Finnerty v. Thornton Hall, Inc.

COURT OF APPEALS OF VIRGINIA

Present: Judges Humphreys, Clements and Kelsey
Argued at Richmond, Virginia

PATRICK W. FINNERTY, DIRECTOR,
VIRGINIA DEPARTMENT OF MEDICAL
ASSISTANCE SERVICES
OPINION BY
v. Record No. 2082-03-1 JUDGE D. ARTHUR KELSEY
MARCH 9, 2004
THORNTON HALL, INC.

FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
John C. Morrison, Jr., Judge

Paige S. Fitzgerald, Special Counsel (Jerry W. Kilgore, Attorney
General; David E. Johnson, Deputy Attorney General; Siran S.
Faulders, Senior Assistant Attorney General, on briefs), for
appellant.

Laura G. Aaron (Jessica S. Jones; Healthcare Regulatory Advisors,
Inc., on brief), for appellee.

In Smith v. Liberty Nursing Home, Inc., 31 Va. App. 281, 297, 522 S.E.2d 890, 897-98

(2000), we held that Code § 32.1-325.1:1(B) establishes a “mandatory limitation” period within

which the Virginia Department of Medical Assistance Services (DMAS) must make an “initial

determination” of Medicaid overpayment to a provider. The failure to meet this deadline bars any

administrative claim seeking reimbursement of the overpayment. Id. The case now before us

requires that we decide what constitutes an “initial determination.”

The trial court found that an “initial determination” for purposes of Code §§ 32.1-325.1(A)

and 32.1-325.1:1(B) refers to the agency’s decision pursuant to an informal factfinding conference

conducted under Code § 2.2-4019 (formerly Code § 9-6.14:11). On appeal, Patrick W. Finnerty,

Director of DMAS, contends that the term actually refers to an earlier administrative notice (called a
Notice of Program Reimbursement) issued before the informal factfinding conference. We agree

with the trial court’s interpretation, and thus, affirm its decision.

I.

DMAS administers the Medicaid program for the Commonwealth. Virginia law authorizes

the Director of DMAS to “receive and expend federal funds” and to enter into contracts

“necessary or incidental to the performance of the Department’s duties.” Code § 32.1-325. The

Director also supervises an auditing system that reviews the annual cost submissions of

participating providers “to determine the propriety, necessity and reasonableness of reimbursable

costs.” After an audit of a provider’s annual cost submission, a DMAS “Reimbursement

Analyst” issues a Notice of Program Reimbursement (NPR) outlining proposed allowed and

disallowed costs for that particular accounting period. If the provider agrees with the analyst’s

proposal, the process ends. If the provider disagrees, DMAS conducts an “informal conference”

under Code § 2.2-4019 so that the agency has an opportunity to “ascertain the fact basis” for any

decision it makes. If the dispute continues, it then goes to a formal administrative hearing under

Code § 2.2-4020 and later to the courts under Code §§ 2.2-4025 to 2.2-4030.

Thornton Hall, Inc., a participating provider, offers nursing care and services to the

public through its nursing home, Thornton Hall. The nursing home submitted various cost

reports for fiscal years ending (FYE) December 31, 1991 through 1994, fiscal periods ending

June 30, 1995 and December 31, 1995 and FYEs December 31, 1996 through 1999. A cost

analyst at the accounting firm Clifton Gunderson PLLC, on contract with DMAS, issued NPRs to

Thornton Hall identifying overpayments for the applicable accounting periods. Each of the

NPRs was issued within four years of the overpayments identified in the respective NPR.

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 DMAS conducted informal factfinding conferences (IFFCs) pursuant to Code § 2.2-4019

for all NPR periods except the FYE 1992 NPR.1 The IFFCs, however, were not conducted until

July 6, 2001, and September 25, 2001. Because DMAS conducted the IFFCs more than four

years from the date of the 1991, 1993, 1994, 1995, and 1996 overpayments, Thornton Hall

argued that Code § 32.1-325.1:1(B)’s four-year statute of limitation barred DMAS from

recouping any alleged overpayments. The IFFC hearing officers rejected this argument, finding

that the NPRs issued by the cost analyst within the limitations period constituted the agency’s

initial determination. Thornton Hall disagreed and requested formal hearings under Code

§ 2.2-4020.

The first formal hearing officer concluded that the IFFC, not the NPR, was the initial

determination. As a consequence, he reasoned, DMAS could not recoup “overpayments more

than four years from the date of the initial determination on July 6, 2001.” Thornton Hall filed a

letter requesting that DMAS adopt the formal hearing officer’s recommendation. In a Final

Agency Decision dated January 22, 2002, however, the Director rejected the recommendation as

constituting “an error of law.”

