OMNI Behavioral Health v. State , 308 Neb. 692 ( 2021 )

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www.nebraska.gov/apps-courts-epub/
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
OMNI Behavioral Health, a Nebraska nonprofit
corporation, appellant, v. State of Nebraska ex rel.
Doug Peterson, Attorney General, and the
Nebraska Department of Health and
Human Services, appellees.
___ N.W.2d ___
Filed March 19, 2021. No. S-19-1218.
1. Administrative Law: Judgments: Appeal and Error. A judgment or
final order rendered by a district court in a judicial review pursuant to
the Administrative Procedure Act may be reversed, vacated, or modified
by an appellate court for errors appearing on the record.
2. ____: ____: ____. When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the record, the
inquiry is whether the decision conforms to the law, is supported by com-
petent evidence, and is neither arbitrary, capricious, nor unreasonable.
3. Judgments: Appeal and Error. An appellate court, in reviewing a dis-
trict court’s judgment for errors appearing on the record, will not substi-
tute its factual findings for those of the district court where competent
evidence supports those findings.
4. Administrative Law: Presumptions: Proof. When challenging the
decision of an administrative agency, the presumption under Nebraska
law is that the agency’s decision was correct, with the burden of proof
upon the party challenging the agency’s actions.
Appeal from the District Court for Lancaster County:
Andrew R. Jacobsen, Judge. Affirmed.
Abbie J. Widger and Morgan C.H. Kristensen, of Johnson,
Flodman, Guenzel & Widger, for appellant.
Douglas J. Peterson, Attorney General, and Ryan C. Gilbride
for appellees.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
and Papik, JJ.
Papik, J.
After the Nebraska Department of Health and Human
Services (DHHS) issued a notice to OMNI Behavioral Health
(OMNI) that DHHS had overpaid OMNI under a contract,
OMNI requested an administrative hearing. DHHS held an
administrative hearing and concluded that the overpayment
determination was proper. OMNI then sought review in the
district court, and the district court affirmed. OMNI now
appeals the district court decision. Finding no merit to the
errors assigned by OMNI, we affirm the order of the dis-
trict court.
BACKGROUND
OMNI’s Contract With DHHS.
In 2007, the U.S. Department of Justice began an investiga-
tion into the conditions of care and treatment of residents at
the Beatrice State Developmental Center (BSDC), a residential
institution operated by the State of Nebraska for individuals
with developmental disabilities. After the completion of the
investigation, Department of Justice officials informed State
officials that they believed the conditions at BSDC violated
the constitutional rights of BSDC residents. The State and the
United States of America thereafter entered into a settlement
agreement. In the settlement agreement, the State agreed to,
among other things, transition residents of BSDC to integrated
community settings, create transition plans for BSDC residents,
monitor community-based placements to ensure consistency
with transition plans, and expand the capacity of providers
serving those with developmental disabilities.
The State later contracted with OMNI to assist it in comply-
ing with its obligations under the settlement agreement. The
first contract took effect in July 2010. Several additional con-
tracts followed. The contract at issue in this case was signed
in April 2015 and was effective from July 2015 to June 2017.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
Under the contract at issue here, OMNI agreed to operate a
group home for individuals with developmental disabilities and
to provide various other services related to serving individ­uals
with developmental disabilities. In one section of the con-
tract, OMNI agreed to provide “Mobile Intervention Treatment
Services,” whereby OMNI would meet with developmentally
disabled individuals, their parents or guardians, and other pro-
fessionals serving that person; evaluate the individual’s disabil-
ities, treatment, habilitation and staffing requirements; develop
and implement a “habilitation/treatment program”; and conduct
“adherence and fidelity checks” regarding the implementa-
tion of recommended changes to the individual’s program.
The parties refer to these services as “ITMS,” an acronym for
“Intensive Treatment Mobile Services.” Another section of the
contract provided that “[i]n addition to direct ITMS services,
[OMNI] will collaborate with DHHS to provide expanded
fidelity and adherence processes for potential follow-up train-
ing to individuals for whom DHHS has independently con-
tracted with for ITMS related services . . . .”
