Sunflower v. Ahcccs

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

SUNFLOWER ADULT DAY CARE CORPORATION, Plaintiff/Appellant,

v.

AHCCCS ADMINISTRATION, Defendant/Appellee.

No. 1 CA-CV 18-0162
FILED 2-7-2019

Appeal from the Superior Court in Maricopa County
No. LC2017-000186-001
The Honorable Patricia A. Starr, Judge

AFFIRMED

COUNSEL

Hymson Goldstein Pantiliat & Lohr, PLLC, Scottsdale
By Eddie A. Pantiliat, Lori N. Brown
Counsel for Plaintiff/Appellant

Broening Oberg Woods & Wilson, Phoenix
By Jathan P. McLaughlin, John C. Quinn
Counsel for Defendant/Appellee
 SUNFLOWER v. AHCCCS
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MEMORANDUM DECISION

Judge Maria Elena Cruz delivered the decision of the Court, in which
Presiding Judge Lawrence F. Winthrop and Judge Kenton D. Jones joined.

C R U Z, Judge:

¶1 Sunflower Adult Day Care Corporation (“Sunflower”)
appeals the termination of its Provider Participation Agreement (“PPA”)
with the Arizona Health Care Cost Containment System (“AHCCCS”).
For the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 In 2005, Sunflower began operating an adult day care service
for AHCCCS. A few years later, Sunflower began providing non-
emergency transportation for AHCCCS members (“Members”)—for
example, by providing rides to and from Sunflower’s facility, to doctor
appointments, or to Alcoholics Anonymous (“AA”) meetings. Sunflower
provided these services to AHCCCS pursuant to its PPA, the most recent
iteration of which was executed in June of 2014. Until 2015, Sunflower
provided these services for AHCCCS without incident.

¶3 In June of 2015, Sunflower subcontracted with Hannah
General Services, LLC (“Hannah”) to provide the same non-emergency
transportation that Sunflower provided for Members under the PPA.
Sunflower did not notify AHCCCS of this agreement.

¶4 On October 2, 2015, a contractor for Hannah, Quinn
Montoya, was providing non-emergency transport to Members pursuant
to Sunflower’s PPA. Montoya picked up Member J.B. to transport him to
an AA meeting. J.B. got into the van with a gallon-sized bottle of vodka—
he had been drinking before the pick-up, and he continued to drink in the
van. Although Montoya gave J.B. numerous admonitions to stop
consuming alcohol in the van, Montoya allowed J.B. to continue to ride in
the van with the open bottle of vodka. Montoya again picked up J.B.
following the AA meeting, and drove to the Flagstaff mall. Upon arriving
at the mall, J.B. stated he was going to take a nap; shortly thereafter,
Montoya saw that J.B.’s face was turning blue. Montoya began
administering CPR to J.B. and ordered another Member to drive the van to

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the hospital; J.B. died. Sunflower did not notify AHCCCS of the incident,
and AHCCCS did not become aware of J.B.’s death until Flagstaff Police
Department contacted them six days later.

¶5 Around this same time, AHCCCS was conducting an audit
of Sunflower. The audit was precipitated by two events in August of
2015: (1) AHCCCS received an anonymous referral that Sunflower drivers
received prior authorizations for and were reporting more miles than
could reasonably be driven; and (2) AHCCCS’ fee-for-service division
discovered, during its internal audit, evidence of fraudulent activity on
many trip sheets submitted by Sunflower.

¶6 On September 1, 2015—following its discovery of fraudulent
trip sheets—AHCCCS ordered Sunflower to submit copies of its records.
On September 17, Sunflower began requesting reversal of previously-filed
fraudulent claims. Sunflower claims that, until it began compiling the trip
sheets en masse to comply with AHCCCS’ records request, it was
unaware of the fraudulent claims reflected within many of the sheets.
This was “because it received trip sheets by fax from the . . . drivers and
submitted the trip sheets to AHCCCS via scan one at a time.”

¶7 Because of the incident with J.B. and the fraudulent trip
sheets, AHCCCS terminated Sunflower’s PPA on October 20, 2015.
During the appeals process that followed, Sunflower raised its subcontract
with Hannah as a defense; AHCCCS thereafter added to its argument that
Sunflower further violated the PPA by subcontracting its responsibilities
to outside parties without providing notice to AHCCCS.

¶8 Sunflower appealed the termination of its PPA, and after a
hearing, the Administrative Law Judge (the “ALJ”) recommended in June
of 2016 that AHCCCS reverse its decision. Despite the ALJ’s
recommendation, AHCCCS upheld the termination in a July 2016
Director’s Decision. Sunflower appealed to the superior court, and the
court—finding that the Director wrongly assigned the burden of proof to
Sunflower—vacated the Director’s Decision and remanded it for
reconsideration under the correct burden of proof.

