Professional Home Health Care v. Commonwealth of Kentucky Cabinet for Health and Family Services

RENDERED: AUGUST 14, 2025

TO BE PUBLISHED

Supreme Court of Kentucky 2023-SC-0226-DG

PROFESSIONAL HOME HEALTH CARE APPELLANT

V.

ON REVIEW FROM COURT OF APPEALS

NO. 2022-CA-0046

FRANKLIN CIRCUIT COURT NO. 20-CI-00294

COMMONWEALTH OF KENTUCKY,

CABINET FOR HEALTH AND FAMILY

SERVICES; AND KENTUCKY

DEPARTMENT OF MEDICAID

SERVICES

APPELLEES

OPINION OF THE COURT BY JUSTICE KELLER

AFFIRMING

An administrative hearing officer within the Cabinet for Health and Family Services ("Cabinet") determined that the Department for Medicaid Services ("Department") was within its regulatory authority to recoup over $1 million that it had "erroneously" paid to reimburse Professional Home Health Care ("PHHC") for healthcare services PHHC had provided to Kentucky Medicaid recipients over the course of three fiscal years. According to the Department, those payments were made "erroneously" because the administrative regulations governing Kentucky's Medicaid Program never authorized the Department to reimburse PHHC for the type of healthcare services that it had provided. On appeal from an unfavorable decision of the

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Court of Appeals, PHHC now asks this Court to interpret the Department's administrative regulations and to decide whether the Department was authorized and required to reimburse PHHC for the healthcare services it rendered. Predominantly at issue is whether this Court is willing to interpret the Department's administrative regulations in a manner contrary to their plain text, and instead "insert" regulatory language that was not included during the drafting process. Having reviewed the record, the applicable law, and the arguments of the parties, we interpret 907 KAR 1:170 in accordance with its plain text and hold that the Department was entitled to recoup its overpaid funds from PHHC. Therefore, we affirm the Court of Appeals.

I. FACTS AND BACKGROUND

Appellee, the Cabinet, and its Department are charged with administering the Kentucky Medicaid Program in accordance with Title XIX of the Federal Social Security Act. KRS 194A.010(1); KRS 194A.030(2). Appellant, PHHC, is a registered Medicaid provider that provides in-home healthcare services to Medicaid recipients in certain rural counties of Kentucky pursuant to the Department's Home and Community Based ("HCB") Waiver program. HCB services, like respite or attendant care services, allow Medicaid recipients to live independently in their own homes rather than in an institutional nursing facility.

By enrolling in the Kentucky Medicaid Program, healthcare providers like PHHC agree to "[c]omply with all applicable federal laws, state statutes, and state administrative regulations related to the applicant's provider type and

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provision of services under the Medicaid Program." 907 KAR 1:672 § 2(6)(k). In accordance with its administrative regulations, the Department has routinely compensated Medicaid providers for the HCB services they provide to Medicaid recipients via a "reimbursement" process. See 907 KAR 1:170. As it existed throughout most of 2008, the Department's "HCB Service Reimbursement"

regulation, 907 KAR 1:170 § 2(1), stated that:

Except as provided in Section 3 or 4 of this administrative regulation, the department shall reimburse for a home and community based wavier service provided in accordance with 907 KAR 1:160 at the lessor of billed charges or the fixed upper payment for each unit of service.

The 2008-version of 907 KAR 1:170 § 2 also included a table that identified the types of HCB services (e.g., Assessment, Reassessment, Case Management, Homemaking, Personal Care, Attendant Care, Respite, or Minor Home Adaptation) and specified the respective "fixed upper payment rate" at which the Department could reimburse a Medicaid provider for that service. Relevant to this appeal, the Department promulgated an emergency regulation in December 2008 that amended the existing HCB reimbursement regulation to establish a new category of HCB Waiver service provider: the

"safety net provider." Pursuant to that emergency regulation, a "safety net provider" was defined as a provider which: "(a) Provides 100,000 or more units of revenue code services per year; (b) Provides revenue code services in an area that is not a Metropolitan Statistical Area of the Commonwealth; and (c) Is a nonprofit organization." 907 KAR 1:170E § 1(20). At the time, PHHC was one of only two Medicaid providers that met the narrow criteria to qualify as a "safety

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net provider." Importantly, the Department's emergency regulation also authorized the Department to reimburse safety net providers for their provision of certain "revenue code services" at enhanced rates¹not available to other Medicaid providers. 907 KAR 1:170E § 4. Consequently, the effect of the emergency regulation was to incentivize Medicaid providers that provided certain HCB Waiver services in rural, underserved areas of Kentucky that were not "Metropolitan Statistical Area[s]."

The Department's amended regulation²defined the "revenue code service[s]" eligible for enhanced reimbursement as including, "(a) An assessment, reassessment, homemaking, personal care, respite or attendant care service; or (b) A minor home adaptation." 907 KAR 1:170 § 1(19). Notably absent from this list of eligible services, however, was the provision of "case management" services. "Case management" is the act of coordinating a Medicaid recipient's access to other HCB services. A Medicaid recipient's "case manager" might also arrange for the recipient's transportation, volunteer services, informal support services, or physician and clinic visits. Although the Department had not included "case management" services in the list of "revenue code service[s]" eligible for enhanced reimbursement in

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907 KAR 1:170 § 1(19), PHHC continued to provide its case management services to Medicaid recipients throughout the early 2010's, and the Department actually began to reimburse PHHC for those services at the enhanced rate available to safety net providers. The Department would continue that practice—as if "case management" services were explicitly listed in 907 KAR 1:170 § 1(19)—for roughly eight years until it dramatically shifted course in 2016. In fact, the Department's yearly "safety net cost settlements"

with PHHC indicate that the Department paid PHHC a total of $1,062,171 for its case management services from fiscal year end ("FYE") March 31, 2011, to FYE March 31, 2013. In April 2016, the Department sent PHHC a yearly safety net cost settlement letter for FYE March 31, 2014, indicating that the Department owed PHHC $1,369,959 for the HCB services it had provided throughout the fiscal year. Of that sum, $307,194 was earmarked for case management units.

