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Alden Nursing Center-Lakeland, Inc. v. Patla

October 23, 2000

ALDEN NURSING CENTER-LAKELAND, INC., AN ILLINOIS CORPORATION; ALDEN NURSING CENTER-MORROW, INC., AN ILLINOIS CORPORATION; ALDEN NURSING CENTER-POPLAR CREEK, INC., AN ILLINOIS CORPORATION; OAK PARK CONVALESCENT AND GERIATRIC CENTER, INC., D/B/A METROPOLITAN CENTER OF OAK PARK; EDGEWATER NURSING AND GERIATRIC CENTER, INC.; CHICAGO RIDGE NURSING CENTER, INC.; ROYAL ELM CONVALESCENT AND GERIATRIC CENTER, INC.; ALDEN NURSING CENTER-WENTWORTH, INC., AN ILLINOIS CORPORATION; ALDEN PRINCETON REHABILITATION AND HEALTH CARE, INC.; AND ALDEN HEATHER REHABILITATION AND HEALTH CARE CENTER, INC., PLAINTIFFS-APPELLEES,
v.
ANN PATLA, DIRECTOR OF THE DEPARTMENT OF PUBLIC AID, AND THE DEPARTMENT OF OF PUBLIC AID, DEFENDANTS-APPELLANTS.



The opinion of the court was delivered by: Justice McNULTY

Appeal from the Circuit Court of Cook County

Honorable Aaron Jaffe, Judge Presiding

The Illinois Department of Public Aid (Department) sought to recover overpayments it made to 10 nursing homes. The nursing homes requested hearings and sought to set off alleged Department underpayments against the overpayments. The hearing officers refused to consider evidence the nursing homes presented to show that the Department failed to pay other amounts due when it made the overpayments. The Director of the Department adopted the hearing officers' decisions, holding that sovereign immunity precluded the hearing officers from considering the claims for underpayments. The trial court reversed the Director and ordered the hearing officers to consider the proffered evidence of underpayment. The Department appeals.

In December 1993 the Department found, through an audit, that it had overpaid Oak Park Convalescent & Geriatric Center (Oak Park) $218,853.26. In November 1994 the Department sought to recover the overpayments, and it gave Oak Park notice of the right to a hearing concerning the assessment. The Department attached to the notice a list of 166 patients on whose behalf the Department made the overpayments, and next to each name the Department indicated the amount it overpaid and the months for which it made the overpayments.

Following two further audits in cooperation with Oak Park, in August 1996 the Department reduced to $192,369.59 the amount of the overpayments it sought to recover. Oak Park requested a hearing. The parties stipulated to the admissibility of the Department's exhibits showing the amounts overpaid for each of the listed patients. Oak Park's attorney said, "We do not dispute the numbers. *** In fact, we do agree with those numbers." But Oak Park objected that the Department did not take into account the parts of the patient accounts showing a lack of full payment. Oak Park sought to offset all unpaid balances in its patients' accounts against the amount the Department sought to recover.

Oak Park tendered several exhibits showing the amounts it believed the Department owed, totaling $184,847.16. The Department objected that the hearing officer lacked jurisdiction to permit the setoff. The Department did not review the numbers in Oak Park's exhibits or agree to their accuracy.

The hearing officer added the exhibits to the record as Oak Park's offer of proof, but he agreed with the Department's argument that the Court of Claims had sole jurisdiction to hear Oak Park's claim for amounts it sought to set off against the Department's recovery. Thus, the hearing officer recommended upholding the decision to recover $192,369.59 from Oak Park. By letter dated November 1996, the Director of the Department adopted the hearing officer's recommendation.

Oak Park sued for judicial review of the agency's decision, arguing that the agency should have set off the alleged underpayments against the overpayments. It did not challenge the finding of overpayments amounting to $192,369.59.

The trial court consolidated the case with eight similar cases, all brought by nursing homes against the Department for administrative review, where the Director upheld the Department's right to recover overpayments the nursing homes received, but found the hearing officers lacked jurisdiction to adjudicate the nursing homes' claims for setoff of underpayments. One other case joined the consolidated litigation prior to the trial court's decision.

