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v. State; Dept. of Health & Social Services (11/5/99) sp-5196
McConnell v. State; Dept. of Health & Social Services (11/5/99) sp-5196
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
STUART B. McCONNELL, M.D., )
) Supreme Court No. S-8492
Appellant, )
) Superior Court No.
v. ) 3AN-96-0946 CI
)
STATE OF ALASKA, DEPARTMENT )
OF HEALTH AND SOCIAL SERVICES,)
DIVISION OF MEDICAL )
ASSISTANCE, ) O P I N I O N
)
Appellee. ) [No. 5196 - November 5, 1999]
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Sigurd E. Murphy, Judge pro tem.
Appearances: A. Michael Zahare, Matthews &
Zahare, Anchorage, for Appellant. Timothy W.
Terrell, Assistant Attorney General,
Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for
Appellee.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
In this case, Dr. Stuart McConnell, a pediatric
psychologist, appeals a decision by the Division of Medical
Assistance to sanction him for failing to maintain accurate patient
records. We affirm.
II. FACTS AND PROCEEDINGS
This appeal arises from two separate, but related,
Division actions against McConnell. Both actions concerned
allegations that McConnell, a participant in the Medicaid program,
[Fn. 1] violated regulations pertaining to that program.
A. The Division's First Action
The first of these actions came in 1992, when the
Division sought to sanction McConnell for violations of several
provisions of chapter 43, title 7 of the Alaska Administrative Code
(AAC). [Fn. 2] The Division alleged a number of "problem areas"
that warranted sanctions; these centered around McConnell's
documentation and billing practices. Because of these violations,
the Division decided to suspend McConnell from the Medicaid program
for three months and to require McConnell to reimburse it for
$89,645 in overpayments. This amount was later increased to
$113,917.58.
McConnell appealed this decision. While this appeal was
pending, McConnell and the Division entered into a settlement and
release agreement. This settlement is dated September 16, 1993 and
provides that:
1. Dr. McConnell will pay to the Division
. . . [$60,000] as consideration for the [Division's] release and
discharge of all . . . claims against Dr. McConnell for
reimbursement of any past medical fees paid to Dr. McConnell by the
Division . . . for the audit period May 23, 1991 through March 31,
1992 . . . .
. . . .
This Settlement Agreement is not
applicable to the period before May 23, 1991 and after March 31,
1992 . . . .
2. Dr. McConnell agrees to attend a
Provider Education Session . . . .
. . . .
5. The Division . . . understands and
acknowledges that this settlement is in compromise of a disputed
claim and that Dr. McConnell's payment of $60,000 and Dr.
McConnell's agreement to attend a Provider Education Session is not
to be construed as an admission of liability on the part of Dr.
McConnell by whom liability is expressly denied.
. . . .
7. This Settlement and Release agreement
contains the entire agreement between the parties hereto and the
terms of the release are contractual and not merely a recital. The
consideration for this Settlement and Release is the dollar amount
to be paid by Dr. McConnell and Dr. McConnell's agreement to attend
provider education.
On October 5, 1993, the Division requested five patient
files from McConnell to help it prepare for the provider education
that was part of the settlement. This letter was signed by Eric S.
Hansen, Chief of the Division of Medical Assistance.
McConnell provided the requested files, which the
Division forwarded to three physicians: Drs. Martino, Winn, and
McCarthy. The cover letters to two of the physicians are part of
the record on appeal. According to both letters, the files were
being provided to the physicians for the purpose of helping the
Division craft an appropriate provider education session for
McConnell. The letter to Dr. Martino begins: "Under the settlement
agreement between Dr. McConnell and the State, Dr. McConnell agreed
to participate in provider education." Similarly, the letter to
Dr. Winn states: "The above files are to be reviewed in preparation
for providing Dr. McConnell with provider education." The Division
did not state that sanctions could arise from its review of these
files in either the letters to McConnell or the letters to the
reviewing physicians.
On January 31, 1994, Hansen sent a letter to McConnell
stating that:
Pursuant to the settlement agreement you
agreed to the sanction of provider education. In preparation for
this provider education we have reviewed a sample of your patient
charts and billings for Medicaid patients that were admitted and
discharged from May through June 1993.
This is to advise you of our finding that
you are in technical compliance with the specifics of our earlier
letters regarding use of codes in billing the Medicaid program. As
those letters . . . have apparently served adequately as "provider
education,"it will not be necessary to have a face-to-face
education session for our purposes. Accordingly, we consider our
previous letters to be the "provider education"sanction to which
you agreed. If you would still like to schedule a meeting for
yourself or your billing people to review this information, we will
be available at your convenience.