A second formal hearing officer likewise found that under Code § 32.1-325.1:1(B)

“recoupment of overpayments made by DMAS to Thornton Hall, Inc. prior to July 6, 1997 are

time barred as a matter of Virginia law.” Once again, however, the Director rejected the hearing

officer’s recommendation in a Final Agency Decision dated August 15, 2002.

Thornton Hall appealed both Final Agency Decisions to Norfolk Circuit Court.

Disagreeing with the Director’s argument that an NPR is an “initial determination,” the trial

court held that the “clear language” of Code § 32.1-325.1:1(B) “indicates that there must be an

1
Thornton Hall waived the IFFC for FYE 1992 and “proceeded by record.” DMAS then
issued a decision on May 2, 1995, pursuant to the IFFC provision of current Code § 2.2-4019.
Thornton Hall appealed that decision pursuant to current Code § 2.2-4020.

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IFFC before there can be an initial determination.” Finding that the earliest IFFC did not occur

until July 6, 2001, and that “there are no tolling provisions in the statute,” the court ruled “that

DMAS cannot collect for any repayments to Thornton Hall prior to July 6, 1997.”

II.
A.

The Director first argues that the trial court erred by “failing to consider DMAS’s

expertise and specialized competence in interpreting its own statutes and regulations.”

According to the Director, “the interpretation of what constitutes an ‘initial determination’”

under Code §§ 32.1-325.1 and 32.1-325.1:1(B) falls within DMAS’s specialized competence and

the trial court should have deferred to its interpretation. We disagree.

An agency does not possess specialized competence over the interpretation of a statute

merely because it addresses topics within the agency’s delegable authority. See generally

7-Eleven, Inc. v. Dep’t of Envtl. Quality, 42 Va. App. 65, 73, 590 S.E.2d 84, 88 (2003) (en banc)

(observing that “no special agency expertise is necessary” for a resolution of issues of pure

statutory construction).2 As the Virginia Supreme Court recently reaffirmed, an “erroneous

interpretation of a statute by those charged with its enforcement” cannot override the statute’s

“clear meaning.” Volkswagen of Am., Inc. v. Smit, 266 Va. 444, 453, 587 S.E.2d 526, 531

(2003) (quoting Hampton Roads Sanitation Dist. Comm’n v. City of Chesapeake, 218 Va. 696,

702, 240 S.E.2d 819, 823 (1978)). “In sum, pure statutory interpretation is the prerogative of the

judiciary.” Sims Wholesale Co. v. Brown-Forman Corp., 251 Va. 398, 404, 468 S.E.2d 905, 908

2
In contrast, we afford great deference to the Director when reviewing “DMAS’s
interpretation and application of its own regulations.” Dep’t of Med. Asst. v. Beverly
Healthcare, 41 Va. App. 468, 481, 585 S.E.2d 858, 865 (2003). The decision before us,
however, involves only a question of statutory interpretation.

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(1996).3 This axiom stems from basic principles of separation of powers. “It is emphatically the

province and duty of the judicial department to say what the law is.” Marbury v. Madison, 5

U.S. (1 Cranch) 137, 177 (1803). Virginia courts do not delegate that task to executive agencies.

The trial court, therefore, did not err in refusing to defer to the Director’s definition of

“initial determination” because it involves a pure question of statutory interpretation, a matter

within the core competency of the judiciary.

B.

The Director next argues that, whether we defer to him or not, our de novo interpretation

of the statute should lead us to the same conclusion he reached. For the following reasons, we

reach the opposite conclusion.

Our analysis begins with two familiar principles of statutory construction. First, when

the legislature uses the same word or phrase “in different parts of the same statute, the

presumption is that it was used in the same sense throughout the statute, unless a contrary

intention clearly appears.” Bridgewater Mfg. Co. v. Funkhouser, 115 Va. 476, 480, 79 S.E.

1074, 1076 (1913); see also Bd. of Supervisors of Albemarle County v. Marshall, 215 Va. 756,

761-62, 214 S.E.2d 146, 150 (1975); Weaver v. Commonwealth, 25 Va. App. 95, 101, 486

S.E.2d 558, 561 (1997).

