Administrative – Court lacked jurisdiction over disputed Medicaid funds

Where Virginia requires a dispute over Medicaid funds to be first resolved by a state administrative agency, the court dismissed a lawsuit brought by a behavioral health services provider against a health plan. The agency had not yet issued its final agency decision when this lawsuit was filed.

Background

New Hope Wellness LLC, a credentialed behavioral health services provider, entered a provider agreement with Sentara Health Plans, to join Sentara’s network. In 2022, Sentara audited New Hope’s healthcare claims and found documentation deficiencies in breach of the provider agreement. Sentara notified New Hope of its intent to retract $433,381.96 in Medicaid funds overpaid to New Hope. New Hope internally appealed Sentara’s decision, but the carrier upheld its demand for repayment.

On April 1, 2024, representatives for New Hope and Sentara entered into a corrective action plan, or CAP, related to Sentara’s audit findings. The CAP required New Hope to implement corrective measures moving forward to come into compliance with federal and state guidelines and remain within Sentara’s network. Notably, though, the CAP was silent on the issue of Sentara’s retraction demand.

On April 19, 2024, New Hope appealed Sentara’s internal decision to Department of Medical Assistance Services, or DMAS, “out of an abundance of caution,” due to its position that the CAP had effectively settled and resolved the audit, “cur[ing] any alleged breach of the Provider Agreement by New Hope.” On May 3, 2024, New Hope requested that Sentara “formally rescind any demand for remittance, repayment, or retraction” of the disputed funds. Sentara did not do so.

New Hope then filed a complaint for breach of contract against Sentara in the circuit court, arguing that Sentara’s retraction demand constituted a breach of the provider agreement. The circuit court granted Sentara’s motion to dismiss, finding that it lacked subject matter jurisdiction to hear New Hope’s judicial appeal and that New Hope had failed to appropriately exhaust its available administrative remedies.

Framework

As a state receiving Medicaid funds, Virginia is required by federal law to create and maintain an agency that issues regulations governing the Commonwealth’s medical assistance program. DMAS is the state agency responsible for administering Virginia’s Medicaid program.

This court has long acknowledged that DMAS has the “experience and competence necessary to determine the reimbursement due qualified providers for their reasonable costs incurred while delivering health care services.” To that end, the General Assembly vested the Director with the power to audit Medicaid providers and collect overpaid Medicaid funds. If providers dispute DMAS’s determinations, they can seek an informal fact finding proceeding under the Virginia Administrative Process Act. If still unresolved, the dispute is then eligible for a formal administrative hearing under Code § 2.2-4020.

Only after DMAS makes a final agency decision does an aggrieved party have the right to judicial review under Code § 2.2-4026. This is because Virginia has long acknowledged that litigants must exhaust their prescribed administrative remedies before they are “entitled to judicial relief.”

Analysis

New Hope argues that because contract disputes fall within the statutorily granted expertise of the courts, DMAS lacks expertise to interpret the CAP, an alleged settlement contract. Essentially, on appeal, New Hope asks this court to adopt its view that the case is merely a contract dispute. The court rejects New Hope’s characterization.

At bottom, the dispute between New Hope and Sentara is one concerning Medicaid funds and the repayment thereof. The General Assembly has enacted a comprehensive statutory scheme contemplating administrative and judicial review of determinations that affect those Medicaid funds. Despite New Hope’s assertions otherwise, there is nothing about the contractual form of the CAP which, in itself, puts it beyond DMAS’s purview. Creative arguments do not change the fact that New Hope must respect the rules of engagement in Virginia’s Medicaid program.

New Hope is not precluded from judicial review altogether. Rather, judicial review must come at the conclusion of the administrative process, a rule known to New Hope when it filed its administrative appeal. But because DMAS had not issued its final agency decision when New Hope appealed this matter to the circuit court, and New Hope still maintained the ability to appeal the final agency decision, the circuit court was correct in holding that it lacked subject matter jurisdiction.

Affirmed.

New Hope Wellness, Inc. v. Sentara Health Plans, Case No. 0792-25-2, May 26, 2026. CAV (Ortiz). From the Circuit Court of the City of Richmond (Cardwell). Cullen D. Seltzer (Nathan C. Mortier; William P. “Scott” Daisley III; Sands Anderson PC, on briefs), for appellant. Belinda D. Jones (Christian & Barton, LLP, on brief), for appellee. VLW 026-7-215. 9 pp.

Full-Text Opinion
VLW 026-7-215