Please note that we are continuing to
review your patient records and will contact you soon regarding our
complete findings.
B. The Division's Second Action
Despite these letters, the Division's next communication
with McConnell was to inform him that the Division was sanctioning
him for violations of 7 AAC 43.950(5) [Fn. 3] and (46). [Fn. 4] In
this letter, sent on July 6, 1994, Director Kimberly Busch wrote
McConnell:
In preparing for your provider education,
[we] conducted a review of your recent billing and charting
practices for Medicaid patients. . . . .
While you may or may not be in technical
compliance with the limits imposed for billing under certain CPT
[[Fn. 5]] procedure codes as set forth in our previous letters . .
. , we have some serious concerns about your chart notes and
overall billing patterns.
These alleged violations were discovered by the three doctors
mentioned above during their review of the five files that
McConnell had provided the Division. Based on these findings, the
Division decided to suspend McConnell from the Medicaid program for
six months.
McConnell appealed this decision. The matter was heard
before a Division hearing officer, Robert Landau, over twenty-seven
days, from May 22 to November 20, 1995.
In a thoughtful and thorough 50-page decision, the
hearing officer concluded that McConnell could not be sanctioned
under 7 AAC 43.950(5) because the quality of the services McConnell
had provided had not been "adjudged by a body of professional
peers,"as that section requires. However, the hearing officer
decided that McConnell could be sanctioned under 7 AAC 43.950(46)
because McConnell's records were not "accurate"-- that is, they
did not "conform to a nationally recognized standard such as the
CPT." Specifically, the hearing officer found that "many of Dr.
McConnell's brief rounding notes do not meet [the CPT] standard
because they fail to document either a problem focused history or
a problem focused examination."
Taking the relevant factors regarding the proper sanction
into account as specified in 7 AAC 43.960, the hearing officer
decided that
a six-month suspension would not be warranted
and that provider education is the most appropriate sanction. In
view of Dr. McConnell's acknowledged compliance with previous
Division instructions; the Division's previous failure to follow
through with provider education; the lack of any established record
of prior violations or sanctions; and the absence of any evidence
of harm arising from Dr. McConnell's charting, the weight of the
evidence supports a sanction that is remedial rather than punitive.
Director Bob Labbe, who had replaced Kimberly Busch,
accepted the hearing officer's findings of fact, conclusions of
law, and proposed decision. McConnell, however, appealed the
decision to the superior court, which affirmed the hearing
officer's decision. This appeal followed.
III. STANDARD OF REVIEW
Here the superior court sat as a court of appeal
reviewing the decision of the Division of Medical Assistance. [Fn.
6] In such cases, we independently review the merits of an
administrative determination. We give no deference to the superior
court's decision when that court acts as an intermediate court of
appeal. [Fn. 7] Because the question here concerns the merits of
an agency action on a matter committed to agency discretion, "our
scope of review is limited to whether the decision was arbitrary,
unreasonable or an abuse of discretion."[Fn. 8] However, we apply
our independent review to the contract interpretation and estoppel
issues that McConnell raises. [Fn. 9]
IV. DISCUSSION
McConnell makes several arguments in support of his
position that the Division is barred from sanctioning him. First,
he argues that the Division "contractually obligated itself to
furnish to Dr. McConnell[] the provider education the Division has
now imposed as a sanction." He argues that this provider education
was to cover the charting issues for which the Division has
sanctioned him, and that if the education had been provided he
would not have committed these violations. This argument misses
the mark for two reasons: first, the Division had no contractual
duty to provide the education to McConnell; second, its "failure"
to provide this education did not cause McConnell's allegedly
sanctionable conduct. We discuss each of these issues below.
McConnell also argues that the Division is barred from
sanctioning him because it breached the covenant of good faith and
fair dealing. Finally, he argues that the Division should be
estopped from sanctioning him. As discussed below, these arguments
likewise fail.
A. The Division Did Not Have a "Contractual Duty"to Provide
McConnell with Provider Education.
Examining the language of the settlement agreement makes
it apparent that the agreement did not create a "duty"for the
Division to provide McConnell with provider education. The
relevant portions of the agreement state that "Dr. McConnell agrees
to attend a Provider Education Session . . . . The consideration
for this Settlement and Release is the dollar amount to be paid by
Dr. McConnell and Dr. McConnell's agreement to attend provider
education."(Emphases added.) Thus, any duty regarding provider
education is on McConnell's shoulders, not the Division's.
