COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES VS. EPI HEALTHCARE, LLC
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RENDERED: JUNE 3, 2011; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2010-CA-001333-MR
COMMONWEALTH OF KENTUCKY,
CABINET FOR HEALTH AND FAMILY
SERVICES, DEPARTMENT OF MEDICAID
SERVICES
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 09-CI-01123
EPI HEALTHCARE, LLC
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: DIXON, KELLER, AND VANMETER, JUDGES.
VANMETER, JUDGE: The Commonwealth of Kentucky, Cabinet for Health and
Family Services Department for Medicaid Services (“Cabinet”), appeals from an
order of the Franklin Circuit Court which granted summary judgment in favor of
EPI Healthcare, LLC. (“EPI”). For the following reasons, we affirm.
EPI operates nursing homes throughout Kentucky and receives
reimbursement from the Cabinet through the Medicaid program. From 1988-1995,
the Cabinet used a prospective payment system to reimburse Medicaid participant
providers, whereby it would periodically advance funds to providers to cover their
estimated costs based on the previous year’s cost reports. The Cabinet could
recoup overpayments of Medicaid benefits from the providers per 907 KAR1
1:110.2
For each cost reporting period, the Cabinet had the right to conduct audits.
Undisputedly, EPI filed its costs reports in a timely fashion at the close of each of
its facilities’ fiscal years. Upon auditing EPI’s cost reporting periods from 19881996, the Cabinet discovered $6,866,881 in overpayments and informed EPI of the
Cabinet’s intent to recoup that amount.
EPI pursued an administrative appeal under KRS3 Chapter 13B, disputing
the amount of overpayments and argued that because the amount was calculated by
regulation, recoupment was barred by the 5-year statute of limitations for actions
based “upon a liability created by statute, when no other time is fixed by the statute
creating the liability.” KRS 413.120(2). The administrative hearing officer
confirmed the amount of overpayments and determined that the Cabinet’s
1
Kentucky Administrative Regulations.
2
907 KAR 1:110 has since been amended. Now recoupment by the Cabinet is governed by 907
KAR 1:671.
3
Kentucky Revised Statutes.
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recoupment rights were exclusively found in the provider agreement between EPI
and the Cabinet, which stated that EPI was required to refund any overpayment
resulting from inappropriate or inaccurate claims as calculated by federal and state
law, including Medicaid regulations. The hearing officer applied the 15-year
statute of limitations for actions based on contract per KRS 413.090(2), and found
in favor of the Cabinet. EPI appealed to the Anderson Circuit Court, which
granted EPI’s motion for partial summary judgment on the basis that recoupment
was barred by the 5-year statute of limitations per KRS 413.120.
The Cabinet then appealed to a panel of this court, which held that
recoupment for the period from 1988-1995 was barred by the 21-month statute of
limitations per 907 KAR 1:110, Section 3.4 As to the recoupment claim for 1996,
because the regulation had been amended that year by removing the 21-month
limitation, this court applied the 5-year statute of limitations in KRS 413.120(2)
and allowed recoupment for the 1996 cost year.
On discretionary review, the Kentucky Supreme Court affirmed this court.5
At the conclusion of its opinion, it stated,
Although the result may seem extreme, we simply cannot
ignore the plain meaning of the language in the
regulation. We note that our ruling relates only to the
Cabinet’s remedy of recoupment, and we express no
4
Commonwealth of Kentucky, Cabinet for Health and Family Services; James W. Holsinger,
M.D., in his official capacity as Secretary of the Cabinet v. EPI Corporation, No. 2005-CA000274-MR (Ky., April 14, 2006).
5
Commonwealth of Kentucky, Cabinet for Health and Family Services v. EPI Corporation,
2006-SC-000348-DG (Ky., December 18, 2008).
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opinion on the Cabinet’s ability to collect the monies
through some other legal avenue.
The Cabinet then filed the present action, which deals with the same
overpayments that were the subject of the prior litigation. The Cabinet seeks
reimbursement for the overpayments based not only on alleged violations of state
and federal law (as in the previous suit), but also on contractual and quasicontractual theories, such as unjust enrichment. The Franklin Circuit Court
granted summary judgment in favor of EPI, finding that the doctrine of res judicata
barred the Cabinet’s claims. This appeal followed.
On appeal, the Cabinet argues that the trial court erred by finding the present
action to be barred by res judicata since the prior litigation only addressed the issue
of the Cabinet’s ability to recover the overpayment through the administrative
recoupment process and further, that the Kentucky Supreme Court expressly
reserved ruling on “the Cabinet’s ability to collect the monies through some other
legal avenue.” In other words, the Cabinet maintains that this “express
reservation” by the Supreme Court fits squarely within a recognized qualification
to the res judicata doctrine so as to allow this action to proceed. We disagree.
Summary judgment shall be granted only if “the pleadings, depositions,
answers to interrogatories, stipulations, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” CR6 56.03.
The trial court must view the record “in a light most favorable to the party
6
Kentucky Rules of Civil Procedure.
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opposing the motion for summary judgment and all doubts are to be resolved in his
favor.” Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky.
1991) (citations omitted). Further, “a party opposing a properly supported
summary judgment motion cannot defeat it without presenting at least some
affirmative evidence showing that there is a genuine issue of material fact for
trial.” Id. at 482 (citations omitted).
On appeal from a granting of summary judgment, our standard of review is
“whether the trial court correctly found that there were no genuine issues as to any
material fact and that the moving party was entitled to judgment as a matter of
law.” Lewis B & R Corp., 56 S.W.3d 432, 436 (Ky.App. 2001) (citations omitted).