Second, “we consider all relevant provisions of a statute and do not isolate particular

words or phrases.” Lee County v. Town of St. Charles, 264 Va. 344, 348, 568 S.E.2d 680, 682

(2002). “Statutes which have the same general or common purpose or are parts of the same

general plan are also ordinarily considered as in pari materia.” Lucy v. County of Albemarle,

3
We have consistently followed this principle. See Va. Imports, Ltd. v. Kirin Brew. of
Am., LLC, 41 Va. App. 806, 821, 589 S.E.2d 470, 477 (2003); Penn v. Commonwealth, 32
Va. App. 422, 426, 528 S.E.2d 179, 181 (2000); Morris v. Va. Retirement Sys., 28 Va. App. 799,
803, 508 S.E.2d 925, 927 (1999); Gen. Trading Corp. v. Motor Vehicle Dealer Bd., 28 Va. App.
264, 266, 503 S.E.2d 809, 811 (1998).

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258 Va. 118, 129, 516 S.E.2d 480, 485 (1999). We thus consider “the entire body of legislation

and the statutory scheme to determine the ‘true intention of each part.’” McCray v.

Commonwealth, 37 Va. App. 202, 204, 556 S.E.2d 50, 51 (2001) (citation omitted). And “when

a controversy involves a number of related statutes,” we construe them “together in order to give

full meaning, force, and effect to each.” Ainslie v. Inman, 265 Va. 347, 353, 577 S.E.2d 246,

249 (2003).

Guided by these two principles, we turn to Code § 32.1-325.1:1(B). That statute

establishes the mandatory limitations period by declaring that

upon making an initial determination that an overpayment has
been made to the provider pursuant to § 32.1-325.1, the Director
shall notify the provider of the amount of the overpayment. Such
initial determination shall be made within the earlier of (i) four
years or (ii) fifteen months after the filing of the final cost report
by the provider subsequent to sale of the facility or termination of
the provider.

(Emphasis added); see Liberty Nursing Home, Inc., 31 Va. App. at 290, 522 S.E.2d at 894. Code

§ 32.1-325.1, in turn, requires the Director to “make an initial determination as to whether an

overpayment has been made to a provider in accordance with the state plan for medical

assistance, the provisions of Code § 2.2-4019 [formerly Code § 9-6.14:11] and applicable federal

law.”4 Code § 32.1-325.1(A) (emphasis added). And Code § 2.2-4019(A) requires an agency to

“ascertain the fact basis” for its decision through an IFFC unless the agency and the provider

waive the IFFC and “go directly to a formal hearing.”

We agree with the trial court that the phrase “initial determination” in Code

§ 32.1-325.1(A) means the same thing as the identical phrase in Code § 32.1-325.1:1(B). The

4
In 2001, the General Assembly recodified the Virginia Administrative Process Act at
Code §§ 2.2-4000 to 2.2-4033. See 2001 Va. Acts, ch. 844. The General Assembly also
amended Code § 32.1-325.1 to comport with its recodification of the Virginia Administrative
Process Act. Id.

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first use of the phrase commands DMAS to “make an initial determination” and the second use

of the phrase merely places a deadline on making it. Whatever meaning the phrase has in one

should be carried forward into the other.

Code § 32.1-325.1(A) provides that DMAS “shall make an initial determination as to

whether an overpayment has been made to a provider in accordance with the state plan for

medical assistance, the provisions of § 2.2-4019 and applicable federal law.” The Director

argues that “initial” means first and “determination” means a decision. Because an NPR

constitutes the first decision on overpayment, he reasons, the NPR should be deemed the

agency’s “initial determination.” That logic, while persuasive at first glance, ultimately fails

because it takes the phrase in isolation and severs it from the significant qualification that

follows.

The “initial determination” must be “in accordance with” three things: the state plan, the

provisions of § 2.2-4019, and applicable federal law. The first and third qualifiers, the state plan

and federal law, primarily address the substantive methodology for establishing the amount of

overpayment — including the manner of its calculation, the reasonableness of the charges, the

allowed and disallowed costs, and the like. See generally 12 Va. Admin. Code § 30-90-20 et

seq.; 42 C.F.R. § 433.300 et seq. Though they mention various stages of the reimbursement

process, neither the federal nor the state regulations define the expression “initial determination,”

determine its timing, or provide any specific procedures unique to it.

The second qualifier — “the provisions of § 2.2-4019” — deals exclusively with the

decision-making process. That statute describes the procedure for conducting an IFFC, the first

quasi-adjudicative opportunity for agencies to “ascertain the fact basis” of their decisions in

disputed cases. Code § 2.2-4019(A). By mandating that the initial determination be “in

accordance with” the IFFC process, Code § 32.1-325.1(A) necessarily equates the two. To be

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sure, the initial determination can hardly be “in accordance with” the IFFC procedures if the

former occurs before the latter. Because the NPR always precedes the IFFC, the NPR cannot be

issued “in accordance with” an IFFC — something that has yet to take place.