In other words, McConnell's paying the $60,000 and
undergoing provider education were conditions precedent to the
Division's duty to release its claim against him. When the
Division sent its January 31, 1994 letter stating that "it will not
be necessary to have a face-to-face education session for our
purposes,"it expressly waived its right under the contract to
McConnell's performance of that condition. [Fn. 10] Thereafter the
Division no longer had the right to insist that McConnell undergo
education before it released its claim against him.
Because only McConnell, and not the Division, had any
duty with respect to education, it is incorrect to argue that a
waiver on the Division's part amounted to a "breach"of the
Division's "duty"to give McConnell provider education. No such
duty on the Division's part ever existed.
B. The Division's Failure to Give McConnell the Education
Provided for in the Settlement Did Not Cause His Allegedly
Sanctionable Conduct.
The Division's "failure"to provide McConnell with the
education (even assuming for the sake of argument that the Division
was, in fact, contractually obligated to provide education to
McConnell) did not cause his allegedly sanctionable conduct.
McConnell argues repeatedly that whatever "issues"the Division had
with his charting and billing procedures "could have been covered
in the contractually-promised provider education." Therefore,
McConnell asserts, the Division's "breach"of its agreement to give
him provider education was to blame for his failure to keep
accurate records. This argument fails.
This is so because, as the Division points out, this
claim "founders upon the shoals of one of the most basic required
elements of a breach claim[:] causation." Because the conduct for
which the Division seeks to sanction McConnell was perfected before
the settlement agreement, any education arising from the settlement
would have had no effect on McConnell's conduct during the relevant
period.
An examination of the record makes this point clear. The
1994 sanctions were based on the three-doctor panel's review of the
five files that McConnell provided to the Division after the
September 16, 1993 settlement. The earliest file date was April
14, 1993; the latest was August 20, 1993. Therefore, it defies
logic to say that provider education given to McConnell after the
September 1993 settlement would have had any impact on his actions
from April to August 1993.
C. The Division Did Not Breach the Implied Covenant of Good
Faith and Fair Dealing.
McConnell next argues that the Division violated the
covenant of good faith and fair dealing, rendering its sanction
subject to reversal. McConnell finds fault with the Division
because the files that McConnell provided "to form the basis for
provider education[] were instead used by the Division to pursue
its earlier goal of suspending Dr. McConnell from the Medicaid
program." This argument fails as well.
1. McConnell did not waive this argument.
The Division argues that this court "could properly
reject [this] argument on procedural grounds. It was not clearly
raised below." The Division argues that the only mention of this
argument comes in a single sentence in McConnell's post-hearing
brief, and that this assertion does not suffice to preserve this
issue for appeal.
However, McConnell did allege at the agency level that
the Division acted in bad faith and that these actions amounted to
a breach of the contract. Contrary to the Division's claim that
McConnell's assertion of the point "was so opaque"that the hearing
officer did not rule on it, the hearing officer did recognize and
address McConnell's argument on this issue when he wrote: "Dr.
McConnell argues that the Division's unwillingness to go forward
with provider education, even after it was requested by Dr.
McConnell and agreed to in the settlement agreement, constitutes a
bad faith breach of the settlement agreement which precludes the
Division from imposing sanctions."
We will consider arguments not raised explicitly in the
"trial court"(here the Division's agency hearing) if the issue is
"1) not dependent on any new or controverted facts; 2) closely
related to the appellant's trial court arguments; and 3) could have
been gleaned from the pleadings."[Fn. 11]
McConnell's arguments on appeal regarding the covenant of
good faith and fair dealing meet all three of these requirements.
First, no new facts are alleged, and the relevant facts are not in
dispute. Second, the specific argument that the Division breached
the covenant of good faith and fair dealing is "closely related"to
McConnell's general arguments regarding the Division's alleged bad-
faith breaches of the contract. Third, it can be gleaned from
McConnell's pleadings before the Division -- especially the
sentence alluded to by the Division -- that McConnell was alleging
a breach of the covenant even though he did not invoke the precise
phrase "covenant of good faith and fair dealing." Therefore,
McConnell did not waive this argument for failure to raise it
below.
2. The Division did not breach the implied covenant of
good faith and fair dealing
It is a long-standing tenet of Alaska law that "[i]n
every contract . . . there is an implied covenant of good faith and
fair dealing that neither party will do anything which will injure
the right of the other party to receive the benefits of the
agreement."[Fn. 12] This covenant is implied in every contract
"in order to effectuate the reasonable expectations of the parties
to the agreement."[Fn. 13] We have expressed the rationale for
this covenant in this way: "The basis for this duty is a hybrid of
social policy and an effort to further the expectations of the
contracting parties that the promises will be executed in good
faith."[Fn. 14]
Further, the covenant has both subjective and objective
elements. [Fn. 15] The subjective aspect prohibits one party from
acting to deprive the other of the benefit of the contract. [Fn.