A month later, in May 2016, the Department sent PHHC another letter explaining that it was "rescinding" the safety net cost settlement letter it had issued for FYE March 31, 2014, as that $1,369,959 settlement amount

"erroneously included case management units in the calculation of the related safety net cost settlements." After recalculating PHHC's settlement without the inclusion of case management units, the Department determined that it only owed PHHC $1,062,765 for the HCB services it had provided throughout FYE 2014. By separate letter, the Department similarly rescinded the safety net cost settlement amounts that it had issued to PHHC for FYE 2011, FYE 2012, and

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FYE 2013 because those settlements had also been calculated including case management units. The Department also indicated that it intended to recoup the $1,062,171 that it had "erroneously" overpaid to PHHC for its case management services from 2011 to 2013. The Department exercises the authority to "recoup" funds it has "overpaid" a Medicaid provider pursuant to

907 KAR 1:671 § 2. According to 907 KAR 1:671 § 2(2), "Departmental adjustments of the reimbursements rates, and differences between estimated and actual costs a provider incurred in determining reimbursements, may create situations where a provider was overpaid."

In response to the Department's efforts to recover over $1 million, PHHC requested an informal "Dispute Resolution Meeting" to contest the Department's calculations of its safety net cost settlements from 2011 to 2014. See 907 KAR 1:671 § 8. At that Dispute Resolution Meeting, PHHC argued that the Department had always treated case management units as among the revenue code services rendered by safety net providers that were eligible for enhanced reimbursement, and that the term "case management" services must have been inadvertently omitted from the regulatory definition of "revenue code service" during the drafting process of 907 KAR 1:170 § 1(19). After the Department rejected PHHC's arguments at the Dispute Resolution Meeting, PHHC requested a formal administrative hearing pursuant to 907 KAR 1:170 § 9, and made three arguments. First, PHHC argued that the term "case management" had been mistakenly omitted from 907 KAR 1:170 § 1(19), and that the hearing officer should read that omitted language into the regulation

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to carry out the intent of the regulation's Drafters. Second, PHHC argued that the Department should be equitably estopped from recouping any overpaid funds because individual Department employees had previously ensured PHHC that case management services would be reimbursable at an enhanced rate when the Department promulgated 907 KAR 1:170 § 1(19) in 2009. Third, PHHC argued that the doctrine of laches precluded the Department's recoupment because the Department had been aware of its "drafting error" for years and did not timely exercise any rights that it had under the relevant administrative regulations.

Following the parties' formal administrative hearing on June 19, 2018, the administrative hearing officer issued a Recommended Order that upheld the Department's recoupment determination. The hearing officer concluded that the provisions of 907 KAR 1:170 at issue were "valid, unambiguous, and straightforward." Plainly, "case management" services were not included in the definition of "revenue code service" codified at 907 KAR 1:170 § 1(19), and the hearing officer determined that it did not have the authority to "insert new words into the regulation" at PHHC's behest. Further, the hearing officer concluded that the Department was not equitably estopped from recouping its overpaid funds from PHHC because there was "no indication that the Department made a false representation or concealed material facts from PHHC, nor [was] there an indication it acted to improperly influence PHHC in anyway." The hearing officer also suggested that the doctrine of equitable estoppel can rarely be invoked against a government agency. Finally, the

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hearing officer determined that the equitable doctrine of laches was inapplicable because "the general rule is that laches does not apply to government actions that assert or seek to enforce public rights or interests."

The Secretary of the Cabinet issued a Final Order adopting the hearing officer's Recommended Order on February 21, 2020. PHHC thereafter sought judicial review of the agency's determination in Franklin Circuit Court, and the circuit court affirmed the Secretary's Final Order. PHHC subsequently appealed to the Court of Appeals, which affirmed the circuit court. This Court thereafter granted PHHC's motion for discretionary review.

II. ANALYSIS

A. Standard of Review

PHHC sought judicial review of the Cabinet's recoupment determination as authorized by KRS 13B.140. A court conducting judicial review of an agency's final order in accordance with KRS Chapter 13B may reverse that order if it finds that the order was:

(a) In violation of constitutional or statutory provisions;

(b) In excess of the statutory authority of the agency;

(c) Without support of substantial evidence on the whole record;

(d) Arbitrary, capricious, or characterized by abuse of discretion;

(e) Based on an ex parte communication which substantially prejudiced the rights of any party and likely affected the outcome of the hearing;

(f) Prejudiced by a failure of the person conducting a proceeding to be disqualified pursuant to KRS 13B.040(2); or

(g) Deficient as otherwise provided by law. KRS 13B.150(2). The reviewing court "shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact." Id. However, any questions of law affecting an agency determination are generally

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reviewed de novo. Sebastian-Voor Props., LLC v. Lexington-Fayette Urb. Cnty. Gov't, 265 S.W.3d 190, 195 (Ky. 2008) (citing Aubrey v. Off. of Attorney Gen.,

994 S.W.2d 516 (Ky. App. 1998)).³The interpretation and construction of statutes and regulations are questions of law that this Court reviews de novo. Steel Creations By and Through KESA, The Ky. Workers' Comp. Fund v. Injured Workers Pharmacy, 532 S.W.3d 145, 153 (Ky. 2017) (citing Saint Joseph Hosp.

v. Frye, 415 S.W.3d 631, 632 (Ky. 2013)).

B. As a matter of law, the Department did not have the regulatory authority to reimburse PHHC for "case management" units because

"case management" was not a "revenue code service" as that term was defined in 907 KAR 1:170 § 1(19).

