STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WESTCHESTER PHARMACY, )

)

Petitioner, )

)

vs. ) CASE NO. 89-2532F

) 91-3135F

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

SUMMARY FINAL ORDER

These matters came before the undersigned for consideration of Motions For Summary Final Order filed by Respondent in each of the above-styled cases and a Cross-Motion for Summary Final Order filed by Petitioner in Case No. 91-3135F. No formal hearing has been conducted. As discussed in more detail below, the parties have submitted a Stipulation of the Parties, a transcript of a hearing in an underlying proceeding and various documents and exhibits pertinent to the underlying dispute. All of the materials submitted have been reviewed and considered. Based upon the disposition of the motions set forth in this Final Order, it is concluded that no hearing or further proceedings are necessary.

APPEARANCES

For Petitioner: James J. Breen, Esquire

Laurie Bolch Esquire Wampler, Buchanan & Breen 900 Sun Bank Building

777 Brickell Avenue

Miami, Florida 33131

For Respondent: David Pius, Esquire

Gordon Scott, Esquire 1317 Winewood Boulevard

Building 6, Room 330

Tallahassee, Florida 32399-0700 STATEMENT OF THE ISSUE

The issue in these cases is whether Petitioner is entitled to an award of attorneys' fees and costs in either or both of the pending cases pursuant to Section 57.111, Florida Statutes, and Rule 60Q-2.035, Florida Administrative Code.

PRELIMINARY STATEMENT

The long and convoluted history of these cases is set forth in the Findings of Fact below. DOAH Case No. 89-2532F and DOAH Case No. 91-3135F (collectively referred to as the "Pending Cases") involve two separate petitions filed by

Petitioner under the Florida Equal Access to Justice Act, Section 57.111, et. seq., Florida Statutes, (the "FEAJA",) arising from a billing review conducted by the Medicaid Office of Program Integrity of the Department of Health and Rehabilitative Services 1/ for the periods from March 1, 1987 through December 31, 1987.

As discussed in more detail below, DOAH Case No. 89-2532F was filed by Westchester after a Final Order was entered by the Department of Health and Rehabilitative Services following the dismissal of DOAH Case No. 88-4955. DOAH Case No. 91-3135F was filed after a Final Order was entered by the Department of Health and Rehabilitative Services on March 22, 1991 adopting a Recommended Order entered by Hearing Officer Donald Conn in DOAH Case No. 89-7004. Both Pending Cases seeking attorney's fees and costs incurred in the underlying cases were held in abeyance while various appeals were pursued. After the appeals were resolved, the parties suggested that the Pending Cases could possibly be resolved without the need for a formal hearing. The Cases were transferred to Hearing Officer Conn who was familiar with the issues since he conducted the hearing in Case No. 89-7004. When Hearing Officer Conn left DOAH, the cases were reassigned to the undersigned.

By letter dated November 19, 1994, the parties renewed their request that the record from the underlying proceedings and the legal arguments submitted by the parties be considered to determine if these cases could be resolved without a formal hearing. A Stipulation of the Parties has been filed pursuant to which the parties agreed that Petitioner Westchester Pharmacy ("Westchester") is a small business party, as defined in Section 57.111, Florida Statutes, and that, if it is determined that Westchester is entitled to an award of attorney's fees in either or both of the Pending Cases, $15,000 was a reasonable value and amount for the fees and costs incurred in each of the cases.

The Department has filed a Motion For Summary Final Order in DOAH Case No. 89-2532F (the "First Motion") and a separate Motion For Summary Final Order in DOAH Case No. 91-3135F (the "Second Motion"). Attached to the First Motion were eight exhibits. Attached to the Second Motion were six exhibits. Westchester has not objected to any of the exhibits attached to the Department's Motions.

Westchester filed Petitioner's Response to Department's Motion For Summary Final Order in DOAH Case No. 91-3135F (the "Response"). Westchester has also filed Petitioner's Response to Department's Motion For Summary Final Order and Petitioner's Cross-Motion For Summary Final Order (the "Cross-Motion") in DOAH Case No. 89-2532F. Attached to the Cross-Motion were six exhibits. The Department did not object to any of the exhibits submitted by Westchester.