¶9 On remand, the Director again affirmed termination of
Sunflower’s PPA, and Sunflower again appealed to the superior court.
This time, however, the court affirmed the Director’s Decision on all
grounds—the subcontract, the health and welfare of its Members, and the
fraudulent trip sheets. Accordingly, the court concluded that substantial

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evidence supported the second Director’s Decision, it “was not contrary to
law, was not arbitrary or capricious, and was not an abuse of discretion.”

¶10 Sunflower timely appealed to this Court. We have
jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution,
and Arizona Revised Statutes (“A.R.S.”) section 12-2101(A)(1).

DISCUSSION

¶11 Sunflower asks us to determine whether the Director erred
in affirming the termination of Sunflower’s PPA. See Gaveck v. Ariz. State
Bd. of Podiatry Exam’rs, 222 Ariz. 433, 436, ¶ 12 (App. 2009) (stating the
Court of Appeals “engage[s] in the same process as the superior court
when we review its ruling affirming an administrative decision”).
Sunflower alleges three separate grounds for error, claiming:

(1) Sunflower did not violate the PPA by failing to disclose
its subcontract with Hannah, because there was no
disclosure requirement;

(2) The singular incident of J.B.’s death was insufficient to
find Sunflower endangered the health or welfare of
AHCCCS Members; and

(3) Sunflower acted within the PPA’s so-called
“overpayment clause” when it discovered and reversed
its claims under the fraudulent trip sheets.

Each of these three claimed violations, considered independently,
represents grounds sufficient to terminate the PPA; we consider each
alleged violation and Sunflower’s responding arguments in turn.

¶12 We review an administrative agency’s decision to determine
whether it was “illegal, arbitrary, capricious or . . . an abuse of discretion.”
Ariz. Cannabis Nurses Ass’n v. Ariz. Dep’t of Health Servs., 242 Ariz. 62, 65,
¶ 8 (App. 2017) (citation and internal quotations omitted). We do not
reweigh the evidence, St. Joseph’s Hosp. v. AHCCCS, 185 Ariz. 309, 312
(App. 1996), but determine only whether substantial evidence supports
the administrative decision, Smith v. Ariz. Long Term Care Sys., 207 Ariz.
217, 220, ¶ 14 (App. 2004). We review de novo questions of law, including
interpretation of contracts, statutes, or regulations. Am. Power Prods., Inc.
v. CSK Auto, Inc., 242 Ariz. 364, 367, ¶ 12 (2017) (contracts); Ballesteros v.
Am. Standard Ins. Co. of Wisc., 226 Ariz. 345, 347, ¶ 7 (2011) (statutes);

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Gutierrez v. Indus. Comm’n of Ariz., 226 Ariz. 395, 396, ¶ 5 (2011)
(regulations).

I. The Hannah Subcontract

¶13 Sunflower contends that its subcontract with Hannah,
executed without the knowledge or consent of AHCCCS, did not provide
AHCCCS grounds to terminate the PPA. The PPA states in paragraph 6
that the “Provider shall comply with all federal, state and local laws, rules,
[and] regulations,” and in paragraph 31 that “AHCCCS has the right to
terminate . . . this Agreement upon twenty-four (24) hours[’] written
notice when . . . the Provider fails to comply with this Agreement or with
Federal and State laws and regulations.” AHCCCS does not claim that the
Hannah subcontract violates a specific provision of the PPA; rather,
AHCCCS’ position is that the subcontract violates Arizona regulations.

¶14 The parties dispute the applicability of Arizona
Administrative Code (“A.A.C.”) § R9-22-714(B)(1), which provides:

[AHCCCS] . . . shall reimburse a provider for a service
furnished to a member only if:

1. The provider personally furnishes the service to a specific
member. For purposes of this Section, services
personally furnished by a provider include:

a. Services provided by medical residents or dental students in
a teaching environment; or

b. Services provided by a licensed or certified assistant under
the general supervision of a licensed practitioner in
accordance with [other A.A.C. provisions].

(Emphasis added.) Specifically at issue is the meaning of “personally
furnishes” and “include,” as italicized above. AHCCCS claims that
Sunflower violated this provision of the A.A.C. when it sought
reimbursement for services that it did not “personally furnish,” but were
instead provided by Hannah, an unregistered and unapproved
subcontractor.

¶15 Sunflower responds that A.A.C. § R9-22-714(B)(1) does not
apply to Sunflower, as a transportation provider. Sunflower argues that
the definition of “personally furnishes” is limited exclusively to those

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services listed in subsections (a) and (b) by the use of the word “include,”
as opposed to “include, but are not limited to.”