PHHC argues that the Department's recoupment determination was erroneous because the Drafters of KAR 1:170 § 1(19) intended that "case management" services be included among the revenue code services eligible for enhanced reimbursement via the safety net provider provisions of 907 KAR 1:170 § 4. Although it concedes that the term "case management" was obviously omitted from the final 2009-version of 907 KAR 1:170 § 1(19), PHHC argues that this Court should look beyond the regulation's text and consult extrinsic sources—like internal Department emails—to determine the intent of the regulation's Drafters. According to PHHC, there is an overwhelming indication that the omission of "case management" services from KAR 1:170 § 1(19) was the mistaken result of a "drafting error." Consequently, PHHC urges

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us to interpret and apply 907 KAR 1:170 as if "case management" had been included within the definition of "revenue code service" all along.

"When interpreting administrative regulations, 'we apply the same rules that are applicable to statutory construction and interpretation.'" Wonderfoil, Inc. v. Russell, 630 S.W.3d 706, 710 (Ky. 2021) (quoting Comprehensive Home Health Servs., Inc. v. Prof. Home Health Care Agency, Inc., 434 S.W.3d 433, 441 (Ky. 2013)). As always, our fundamental goal while interpreting statutes and regulations is to give effect to the intent of that provision's drafters. Travelers Indem. Co. v. Armstrong, 565 S.W.3d 550, 559 (Ky. 2018). We derive that intent, first and foremost, from the text of the statute or regulation. Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 551 (Ky. 2011). Accordingly, if the statute or regulation's language is clear and unambiguous on its face, our interpretative inquiry ends. Travelers, 565 S.W.3d at 558. "However, if a statute [or regulation] is 'reasonably capable of being understood in more than one sense,' it is ambiguous and the Court must turn to other methods of interpretation. Id. (quoting Jefferson Cnty. Bd. of Educ. v. Fell, 391 S.W.3d 713, 723 (Ky. 2012)).

Although a statute's unambiguous text is virtually always controlling, most courts have expressed at least some willingness to revise a statute's plain text by omitting, substituting, or modifying language where the statute has been obviously corrupted by a clerical or "scrivener's error." N ORMAN SINGER & SHAMBIE SINGER, 2A SUTHERLAND STATUTORY CONSTRUCTION § 47:36 (7th ed. updated November 2024); see also Neutzel v. Ryans, 211 S.W. 852, 854 (Ky.

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1919) (collecting cases where words of a statute were "supplied, omitted, substituted, or modified" to "effectuate the legislative intent."). The scrivener's error most often materializes as a "mistake[] in the use of words, numbers, grammar, punctuation, or spelling." 82 C.J.S. Statutes § 415 (updated December 2024) (internal citations omitted). The scrivener's error has also been characterized "as an 'error of expression,' as opposed to a mistake regarding the consequences of intended language." Michael S. Fried, A Theory of Scrivener's Error, 52 R UTGERS L. REV. 589, 595 (2000).

The rationale behind judicial revision of the scrivener's error is that to leave obvious drafting errors uncorrected would be to frustrate and circumvent the obvious intent of the drafter. 82 C.J.S. Statutes § 415 (updated December 2024). Indeed, the scrivener's error doctrine "applies only in exceptional circumstances to obvious technical drafting errors." Niz-Chavez v. Garland, 593 U.S. 155, 161 n.1 (2021) (emphasis added). "[T]he sine qua non of any 'scrivener's error' doctrine . . . is that the meaning genuinely intended but inadequately expressed must be absolutely clear; otherwise we might be rewriting the statute rather than correcting a technical mistake." United States

v. X-Citement Video, Inc., 513 U.S. 64, 82 (1994) (Scalia, J., dissenting) (emphasis added). Accordingly, this Court should be hesitant to assume the existence of a drafting error, and should be equally hesitant to alter the language of a statute or regulation to conform it to our perceived understanding of legislative or regulatory intent. An overzealous court that

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leaps to rewrite a statute or regulation runs the risk of offending the coordinate branches of government and the separation of powers.

As support for its contention that 907 KAR 1:170 § 1(19) was plagued by an obvious drafting error, PHHC points primarily to extrinsic evidence—like internal Department emails and deposition testimony from Department employees—outside of the plain text of 907 KAR 1:170. However, to accept these materials as conclusive expressions of the intent underlying 907 KAR 1:170(19) would be to elevate the opinions and understandings of a few Department employees over the plain text of the Department's regulation. Here, the pertinent provisions of 907 KAR 1:170 are facially unambiguous. "Case management" services were not defined as a "revenue code service" in 907 KAR 1:170 § 1(19). Therefore, "case management" services were not eligible for enhanced reimbursement pursuant to 907 KAR 1:170 § 4. The plain, unambiguous text of 907 KAR 1:170 § 1(19) is enough to end our interpretative inquiry. The omission of "case management" services from 907 KAR 1:170 § 1(19) is perhaps curious, but that regulatory choice is not so patently absurd so as to convince this Court that 907 KAR 1:170 § 1(19) was corrupted by a scrivener's error. We decline to insert any language into the Department's regulations at the behest of PHHC, and conclude that the Department was within its regulatory authority to recoup its overpaid funds.

C. The doctrine of equitable estoppel does not preclude the Department from recouping its overpaid funds from PHHC.

PHHC next argues that the Department should be equitably estopped from recouping any reimbursements that it paid to PHHC because the

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Department's agents falsely represented that "case management" services were a revenue code service within the meaning of 907 KAR 1:170 § 1(19). Shortly after the Department had promulgated its emergency regulation,

907 KAR 1:170E, a representative from PHHC, Brian Lebanion, emailed an employee at the Department, Stuart Owen, to inquire about the regulation's new safety net provider provisions. Lebanion and Owen exchanged emails from January 2009 to March 2009. Relevantly, Lebanion emailed Owen the following on March 12, 2009:

I left you a voicemail to follow up on whether or not case management units are counted toward meeting the safety net provider threshold. Just let me know as soon as you can for our calculation purposes. Our fiscal year end is March 31^stand we are trying to calculate any impact this provision may have. Owen responded: "I've followed up and staff indicates that case management is a revenue code service and will be included in the 100,000 threshold."