The Director claims we read this statutory language too literally. As he sees it, the NPR

is “in accordance with” the IFFC, at least in a loose sense, because the provider can always

appeal the NPR to the IFFC. This interpretation, however, fails to give these terms “their

ordinary meaning, given the context in which they are used.” 7-Eleven, Inc., 42 Va. App. at 73,

590 S.E.2d at 88 (citation omitted). One would not ordinarily say, for example, that a trial court

should conduct a trial and issue its decision “in accordance with” the rules of appellate

procedure. Though the administrative jargon of this case obscures this syntactic weakness in the

Director’s interpretation, it still boils down to just that. 5

Even so, the Director asserts, the IFFC decision cannot be the same as the “initial

determination” because that would require the Commonwealth to repay the federal government’s

share of the overpayment before the Commonwealth collects it from the provider. Cf. 42 C.F.R.

§ 433.302 et seq. Such an interpretation, he argues, would be inconsistent “with federal law.”

We disagree. Under federal law, the “agency must refund the Federal share of overpayments at

the end of the 60-day period following discovery in accordance with the requirements of this

5
The agency actions in this case preceded the 2000 amendment to Code § 32.1-325.1.
Before the amendment, subsection (B) stated: “An appeal of the Director’s initial determination
concerning provider reimbursement shall be heard in accordance with the Administrative Process
Act (§ 9-6.14:1 et seq.) and the state plan for medical assistance provided for in § 32.1-325.”
Prior to the recodification of VAPA in 2001, Code “§ 9-6.14:1 et seq.” was a citation to the
entire VAPA, which would include both the IFFC and formal hearing procedures. The 2000
amendments, however, clarified the point by providing: “An appeal of the Director’s initial
determination concerning provider reimbursement shall be heard in accordance with § 9-6.14:12
of the Administrative Process Act (§ 9-6.14:1 et seq.) . . . .” Code § 9-6.14:12, now Code
§ 2.2-4020, referred only to the VAPA’s formal hearing process, which necessarily follows the
IFFC “initial determination.” The Director argues we should not apply this amendment
retroactively. Our decision, however, does not apply the amendment at all. We rely entirely on
the text of the statute as it existed prior to the 2000 amendment.

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subpart, whether or not the State has recovered the overpayment from the provider.” 42 C.F.R.

§ 433.312(a)(2) (emphasis added). It also provides a mechanism for “reclaiming” the federal

share if the overpayment is “adjusted downward” under approved procedures. 42 C.F.R.

§ 433.320(c). The interpretation we adopt, therefore, closely parallels federal law.6

The Director also argues that our interpretation conflicts with Liberty Nursing Home, Inc.

which, he contends, treated the NPRs in that case as initial determinations within the meaning of

Code §§ 32.1-325.1(A) and 32.1-325.1:1(B). See Liberty Nursing Home, Inc., 31 Va. App. at

289, 522 S.E.2d at 894. Indeed it did. But the parties did not raise the issue on appeal; nor did

we discuss it. And at no point were we asked to interpret the phrase “initial determination”

under Code §§ 32.1-325.1 or 32.1-325.1:1. As a result, we did not hold that an NPR constituted

an “initial determination.” We simply assumed it did because that was the way it was presented

to us. Under Virginia law, the doctrine of stare decisis does not “foreclose inquiry” into an issue

not previously “raised, discussed, or decided.” Chesapeake Hosp. Auth. v. Commonwealth, 262

Va. 551, 560, 554 S.E.2d 55, 59 (2001). As a result, Liberty Nursing Home, Inc. does not relieve

us of our present responsibility to decide the issue.

C.

Finally, the Director contends that even if the IFFC decision constitutes the “initial

determination,” the trial court nonetheless erred by not equitably tolling the limitations period.

6
In addition, the Director claims that requiring the Commonwealth to “repay the federal
share long before it can be collected from providers” creates an “illogical” absurdity that the
General Assembly could not have possibly intended. In terms of gauging what is absurd or not
absurd, at least on this issue, we need go no further than the 2000 amendment to Code
§ 32.1-325.1(B), which delayed recovery even further by mandating: “Prior to a final agency
case decision issued in accordance with § 2.2-4023 [issued after the formal agency appeal], the
Director may not undertake recovery of any overpayment amount paid to the provider through
offset or other means.” Code § 32.1-325.1(B). Our pre-2000 interpretation, therefore, cannot be
characterized as a legislative absurdity unless one is prepared to say the 2000 amendment should
be dismissed as an even greater absurdity  a conclusion we are unwilling to reach.

