Background
New Hope Wellness, a behavioral health provider, entered a Provider Agreement with Sentara Health Plans. In 2022, Sentara audited New Hope’s claims and identified documentation deficiencies, demanding repayment of $433,381.96 in allegedly overpaid Medicaid funds. New Hope requested reconsideration and appealed internally, but Sentara upheld the retraction demand.
On April 1, 2024, the parties entered a Corrective Action Plan (CAP) requiring New Hope to implement compliance measures and training. New Hope characterized the CAP as a settlement, contending it cured any breach of the Provider Agreement. Two weeks later, New Hope formally appealed Sentara’s decision to the Department of Medical Assistance Services (DMAS) under Virginia’s administrative process statutes.
Despite the pending DMAS appeal, New Hope filed a breach of contract suit in circuit court on August 28, 2024, arguing that Sentara’s retraction demand violated the Provider Agreement. Sentara moved to dismiss for lack of subject matter jurisdiction, or alternatively, for a stay pending the DMAS appeal’s conclusion. The circuit court granted the motion, finding it lacked jurisdiction because New Hope had failed to exhaust administrative remedies. New Hope appealed.
The Court’s Holding
The Court of Appeals affirmed the dismissal, holding that medical providers disputing Medicaid reimbursements must exhaust administrative remedies before the DMAS before bringing contract disputes to court. The court emphasized that Virginia’s legislature created a comprehensive statutory scheme requiring informal and formal administrative proceedings through DMAS, followed by judicial review only after a final agency decision.
The court rejected New Hope’s argument that because contract interpretation falls within courts’ expertise, the CAP—characterized as a settlement contract—belonged in circuit court rather than before DMAS. The court held that the substance of the dispute concerned Medicaid fund repayment, not merely contract interpretation. The CAP was integral to the underlying audit dispute over Medicaid funds, placing it squarely within DMAS’s statutory jurisdiction, regardless of the contractual form in which the dispute arose.
The court clarified that New Hope is not permanently barred from judicial review—only that such review must occur after DMAS issues its final agency decision. Because DMAS had not yet issued its final decision when New Hope filed the circuit court action, the circuit court properly dismissed for lack of subject matter jurisdiction. The court noted that neither party consent nor creative legal arguments can override the legislature’s allocation of jurisdiction.
Key Takeaways
- Medicaid providers must strictly follow Virginia’s administrative exhaustion requirements before filing contract disputes in court, even if the dispute involves contract interpretation.
- Disputes over Medicaid reimbursement fall within the DMAS’s exclusive jurisdiction during the administrative phase, regardless of whether the dispute is framed as a contract matter.
- Corrective Action Plans in audit disputes are treated as part of the administrative process, subject to DMAS jurisdiction, not regular contract law principles.
- Judicial review of Medicaid disputes is available only after the provider completes both informal and formal administrative proceedings and receives a final DMAS decision.
Why It Matters
This decision establishes a mandatory procedural prerequisite for all Medicaid provider disputes in Virginia. Providers cannot circumvent the administrative process by recharacterizing Medicaid fund disputes as simple contract matters within the courts’ traditional expertise. The ruling reinforces DMAS’s broad statutory authority and expertise in managing Medicaid funds and provider accountability, reflecting the legislature’s intent to centralize Medicaid dispute resolution in the administrative arena.
For healthcare providers and insurers, the decision clarifies that any dispute touching on Medicaid reimbursement—even one cast as a breach of contract—must first proceed through DMAS’s administrative channels. Premature court filings risk dismissal and waste of litigation resources. The ruling also confirms that documents like Corrective Action Plans cannot unilaterally bypass the administrative process, as their substance determines their jurisdictional placement, not their form or the parties’ characterization.