CEO SUMMARY: It was a case that stretched back several years. Medi-Cal officials, wanting to pursue collection of what it deemed overpayments, claimed that the pathologist who was on the license of two defunct lab companies as medical director was personally liable for the $6.37 million. An administrative judge had found in favor of Medi-Cal in this case. However, this ruling was overturned on appeal by another judge, who ruled that a medical director is not a “provider” as defined by law.
LAST YEAR, A CALIFORNIA JUDGE RULED against Medi-Cal, the state’s Medicaid program, and in favor of a pathologist. The judge’s decision ended what might be described as a case of regulatory over-reach.
Pathologist Kazuo Yamazaki, M.D., had filed a petition for administrative mandamus. This action came in response to a California Medi-Cal decision that found Yamazaki—as the medical director on the license of two laboratory companies—personally liable for repayment of more than $6.37 million that had been paid to those two now-defunct clinical laboratories. (See TDR, November 10, 2008.)
Had Medi-Cal regulators prevailed in this case, it would have established a precedent that any pathologist who was on a laboratory’s license as the medical director could be held personally liable for any overpayments paid by the Medi-Cal program to that laboratory.
In Yamazaki’s case, the money in question had been received by Clinical Technical Laboratory (CTL) and Goodwill Diagnostic Laboratory (GDL) as reimbursement for claims filed with Medi-Cal between 1999 and 2002. Medi-Cal later determined that there had been overpayments.
Medi-Cal auditors began precedings against the Los Angeles-based clinical laboratories in 2002, after Department sanctions had led to revocation of the labs’ CLIA compliance certificates. Eventually, both laboratories ceased testing and closed their doors.
Lab Records Not Found
Months later, auditors were unable to locate any records that would substantiate the lab companies’ original claims that were the source of the alleged overpayments. Auditors thus determined that all of the monies paid to the two laboratories should be repaid.
Medi-Cal officials then came up with an odd interpretation of the Business and Professions Code Section 1265. Rather than hunt down the owners of the defunct laboratory corporations, Medi-Cal officials decided to hold the labs’ medical director personally liable to repay the money, which totaled $6.37 million.
In addition, Medi-Cal determined that, under their codes, Yamazaki could be considered a “provider” and therefore liable for the overpayments, even though none of the funds had been personally requested or received by the pathologist.
The case was significant because it set an important precedent that affects how Medi-Cal can pursue the recovery of overpayments to California clinical laborato- ries in the future. The judge ruled that Medi-Cal’s decision to find Yamazaki personally liable for the funds simply because he had been the Laboratory Director during this period “lacked merit.”
Never Got the Medi-Cal Money
In his decision, the judge stated that “Even if Yamazaki is a ‘provider’ within the literal meaning of Welfare and Institution Code section14043.1(o), … Yamazaki cannot be held personally liable for overpayments that he never received.”
The judge further stated that by “focusing on the definition of ‘provider,’ the Department neglects the underlying purpose of the statutes authorizing the Department to recover overpayments.
“An overpayment is a payment in excess of what is due,” he wrote in his decision. “Or, in the context of Medi-Cal, the excess of the amount paid to a provider over the amount due that provider. The act of collecting or recovering an overpayment from a provider therefore connotes that the provider has been ‘overpaid.’ It follows that the Department cannot recover an over- payment from a provider unless the provider has received an overpayment.
“Since it is undisputed in this case that Yamazaki was not an enrolled provider and never received any Medi-Cal payments, much less overpayments, the Department abused its discretion in concluding that he is liable to repay the overpayments received by the laboratories.”
With this ruling, the judge gave pathologists and other employees of California laboratories an important protection. If these individuals have not signed and sub- mitted a provider agreement, and have not been assigned a provider number, then these individuals are not “providers” under California state statutes. The court ruling effectively prevents Medi-Cal from pursuing future overpayment cases in a similar manner.
It is worth noting that the original administrative judge who heard this case in 2006 did rule that Yamakazi was liable for the overpayment. That judge ordered Yamazaki to pay Medi-Cal the $6.37 million. Had this judgment declaring the pathologist—as medical director—per- sonally liable for Medi-Cal overpayments, it would have made it more difficult in California for labs to recruit pathologists to be medical directors.
California Medi-Cal Program Revisiting “Discounted” Fees
IN RECENT MONTHS, the California attorney general has settled with several of the seven laboratories named in a qui tam lawsuit laboratory companies that involves charges that the laboratories overbilled Medi-Cal, the state’s Medicaid program.
One of the laboratories named in the lawsuit was Westcliff Medical Laboratories of Santa, Ana, California. As part of its Chapter 11 bankruptcy action last May, it entered into an agreement with the state attorney general to resolve the claims in the lawsuit. That agreement cleared the way for Westcliff to be acquired by Laboratory Corporation of America. (See TDR, June 1, 2010.)
Now there are rumors in California that a number of laboratories have gotten demand letters from Medi-Cal officials asking for repayment of certain amounts. This demand is based on Medi-Cal’s determination that the lab had extended a cheaper price to certain physicians. Medi-Cal wants the benefit of that cheaper price. It is demanding that the subject lab charge Medi-Cal that same lower price.