Kathleen Papa v. DHS – Act 21 Explicit Authority & Unlawful Guidance

Appeal No. 2016AP002082

On July 9, the Wisconsin Supreme Court unanimously held the Department of Health Services (DHS) Medicaid auditing and claw-back policies exceeded DHS’s explicit recoupment authority. The decision provided a huge win for the regulated community as the court recognized Act 21’s explicit authority requirement as the first hurdle an agency must clear before imposing regulatory mandates.

Why This Case is Important

Agencies Have Only that Authority Explicitly Delegated to Them by the Legislature. Administrative agencies’ ever-expanding power and reach must be constrained by requiring them to operate within the four corners of their explicit statutory authorities. DHS’s previously maintained a recoupment policy for any compliance or documentation error, which was not provided for under the law and threatened the livelihood of businesses and family entrepreneurs otherwise proving compliant services.

Case Summary

Kathleen Papa, R.N., and the members of Professional Homecare Providers, Inc. (PHP) are certified Medicaid providers who work as nurses in independent practice. They provide in-home care to children and adults enrolled in the Medicaid program and bill their services directly to the Medicaid program.

With Wis. Stat. § 49.45(3)(f)1.-2, the Wisconsin Legislature authorized the Department of Health Services (DHS) to audit in-home Medicaid providers for fraud or overpayment and recoup funds paid in error. DHS promulgated some further rules, but effectually, the standard came down to: can the Medicaid providers prove they did the work they billed for?

But several years ago, DHS started auditing in-home Medicaid providers and demanding hundreds of thousands of dollars in already paid wages for documentation errors where no one disputed the providers actually did the work.

For many in-home care providers, Medicaid work is their sole source of income. If their documentation wasn’t perfect, DHS’s recoupment could cost them up to five years of past earnings. They started calling DHS’s policy “the perfection rule”—because your paperwork needed to be perfect, or you could lose everything.

Many in-home care providers declared bankruptcy. Others mortgaged their houses. Most ended up leaving the already understaffed profession, or decreasing their hours to limit potential fallout.

Kathleen Papa and the other Medicaid providers eventually sued. They won at the trial court but DHS appealed and they lost at the Court of Appeals.

The case went before the Wisconsin Supreme Court. GLLF submitted an amicus brief on behalf of six Wisconsin business associations in support of the providers, emphasizing that agencies cannot just act on their own. They need explicit, statutory authority from the legislature. And while the legislature gave DHS authority to recoup, it was not for minor clerical errors.

As we said in the brief:

2011 Wis. Act 21 directs the courts to look for explicit authorities in the context of legislative delegated powers to administrative agencies. No one disputes that Wis. Stat. § 49.45(3)(f) sets forth the explicit boundaries of DHS recoupment authority… DHS’s recoupment practices wander well outside these clearly defined boundaries.

The Supreme Court agreed with our analysis and ruled in favor of the Medicaid providers, with Justice Ziegler writing for the majority:

¶32 The crux of this case is the scope of DHS’s recoupment authority. “No agency may implement or enforce any standard, requirement, or threshold, . . . unless that standard, requirement, or threshold is explicitly required or explicitly permitted by statute or by a [promulgated] rule…” Wis. Stat. § 227.10(2m)

…

¶34 The plain language of Wis. Stat. § 49.45(3)(f)1.-2. does not explicitly require or permit DHS to enforce a Perfection Policy.

The court declined to answer whether the policy needed to go through rulemaking since, as a foundational matter, the agency did not have the explicit authority to enforce it:

¶27 The proper inquiry is whether the Perfection Policy exceeds DHS‘s recoupment authority. We need not decide whether the Perfection Policy is a rule or a guidance document. It makes no difference in this case.”

Why? Because:

¶42 No statute or promulgated rule explicitly requires or permits recoupment based on mere imperfection. Wis. Stat. § 227.10(2m).”

As the Wisconsin Supreme Court made clear in Wisconsin Legislature v. Palm, and now Papa v. DHS: agencies can only act within the explicit boundaries of their authority, and without that explicit authority, they have no power.

See our press release for more.