Westchester has also submitted the 5-volume transcript of an administrative hearing conducted by Hearing Officer Donald Conn in DOAH Case No. 89-7004 and the deposition of Robert Pierce taken on June 5, 1990. The Department filed a Response to Motion For Summary Final Order in DOAH Case No. 89-2532F.

The parties have requested the undersigned Hearing Officer to review the various motions and responses as well as the transcripts and other exhibits filed with the motions to determine whether a ruling on the cross-motions for summary final order will be dispositive of the issues raised in the Petitions filed in Case Nos. 89-2532F and 91-3135F, or whether additional evidence is necessary in order to resolve the issues raised in those Petitions. This Final Order is entered after considering all of the various motions, the responses thereto and the documents submitted therewith, including the transcript of the administrative hearing in DOAH Case No. 89-7004. 2/ As set forth below, this Final Order conclusively resolves the issues raised in both petitions.

FINDINGS OF FACT

1. Medicaid is a joint program funded by the federal government and by the state of Florida, and administered pursuant to both state and federal statutes and rules. All services or goods billed to the program must be necessary, Medicaid compensable, and must also have actually been provided to eligible recipients by providers prior to submitting claims.

   
   

2. The Florida Medicaid Program (the "Program") is administered by the Department. Pharmacies are among the health care providers that participate in the Program. Providers participating in the Program are subject to routine audits by the Department.

   
   

3. Any payments made by the Program for goods or services not actually provided to an eligible recipient are subject to recoupment by the Department and the provider is also subject to the imposition of administrative fines and exclusion from the program for a specified period of time.

   
   

4. At all times pertinent to this proceeding, the Department's Office of Program Integrity 3/ was responsible for insuring that the goods and services billed to the Program were actually provided to Medicaid recipients.

   
   

5. Westchester is a community pharmacy located in an Hispanic section of Miami, Florida. Westchester qualifies as a small business party for purposes of Section 57.111, Florida Statutes.

   
   

6. Most of Westchester's customers have limited financial resources and many of them cannot afford medications unless paid for by the Medicaid Program. Westchester began participating in the Program in approximately 1982. There is no evidence of record to establish that Westchester was ever charged with overbilling the Medicaid program prior to 1988.

   
   

7. In early 1988, the Department's Office of Program Integrity authorized a review of Westchester's Medicaid billings for the period from March 1, 1987 through December 31, 1987. The review was conducted by the Foundation for Health Care, Inc. ("FHC"), the contract auditor for the Department's Office of Program Integrity.

   
   

8. In performing its review, FHC used a computerized data base to determine the number of units of each of the drugs sold by Westchester and billed to the Program during the audit period. Next, FHC reviewed all of Westchester's purchase data to determine the number of units of each drug purchased by Westchester during the audit period. FHC then used an across-the- board Medicaid percentage of 54 percent to estimate the available units of the various drugs on hand for dispensing to Medicaid recipients. As a result of its review, FHC concluded that Westchester had overbilled the Medicaid program for prescription drugs dispensed to program recipients during the review period.

   
   

9. Westchester learned of the methodology being utilized by FHC while the review was being conducted. Through its attorney, Westchester objected to the methodology as being unsound. Westchester specifically advised that the Medicaid percentage for individual drugs varied from drug to drug and, accordingly, the application of an across-the-board Medicaid percentage was inaccurate.

   
   

10. Notwithstanding Westchester's objections to the methodology, the Department, based upon FHC's review, sent a recoupment and sanction letter to

    Westchester dated July 20, 1988 (the "Audit Letter") seeking recoupment for alleged overpayments in the amount of $28,649.99. The Audit Letter set forth the Department's intent to impose an administrative fine of $7,162.49 on Westchester and indicated that the Department intended to suspend Westchester from the Medicaid Program for three months.

    
    

11. The Audit Letter outlined the methodology utilized by the Department in calculating the alleged overpayment. The Audit Letter suggested that Westchester failed to supply adequate documentation to FHC regarding the source of drugs purportedly dispensed to Medicaid recipients which were subsequently billed to and reimbursed by Medicaid.

    
    

12. Westchester challenged the Department's audit methodology and requested a formal administrative hearing on the conclusions in the Audit Letter and the imposition of administrative sanctions. The case was referred to the Division of Administrative Hearings ("DOAH") where it was assigned DOAH Case No. 88-4955 (the "Initial Case"). The Initial Case was assigned to Hearing Officer Jose A. Diez-Arguelles.

