Countrywood Nursing v. SCDHHS

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Countrywood Nursing, LLC, Appellant,

v.

South Carolina Department of Health and Human
Services, Respondent.

Appellate Case No. 2015-001986

Appeal From the Administrative Law Court
Deborah Brooks Durden, Administrative Law Judge

Unpublished Opinion No. 2017-UP-345
Heard February 8, 2017 – Filed August 9, 2017

AFFIRMED

Daniel J. Westbrook and Alice Vincenza Harris, both of
Nelson Mullins Riley & Scarborough, LLP, of Columbia,
for Appellant.

W. Allen Nickles, III, of Nickles Law Firm, of Columbia,
for Respondent.

PER CURIAM: Countrywood Nursing, LLC, (Countrywood) appeals the
Administrative Law Court's (ALC's) determination the Department of Health and
Human Service (DHHS) is allowed to recoup overpayment of Medicaid funds from
it based on audits of three cost report periods. Countrywood asserts it is a third-
party beneficiary to DHHS's contract (the Contract) with the South Carolina State
Auditor's Office (SAO) and it has standing to assert rights under the Contract under
the public importance exception. Countrywood also asserts DHHS cannot recoup
the funds from Countrywood because the SAO failed to issue timely audit reports
in violation of both the Contract and the contract between DHHS and
Countrywood (Facility Contract). We affirm.

1. We disagree with Countrywood's assertion it is a third-party beneficiary to the
Contract. See Wogan v. Kunze, 366 S.C. 583, 604, 623 S.E.2d 107, 118 (Ct. App.
2005) ("Generally, a third person not in privity of contract with the contracting
parties has no right to enforce a contract." (quoting Goode v. St. Stephens United
Methodist Church, 329 S.C. 433, 445, 494 S.E.2d 827, 833 (Ct. App. 1997))); id.
("However, when the contract is made for the benefit of the third person, that
person may enforce the contract if the contracting parties intended to create a
direct, rather than an incidental or consequential, benefit to such third person.").
As the ALC held, "[T]he purpose of the SAO Contract is to formalize the
relationship between the two state agencies." The objective of the Contract was
"the general administration and protection of the integrity of the Medicaid
Program" and not, as Countrywood argues, to benefit nursing home facilities.
Countrywood was the subject of the audits, not the intended beneficiary of the
Contract. We therefore affirm the ALC and the hearing officer's determinations
Countrywood was not a third-party beneficiary to the Contract.