"[E]stoppel is a question of fact to be determined by the circumstances of each case." Weiand v. Bd. of Trs. of Ky. Ret. Sys., 25 S.W.3d 88, 91-92 (Ky. 2000). This Court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. KRS 13B.150(2)."Reduced to its simplest elements, equitable estoppel 'requires both a material misrepresentation by one party and reliance by the other party.'" Powers v. Ky. Farm Bureau Mut. Ins. Co., 694 S.W.3d 361, 371-72 (Ky. 2024) (quoting Fluke Corp. v. LeMaster, 306 S.W.3d 55, 62 (Ky. 2010)). However, to invoke the doctrine of equitable estoppel against a governmental entity "exceptional and extraordinary equities" must be involved. Weiand, 25 S.W.3d at 91 (citing Urb.

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Renewal & Cmty. Dev. Agency of Louisville v. Int'l Harvester Co. of Delaware,

455 S.W.2d 69, 72 (Ky. 1970)). Such extraordinary circumstances "must include some gross inequity between the parties." Bd. of Trs., Ky. Retirement Sys. v. Grant, 257 S.W.3d 591, 594 (Ky. App. 2008) (quoting City of Shelbyville ex rel. Shelbyville Mun. Water and Sewer Com'n v. Commonwealth, Nat. Res. and Env't Protection Cabinet, 706 S.W.2d 426, 430 (Ky. App. 1986)). Further, in the context of equitable estoppel, this Court has before held that "a current governmental official is not duty bound to continue the improper acts of predecessors." Sebastian-Voor, 265 S.W.3d 190, 195 (Ky. 2008). More simply, one government official's failure to correctly administer or interpret the law should not bind the government in perpetuity. Id. (citing St. Luke Hosps., Inc. v. Commonwealth, 186 S.W.3d 746, 751 (Ky. App. 2005)).

Here, the Franklin Circuit Court agreed with the Cabinet's administrative hearing officer that the doctrine of equitable estoppel was inapplicable against the Department because there were no "exceptional and extraordinary equities"

at stake. We also agree. While ensuring continued compliance with the Department's many administrative regulations is undoubtedly arduous for Medicaid providers, those providers are often sophisticated entities that are nonetheless expected to conform their actions to the letter of the law. The text of 907 KAR 1:170 § 1(19) was clear: "case management" services were not included among the "revenue code service[s]" eligible for enhanced reimbursement. Any representations to the contrary made by Department employees could not change the law. Nor could the previous actions of the

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Department, (i.e., continually reimbursing PHHC for its case management services at an enhanced rate) change what the law was. The equities at stake here clearly weigh in favor of the Department. In turn, we simply cannot say that the administrative hearing officer's factual findings on this issue were unsupported by substantial evidence. We will not disturb the administrative hearing officer's factual findings regarding equitable estoppel on appeal.

D. The equitable doctrine of laches is inapplicable against the Department in this instance.

PHHC next argues that the equitable doctrine of laches should prevent the Department from recouping its overpaid funds. PHHC specifically argues that individual Department employees were aware that "case management"

services had been omitted from 907 KAR 1:170 § 1(19), and yet the Department did not seek to recoup its overpaid funds from PHHC until 2016. PHHC asserts that the Department's "delay" was motivated by its own pecuniary interests. According to PHHC, the Department operated under a mistaken interpretation of 907 KAR 1:170 § 1(19) and reimbursed HCB providers for case management services at an enhanced rate until that practice no longer benefitted the Department.

The doctrine of laches "serves to bar claims in circumstances where a party engages in unreasonable delay to the prejudice of others rendering it inequitable to allow that party to reverse a previous course of action." Moore v. Commonwealth, 357 S.W.3d 470, 494 (Ky. 2011) (quoting Plaza Condominium Ass'n, Inc. v. Wellington Corp., 920 S.W.2d 51, 54 (Ky. 1996)). However, the

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doctrine of laches is generally inapplicable against the state government. City of Paducah v. Gillispie, 115 S.W.2d 574, 576 (Ky. 1938); see also 27A A M. JUR. 2D Equity § 122 (updated May 2025). "The considerable reluctance to apply laches [against the government] stems from concerns that imposing laches may impair the functioning of the government body, and that valuable public interests may be jeopardized or lost by the negligence, mistakes, or inattention of public officials." 27A A M. JUR. 2D Equity § 122 (updated May 2025). That is not to say, however, that laches may never lie against the government; "unusual, extraordinary, or compelling circumstances may justify applying laches to state government suits." Id. It is the "public policy or public interest present in a controversy" that determines whether laches may apply, "not the mere fact a governmental entity is a party." 30A C.J.S. Equity § 144 (updated December

2024).

Here, PHHC has not demonstrated any unusual, extraordinary, or compelling circumstances that would justify applying the doctrine of laches against the Department in this instance. PHHC has not even demonstrated that the Department's "delay" in initiating its recoupment proceedings was

"unreasonable."⁴As elucidated above, the public benefit in correcting an

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erroneous interpretation or application of the law outweighs any equities that would weigh in favor of PHHC. Accordingly, we decline to apply the doctrine of laches against the Department in this instance.

E. PHHC's arguments regarding the sufficiency of the Department's

"audit" lack legal authority and do not provide a basis for relief.