    
    

13. While the Initial Case was pending, the Department proceeded to hearing on a similar case involving another pharmacy. In that other case, David's Pharmacy v. Department of Health and Rehabilitative Services, DOAH Case No. 88-1668 (Final Order entered September 15, 1988), the Department's attempt to establish an overpayment utilizing a similar methodology to that outlined in the Audit Letter was specifically rejected. The Final Order in the David's Pharmacy case approved a Recommended Order issued by Hearing Officer Donald Conn which found that the Department had "failed to explicate its policy by failing to produce evidence that would establish a rational, reasonable basis for the procedure utilized in this case...as follows therefore, the [Department] has not explicated its non-rule policy which was used in this case to conduct the audit of [David's Pharmacy], and as such there is no basis upon which to conclude that [the Department] has shown that [David's Pharmacy] was overpaid for Medicaid claims submitted during the audit." 4/

    
    

14. The results in the David's Pharmacy case apparently prompted the Department to rethink the advisability of proceeding to hearing on the methodology outlined in the Audit Letter. In a letter to Westchester dated November 23, 1988, the Department advised that it was withdrawing the Audit Letter. In view of this withdrawal, Westchester filed Petitioner's Amended Motion for Summary Final Order Determining No Medicaid Overpayment and To Relinquish Jurisdiction in the Initial Case. The Department filed a Response to the Amended Motion agreeing to the relinquishment of jurisdiction, but specifically objecting to the entry of a summary final order and/or any determination by the Hearing Officer that there was no overpayment.

    
    

15. On January 25, 1989, Hearing Officer Jose A. Diez-Arguelles entered an Order Relinquishing Jurisdiction and Closing File (the "Closing Order") in the Initial Case. As set forth in that Closing Order, the Department's November 23, 1988 letter to Westchester stated that the Department was withdrawing the Audit Letter "...because of [Westchester's] objections to the methodology employed by [the Department] in determining the overpayment. The letter further indicates that the methodology objected to resulted in an approximation and was used because [Westchester] had not provided the necessary information to make a precise calculation. Further, the letter gave [Westchester] 60 days to provide the information needed to make a precise calculation."

16. The Closing Order specifically denied Westchester's request for a summary final order determining that there was no overpayment. Instead, the Closing Order concluded that the Department's Audit Letter was the "equivalent of an administrative complaint and the withdrawal of the letter should be treated as the filing of a voluntary dismissal..." Because there were no pending disputed issues of material fact, Hearing Officer Diez-Arguelles relinquished jurisdiction over the matter to the Department. It is clear that the Closing Order anticipated further proceedings and/or negotiations between the parties before the underlying dispute would be conclusively resolved.

    
    

17. Westchester filed a Petition for Attorney's Fees (the "First Petition") under the FEAJA following the entry of the Closing Order by Hearing Officer Diez-Arguelles. That First Petition was assigned DOAH Case No. 89- 0342F. At the time the First Petition was filed, no Final Order had been entered by the Department in the Initial Case.

    
    

18. On March 3, 1989, Hearing Officer William R. Dorsey entered a Final Order in DOAH Case No. 89-0342F denying the First Petition. Essentially, Hearing Officer Dorsey concluded that the First Petition was premature since the underlying dispute between the parties had not been concluded in favor of Westchester. While noting Hearing Officer Diez-Arguelles' analogy of the November 23, 1988 letter to a "voluntary dismissal", Hearing Officer Dorsey stated that the letter and resulting Final Order were "more akin to an order allowing the Department to amend its claim for overpayment." Hearing Officer Dorsey's Final Order noted "[o]nly after the audit of the pharmacy's accounts for the period March 1, 1987, through December 31, 1987, is completed, and any administrative action is concluded, will it be possible to determine whether Westchester is a prevailing small business party."

    
    

19. Subsequent to the entry of Hearing Officer Dorsey's Final Order, the Department entered a Final Order in the Initial Case. That Final Order was dated March 8, 1989, (filed on March 9, 1989) and adopted the findings and conclusions contained in Hearing Officer Diez-Arguelles' Closing Order. The Department's Final Order directed Westchester to provide additional information so that a more precise calculation could be made of the amount of the alleged overpayment.

