New York Law Review

Tag: Mercy Hospital

  • Mercy Hospital v. New York State Dept. of Social Services, 79 N.Y.2d 197 (1992): Statistical Sampling for Medicaid Overpayment Audits

    79 N.Y.2d 197 (1992)

    An administrative agency can use statistical sampling methods to determine Medicaid overpayments, even if a complete audit of all records is possible, provided the method is reasonably designed and the provider has an opportunity to challenge the findings.

    Summary

    Mercy Hospital challenged the New York State Department of Social Services’ (DSS) use of statistical sampling to determine Medicaid overpayments. DSS audited the hospital’s Medicaid billings for outpatient services, covering a two-year period, and projected overpayments of $113,771.24 using a sample of cases. The hospital argued that using statistical sampling was improper because adequate records existed for a case-by-case review. The Court of Appeals held that DSS was authorized to use statistical sampling, finding it was not arbitrary or capricious, and emphasized that the hospital had the opportunity to challenge the accuracy of the extrapolated data. This case clarifies the scope of an agency’s authority in auditing Medicaid providers.

    Facts

    Mercy Hospital, an authorized Medicaid provider, was audited by the DSS for outpatient services billed between December 1, 1982, and November 30, 1984. The audit covered emergency room, ordered ambulatory, and laboratory services, totaling 9,886 cases. DSS auditors reviewed a random sample of 400 cases (200 emergency room, 100 ordered ambulatory, and 100 laboratory). Based on this sample, DSS projected overpayments of $107,419.34 for emergency room cases and $6,351.90 for ordered ambulatory cases, totaling $113,771.24.

    Procedural History

    After DSS notified Mercy Hospital of its intent to recoup the alleged overpayments, the hospital requested a hearing, contesting the use of statistical sampling. An Administrative Law Judge (ALJ) upheld the determination that overpayments occurred and affirmed the use of statistical sampling. The hospital then initiated a CPLR article 78 proceeding. The Appellate Division annulled DSS’s determination, holding the statistical sampling was arbitrary because complete records existed. DSS appealed to the Court of Appeals, which reversed the Appellate Division’s decision.

    Issue(s)

    Whether the DSS exceeded its authority by using statistical sampling to determine Medicaid overpayments when the hospital’s records were adequate for a case-by-case review?

    Holding

    No, because the authority for DSS to conduct Medicaid audits based upon statistical sampling is implicit in the general grant of authority to supervise the administration of the Medicaid program, and such authority is not limited to cases in which the inadequacy of a provider’s records precludes a complete audit.

    Court’s Reasoning

    The Court reasoned that the Social Services Law implicitly grants DSS the authority to audit medical records to prevent fraud and abuse, as required by federal regulations. This authority extends to choosing specific standards and procedures suitable for achieving legislative goals. The court found that using statistical sampling was a reasonable method for auditing a large volume of claims. The Court emphasized that the provider has the opportunity to challenge the accuracy of the extrapolated data by attacking the reliability of the methods used or by submitting a complete audit. The Court distinguished this case from sales tax cases where test period audits might be limited to situations where records are inadequate, finding that such limitations should not automatically apply to all administrative agencies. The Court stated, “The agency’s choice of methods for detecting and valuating overpayments — tasks specifically imposed on the State by Federal regulations and assigned to DSS by the State Legislature — is an instance of an agency merely ‘fill[ing] in the details of broad legislation describing the over-all policies to be implemented’ (Boreali v Axelrod, 71 N.Y.2d 1, 12).”