In Papa v. DHS (2020 WI 66), the Wisconsin Supreme Court ruled that DHS’s practice of recouping wages from Medicaid providers for minor documentation errors fell outside the boundaries of its explicit statutory authority.

Facts

In Wis. Stat. § 49.45(3)(f)1.-2, the Wisconsin Legislature authorizes the Department of Health Services (DHS) to audit in-home Medicaid providers for fraud or overpayment and recoup any funds paid in error. But under a DHS policy dubbed the “Perfection Rule,” auditors began recouping payments for minor imperfections in documentation.

For example, one in-home Medicaid providerdid not bill a minor patient’s parent’s insurance since it was previously established the insurance would not cover her services. Even though she indisputably did the work and received payment for it, DHS recouped her payments.

The Perfection Rule led to many providers declaring bankruptcy and leaving the profession altogether after DHS demanded hundreds of thousands of dollars in previously paid wages.

Decision

A unanimous court (Justice Hagedorn did not participate) found DHS exceeded the boundaries of its explicit authority when it recouped funds for documentation errors for work with no evidence of fraud or overpayment. Under Wisconsin law, administrative agencies can only act with the authority explicitly granted to them by the Wisconsin legislature. Wis. Stat. §227.10(2m).

In this case, the court established clearly for the first time that all inquiries into the lawfulness of an agency’s action must begin with its explicit authority. Wis. Stat. §49.45(3)(f)1.-2 allows DHS to recoup where the Medicaid provider cannot prove the work was done. The statute did not specify that payments could be recouped for less than fraud or overpayment, nor did any administrative rule. Accordingly, the court held the Perfection Rule fell outside DHS’s explicit authority