    
    

20. Westchester appealed the Final Order in the Initial Case contending that the Department should not be permitted to conduct an additional audit of the March 1, 1987 through December 31, 1987 period. Westchester also appealed Hearing Officer Dorsey's Final Order on the First Petition seeking attorney's fees.

    
    

21. After the entry of the Department's Final Order, Westchester filed another Petition for Attorney's Fees (the "Second Petition") which was assigned DOAH Case No. 89-2532F (one of the Pending Cases). That case was placed in abeyance while the underlying issues and appeals were resolved.

    
    

22. Apparently, the appeal from the Department's Final Order in the Initial Case and the appeal from Hearing Officer Dorsey's Final Order denying attorney's fees were consolidated. The Department moved to dismiss both appeals, arguing, among other things, that the appeals were premature because the underlying dispute had not been resolved.

    
    

23. On April 18, 1990, the Third District Court of Appeal entered an Order granting the Department's Motion to Dismiss Appeals of Non-Final Non-Appealable

    Orders. The Appellate Court's Order stated that the appeals were "dismissed without prejudice."

    
    

24. While the appeals were pending before the Third District Court of Appeal, the Department employed the public accounting and management consulting firm of KPMG Peat Marwick ("KPMG") to conduct a further review of Respondent's Medicaid billings.

    
    

25. The KPMG review was conducted during the latter part of 1989 and included the development of a methodology which utilized a Medicaid percentage for individual drugs based upon an analysis of prescriptions of all drugs in question to determine the portion of each drug's total sales that went to Medicaid recipients, a calculation of the total units claimed for each drug for which Westchester sought reimbursement during the audit period, and a calculation of the total units purchased by Westchester for each drug claimed for reimbursement during the audit period. The Medicaid percentage of each drug was then applied to total purchases of that drug to determine the amount of the drug that was on hand at Westchester for dispensing to Medicaid recipients. 5/

    
    

26. Based upon its review, KPMG concluded that Westchester had been overpaid by the Program. KPMG initially calculated the overpayment at more than

    $30,000.00. After an exchange of information between KPMG and Westchester, a revised audit report was prepared dated August 30, 1990. That revised audit report sought recoupment from Westchester of an alleged overpayment of

    $21,939.93. It also sought to impose a $2,000 administrative fine on Westchester and sought to terminate Westchester from the Medicaid program for at least two years.

    
    

27. Westchester complains that the Department increased the suspension sought in the re-audit from that sought in the initial Audit Letter as retribution for Westchester's challenge to the methodology. The record does not support this contention. The Department has adequately explained the difference in the sanctions. While the suspension sought after the re-audit was greater, the penalties sought in the initial Audit Letter were based solely upon Westchester's purported failure to provide complete information and not upon any overpayment. In any event, the difference is irrelevant since, as noted below, the Department was ultimately unsuccessful in imposing any sanctions against Westchester.

    
    

28. Westchester challenged the results of the re-audit. That challenge resulted in a new administrative proceeding, DOAH Case No. 89-7004.

    
    

29. Hearing Officer Donald Conn conducted a formal hearing pursuant to Section 120.57, Florida Statutes, in DOAH Case No. 89-7004 on September 5, 6 and 24, 1990 following which he issued a Recommended Order dated January 18, 1991 (the "Recommended Order").

    
    

30. As noted above, Hearing Officer Conn had previously presided over the administrative hearing in the David's Pharmacy case and found the methodology utilized by the Department in that case to try to establish the amount of overpayment to be flawed. However, in the Recommended Order in Case No. 89- 7004, Hearing Officer Conn concluded that the KPMG methodology was statistically valid. Specifically, the Recommended Order found that "KPMG and the [Department] utilized generally accepted statistical sampling methods and aggregate analysis in conducting their review of [Westchester's] Medicaid billing."

31. The re-audit procedures are explained in detail in the Recommended Order entered in DOAH Case No. 89-7004. A review of the transcript of the hearing indicates that the calculation of the overpayment was not only statistically valid, it was conservative in favor of the pharmacy.