Pursuant to 907 KAR 1:672 § 4(1)-(3), all registered Medicaid providers shall maintain certain documentation regarding the services they provide to eligible Medicaid recipients for a minimum of five years from the latter of "(a) The date of final payment services; (b) The date of final cost settlement for cost reports; or (c) The date of final resolution of disputes, if any." By enrolling in the Kentucky Medicaid Program, providers also agree to, "Permit review or audit of all books or records or, at the discretion of the auditing agency, a sample of books or records related to services furnished and payments received from Medicaid, including recipient histories, case files, and recipient specific data." 907 KAR 1:672 § 2(6)(h).

For its final argument, PHHC contends that the "Cabinet did not actually conduct a Medicaid audit that would qualify for a five-year lookback period at all. Instead, the Cabinet merely used the guise of an audit to allow it to make a retroactive change to its long-standing interpretation and application of the Cabinet's own regulation for its own self-serving pecuniary reason."

year statute of limitations for actions grounded in written contract could be controlling. See KRS 413.160. We make no pronouncements today whether either of these limitations periods has application to the Department's regulatory enforcement proceedings.

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While PHHC vehemently attacks the sufficiency of the Department's auditing procedures, it fails to articulate how the Department's audit ran afoul of the law. In fact, PHHC concedes that there is no controlling law on this subject. Accordingly, PHHC has failed to demonstrate how the Department's auditing procedures entitle it to relief in this instance.

III. CONCLUSION

For the foregoing reasons, we affirm the Court of Appeals. All sitting. Conley, Goodwine and Nickell, JJ., concur. Bisig, J., dissents by separate opinion which Lambert, C.J., joins. Thompson, J., dissents by separate opinion.

BISIG, J., DISSENTING: I must respectfully dissent from the well-written Majority Opinion. As the Majority acknowledges, our primary endeavor in interpreting statutes and regulations is to give effect to the underlying legislative intent. We have further held that in interpreting statutes, "words may be supplied, omitted, substituted, or modified" when reasonably necessary to effectuate that legislative intent. Landrum v. Commonwealth ex rel. Beshear,

599 S.W.3d 781, 788 (Ky. 2019) (quoting County of Harlan v. Appalachian Reg'l Healthcare, Inc., 85 S.W.3d 607, 611 (Ky. 2002)). Or as aptly stated long ago:

The will of the Legislature, not its words, are the law.

. . .

"[W]here the real design of the Legislature in ordaining a statute, although it be not precisely expressed, is yet plainly perceivable, or ascertained with reasonable certainty, the language of the statute must be given such a construction as will carry that design into effect, even though in so doing the exact letter of the law be sacrificed, or through the construction be, indeed, contrary to the letter."

. . .

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"Legislative enactments are not any more than other writings to be defeated on account of mistakes, errors, or omissions, provided the intention of the Legislature can be collected from the whole statute

. . . Where one word has been erroneously used for another, or a word omitted, and the context affords the means of correction, the proper word will be deemed substituted or supplied."

Neutzel v. Ryans, 184 Ky. 292, 211 S.W. 852, 854 (1919) (citations omitted). Such circumstances—though admittedly rare—are overwhelmingly evident in this case. Here, though the regulation at issue did not specifically identify case management as a service available for enhanced reimbursement, the following facts unmistakably demonstrate that it was the intent of the Cabinet that enhanced reimbursement be available for such services:

• The Cabinet included case management as a covered service when it requested federal approval for its regulatory change;

• The Cabinet coded enhanced reimbursement rates for case management services into its computer system;

• The Cabinet represented in writing to Professional Home Health Care that enhanced reimbursement was available for case management services;

• The Cabinet paid enhanced rates for case management services for approximately eight years without complaint;

• Without case management, Professional Home Health Care would have been unable to provide any other services; and

• The purpose of the regulatory amendments was to entice Appalachian Regional Healthcare ("ARH") to continue providing services in underserved areas, and ARH would not have continued providing services without an enhanced reimbursement rate for case management services.

Quite simply, on these facts it cannot reasonably be argued that the intent of the Cabinet in drafting the regulation was to exclude case management services from coverage. Thus, because it is plain the omission of such services from the

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regulation was a scrivener's error, I would hold that the Cabinet is not allowed to now recoup the fees it willingly paid for years—consistent with its representations to both the federal government and Professional Home Health Care—simply because of the fortuitous accidental omission of such services from the regulation. Moreover, I would also find that the Cabinet's representations to Professional Home Health Care that case management services would be covered now serve to equitably estop the Cabinet from arguing to the contrary. As such, I would reverse the Court of Appeals and remand with instructions for a judgment in favor of Professional Home Health Care.

Lambert, C.J., joins.

THOMPSON, J., DISSENTING: I dissent because it offends my notion of fair play to allow the Department for Medicaid Services (the Department) (which is located within Cabinet for Health and Family Services (the Cabinet)) to claw back money previously paid to obtain a service (case management) that would not have been provided by Professional Home Health Care (PHHC) but for the enhanced reimbursement rate promised to it for the Department's Home and Community Based (HCB) Waiver services. These enhanced rates were paid to PHHC over the course of eight years for all of its HCB Waiver services. PHHC supplied and continued to supply these services in reliance on this rate of reimbursement.

Case management services are mandatory if any HCB Waiver services are to be provided. Even when the Cabinet knew that the regulations did not cover

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an enhanced payment for case management services, it added a code into its computer systems to provide for such an enhanced payment and continued to make enhanced payments, knowing that it could later act to deduct these supposed "overpayments" many years after the services were already provided (when it was far too late for PHHC to simply decline to continue to provide waiver services at all). This scenario constitutes a theft of services under the terms of Kentucky Revised Statutes (KRS) 514.060(1)(a): "A person is guilty of theft of services when: . . . The person intentionally obtains services by deception . . . or other means to avoid payment for the services which he or she knows are available only for compensations."