¶16 We interpret regulations according to their plain meaning,
Hourani v. Benson Hosp., 211 Ariz. 427, 431, ¶ 7 (App. 2005) (stating we
apply the plain meaning of statutes if it “is clear and unambiguous”);
Kimble v. City of Page, 199 Ariz. 562, 565, ¶ 19 (App. 2001) (“The same
principles of construction that apply to statutes also apply to
administrative rules and regulations.”), and to “yield a fair and sensible
meaning,” Kimble, 199 Ariz. at 565, ¶ 19. The interpretation Sunflower
would have this Court adopt is neither plain nor sensible.

¶17 “[U]nless the context otherwise requires,” we will apply the
definition of “include” as found in A.R.S. § 1-215. In Arizona, “‘[i]ncludes’
or ‘including’ means not limited to and is not a term of exclusion.” A.R.S.
§ 1-215(14). We do not interpret a regulation in a vacuum; rather, we
consider the regulatory scheme as a whole, and will “presume that the
legislature does not include [regulatory] provisions which are redundant,
void, inert, trivial, superfluous, or contradictory.” Cf. Hourani, 211 Ariz. at
431, ¶ 7 (internal quotations omitted) (discussing statutory interpretation).

¶18 Sunflower’s interpretation of A.A.C. § R9-22-714(B)(1)—
limiting AHCCCS to reimbursing only for services provided by students
in teaching environments, or by licensed or certified assistants under
supervision of licensed practitioners—is untenable. The regulation
includes those listed in subsections (a) and (b) to expand the services
beyond those “personally furnished” by the provider—because, as
AHCCCS rightly points out in its brief, those enumerated are unable to
independently receive AHCCCS Provider IDs.

¶19 We therefore hold that A.A.C. § R9-22-714(B)(1) applies to
the services provided by Hannah and billed to AHCCCS by Sunflower.
Sunflower did not “personally furnish” those services to Members,
because Sunflower employees—all of whom it concedes it was required to
disclose to AHCCCS—did not provide the transportation services; rather,
they were provided by Hannah pursuant to a subcontract of which
AHCCCS was unaware. Finally, Sunflower points to no other provision
of the A.A.C. under which those services may have qualified for payment
from AHCCCS, and our research uncovers none.1 Accordingly, the

1 We note that A.R.S. § 36-2904 explicitly provides for payment to
subcontractors of AHCCCS Contractors. However, under neither the

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Director did not err in finding that Sunflower’s reimbursement requests
for services provided by Hannah violated the A.A.C., and therefore
paragraph 6 of the PPA.

II. The Health or Welfare of AHCCCS’ Members2

¶20 Sunflower next argues that the Director erred by upholding
AHCCCS’ termination of the PPA on the ground that Sunflower
endangered the health or welfare of Members. Paragraph 31 of the PPA
provides AHCCCS the authority to terminate the PPA when “AHCCCS
deems the health or welfare of a member is endangered.” This
determination is fact specific—neither party points to any legal standard
for determining when Member health or welfare is endangered, and such
factual determinations are beyond the purview of this Court. We review
only to determine whether substantial evidence supports the Director’s
conclusion. Gaveck, 222 Ariz. at 436, ¶ 11 (“The court must defer to the
agency’s factual findings and affirm them if supported by substantial
evidence. . . . even if the record also supports a different conclusion.”)
(internal citations omitted).

¶21 We also note the singular nature of the object of this
particular PPA clause: “a member.” Sunflower improperly frames the
contractual standard, Am. Power Prods., Inc., 242 Ariz. at 367, ¶ 12
(citations omitted) (stating we review interpretation of contracts de novo);
we therefore disagree with Sunflower that this “one aberrational incident
is not [a] sufficient basis on which to conclude” it endangered the health
or welfare of a Member.

definition of Contractor provided in A.R.S. § 36-2901(3), nor the PPA, is
Sunflower a Contractor; it is a Provider. Sunflower’s status as a non-
Contractor is clear upon review of section A of the PPA, which authorizes
payment for services provided by Sunflower to Members who are and are
not “enrolled with a Contractor.”

2 In its response brief, AHCCCS addresses Sunflower’s previously-
raised alternative argument that the subcontract with Hannah shielded
Sunflower from any liability regarding J.B.’s death. Because Sunflower
does not argue this issue in its brief, it is waived. See ARCAP 13(a)(7);
AMERCO v. Shoen, 184 Ariz. 150, 154 n.4 (App. 1995) (stating failure to
develop argument or present supporting authority on appeal waives
issue).