32. The Recommended Order specifically found that Westchester had "...failed to maintain complete and accurate

    records of purchases of drugs from suppliers,

    as well as bartered exchanges, for a period of five years from billings. Therefore, it was unable to provide the [Department] with complete documentation supporting all billings during the review period. Notwithstanding the cooperative attitude evidenced by [West- chester's] owner and operator, Francis Larin, during this proceeding, [Westchester] has failed to comply with Rules 10C-7.030(8) and 10C-7.042(16), Florida Administrative Code.

    Those Rules require Medicaid providers to maintain, for a period of five years from the date of billing, complete and accurate records that fully justify and disclose the extent of services rendered and billings made, and to furnish the Department with all of the information regarding claims for the purpose of claims' audit and review."

    
    

33. Subsequent to the Formal Hearing in DOAH Case No. 89-7004, but before the entry of the Recommended Order, the Department issued an amended recoupment letter dated October 17, 1990, which limited the recoupment being sought to the top 100 drugs by dollar volume of claim, plus their generic equivalents. This resulted in the elimination of many individual drugs with relatively small overpayments from the list of overpayments, and left only five instances among those top 100 drugs where the difference between the quantity available, adjusted for standard error, and the quantity claimed was less than 100 units. In many instances, the difference was well in excess of a thousand units. The amount of the alleged overpayment according to this amended recoupment letter was $12,643.11. As a result of an error in calculating the top 100 drugs and equivalents, the Department issued a "second amended recoupment letter" dated October 26, 1990, further reducing the administrative fine sought to $1200 and reducing the proposed termination period to 14 months.

    
    

34. The Recommended Order determined that Westchester had provided competent substantial evidence at the hearing to establish some purchases for certain drugs that were not considered by KPMG or the Department. As a consequence, the Recommended Order concluded that the overpayment established by the Department at the hearing was $2,902.19 less than the $12,643.11 claimed in the Second Amended Recoupment Letter.

    
    

35. Because the Department failed to properly explicate its non-rule sanctions policy, the Recommended Order concluded that no sanctions should be imposed against Westchester. In other words, Hearing Officer Conn concluded that, in the absence of any applicable rules delineating the Department's sanctions policy, the failure to properly explicate the sanctions policy at hearing precluded the imposition of any sanctions against Westchester.

36. In summary, the Recommended Order concluded that the Department should enter a Final Order requiring Westchester to repay the Medicaid program

    $9,704.92 for Medicaid overbilling during the audit period, but should not impose any sanctions against Westchester.

    
    

37. The Recommended Order was adopted in full by the Department in a Final Order entered on March 22, 1991.

    
    

38. Westchester did not appeal the Final Order entered in DOAH Case No. 89-7004. Westchester filed a Petition For Award of Section 57.111 Attorneys' Fees and Costs Relating to the Third Audit of Westchester Pharmacy and Request for Evidentiary Hearing (the "Third Petition") following the entry of the Final Order in DOAH Case No. 89-7004. The Third Petition for Attorney's Fees was assigned DOAH Case No. 91-3135F (one of the Pending Cases). That case was ultimately transferred to the undersigned Hearing Officer.

    
    

39. As set forth in an Order entered on May 30, 1991, DOAH Case Nos. 89- 2532F, 90-6900F, 6/ and 91-3135F were not formally consolidated, but it was agreed that a hearing on the cases would be conducted concurrently.

    
    

40. As noted above, the parties have requested a dtermination whether the Pending Cases (DOAH Case Nos. 89-2532F and 91-3135F) could be disposed of without the need for a formal evidentiary hearing. In this regard, the parties submitted the various motions and background documents set forth in the Preliminary Statement.

    
    

    CONCLUSIONS OF LAW

    
    

41. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings pursuant to Sections

    57.111 and 120.57(1), Florida Statutes.

    
    

42. The FEAJA, Section 57.111, Florida Statutes, provides for an award of attorney's fees and costs in certain administrative proceedings. Section 57.111(4)(a) states:

    
    

    Unless otherwise provided by law, an award of attorney's fees and costs shall be made to a prevailing small business party in any adjudicatory proceeding or administrative proceeding pursuant to Chapter 120 initiated by a state agency, unless the actions of the

    agency were substantially justified or special circumstances exist which would make an award unjust.