Because no factual issues are involved and only legal issues are before the trial
court on a motion for summary judgment, we do not defer to the trial court and our
review is de novo. Hallahan v. Courier-Journal, 138 S.W.3d 699, 705 (Ky.App.
2004).
Kentucky courts recognize the doctrine of res judicata and the rule against
splitting causes of action, “both of which are intended to prevent multiplicity of
suits.” Moorhead v. Dodd, 265 S.W.3d 201, 203 (Ky. 2008). In Moorhead, the
Court stated,
Res judicata consists of two concepts, claim preclusion
and issue preclusion (also called collateral estoppel).
Claim preclusion bars subsequent litigation between the
same parties or their privies, on a previously adjudicated
cause of action. Issue preclusion, on the other hand,
precludes the relitigation of an issue that was actually
litigated and decided in a prior proceeding. Finally, the
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rule against splitting causes of action precludes
successive actions arising from one transaction.
Id. (internal citations omitted).
In this case, the trial court found that any argument the Cabinet could have
made in support of recoupment of the overpayments should have been raised
during the administrative appeal, which clearly arose from the same transaction.
The Cabinet argued that it could not have brought its current claims against EPI in
the context of an administrative appeal; however, the trial court noted that in light
of KRS 23A.010(4), though Kentucky circuit courts are vested with jurisdiction to
review decisions of administrative agencies, such review constitutes an original
action, rather than an appeal. Accordingly, the trial court held that EPI’s appeal to
the Anderson Circuit Court in the previous litigation constituted an original action
in which the Cabinet was obligated to assert all claims it had regarding the
recoupment dispute which arose from the same transaction, including the
arguments it now asserts for the first time.
With respect to any contract claim, the trial court also noted that the Cabinet
is precluded from bringing a contract claim for recoupment separate and apart from
a claim under the relevant Medicaid statutes and regulations, since the provider
agreements are expressly subject to those laws. In fact, the Cabinet asserted before
the Kentucky Supreme Court in the prior litigation that no right to reimbursement
or recoupment existed without the provider agreements. Since the provider
agreements are subject to applicable Medicaid laws, the trial court held that the
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Cabinet cannot pursue a recoupment claim against EPI that goes beyond
allegations based on violations of Medicaid statute and regulations. Thus, the
Kentucky Supreme Court’s decision that the applicable statute of limitations for
such claims was the 21-month period prescribed in 907 KAR 1:110 for 1988-1995
bars the present action.
With regard to the Cabinet’s claim under a quasi-contractual theory, i.e.
unjust enrichment, the trial court found that any claim the Cabinet could assert
would necessarily arise from the same nucleus of operative facts as the original
administrative appeal brought by EPI, which was already litigated to conclusion.
CR 13.01 requires a counterclaim to be asserted if it arises out of the transaction or
occurrence that is the subject matter or foundation of the opposing party’s claim.
Therefore, any quasi-contractual claim against EPI regarding recovery of the
overpayments was a compulsory counterclaim that the Cabinet was required to
assert at the outset of the prior litigation. The trial court thus dismissed the
Cabinet’s present claims with prejudice, in light of the Supreme Court’s decision
that the claims for recoupment are time-barred, and held that the Cabinet cannot
now attempt to obtain the same remedy that it sought in the administrative action
simply by filing a separate lawsuit with slightly different legal theories.
The Cabinet argues on appeal that the language of the Supreme Court’s
opinion in the prior litigation “expressly reserved” the issue of the Cabinet’s ability
“to collect the monies through some other legal avenue.” In support of its
argument, the Cabinet directs us to the case of Asher v. G.F. Stearns Land &
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Lumber Co., 241 Ky. 292, 296, 43 S.W.2d 1012, 1014 (Ky. 1931), in which
Kentucky’s highest court recognized that the doctrine of res judicata does not
apply “where the court in rendering the judgment expressly or by necessary
implication reserved the determination of the issues to be later litigated, but against
the determination of which the judgment was then interposed as a bar[.]”
However, the facts in Asher are distinguishable from the case at bar. In
Asher, before submission of, and judgment in, the first action, the same plaintiffs
filed in the same court a second action concerning the same tract of land as the first
action. Id. at 1013. Immediately before the submission of the first action, the trial
court’s attention was specifically called to the pendency of the second action, by a
motion of plaintiffs to consolidate the two actions. Id. at 1014-15. The motion
was either overruled or not acted on, and the trial court disposed of the first action.
Id. at 1015. On appeal, the Court held that “the course pursued by the court at that
time was tantamount to an express determination on its part to reserve the issues
involved in [the second] action for future adjudication[.]” Id. In the absence of
these facts, and without the pendency of the second action at the time of the motion
to consolidate, the Court held that “this qualification would possibly not arise,
since in such event the case would probably come within the scope of the general
[res judicata] doctrine.” Id.
Here, when the Supreme Court rendered its decision on the issue of
recoupment, the Cabinet had not asserted any other claims against EPI. Unlike in
Asher, no second action was pending at the time the first action was litigated to
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conclusion. Thus, we are unable to say that the statements expressed by the
Supreme Court implicitly reserved the present claims. Further, we read the
Supreme Court’s opinion to simply narrow its holding to the limited issue before it
rather than expressly reserve any and all claims which may be asserted in the
future. Given that EPI’s appeal to the Anderson Circuit Court in the previous
litigation constituted an original action in which the Cabinet was obligated to assert
all claims it had related to the recoupment dispute, we agree with the trial court
that the arguments now asserted by the Cabinet for the first time in a separate
action should have been raised previously.
The order of the Franklin Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Alea Amber Arnett
Frankfort, Kentucky
Frank F. Chuppe
Louisville, Kentucky
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