2. We find no merit to Countrywood's argument it has standing to allege a breach
of the Contract pursuant to the public importance doctrine. See Sloan v. Greenville
Cty., 356 S.C. 531, 547, 590 S.E.2d 338, 347 (Ct. App. 2003) ("A plaintiff must
have standing to institute an action."); id. ("To have standing, one must have a
personal stake in the subject matter of the lawsuit." (quoting Sea Pines Ass'n for
the Prot. of Wildlife, Inc. v. S.C. Dep't of Nat. Res., 345 S.C. 594, 600, 550 S.E.2d
287, 291 (2001))); ATC S., Inc. v. Charleston Cty., 380 S.C. 191, 198, 669 S.E.2d
337, 341 (2008) (recognizing the "public importance" exception to the general
standing requirements); id. at 199, 669 S.E.2d at 341 ("The key to the public
importance analysis is whether a resolution is needed for future guidance. It is this
concept of 'future guidance' that gives meaning to an issue which transcends a
purely private matter and rises to the level of public importance.") Countrywood
asserts DHHS and the SAO violated the Contract by ignoring the restriction that,
except for fraud investigations, only two cost report periods may be audited. It
asserts, "This practice has a significant impact not only on Countrywood, but on
other providers, patients, and the entire Medicaid program." It would be illogical
to find the public importance exception allows interference with two governmental
entities' interpretation of the Contract to which they are the only parties, especially
when the interfering party is seeking to avoid reimbursement of overpayments of
public Medicaid funds.
3. We disagree with Countrywood's argument the audits were not performed
timely according to the limitations period set forth in the Facility Contract. 1 See
Ecclesiastes Prod. Ministries v. Outparcel Assocs., LLC, 374 S.C. 483, 497, 649
S.E.2d 494, 501 (Ct. App. 2007) ("In construing a contract, the primary objective
is to ascertain and give effect to the intention of the parties." (quoting Southern Atl.
Fin. Servs., Inc. v. Middleton, 349 S.C. 77, 80, 562 S.E.2d 482, 484 (Ct. App.
2002))); id. at 499, 649 S.E.2d at 502 ("[A]n ambiguous contract is one capable of
being understood in more senses than one, an agreement obscure in meaning,
through indefiniteness of expression, or having a double meaning." (quoting
Carolina Ceramics, Inc. v. Carolina Pipeline Co., 251 S.C. 151, 155-56, 161
S.E.2d 179, 181 (1968))); id. at 500, 649 S.E.2d at 503 (stating evidence may be
admitted to show the intent of parties when a contract is ambiguous); id. (stating
the determination of intent is a question of fact); S.C. Code Ann. § 1-23-380(5)(e)
(Supp. 2016) (providing a reviewing court will uphold the agency's decision unless
it is "clearly erroneous in view of the reliable, probative, and substantial evidence
on the whole record"); McEachern v. S.C. Emp't Sec. Comm'n, 370 S.C. 553, 557,
635 S.E.2d 644, 647 (Ct. App. 2006) ("Substantial evidence is evidence which,
considering the record as a whole, would allow reasonable minds to reach the
conclusion that the administrative agency reached." (quoting Merck v. S.C. Emp't
Sec. Comm'n, 290 S.C. 459, 461, 351 S.E.2d 338, 339 (1986))). The Facility
Contract provides: "Any disallowance made pursuant to an on-site audit shall be
made in the final audit report, which shall be issued within three (3) years of the
close of the contract period . . . ." Although the Facility Contract states "the
contract period will be the rate period as defined by the South Carolina State Plan,"
the State Plan does not specifically define rate period. Jeff Saxon, Program
Manager for DHHS, explained normally providers filed cost reports for October
through September year end, which set the rate for the following October 1
payment period. However, different procedures apply based upon six months of
operation when, as here, there is a change of ownership of a facility. Under these
circumstances, the six months cost reports set the rate for extended periods of time,

1
As we have found Countrywood does not have standing to enforce the terms of
the Contract, we do not address Countrywood's argument the SAO failed to
perform the audits within the time limit set forth in the Contract.
including up to two years. Although an employee of DHHS and the SAO audit
referred to November 29, 2007 to May 31, 2008; June 1, 2008 to September 30,
2008; and October 1, 2008 to September 30, 2009 as separate rate periods, Saxon
ascribed a different definition to the term rate period. He explained only one cost
report, the initial cost report period, was used to set the rate for these times. He
stated Countrywood's initial cost report set the rate from November 29, 2007
through September 30, 2009. The rate calculated from the initial cost report
remained the same while the changes in the reimbursement amount came from
changes in inflation and the new updated standards. DHHS did not receive that
report until February 17, 2009. Under Countrywood's argument, the time limits for
the audit would begin to run almost a year before DHHS even received the report.
The issue on appeal is whether the SAO concluded the audits of the cost reports
within the time limits set by the Facility Contract. While several reimbursement
amount changes occurred during the time of the initial cost report period due to
other factors, the time for the SAO audit of the cost report should not begin to run
until the conclusion of the rate period set by that cost report. This interpretation, as
proposed by DHHS, was adopted by the Hearing Officer and ALC and was
supported by substantial evidence. Accordingly, we affirm the ALC's decision
DHHS is not barred from recouping the Medicaid payments.

AFFIRMED.

LOCKEMY, C.J., and HUFF and THOMAS, JJ., concur.