    
    

43. As stated in Section 57.111(2), Florida Statutes, the purpose of the FEAJA is to diminish the deterrent effect on certain persons from defending against unreasonable governmental action because of the expense of civil actions and administrative proceedings.

    
    

44. The initial burden in an action under the FEAJA is on a petitioner to establish that it was a small business party that prevailed in an action initiated by a state agency. The burden then shifts to the state agency to establish that there was a reasonable basis in law and fact to justify the initiation of the action against the petitioner or that special circumstances

    exist which would make an award of attorney's fees and costs unjust. Department of Professional Regulation v. Toledo Realty, Inc., 549 So.2d 715 (Fla. 1st DCA 1989).

    
    

45. As set forth in Section 57.111(3)(b), Florida Statutes, a state agency initiates a proceeding when it is required by law or rule to advise a small business party of a clear point of entry after some recognizable event in the investigatory or other free-form proceeding of the agency. By issuing the Audit Letter to Westchester, the Department initiated an action against Westchester within the meaning of Section 57.111(3)(b)3, Florida Statutes.

    
    

46. The parties have stipulated that Westchester qualifies as a small business party as defined in Section 57.111(3)(d)(1)b, Florida Statutes. The parties dispute whether Westchester was a prevailing party in the Initial Case and/or the subsequent case, DOAH Case No. 89-7004.

    
    

47. Section 57.111(3)(c), Florida Statutes, provides that a small business party becomes a prevailing small business party when one of the following has occurred:

    
    

    1. A final judgment or order has been entered in favor of the small business party

       and such judgment or order has not been reversed on appeal or the time for seeking judicial review of the judgment or order has expired;

    2. A settlement has been obtained by the small business party which is favorable to the small business party on the majority of issues which such party raised during the course of the proceeding; or

    3. The state agency has sought a voluntary dismissal of its complaint.

       
       

48. Westchester claims that it was a prevailing party in the Initial Case because the Department withdrew the Audit Letter and effectively "voluntarily dismissed" that first administrative action. In support of this position, Westchester points to the language in Hearing Officer Diez-Arguelles' Closing Order analogizing the withdrawal of the Audit Letter to a voluntary dismissal. Westchester claims that the Department is bound by this characterization as a the result of its adoption of the Closing Order in the Final Order entered in the Initial Case. However, in withdrawing the Audit Letter, it is clear that the Department was not abandoning the claim that Westchester had been overpaid by the Program. Hearing Officer Diez-Arguelles specifically rejected Westchester's request for a determination that there was no overpayment.

    
    

49. Under Section 120.57(1)(b)3., Florida Statutes, the Department was arguably required to re-acquire jurisdiction from Hearing Officer Diez-Arguellas before it could modify the manner in which the overpayment was calculated. In this regard, Hearing Officer Dorsey accurately described the Closing Order as "more akin to an order allowing the Department to amend its claim for overpayment than one finding in the pharmacy's favor." The Department's incorporation of the Closing Order in a Final Order did not preclude the Department's continued pursuit of the alleged overpayment. Instead, the entry of a Final Order simply provided Westchester with an opportunity to seek a review of that decision. The Third District Court of Appeal's dismissal of Westchester's appeals implicitly confirmed Hearing Officer Dorsey's characterization of the Department's actions.

50. The Department's reasoning in withdrawing the Audit Letter in the Initial Case is not entirely clear. The Recommended Order in the David's Pharmacy case and the voicing of similar objections to the methodology by counsel for Westchester appear to have been important factors in the decision. The methodology used in the Audit Letter was clearly an estimation. The problems with that estimation were noted in the David's Pharmacy case. Notwithstanding those problems, the Department continued to believe that the review by FHC provided an adequate basis for concluding that an overpayment had been made. The Department recognized that it would have to better address Westchester's objections to the methodology utilized to calculate the exact amount of the overpayment. In other words, the Final Order in the Initial Case reflected a recognition of limitations with the methodology used in the Audit Letter rather than the absence of any overpayment. Under these circumstances, Westchester should only be considered to be the prevailing party in the Initial Case if it ultimately prevailed in the underlying dispute.