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Because Thornton Hall requested that the IFFCs be continued, the Director argues, the trial court

should have found that Thornton Hall was equitably estopped from claiming protection under the

limitations period of Code § 32.1-325.1:1(B).

To begin with, no Virginia case addresses whether equitable estoppel applies in this

statutory context. As a general rule, “[s]tatutes of limitations are strictly enforced and exceptions

thereto are narrowly construed. Consequently, a statute should be applied unless the General

Assembly clearly creates an exception, and any doubt must be resolved in favor of the

enforcement of the statute.” Arrington v. Peoples Sec. Life Ins., 250 Va. 52, 55, 458 S.E.2d 289,

290-91 (1995); see also Rivera v. Witt, 257 Va. 280, 283, 512 S.E.2d 558, 559 (1999).7 In this

case, however, we need not address whether equitable estoppel can ever toll the four-year

limitations period of Code § 32.1-325.1:1(B) because, as a practical matter, the Director’s proffer

did not make out a prima facie case of equitable estoppel.

“To prove estoppel, a claimant must show by ‘clear, precise and unequivocal evidence’

that he relied to his detriment upon an act or statement” of the other party to refrain from taking

action “within the statutory period.” Jenkins v. Ford Motor Co., 27 Va. App. 281, 288, 498

S.E.2d 445, 449 (1998) (quoting Rose v. Red’s Hitch & Trailer Servs., Inc., 11 Va. App. 55,

59-60, 396 S.E.2d 392, 395 (1990)). These requirements take into account the admonition that

any “invocation of equity to relieve the strict application of a statute of limitations must be

guarded and infrequent, lest circumstances of individualized hardship supplant the rules of

clearly drafted statutes.” Chao v. Va. DOT, 291 F.3d 276, 283 (4th Cir. 2002) (quoting Harris v.

Hutchinson, 209 F.3d 325, 330 (4th Cir. 2000)) (internal quotation marks omitted).

7
Cf. Safeway Stores v. Milk Comm’n, 197 Va. 69, 77, 87 S.E.2d 769, 774 (1955)
(observing that a body created by the legislature is “wholly limited in its power and authority by
the law of its creation” and thus is not “vested with discretion to ignore or transgress statutory
limitations, even to accomplish what it may deem to be desirable ends, nor does the acquiescence
in, or the failure to object, on the part of others lend validity to any such departure”).

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 The Director missed the deadlines not because of any IFFC continuances requested by

Thornton Hall, but because of the Director’s mistaken view that the statutory deadline was

merely directory rather than mandatory — the very position he unsuccessfully advocated in

Liberty Nursing Home, Inc., 31 Va. App. at 288, 522 S.E.2d at 893. The Director cannot now

claim he relied to his detriment on some act or statement by Thornton Hall in missing the

deadlines and that, but for his reliance, he would have avoided the consequences of missing the

deadlines. By his own admission, he did not believe there were any consequences. We find no

error, therefore, in the trial court’s refusal to toll the statute of limitations on equitable estoppel

grounds.8

III.

Under Code §§ 32.1-325.1(A) and 32.1-325.1:1(B), the “initial determination” must be

made in accordance with the IFFC procedures of Code § 2.2-4019 of the Virginia Administrative

Process Act. The trial court, therefore, correctly found that DMAS failed to make its initial

determinations within the four-year limitation period set forth in Code § 32.1-325.1:1(B). We

further find that the trial court did not err by refusing to equitably toll the limitations period in

this case. For these two reasons, we affirm.

Affirmed.

8
On this issue, DMAS’s appeal brief states the “question presented” as whether the trial
court “erred in failing to apply the long-standing doctrine of equitable tolling/estoppel in this
case.” DMAS does not address whether, independently of any equitable estoppel and tolling
concerns, Thornton Hall nevertheless waived any statutory right to an IFFC initial determination
within the four-year limitation period. While Code § 2.2-4019(A) permits the provider and the
agency to waive the IFFC, waiver generally “will be implied only upon clear and unmistakable
proof of the intention to waive such right for the essence of waiver is voluntary choice.” King v.
Commonwealth, 264 Va. 576, 581, 570 S.E.2d 863, 865 (2002) (citation omitted). We need not
address that issue here, however, because DMAS limited its argument on appeal solely to
equitable estoppel and tolling principles.

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