DHHS agreed to pay OMNI for its “actual approved costs” in
performing the contract. In submitting its costs, OMNI agreed
to comply with monthly budgets attached to the contract as an
exhibit. One of the budgets pertained to ITMS and included
various categories of expenses. Relevant to this appeal, the
budget allowed OMNI to bill up to $25,000 per month for
“Contract Labor,” up to $5,000 per month for “Staff Specific
Training Implementation,” and up to $24,666.67 for “Fidelity
and Adherence.” The budget also included a ­22-percent charge
on all expenses labeled “22% Admin Costs.” The total amount
budgeted for the 2-year contract term was $7,047,252.70.
OMNI agreed in the contract that all of its records relat-
ing to work performed or moneys received under the contract
were subject to audit by DHHS and that it would maintain
all such records for 5 years from the date of final payment.
OMNI also agreed that it would be liable for audit exceptions
and would return to DHHS “all payments made under this
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
contract for which an exception has been taken or which has
been disallowed because of such an exception, upon demand
from DHHS.”
Notice of Overpayment and
Administrative Hearing.
In June 2018, DHHS issued a “Notice of Overpayment” to
OMNI. In the notice, DHHS informed OMNI that it had deter-
mined OMNI was overpaid under the contract by $34,876.44.
The notice informed OMNI that if it disagreed with DHHS’
findings, it could request a hearing. OMNI requested and
received an administrative hearing before a DHHS hearing
officer.
DHHS called one witness at the hearing, Joseph Dondlinger,
the financial officer for DHHS’ Division of Developmental
Disabilities. In that position, Dondlinger was responsible
for financial oversight of the division’s contracts with pro-
viders, including OMNI. Dondlinger issued the “Notice of
Overpayment” to OMNI. He testified that the review of OMNI’s
performance under the contract was prompted by earlier audits
completed by Nebraska’s Auditor of Public Accounts (State
Auditor). In several reports beginning in 2016, the State Auditor
expressed concern about how OMNI was being paid under the
contract. Among the concerns noted by the State Auditor was
OMNI’s inadequate documentation of costs incurred for the
fidelity and adherence expense category of the budget. The
State Auditor concluded that OMNI was likely double-billing
DHHS by including the salaries of several employees as fidel-
ity and adherence expenses when those same salaries were also
part of the 22-percent administrative expense category.
Dondlinger testified that after the issuance of a State
Auditor’s report in 2017, DHHS decided to do a more exten-
sive audit of OMNI’s billing for May and June 2017. He testi-
fied that DHHS requested that OMNI provide documentation
to demonstrate its actual costs as required by the contract for
each of the line items corresponding to the contract’s budget.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
OMNI provided documentation to DHHS, but according to
Dondlinger, DHHS determined that OMNI had not provided
documentation demonstrating actual costs for several expenses
for which it billed DHHS in May and June 2017.
Dondlinger identified three categories of expenses for which
DHHS found inadequate documentation of actual costs. The
first was a travel expense. OMNI did not and does not dispute
that it lacked documentation for this expense.
The second category involved OMNI’s charges for fidelity
and adherence. OMNI billed DHHS the maximum allowed
$24,666.67 for fidelity and adherence in both May and June
2017. DHHS determined that OMNI had not submitted any
documentation demonstrating that it incurred actual costs for
fidelity and adherence activities in those months.
Dondlinger testified that even though none of the over
$49,000 in fidelity and adherence charges OMNI billed in May
and June 2017 were supported by proof of actual costs, DHHS
determined that it would demand that OMNI repay a lower
amount, $29,779.26. Dondlinger explained how DHHS arrived
at this figure. He testified that in reviewing OMNI’s records,
DHHS determined that OMNI had billed DHHS $29,779.26
under the categories “Contract Labor” and “Staff Specific
Training Implementation.” The documentation OMNI submit-
ted to support these charges showed that OMNI had incurred
charges to host training sessions related to the system of care
it was promoting for individuals with developmental disabili-
ties and to provide incentives for staff to attend these train-
ing sessions. Dondlinger testified that because these expenses
appeared to have been incurred to promote fidelity and adher-
ence to the system of care OMNI was implementing under the
contract, DHHS determined that those expenses should have
been categorized as fidelity and adherence expenses. If catego-
rized as fidelity and adherence expenses, OMNI would have
exceeded the monthly budget for that category of expense.
