ALJ’s decision could have broader implications for other Medicaid providers in the State,  and OMIG may be more circumspect and less aggressive in other audit initiatives.  First, the decision represents what has become a rare event in the Medicaid audit and hearing process: a victory for the providers.  Indeed, OMIG reported in its Annual Report for 2008 that, of the 9 cases that went to hearing last year, OMIG won all nine.  That Metropolitan was able to prevail demonstrates that OMIG is not invincible, even in an administrative hearing presided over by a State-employed ALJ.

Second, the case centered on documentation that nursing homes were allegedly required to maintain to support their bed hold billings.  In many other contexts, OMIG, under the guise of “auditing to regulation”, has pointed to alleged noncompliance with just one or a couple of requirements among a laundry list of documentation requirements as a basis for disallowing 100% of a given claim.  As in the case of bed hold, the alleged documentation requirements are being cited and enforced years after the fact, when there is no opportunity for the provider to cure the alleged documentation deficiency.  Moreover, a disallowance is made in full even when no issue has been raised that medically necessary services were actually provided to Medicaid beneficiaries.


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