16] The objective element requires each party to act "in a manner
that a reasonable person would regard as fair."[Fn. 17]
The Division breached neither aspect of the covenant
here. Accordingly, the Division is not barred from sanctioning
McConnell on these grounds.
a. Relevant facts
The relevant facts are as follows. As discussed above,
one of the conditions for the Division's dropping its original
claim against McConnell was that he undergo provider education.
The Division waived this condition in its letter of January 31,
1994. [Fn. 18] However, on October 5, 1993 -- while the condition
was still in force -- Hansen sent McConnell a letter that began:
"The Division . . . is preparing a provider education session as
mentioned in the settlement agreement. To prepare for this session
we request submittal [sic] of copies of your medical and billing
records for the five (5) patients listed below with the dates of
service for each patient." McConnell duly provided the files.
However, despite its representation to McConnell that the
files were to be used to help prepare his provider education, the
Division instead took the files and used them as the basis for
sanctioning him. As the sanction letter from Busch stated, "[i]n
preparing for your provider education, [we] conducted a review of
your recent billing and charting practices for Medicaid patients.
Three psychiatrists have reviewed five (5) charts and billings . .
. ." The Division concluded, based on the three-doctor panel's
review of these files, that "your charting does not meet
professional medical standards, and you do not provide and maintain
quality services to Medicaid recipients within accepted medical
community standards." Because of these irregularities, the
Division suspended McConnell from the Medicaid program for six
months. The Division also threatened to permanently terminate
McConnell's participation in Medicaid unless he addressed these
problems.
b. The Division did not breach the subjective
aspect of the covenant.
The Division's conduct did not deprive McConnell of the
benefits of his bargain. The deal reached in the settlement
provided that, in exchange for McConnell's paying $60,000 and
agreeing to undergo provider education (which was later waived by
the Division), the Division would not sanction McConnell for the
alleged violations he committed during the period from May 23, 1991
to March 31, 1992. The Division lived up to its side of the
bargain, because it did not sanction McConnell for any behavior
that took place during the period covered by the settlement
agreement. The instant sanction is for behavior that occurred in
1993, well after the end of the period covered by the agreement.
c. The Division did not breach the objective
aspect of the covenant.
Neither did the Division breach the covenant in an
objective sense. The Division is empowered to investigate and
sanction any Medicaid provider for violations of Chapter 43, as it
did in seeking to sanction McConnell in 1992. [Fn. 19]
Specifically, the Division is empowered by statute to conduct
audits and inspections of financial records of Medicaid providers,
[Fn. 20] and by regulation to generally review their records. [Fn.
21] Therefore, even if the Division had not received the records
as part of the settlement agreement with McConnell, his
participation in Medicaid entitled the Division to full access to
his records. Reasonable people would not find the Division's
carrying out its oversight function in this manner to be unfair.
D. The Division Is Not Estopped from Sanctioning McConnell.
McConnell also argues that the doctrine of equitable
estoppel bars the Division from sanctioning him. McConnell's
specific argument, that the Division's "failure to live up to the
terms of its settlement . . . equitably bars the Division's
sanction,"lacks merit. This is so because, as shown above, the
settlement did not require the Division to provide education and
because any alleged failure on the Division's part did not cause
the sanctionable conduct. [Fn. 22] Also, as discussed below,
McConnell cannot meet the assertion and reliance elements of
equitable estoppel.
We have recognized four elements that must be met when
estoppel is asserted against the government:
(1) the governmental body asserts a
position by conduct or words;
(2) the person acts in reasonable
reliance thereon;
(3) the person suffers resulting
prejudice; and
(4) the estoppel serves the interest of
justice so as to limit public injury. [Fn. 23]
An analysis of the facts of this case shows that there
was no assertion of the Division upon which McConnell relied to his
detriment. McConnell's entire argument in this regard is that
the Division asserted a position by conduct or
word when it agreed not to sanction Dr. McConnell as part of a 1993
settlement that required the Division to furnish provider education
to Dr. McConnell. In entering into the settlement agreement, Dr.
McConnell relied upon the Division's promise. He was prejudiced by
the Division's decision to sanction him for reasons that should
have been covered in provider education.
As noted above, the Division was not "required to furnish provider
eduction to Dr. McConnell." Accordingly, there was no assertion
regarding provider education that could satisfy the first element
of the estoppel test. Moreover, he has not established reliance on
his part. If his argument is that he relied on a "promise"to
furnish provider education, there was no such promise. If his
argument is that he relied on a "promise"not to sanction him, it
is unavailing: He was sanctioned for conduct occurring outside of
the effective time period of the agreement.