Finally, Dondlinger testified that DHHS determined
that OMNI had not submitted adequate documentation for
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
$5,083.32 billed to DHHS for the salary of John Apala, an
OMNI information technology employee. OMNI billed DHHS
one-quarter of Apala’s total salary to DHHS for May and June
2017. Dondlinger explained that other salary expenses OMNI
billed to DHHS were documented in OMNI’s accounting sys-
tem as expenses under the contract, but that Apala’s salary was
recorded as a general administrative expense, for which OMNI
would have been compensated by the 22-percent administra-
tive expense category. He added that OMNI billed DHHS
for portions of other employee’s salaries, but that for those
“split salaries,” a portion was categorized as an expense under
the contract.
OMNI called two witnesses at the administrative hearing.
The first, a therapist who performed behavioral consultations
under the contract, testified that OMNI provided staff with
incentives to perform fidelity and adherence checks under the
contract. She testified that staff incentives were appropriately
billed under the “Staff Specific Training Implementation” cat-
egory of the contract’s budget.
OMNI also called Dr. William Reay, OMNI’s chief execu-
tive officer. Reay testified about OMNI’s duties under its
contracts with DHHS. He testified that one of OMNI’s duties
was to build a new system of care and to promote fidelity and
adherence to it. He testified regarding OMNI’s efforts to host
various training programs related to that system. He described
several of the trainings as fidelity and adherence processes,
but later testified they were not fidelity and adherence activity
under the contract. Reay testified generally about a document
titled “Fidelity Activity - March, 2016.” Reay testified that
the document listed various fidelity and adherence activities
under the contract and that he, assisted by several other OMNI
employees, performed them.
Reay also testified regarding Apala’s salary. Reay stated
that Apala had an increased workload due to OMNI’s contract
with DHHS.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
Hearing Officer’s Order.
After the hearing, the DHHS hearing officer issued a writ-
ten order. The order discussed provisions within the Code of
Federal Regulations pertaining to the records contractors must
keep to receive “Federal awards.” See, e.g., 45 C.F.R. § 75.403
(2019). The hearing officer then found that DHHS did not err by
finding that OMNI was overpaid in the amount of $34,876.44.
It found that OMNI did not dispute that it was overpaid for a
travel expense. With respect to the alleged overpayment for
fidelity and adherence activities, the hearing officer found that
OMNI submitted evidence that generally demonstrated fidelity
and adherence activities but failed to demonstrate actual costs
to support payment. The hearing officer also found that OMNI
failed to demonstrate that Apala’s salary was directly related to
the contract rather than an administrative cost.
Based on these findings, the hearing officer recommended
that DHHS’ finding of an overpayment be affirmed. The direc-
tor of the Division of Developmental Disabilities of DHHS
adopted the hearing officer’s order as the final order of DHHS.
District Court.
OMNI sought review of DHHS’ order in the district court
by filing a petition for review pursuant to the Administrative
Procedure Act. See Neb. Rev. Stat. § 84-917 (Reissue 2014).
The district court affirmed the DHHS order.
OMNI argued in the district court that the federal regula-
tions mentioned in the hearing officer’s order, later adopted by
DHHS, did not apply to payments to OMNI. The district court
found that DHHS correctly determined that it had overpaid
OMNI even if the federal regulations did not apply.
The district court found that there was no evidence that
OMNI incurred actual costs for fidelity and adherence activi-
ties in May and June 2017. It noted that Reay had testified
generally about OMNI’s efforts to “‘build systemic, statewide
fidelity and adherence to basically a new system of care’” and
had testified about the document discussing OMNI’s fidelity
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
and adherence activities titled “Fidelity Activity - March,
2016,” but the court concluded that neither Reay’s testimony
nor the document demonstrated that OMNI incurred actual
costs for fidelity and adherence activities in May and June
2017. The district court also noted that OMNI had offered
hundreds of pages of receipts, payroll records, and other
expense documents, but after reviewing the documents, the
district court concluded that they also did not show that OMNI
had incurred actual costs for fidelity and adherence activities
in May and June 2017.
