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December 15, 2011

Challenging Goliath (a/k/a the NYS Medicaid Inspector General)

For the past few years, healthcare providers have been regulated with a heavy hand by the New York State Office of the Medicaid Inspector General and the New York State Medicaid Fraud Control Unit of the Attorney General's Office, which have been given unprecedented and growing authority to audit providers participating in Medicaid. Hiscock & Barclay's health care litigation group has been successful in taking on cases to challenge these audits, demonstrating that it's achievable to take on the OMIG and win when other channels fail and the provider faces the devastating consequences of the State's ever broadening withhold and exclusion authority.

In 2010, we represented a major pharmacy chain in a Medicaid audit hearing, challenged the State's findings, and achieved a victory based upon a decision that the State's attempt to extrapolate the findings was not proper, a landmark decision representing a rare win for the provider community. In 2011, we were also successful in several Supreme Court Article 78 actions, obtaining injunctive relief and challenging a range of agency actions by the OMIG against providers, including the imposition of devastating withholds, improper provider termination and the failure to admit qualified providers to the Medicaid program. Most recently, we represented Cutie Pharma-Care in its battle against actions taken by the OMIG and DOH, resulting in a ground-breaking federal decision validating a civil rights claim against the State actors in their professional and personal capacities. The summary of this case is below.

The Firm continues to represent providers that range from home care and residential institutions to pharmacies, physicians and dentists, defending them against the zealous auditing practices by the array of governmental entities with inconsistent and often overlapping auditing authority, including OMIG, DOH, MFCU, OIG, and HRA, while also working with provider associations to assist in the development of policies to curb improper and abusive auditing practices.

Ground-breaking Federal Decision Opens Door for Civil Rights Claims Against State Actors

For the past several years, the battle against burdensome audits by the OMIG has been waged administratively through challenges to the legality of OMIG's administrative audit process. In a few extreme cases, injunctive relief was obtained in New York State courts to prevent irreparable harm to the audited provider resulting from onerous withholds. Breaking new ground for providers besieged by increasingly aggressive audit practices, Hiscock & Barclay, as counsel for Cutie Pharma-Care, filed a Federal Civil Rights claim against OMIG, the DOH and both agencies' leaders and employees.

The complaint alleged that the Medicaid Inspector General, OMIG, DOH and the agencies' agents overstepped the State's auditing authority when they embarked upon a telephonic campaign of contacting the pharmacy's clientele to discourage continued patronization of the pharmacy based upon an alleged criminal investigation and anticipated exclusion of the pharmacy from the Medicaid program, when, in fact, the pharmacy had entered into a consent order for minor regulatory violations but no criminal violations. The State moved to dismiss the complaint, asserting qualified immunity, among other things. In a rare Federal decision issued on October 5, 2011, Federal District Court Judge Mae D'Agostino upheld the availability of civil rights and state civil damages claims against the OMIG, DOH and the employees. Judge D'Agostino's decision found that the complaint properly alleged a claim against the agencies and employees sued in their individual capacity (including James Sheehan, the then Medicaid Inspector General) for federal constitutional due process and equal protection claims, notwithstanding the "high standard" established in the Second Circuit for equal protection claims under the "class on one" theory of Federal Civil Rights claims. The complaint, also alleging state claims of defamation and slander, libel per se and tortious interference with contracts, will proceed in Federal Court. The decision represents a significant precedent for the recognition of improper and unauthorized actions of state auditors and opens the door for federal jurisdiction over state and federal claims brought by providers seeking redress under state and federal common and constitutional law.

This Legal Alert was prepared by Linda J. Clark and Jessica A. Norgrove, attorneys with the law firm of Hiscock & Barclay, LLP. Please contact them or any member of the Health Care & Human Services or Commercial Litigation Practice Areas, should you have questions regarding the issues raised in this Alert.


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