V. CONCLUSION
Because the Division had no duty to furnish provider
education to McConnell, because the failure to furnish provider
education did not cause McConnell's sanctionable conduct, because
the Division did not breach the duty of good faith and fair
dealing, and because the Division is not estopped from sanctioning
McConnell, we AFFIRM the sanction imposed by the Division.
FOOTNOTES
Footnote 1:
See generally AS 47.07.010-.900 (providing for the State's
programs of medical assistance for needy persons, collectively
known as "Medicaid"); 7 Alaska Administrative Code (AAC) 43.005-
.1990 (1999) (same).
Footnote 2:
These provisions were 7 AAC 43.950(2), (6)-(8), and (10),
which provide:
(2) submitting or causing to be submitted
false information for the purpose of obtaining greater compensation
than that to which the provider is legally entitled, including
charges in excess of a rate established by the division or the
provider's usual and customary charges;
. . . .
(6) engaging in a course of conduct or
performing an act considered improper or abusive of the Medicaid
program or continuing that conduct following notification that it
should cease;
(7) breaching the terms of the Medicaid
provider agreement or failure to comply with the terms of the
provider certification on the Medicaid claims form;
(8) over-using the medicaid program by
inducing, or otherwise causing a recipient to receive services or
supplies not required or requested by the recipient;
. . . .
(10) violating any provision of AS 47.07 or
any regulation adopted under it[.]
Footnote 3:
7 AAC 43.950(5) states that a provider may be sanctioned for
"failing to provide and maintain quality services to medicaid
recipients within accepted medical community standards as adjudged
by a body of professional peers equivalently licensed to practice
in this state."
Footnote 4:
7 AAC 43.950(46) states that a provider may be sanctioned for
"failing to maintain for each recipient a contemporaneous and
accurate record of the services provided."
Footnote 5:
As Appellees point out, "'CPT' stands for the Current
Procedural Terminology system of codes, a billing system
universally used by physicians which assigns a code to various
ailments and treatments."
Footnote 6:
See AS 44.62.560(a) (providing for judicial review of
administrative orders).
Footnote 7:
See Bruner v. Petersen, 944 P.2d 43, 47 n.5 (Alaska 1997)
(citing Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233
(Alaska 1992)).
Footnote 8:
Kachemak Bay Watch, Inc. v. Noah, 935 P.2d 816, 822 n.4
(Alaska 1997) (internal quotation marks omitted) (citation
omitted); see also 7 AAC 43.960(a) ("The decision as to the
sanction to be imposed will be at the discretion of the director of
the division . . . .").
Footnote 9:
See Oaksmith v. Bruisch, 774 P.2d 191, 195 (Alaska 1989)
(contract interpretation); Power Constructors, Inc. v. Taylor &
Hintze, 960 P.2d 20, 26 (Alaska 1998) (estoppel).
Footnote 10:
See generally Milne v. Anderson, 576 P.2d 109, 112 (Alaska
1978) (discussing requirements for express and implied waiver).
Footnote 11:
State, Dep't of Revenue v. Gazaway, 793 P.2d 1025, 1027
(Alaska 1990) (quoting Sea Lion Corp. v. Air Logistics, 787 P.2d
109, 115 (Alaska 1990)) (internal quotation marks omitted).
Footnote 12:
Guin v. Ha, 591 P.2d 1281, 1291 (Alaska 1979) (footnote
omitted).
Footnote 13:
Ramsey v. City of Sand Point, 936 P.2d 126, 133 (Alaska
1997).
Footnote 14:
Alaska Pacific Assurance Co. v. Collins, 794 P.2d 936, 947
(Alaska 1990).
Footnote 15:
See Chijide v. Maniilaq Ass'n, 972 P.2d 167, 172 (Alaska 1999)
(citing Ramsey, 936 P.2d at 133).
Footnote 16:
See id. (citing Ramsey, 936 P.2d at 133).
Footnote 17:
Id. (citing Ramsey, 936 P.2d at 133).
Footnote 18:
See Part IV.A., supra.
Footnote 19:
See AS 47.07.074 (providing for audits and investigations of
Medicaid providers); 7 AAC 43.693, 870(h) (same); 7 AAC 43.955
(providing for sanctions).
Footnote 20:
See AS 47.07.074(a)(2).
Footnote 21:
See 7 AAC 43.870(h).
Footnote 22:
See Parts IV.A.-B., supra.
Footnote 23:
Wassink v. Hawkins, 763 P.2d 971, 975 (Alaska 1988) (citing
Municipality of Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska
1984)).