    
    

51. In its Third Petition, Westchester claims that it was the "prevailing party" in DOAH Case No. 89-7004 even though the Recommended Order and Final Order concluded that Westchester had been overpaid at least $9,704.92. Westchester is correct in arguing that a party need not prevail on all issues in an administrative proceeding in order to qualify as a "prevailing party" under the FEAJA. However, the small business party must succeed on issues that are significant and must achieve some of the benefits sought through litigation in order to be considered the "prevailing party". A small business party is not the "prevailing party" if it loses the significant issues and wins only on minor technical points. In the Pending Cases, the major issue underlying all of the proceedings was whether Westchester was overpaid by the Program. The Department ultimately prevailed on this issue. While the amount of the overpayment was ultimately determined to be less than what the Department originally sought, the final calculation of the overpayment was significantly influenced by the use of a statistical methodology to calculate the overpayment that was deliberately conservative in favor of the pharmacy and was handicapped by the incomplete information provided by Westchester. In addition, after KPMG completed its initial review, Westchester provided additional documentation which further reduced the calculation of the overpayment. In view of these factors, Westchester's contention that it was the "prevailing party" because the amount of the overpayment was less than originally sought is not persuasive.

    
    

52. Westchester also claims that it was the "prevailing party" since sanctions were not imposed. However, the conclusion that sanctions should not be imposed was not based upon a determination that Westchester was not overpaid or was somehow not responsible for the overpayment. Instead, the conclusion was the result of the Department's failure to have an applicable rule in place explaining the sanctions policy and its failure to adequately explicate such a policy at the hearing. Under these circumstances, the lack of sanctions should not be construed as an exoneration of Westchester and should not serve as a basis for concluding that Westchester was a "prevailing party" for purposes of the Third Petition.

    
    

53. Even if Westchester is considered to be a "prevailing party" in the Initial Case and/or in Case No. 89-7004, an award of attorney's fees and costs under the FEAJA is not warranted if the Department was substantially justified in initiating the action and/or special circumstances exist which would make an award unjust. In determining whether a state agency was substantially justified in initiating an action, consideration should be given to the duty and authority of the state agency, the credentials and experience of the agency

    representatives who made the initial decision to take action and the evidence in possession of the agency at the time of the initial action. If the matter proceeds to a formal administrative hearing, the agency is not limited to the evidence in its possession at the time the action was initiated. A review of the entire record and consideration of the ultimate result in the underlying cases confirms that the Department was substantially justified in initiating a review of Westchester's Medicaid billings. Moreover, consideration of the ultimate result in the underlying cases demonstrates that an award of attorney's fees under the circumstances would be unjust.

    
    

54. Section 57.111(3)(e), Florida Statutes, provides that "[a] proceeding is 'substantially justified' if it had a reasonable basis in law and fact at the time it was initiated by a state agency." For purposes of the FEAJA, the determination of whether the Initial Case was substantially justified must focus on the time when the Department issued the Audit Letter.

    
    

55. The initial allegation of an overpayment came after a review of Westchester's records and an opinion rendered by FHC. A trained pharmacist was involved in the review. While the precise amount of the overpayment was based on an estimation, the conclusion that there was an overpayment had a reasonable basis in law and fact. Gentele v. Department of Professional Regulation, Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987). The Department's subsequent determination that the methodology utilized by FHC in calculating the overpayment alleged in the Audit Letter might not stand up to scrutiny at an administrative hearing does not obviate the reasonableness of the Department's reliance on the FHC review to conclude that an overpayment had been made. The evidence presented at the formal hearing in Case No. 89-7004 confirmed that there was an overpayment. After considering all of the information submitted by the parties, it is concluded that the Department was substantially justified in initiating the action. Moreover, in view of the ultimate determination that there was an overpayment and that Westchester did not keep adequate records, it is concluded that an award of attorney's fees under these circumstances would be unjust. Even though the amount of the overpayment established at the formal hearing in Case No. 89-7004 was significantly less than the amount alleged in the Audit Letter and the amount originally calculated by KPMG, it cannot be concluded that the Department's reliance upon FHC was unreasonable. The lack of complete records and the volume of the information involved necessitated the use of a statistical analysis to estimate the amount of the overpayment. The Department sought to apply an across-the-board Medicaid percentage because drug- specific information used was not available. It is clear that the accuracy of any methodology was limited by the lack of complete records. As noted above, this limitation must be attributed to Westchester since the Recommended Order concluded that Westchester had not maintained the records required by the Medicaid Program. It is also clear that the ultimate calculation of the amount of the overpayment was "conservative" and included the statistical confidence levels in a manner that was favorable to the pharmacy. In view of these factors, the difference between the amount of the overpayment alleged in the Audit Letter and the amount ultimately determined in the Final Order is understandable and does not support Westchester's claims.