In discussing the overpayment for fidelity and adherence
activities, the district court acknowledged that OMNI chal-
lenged Dondlinger’s conclusion that the contract labor and
staff incentive charges should have been categorized as fidel-
ity and adherence expenses under the contract. The district
court found this argument was inconsistent with testimony
by Reay that the conferences for which OMNI incurred the
contract labor costs were related to fidelity and adherence
processes. Ultimately, however, the district court concluded
that it need not determine whether the contract labor and staff
incentive charges should have been characterized as fidel-
ity and adherence charges. The district court explained that
because there was no evidence that OMNI incurred any actual
costs for fidelity and adherence charges for May and June
2017, DHHS had overpaid OMNI by at least the $29,779.26 it
sought to recoup.
The district court also found that DHHS had overpaid OMNI
for Apala’s salary. It found that there was no evidence that
OMNI had actual costs under the contract for Apala’s salary
in May and June 2017. It noted that Reay had testified that
Apala did some work related to the contract, but that Reay
did not testify when Apala performed the tasks or the amount
of time he spent performing them. It also noted that OMNI
reported Apala’s salary as an administrative expense in its
payroll system and did not code any of his time to work under
the contract.
OMNI appeals.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
ASSIGNMENTS OF ERROR
OMNI assigns, restated, three errors on appeal: (1) that the
district court erred in concluding that DHHS could find that
it overpaid OMNI and demand repayment even if the federal
regulations mentioned by the DHHS hearing officer did not
apply, (2) that the district court erred by not requiring DHHS
to prove that it overpaid OMNI, and (3) that the district court
erred by affirming DHHS’ determination that it had over-
paid OMNI.
STANDARD OF REVIEW
[1] A judgment or final order rendered by a district court in
a judicial review pursuant to the Administrative Procedure Act
may be reversed, vacated, or modified by an appellate court for
errors appearing on the record. Tran v. State, 303 Neb. 1, 926
N.W.2d 641 (2019).
[2] When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the
record, the inquiry is whether the decision conforms to the law,
is supported by competent evidence, and is neither arbitrary,
capricious, nor unreasonable. Tran v. State, supra.
[3] An appellate court, in reviewing a district court’s judg-
ment for errors appearing on the record, will not substitute its
factual findings for those of the district court where competent
evidence supports those findings. Id.
ANALYSIS
OMNI argues that the district court erred by affirming
DHHS’ determination that it had overpaid OMNI by $34,876.44
under the contract for the months of May and June 2017. OMNI
argues that DHHS lacked authority to demand repayment and
that the district court erred by failing to require DHHS to
prove that it overpaid OMNI and by affirming DHHS’ over-
payment determination. We begin our analysis by considering
OMNI’s argument that DHHS lacked authority to demand
repayment.
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
District Court Did Not Err by Concluding
That DHHS Could Demand Repayment
Even if Federal Regulations
Were Inapplicable.
The district court concluded that DHHS could determine that
it had overpaid OMNI under the contract and demand repay-
ment even if the federal regulations referenced by the DHHS
hearing officer did not apply. OMNI argues this was erroneous.
Although it devotes most of its argument to explaining why
the federal regulations did not apply, OMNI also asserts that
if the federal regulations did not apply, DHHS had no basis to
determine that it had overpaid OMNI and demand repayment.
We disagree.
The contract provided that OMNI’s books and records relat-
ing to work performed were subject to audit. It also provided
that OMNI would “be liable for audit exceptions, and shall
return to DHHS all payments made under this contract for
which an exception has been taken or which has been dis-
allowed because of such an exception, upon demand from
DHHS.” Even if the federal regulations did not apply, the
contract authorized DHHS to audit OMNI’s performance and
demand repayment for audit exceptions. The district court did
not err by concluding that DHHS could determine it had over-
paid OMNI and demand repayment even if the federal regula-
tions did not apply.