There was no deception by PHHC. All the information for billed services was always in the Cabinet's hands. Therefore, an audit was not needed to uncover what was obvious from the start, that the relevant regulations omitted case management services, yet the Cabinet needed these services to be covered so it paid for them as if the regulation specifically allowed enhanced payment for such services. If there was any deception, it was by the Cabinet which chose to pay the enhanced rate for case management services when it was desperate to retain waiver services in the eastern part of the state. The Cabinet concluded it was in its best interest to initially pay the enhanced rate for case management services, with the knowledge that it had the option to change course years later and offset such "overpayments" when a different strategy would benefit it.

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I. FACTS

The facts are virtually undisputed. After Appalachian Regional Healthcare (ARH) approached the Cabinet and indicated that it would end providing waiver services in eastern Kentucky unless additional reimbursement was forthcoming for such services, the Cabinet approached the federal government about securing additional Medicaid funds for the HCB Waiver program. The federal government indicated that it could fund fifty million dollars in additional Medicaid reimbursements to keep rural Kentuckians who were eligible for nursing home admission in their homes through the HCB Waiver program.

As the hearing officer found:

Correspondence between [the Cabinet, Department for Medicaid Services (Department)] and [the Center for Medicare and Medicaid Services (CMS)] officials during the consideration process [for the approval of the necessary regulatory changes to allow enhanced waiver reimbursement rates because of the high costs of serving rural areas of Kentucky] indicates that the Department sought to include enhanced rates for case management services for this particular type of provider [serving Medicaid patients in rural areas].

. . . .

The goal of the [emergency] regulation was to provide an incentive payment to get providers to reach out to populations in underserved areas.

(Emphasis added).

The Cabinet sent a letter to the governor informing him of the emergency and need to provide for these enhanced services. The governor agreed and acted swiftly to enact emergency regulations to do just that. On December 2,

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2008, the governor (along with the Secretary of the Cabinet) signed a statement of emergency which indicated:

(1) This emergency administrative regulation is being promulgated to establish a new category of home and community based waiver service provider, a safety net provider, along with a corresponding enhanced reimbursement.

(2) This action must be taken on an emergency basis to protect the health, safety and welfare of HCB recipients by ensuring access to necessary care.

Stuart Owen drafted the regulation.

The regulatory impact analysis, which listed Owen as the first of two agency contact persons, stated "[t]his amendment is necessary to ensure adequate access to services for rural HCB service recipients" and would benefit safety net providers by enhancing reimbursement "which in turn also ensures access to services for HCB recipients in rural areas." It also noted: "A safety net provider's viability is necessary to promote adequate access to HCB services for recipients located in rural areas."

While the provision of increased reimbursement was meant to benefit ARH, PHHC also qualified to be a safety net provider. After the first year, ARH did not maintain the 100,000 units required to participate in the program, but PHHC did and in fact increased the number of units it provided under the HCB Waiver program in each succeeding year, making the program a success in the three rural eastern Kentucky counties that it serviced and resulting in a net savings to the Medicaid program by preventing nursing home admissions which would have been far more costly to fund.

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The Cabinet, through its agents with apparent authority, provided reassurance that case management was included, would be paid at an enhanced coding rate despite its omission from the regulations, as demonstrated by communications between PHHC and Cabinet representatives. As the hearing officer found, Brian Lebanion (who worked for Health Direction/PHHC) and Owen (who drafted regulations for the Cabinet) engaged in correspondence in 2009 concerning the emergency regulation and enhanced reimbursements for safety net providers. Owen informed Lebanion that case management services would count toward the 100,000 or more revenue units per year necessary to qualify as a safety net provider (despite it not being included in the definition of revenue code service), and Owen provided Lebanion with the enhanced revenue code for such case management services. The hearing officer also found that Karen Martin, the former Director of the Department's Division who oversaw the waiver services after the emergency regulation change, believed there was no reason to exclude case management services from the enhanced reimbursement and "testified that the exclusion of the case management was likely a mistake." The hearing officer also found that for the fiscal years at issue, the "safety net cost settlement worksheet" included payment for case management services under the enhanced rate. The hearing officer concluded that while "there was no direct witness testimony as to the Department's intent to reimburse case management services at an enhanced rate at the time of the drafting of the regulation, there is documentary evidence that it was at least being considered" and "there is

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evidence that Department representatives interpreted the regulation to include case management as a revenue code service and communicated that interpretation to PHHC."

It is undisputed that case management is a required service, and no other waiver services can be provided without case management also being provided. Each party proceeded as if the regulation included case management and as if case management was always intended to be included. The Cabinet provided an enhanced billing code for case management and paid for case management at that rate for eight years. All HCB Waiver services PHHC provided in the rural counties in which it was serving as a safety net provider during this time were billed at the enhanced rate and the Cabinet reimbursed for those services at the enhanced rate.

In 2015, the Cabinet erroneously informed the federal government that it was no longer paying enhanced rates in these rural counties. Internal communications about this error had Cabinet officials worried that the federal government would not pay its share of the enhanced rate. Commissioner Lisa Lee then informed PHHC that it would no longer pay the enhanced rate for any

HCB Waiver services despite the fact that the regulation required such payment for all HCB Waiver services other than case management and the Cabinet was obliged to make such payments. Commissioner Lee explained to PHHC that this decision was prompted by a fear that the federal government would refuse to pay its share of the additional cost.

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The reimbursement for PHHC's 2014 was delayed almost a year after it was due, but on April 8, 2016, the Cabinet finally sent a cost settlement letter for the fiscal year ending in 2014, indicating it would pay what was owed. At some point, a Cabinet employee "discovered" what the Cabinet knew or should have known all along: the regulations did not include case management as a service subject to the enhanced rate code. The Cabinet then conducted an "audit" on PHHC billings, not to check whether PHHC had in some way misstated the waiver services it had provided, but instead to calculate the difference between the amount of reimbursement for case management provided by PHHC in the underserved counties as a safety net provider (as dictated by the Department's coding) and the regular amount of reimbursement to be paid for case management.