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¶22 J.B. was a Member. At the time of J.B.’s death, he was
aboard a van which provided transport, purportedly pursuant to
Sunflower’s PPA. Montoya, Hannah’s contract-driver of the van, violated
numerous contract policies that inarguably endangered J.B.’s health or
welfare: permitting J.B. to board the van with and drink from a gallon-
sized container of vodka, driving Members to multiple unapproved
locations other than the AA meeting, failing to immediately call 9-1-1 and
wait for EMT services upon discovering J.B.’s incapacitation, and having
another Member drive the van to a hospital.

¶23 Given the events and circumstances surrounding J.B.’s
death, we cannot say the Director erred in deeming Sunflower
endangered “the health or welfare of a member.” Substantial evidence
supports the Director’s findings. We affirm on this ground.

III. The Fraudulent Trip Sheets

¶24 The final issue is whether the PPA’s overpayment clause
excuses Sunflower’s receipt of overpayment based on the fraudulent trip
sheets, or whether the fraudulent trip sheets provided AHCCCS sufficient
grounds to terminate the PPA. We review de novo issues of contract
interpretation. Am. Power Prods., Inc., 242 Ariz. at 367, ¶ 12 (citations
omitted).

¶25 The overpayment clause of the PPA states:

Pursuant to Section 6402 of the Affordable Care Act of 2010,
if Provider [Sunflower] has received an overpayment,
Provider shall report and return the overpayment to
AHCCCS . . . within 60 days of the date the overpayment
was identified.

As outlined in paragraph 13, supra, the PPA provides AHCCCS the right
to terminate it if Sunflower violates any of its provisions, or any federal or
state law. Stated plainly: If Sunflower violates the overpayment clause,
AHCCCS may terminate the PPA with 24 hours’ notice.

¶26 Sunflower argues that it complied with the terms of the
overpayment clause—in other words, that it reported the overpayment
within 60 days of “discovering” it. But even a generous reading of the
facts of this case do not place Sunflower’s activities beneath the umbrella
of the overpayment clause. After discovering evidence that numerous trip
sheets were fraudulent—specifically, traces of whiting out and refilling
certain blanks, and sheets with identical odometer readings, miles

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travelled, and patient names—AHCCCS’ fee-for-service department
flagged Sunflower’s activities for investigation. As part of its
investigation, AHCCCS ordered Sunflower to resubmit its trip sheets en
masse. Only at this point did Sunflower claim to realize the fraudulent
nature of the trip sheets and attempt to reimburse AHCCCS.

¶27 We can hardly state the issue with Sunflower’s argument
more clearly than the superior court:

While [the overpayment clause] of the PPA provides that a
provider who receives an overpayment shall report and
return the overpayment within 60 days of its identification,
Sunflower did not report the overpayments. Instead,
AHCCCS identified the pattern of false claims through its
own audit. A plain reading of the PPA shows that the
overpayment clause was meant to allow Sunflower to
correct overpayments on its own initiative, not wait for
AHCCCS to find problems and allow a grace period for
repayment.

¶28 To interpret the repayment clause as Sunflower proposes
and reverse on this issue would be tantamount to green-lighting the
commission of fraud upon AHCCCS by service providers in Arizona until
caught. The repayment clause is not intended to benefit the provider who
rectifies fraud only upon its discovery by AHCCCS, or even after
AHCCCS commences an audit; rather, it intends to encourage providers
who independently and proactively discover and report mistakes made in
good faith, by providing them a means to preserve their PPA. We simply
cannot interpret the clause to save providers who address what appear to
be intentional false submissions only after the submissions are discovered
by AHCCCS. To do so would nullify the PPA’s termination clause as it
relates to the overpayment clause. See Aztar Corp. v. U.S. Fire Ins. Co., 223
Ariz. 463, 478, ¶ 56 (App. 2010) (“It is a cardinal rule of contract
interpretation that we do not construe one term of a contract to essentially
render meaningless another term.”).

¶29 Furthermore, as noted above, the PPA provides AHCCCS
the right to terminate the PPA if the Provider violates state law. As the
superior court pointed out, Arizona law forbids a person from presenting,
or causing to be presented, a claim for a service “the person knows or has
reason to know is false or fraudulent.” A.R.S. § 36-2918(A)(2). At the very
least, the record shows that Sunflower had reason to know the trip sheets
were fraudulent and could have easily discovered such fraud. In fact, by

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its own admission, Sunflower readily discovered the fraud upon
compliance with AHCCCS’ records request simply by looking at the trip
sheets side-by-side. We hold there was no abuse of discretion in finding
that Sunflower violated both the repayment clause of the PPA and
Arizona law.

CONCLUSION

¶30 The Director did not err in upholding termination of the
PPA. We affirm.

AMY M. WOOD • Clerk of the Court
FILED: AA

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