District Court Did Not Incorrectly
Shift Burden of Proof.
OMNI next argues that the district court erred by not plac-
ing the burden on DHHS to prove that it had overpaid OMNI.
Here, OMNI points out that the contract provides that it is to
be governed by Nebraska law. Nebraska law, OMNI contends,
places the burden of proof on the party seeking to recover
overpayments under a contract.
[4] In support of this argument, OMNI cites Hersch
Buildings, Inc. v. Steinbrecher, 198 Neb. 486, 253 N.W.2d 310
(1977), a case in which a party filed a counterclaim against
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
a contractor alleging it had overpaid the contractor. In that
case, we did note that generally a party suing to recover an
alleged overpayment on a contract has the burden of proving
the overpayment and that the overpayment was involuntary.
But in this case, DHHS did not file a lawsuit against OMNI
alleging overpayment. Instead, DHHS determined that it had
overpaid OMNI and made a demand for repayment under the
contract. OMNI responded by first requesting an administra-
tive hearing and then filing a petition for review under the
Administrative Procedure Act. When challenging the deci-
sion of an administrative agency, in the manner OMNI did
here, the presumption under Nebraska law is that the agency’s
decision was correct, with the burden of proof upon the party
challenging the ­agency’s actions. Tran v. State, 303 Neb. 1,
926 N.W.2d 641 (2019). The district court was not required to
place the burden of proof upon DHHS to prove that it over-
paid OMNI.
District Court Did Not Err by Finding
DHHS Overpaid OMNI.
Finally, OMNI argues that the district court’s factual find-
ings were not supported by competent evidence. OMNI argues
the district court erred by finding that OMNI failed to dem-
onstrate that it had actual costs under the contract in May and
June 2017 in the amounts it billed DHHS. Again, we find no
error on the part of the district court.
OMNI challenges the district court’s finding of overpay-
ments for both the fidelity and adherence charges and the
charges related to a portion of Apala’s salary. With respect
to the fidelity and adherence charges, OMNI focuses almost
entirely on its contention that it submitted documentation dem-
onstrating charges related to hosting training programs and
providing staff incentives and that these costs were appropri-
ately billed as “Contract Labor” and “Staff Specific Training
Implementation.” In devoting near-exclusive focus to this
argument, however, OMNI barely addresses the fact that
DHHS relied on OMNI’s categorization of expenses related
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Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
OMNI BEHAVIORAL HEALTH v. STATE
Cite as 308 Neb. 692
to training programs and staff incentives as one alternative
basis for claiming a right to repayment for amounts it had paid
OMNI for fidelity and adherence.
As the district court observed, DHHS also took exception
to the entirety of the amount OMNI billed in the fidelity and
adherence category, contending that there was no showing of
actual costs for fidelity and adherence activities in May and
June 2017. The district court agreed with this determination of
DHHS, finding that there was no evidence of OMNI’s actual
costs for fidelity and adherence activities. Competent evidence
supported this finding. Dondlinger testified regarding OMNI’s
failure to provide evidence that it had incurred actual costs for
fidelity and adherence activities. In addition, having reviewed
the record, we agree with the district court that OMNI may
have provided general evidence regarding its efforts to comply
with the fidelity and adherence obligations under the contract,
but it did not introduce evidence demonstrating whether and
to what extent it incurred actual costs in doing so in May and
June 2017.
We also find that the district court’s determination regard-
ing Apala’s salary was supported by competent evidence. Reay
testified generally about work Apala performed related to the
contract, but did not testify about when he performed those
tasks or the amount of time he spent performing them. Further,
OMNI’s records treated Apala’s salary as an administrative
expense, unlike the salaries of other employees for which
OMNI billed DHHS under the contract.
CONCLUSION
Because we find no merit to the errors assigned by OMNI,
we affirm the order of the district court.
Affirmed.
Freudenberg, J., not participating.