The Cabinet then sent a new letter, dated May 2, 2016, stating it was rescinding its previous cost settlement after conducting an audit, and based on a five-year look-back period, the Cabinet had concluded that PHHC owed the Cabinet $1,062,171 for the overpayment of the enhanced payment for case management services for 2011-2013. When crediting PHHC with the $1,062,765 that the Cabinet owed PHHC for fiscal year 2014, the Cabinet only owed PHHC $594 for all of the services PHHC provided under the HCB Waiver program for 2014.

II. DRAFTING ERROR OF OMISSION

"A well-established rule of statutory [and regulatory] construction is that the courts will consider the purpose which the statute [or regulation] is

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intended to accomplish—the reason and spirit of the statute [or regulation]— the mischief intended to be remedied." City of Louisville v. Helman, 253 S.W.2d 598, 600 (Ky. 1952). Similarly, "a statute [or regulation] will not be given a strict literal interpretation, if to do so would lead to an absurdity." Id. It is illogical and absurd to conclude that case management was deliberately excluded from this necessary enhancement where the Cabinet negotiated with the federal government to offer enhanced reimbursement for safety net providers for all waiver services including case management services and the federal government agreed to fund all of these services at the enhanced rate. It makes no sense to exclude case management from this already approved enhancement as the failure to also pay for case management at an enhanced rate would have resulted in the discontinuation of all waiver services in the eastern part of the state by safety net providers, thus defeating the very purpose of the emergency regulation and regular regulation. At all times prior to 2016, the Cabinet acted as if these regulations provided for these enhanced payments for case management services. The Cabinet must have recognized that the omission of case management services from the emergency regulation and the regular regulation was in error, and it needed to act as if case management qualified for enhanced payment to preserve these waiver services. The Cabinet understood that the purpose and goal of the increased reimbursement rates would be ineffective if a required service were excluded, thus prompting safety net providers to opt out of serving these counties. This is why the Cabinet continued to fund this service at the enhanced rate for eight

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years. Without such an "informal" correction by the Cabinet, the regulation could not have fulfilled its purpose and all who received these services would have instead be housed in nursing facilities.

I conclude that all of the information available leads to the inexorable conclusion that Owens made an error in drafting the regulations, through a Scrivener's omission, by neglecting to include in the regulation the specific language necessary to allow the enhanced payment for case management. Accordingly, I would read in the omitted terms "case management" into the list of waiver services entitled to the enhanced rate.

III. EQUITABLE ESTOPPEL APPLIES

Equitable estoppel may be invoked against a governmental entity in

"unique circumstances" when "exceptional and extraordinary equities are involved[.]" Sebastian-Voor Props, LLC v. Lexington-Fayette Urb. Cnty. Gov't, 265 S.W.3d 190, 194 (Ky. 2008). This "must include some gross inequity between the parties." Bd. of Trs., Ky. Ret. Sys. v. Grant, 257 S.W.3d 591, 594 (Ky. App. 2008) (quoting City of Shelbyville ex. rel. Shelbyville Mun. Water & Sewer Com'n

v. Commonwealth, Nat. Res. & Env't Prot. Cabinet, 706 S.W.2d 426, 430 (Ky. App. 1986)).

The essential elements of equitable estoppel are "(1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons; and (3) knowledge, actual or constructive, of the real facts. And, broadly speaking, as related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the

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truth as to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice."

Elec. & Water Plant Bd. of City of Frankfort v. Suburban Acres Dev., Inc., 513 S.W.2d 489, 491 (Ky. 1974) (quoting 28 Am.Jur.2d Estoppel and Waiver § 35 and Smith v. Howard, 407 S.W.2d 139 (Ky. 1966)).

I submit that this is just such a case considering the extraordinary equities at issue here and the undisputed facts of what took place. The Cabinet, through both the representations of its agent Owen, who drafted regulations, and the course of conduct of the Cabinet in developing enhanced payment codes and in fact paying out enhanced fees for case management for eight years, engaged in conduct, "calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert[,]" which was that case management was intended to be paid at the enhanced rate.

There was "the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons" in that safety net providers by receiving enhanced rates for all of its services would continue to provide such services in this underserved area of the state. There was also "knowledge, actual or constructive, [by the Cabinet] of the real facts" in that the regulation did not cover case management, but that payment of an enhanced rate was necessary to retain safety net providers' services. It is the Cabinet, and not PHHC, which is tasked with knowing what

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the relevant regulations say and only expending money in accordance with those parameters.

The Cabinet both drafted the regulations and was in charge of implementing it. As the expert regarding its own regulations, it is disingenuous for the Cabinet to rely exclusively on the wording of the regulation to argue it committed an error in paying an enhanced rate to PHHC for its case management services. The Cabinet should be aware of what its own regulations stated. Its actions in making such payment despite the omission of the words

"case management" from the regulation, imply that this omission was a scrivener's error, a scrivener's error that the Cabinet chose not to correct as it had already made the decision to pay the enhanced rate for all waiver services as it had originally intended so that these waiver services could continue. All required services include case management and, indeed, the Cabinet developed the very code required for payment of enhanced reimbursement of case management services and paid that enhanced rate for eight years. Finally, the "gross inequity between the parties" which is required for PHHC to qualify for equitable estoppel against the government, greatly weighs in PHHC's favor. The Cabinet's Division of Fiscal Management oversees the Department for Medicaid Services' "multibillion dollar annual budget."⁵In contrast, PHHC only provides home healthcare and is a relatively small player

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in providing HCB Waiver services. It serves four Kentucky counties (Knox, Laurel, Whitley, and Fayette), as well as seven Tennessee counties.⁶The Cabinet's decision to withhold a million-dollar payment for a year of services to PHHC, which that the majority opinion upholds as justified due to an

"overpayment" for case management services for fiscal years 2011, 2012, and 2013, is significant and results in virtually a wash for the outstanding amounts due to PHHC for fiscal year 2014. This is a ruinous outcome for this non-profit corporation.