    
    

56. In summary, it is concluded that Westchester is not entitled to either of the awards it seeks and the Department's Motions for Summary Final Orders should be granted.

CONCLUSION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that Westchester's Petitions seeking awards of attorney's fees and

costs in DOAH Case Nos. 89-2532F and 91-3135F are DENIED.

DONE AND ENTERED this 5th day of April 1995 in Tallahassee, Leon County, Florida.

J. STEPHEN MENTON Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 5th day of April 1995.

ENDNOTES

1/ Under Section 409.902, Florida Statutes (1993), the Department of Health and Rehabilitative Services was the designated state agency to administer the Medicaid Program. Pursuant to Chapter 93-129, Laws of Florida, the Division of Health Purchasing in the Agency for Health Care Administration assumed responsibility for the Medicaid Program effective July 1, 1993. For purposes of this Final Order, the "Department" shall to refer to the state agency responsible for administering the Florida Medicaid Program during the pertinent time period.

2/ In its cross-motion, Westchester requests that "judicial notice" be taken of the DOAH file, transcript, and exhibits in DOAH Case No. 89-7004. Westchester specifically refers to an audit report prepared by Peat Marwick which was offered into evidence at the hearing in that case. All of the exhibits submitted at that hearing were transmitted to the Department at the time the Recommended Order was entered. In the preparation of this Final Order, the entire transcript of the hearing and the Recommended Order entered in that case have been reviewed and considered. While the exhibits were not available, it is concluded that the transcript and Recommended Order provide an adequate background for disposing of the issues raised in these Pending Cases.

3/ The Office of Program Integrity has apparently been transferred to and/or renamed as the Medicaid Integrity Unit.

4/ There is at least one other case where the Department attempted to establish an alleged overpayment to a pharmacy by using a methodology similar to that set forth in the Audit Letter. In Southpoint Pharmacy v. Department of Health and Rehabilitative Services, DOAH Case No. 89-6057, (Recommended Order entered November 15, 1990) Hearing Officer Claude Arrington rejected the Department's use of the methodology. The Department rejected that conclusion in a Final Order entered on January 16, 1991. However, Hearing Officer Arrington's

rejection of this approach was affirmed by the First District Court of Appeal in Southpoint Pharmacy v. Department of Health and Rehabilitative Services, 596 So.2d 106 (Fla. 1st DCA 1992).

5/ While the issues raised in the Audit Letter sent to Westchester were being litigated, the Department apparently developed rules to specifically delineate the information that pharmacies are required to keep in connection with Medicaid billings and setting forth a methodology for determining alleged overpayments.

Westchester filed a challenge to those rules, but the challenge was dismissed after the Department agreed not to rely upon the rules in determining whether Westchester was overpaid during the audit period in question.

6/ As indicated above, while the parties were litigating the issues raised in the Audit Letter, the Department developed rules setting forth the methodology that would be utilized in auditing a pharmacy. Westchester challenged those rules in a separate administrative proceeding that was voluntarily dismissed when the parties agreed that the rules would not be applied to Westchester for the audit period in question. After the dismissal, Westchester filed a Petition for Award of Attorney's Fees which was assigned DOAH Case No. 90-6900F. Westchester subsequently stipulated to the dismissal of that proceeding.

COPIES FURNISHED:

James J. Breen, Esquire Wampler, Buchanan & Breen 900 Sun Bank Building

777 Brickell Avenue

Miami, Florida 33131

David Pius, Esquire Gordon Scott, Esquire Department of Health and

Rehabilitative Services Building 6, Room 330

1317 Winewood Building

Tallahassee, Florida 32399-0700

Robert L. Powell, Agency Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Kim Tucker, General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended order. All agencies allow each party at least ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 89-002532F

Orders for Case No: 89-002532F