Not all cases appeared in precisely the same posture. For example, the Department sought to recover overpayments of $100,520.89 from Edgewater Nursing & Geriatric Center (Edgewater). Like all of the other respondents in the administrative agency actions, Edgewater admitted the amount of the overpayments on the indicated accounts. But Edgewater claimed $268,278.26 in underpayments. It asked the trial court to enter a judgment awarding it this amount plus attorney fees. Several other respondents also expressly sought judgments against the Department for the amount of underpayments, plus attorney fees, minus the overpayments. In those cases the respondents, unlike Oak Park, expressly sought a money judgment against the Department.

The administrative action against Alden Nursing Center - Lakeland (Lakeland) stood in a unique posture. In May 1991, the Department notified Lakeland of the results of an audit which showed overpayments of $117,445.17. Lakeland requested a hearing. A second audit reduced the amount sought to $115,224.27. Lakeland's controller gave the Department's auditors records and documents to substantiate claims that the Department underpaid Lakeland for some services during the audit period. The Department did not take the information into account in arriving at the overpayment amount.

At the hearing Lakeland sought to introduce evidence of underpayments to offset the overpayments. The hearing officer held that he lacked jurisdiction to set off the alleged underpayments against the overpayments. He refused to admit into evidence Lakeland's testimony and exhibits concerning underpayments. He recommended recovery of $115,224.27 from Lakeland. By letter dated March 15, 1993, the Director announced his decision adopting the hearing officer's recommendation. Lakeland filed a complaint for administrative review later that month, alleging that it "did present evidence of a set-off and counter-complaint in the amount of $190,383.95." At this point, the Lakeland case had essentially the same posture as all the other cases before the court on this appeal. But following briefing and argument on Lakeland's complaint, the trial court, on February 14, 1994, remanded the cause to the Department for determination of the amounts underpaid, and with instructions to set off the underpayments against the overpayments. Instead of seeking immediate appellate review, as the Department did in all the other cases now on appeal, the Department proceeded to hold the hearing the trial court ordered.

The hearing officer who heard the case on remand took evidence on nine separate dates from May 1994 until March 1995. Lakeland's controller presented the bulk of the evidence. He explained that Lakeland kept individual records for each patient, showing all amounts billed for services to that patient and amounts received. He created an exhibit showing the unpaid balances for each patient. Lakeland demanded a setoff of the full unpaid amounts shown against the overpayments.

The controller testified that each listed patient qualified for public aid from the Department. He knew this by the coding used on the accounts. Some accounts showed the code PV, meaning that private sources should pay the coded charge; some showed PA, meaning public aid authorized; some showed PP, meaning public aid pending, and some showed PN, meaning public aid not authorized. Lakeland sought recovery for all unpaid charges coded PA, PP, or PN. Lakeland often used these codes interchangeably. Generally, after a patient filed an application for public aid, Lakeland would list the patient as PP, while the Department reviewed the application; later, Lakeland might change the coding to PN, if Lakeland still needed some document showing the expected entitlement to public aid. If the Department formally approved the application, Lakeland might code further charges as PA.

The controller detailed the accounting process for some patient accounts chosen as examples. One such patient received social security payments. The account showed an unpaid charge, listed simply as "private miscellaneous." The controller admitted he did not know to what services the charge pertained. The account showed payments Lakeland received from social security and from a pension for that patient. Lakeland made an adjustment to the account, writing off a balance as uncollectible. Because Lakeland did not recover the full amount it charged for its services to the patient from the patient's other sources, Lakeland charged the Department for the unpaid balance.

During a break in the hearing, the controller spoke to a Lakeland staff member about the private miscellaneous charge. He then testified that Lakeland classified retroactive increases in the daily rate charged to patients as private miscellaneous charges. He did not know the amount of the increase in the daily rate or the number of days for which Lakeland sought the retroactive increase for the specific account. On cross-examination the controller admitted that ...


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