I choose not to believe that the Division of Fiscal Management and its rate setting contractor are so wholly unqualified and illiterate that they failed to read and understand what the Cabinet's own regulations stated and recognize that there was a mismatch between the regulations and the payment codes for eight years. Such ignorance stretches all credibility. Furthermore, the Cabinet has made no such argument.

I submit that if PHHC knew that case management was not included in the regulation, it was fraudulently induced into the belief that the enhanced rate for these services would nevertheless be forthcoming and would continue to be paid at that enhanced rate based on: (1) the affirmative representations it

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received; and (2) the confirmation of those representations through it in fact being paid at the enhanced rate for case management year after year. PHHC then acted in accordance with such representations and conduct by the Cabinet by continuing to provide all of its waiver services in eastern Kentucky as a safety net provider. PHHC "[relied], in good faith, upon the conduct or statements of the party to be estopped" in choosing to continue to provide such services over a protracted period of time. It took the "action" of continuing to provide such services, thus changing its "position or status" "to [its] injury, detriment, or prejudice" because PHHC cannot now go back and undo its provision of these services and is instead potentially faced with a ruinous withholding of the funds that it has earned for an entire year, despite being a relatively small company when compared to the Kentucky Medicaid program. In the absence of this representation and enhanced payment, it is doubtful the PHHC would have continued to offer waiver services to Medicaid recipients in that area of the state, where providers had to travel significant distances to attend to the needs of recipients in their homes, limiting the number of people who could be served by one provider in a single day. Without PHHC, Medicaid could not have provided the necessary services to maintain HCB waiver service recipients in their homes, thus causing substantial additional Medicaid expenses to accrue against both the Commonwealth and the federal government when these beneficiaries had to be cared for in far more expensive nursing homes. Thus, it was to everyone's benefit and a net cost-

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saving measure, to pay the enhanced rate for all waiver services in this part of the state so that these services would continue.

Had the Cabinet simply stated "no, case management services are not covered by the enhanced reimbursement rate that all other waiver services are"

it would have allowed PHHC to determine whether to accept the lower rate for those services or to not provide any services at all. But the Cabinet did the exact opposite of this; the Cabinet both made a representation through its employee with apparent authority that the enhanced rate would be paid for case management services and in fact paid the advanced rate, essentially speaking through both its unambiguous statements and its affirmative actions. These case management services have been rendered and cannot be

"returned" any more than a meal which has been consumed, or a hotel room that has been slept in. After paying for and "consuming" such services, the Cabinet wants a discount to the lower rate at which PHHC was not willing to provide the services and is withholding over a million dollars in reimbursements to force PHHC to accept a lower rate of payment after the fact. As PHHC recounts in its brief, the Cabinet's misleading conduct and current attempt at a "do over" have damaged it because PHHC made business decisions in reliance on the representations of the Cabinet and the Cabinet's conduct in paying for the case management services at the enhanced rate. PHHC explains that "[i]t cannot go back now and make different decisions about whether to provide the service at all, how to staff it, what to pay its employees, and other decisions related to management of the agency."

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It seems far more likely to me that this mismatch was well-known and simply ignored because case managers were to be paid at the enhanced rate. PHHC has provided evidence that the Cabinet erroneously reported to the federal government that it was no longer paying enhanced rates for waiver service, and then became concerned that the federal government might then refuse to pay the federal share of the enhanced rates. If that occurred, the Cabinet would have to pay 100% of the difference in cost between the enhanced payments for all HCB Waiver services rather than only paying the state share of 30%. The Commissioner of Medicaid then called PHHC to inform it that the Cabinet would no longer pay any enhanced rates for any waiver services (despite the regulation requiring such payments not being changed). It appears rather than bear the cost of the enhanced rates itself, the Cabinet embarked on the strategy of choosing to make PHHC unilaterally bear the cost of the Cabinet's error by using a supposed "discovery" through the Cabinet's audit process to justify recouping "overpayments" for case management from

PHHC.

This provides a significant financial motivation for the Cabinet to find a way to offset the outstanding amount due to PHHC. Audits are conducted to uncover errors made by providers, such as double billing for services, putting the wrong code down for billing, and similar problems of that nature. Audits of providers are not conducted to undo errors made by the Cabinet itself.

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IV. CONCLUSION

PHHC is not a sophisticated entity when compared to the Cabinet. While I agree that "a current government official is not duty bound to continue improper acts of predecessors[,]" Sebastian-Voor, 265 S.W.3d at 195, this doctrine should not be used as a basis for seeking reimbursement after services have already been "consumed" because the Cabinet affirmatively misled PHHC and PHHC's continuation of HCB Waiver services benefited the Medicaid program and resulted in cost savings to the program by keeping people out of far more expensive nursing homes. I cannot agree with the majority opinion that "[t]he equities at stake here clearly weigh in favor of the Department." Given their relative sizes and expertise, the equities favor PHHC being allowed to retain the enhanced payments for services rendered in reliance on such payments.

I conclude that the Cabinet acted reprehensibly in deceiving PHHC by flouting its own regulations to pay PHHC more when it needed its waiver services to continue in underserved counties, tricking PHHC into continuing to provide these services for a protracted period of time. The Cabinet then "pulled the rug" out from under PHHC with the Cabinet using self-help to claim that recoupment was due through a sham audit, thus refusing to pay for the service rendered in fiscal year 2014. This is unjust and I cannot condone the theft of PHHC's services in this manner. Accordingly, I would reverse.

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COUNSEL FOR APPELLANT:

Martha C. Gray

COUNSEL FOR APPELLEES:

Blake A. Vogt

Cabinet for Health and Family Services