BILL REQ. #:  Z-0059.4 

Read first time 01/29/13.   Referred to Committee on Human Services & Corrections.

     AN ACT Relating to empowering the department of social and health services, the department of early learning, and the health care authority to establish and enforce debts against vendors who attempt to avoid their obligation to repay overpayment debts by creating new entities and yet continue to do business with those state agencies; amending RCW 43.20B.010, 43.20B.675, 41.05A.010, and 41.05A.170; adding a new section to chapter 43.20B RCW; adding a new section to chapter 41.05A RCW; and creating a new section.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) The legislature finds that certain vendors who contract with the department of social and health services, the department of early learning, or the health care authority engage in the practice of strategic successorship, with the intent to restrict or eliminate the ability of those agencies to collect overpayments assessed against those vendors. In many instances, vendors who are responsible for overpayments to the agencies dissolve a business and then transfer its assets to one or more successor entities, which subsequently seek to contract with those same agencies and serve the same clients as the prior vendor-entity, but without satisfying the overpayment obligation. The legislature finds that, through this practice, certain vendors obstruct and impair the ability of the agencies to collect legally established overpayments, which constitutes a wrongful avoidance of liability to the state of Washington.
     (2) To address this problem, the legislature intends to provide the department of social and health services, the department of early learning, and the health care authority with the authority to determine that a successor entity is liable for a vendor overpayment, and to enforce the liability against the successor entity. It is intended that, under this new process, the agencies will apply the legal theory of successor liability, as articulated under Cambridge Townhomes, LLC v. Pacific Star Roofing, Inc., 166 Wn.2d 475, 209 P.3d 863 (2009) and Hall v. Armstrong Cork, Inc., 103 Wn.2d 258, 261, 692 P.2d 787 (1984).
     (3) The legislature further intends to provide those agencies named in this section with the authority to assess and enforce a vendor overpayment against a successor entity when an audit or other agency review discovers that the overpayment could have been assessed against the original vendor.

Sec. 2   RCW 43.20B.010 and 1987 c 75 s 42 are each amended to read as follows:
     The definitions in this section apply throughout this chapter:
     (1) "Department" means the department of social and health services.
     (2) "Secretary" means the secretary of the department of social and health services.
     (3) "License" means that exercise of regulatory authority by the secretary to grant permission, authority, or liberty to do or to forbear certain activities. The term includes licenses, permits, certifications, registrations, and other similar terms.
     (4) "Vendor" means an entity that provides goods or services to or for clientele of the department and that controls operational decisions.
     (5) "Overpayment" means any payment or benefit to a recipient or to a vendor in excess of that to which is entitled by law, rule, or contract, including amounts in dispute.
     (6) "Successor" means a person, business, corporation, partnership, or other entity that receives or purchases all or part of the business or property of another person, business, corporation, partnership, or entity where: (a) There is an express or implied agreement for the transferee to assume liability; (b) the transfer is a de facto merger or consolidation; (c) the transferee is a mere continuation of the transferor; or (d) the transfer of assets is for the fraudulent purpose of escaping liability.

NEW SECTION.  Sec. 3   A new section is added to chapter 43.20B RCW to read as follows:
     (1) The department may collect overpayments from a vendor or from a vendor's successor when:
     (a) The department has established a vendor overpayment as a final debt under RCW 43.20B.675;
     (b) The department has established a final vendor overpayment debt on behalf of the department of early learning or the health care authority; or
     (c) The department is requested by the department of early learning to collect an overpayment established under chapter 43.215 RCW and Title 170 WAC.
     (2) Where the department seeks to enforce an established vendor overpayment liability against a successor, the department must serve a notice of successor liability on the successor. The notice of successor liability must: (a) Include a statement of the final debt owed by the vendor; (b) state the specific reasons why the department finds the entity to be a successor liable for the vendor's overpayment; (c) cite to relevant statutory and regulatory provisions regarding establishment of successor liability; (d) notify the entity of its right to request an adjudicative proceeding; and (e) include a statement that the debt may be collected in accordance with RCW 43.20B.675 through 43.20B.695 and this section.
     (3) A notice of successor liability must be served in the manner prescribed for the service of summons in a civil action or may be served by certified mail, return receipt requested.
     (4) An application for an adjudicative proceeding must be filed with the secretary, or the secretary's designee, within twenty-eight calendar days from the date of service of such notice and finding of successor liability. The application must be written and served on the secretary by registered or certified mail, or by personal service.
     (5) If an application for an adjudicative proceeding is timely filed, any collection action against the alleged successor entity is stayed pending the final adjudicative order. The proceeding is governed by the administrative procedure act, chapter 34.05 RCW.
     (6) If no application for an adjudicative proceeding is timely filed, the notice and finding of successor liability becomes final and the successor entity is liable for the amount claimed in the notice. In addition, the department may charge the successor with any costs associated with the collection of any final overpayment or debt established against the successor.
     (7) In consultation with the health care authority, the department may adopt any rules it deems necessary in order to implement this section.

Sec. 4   RCW 43.20B.675 and 1998 c 66 s 2 are each amended to read as follows:
     (1) When the department determines that a vendor was overpaid by the department for either goods or services, or both, provided to department clients, except nursing homes under chapter 74.46 RCW, the department will give written notice to the vendor. The notice will include the amount of the overpayment, the basis for the claim, and the rights of the vendor under this section.
     (2) The notice may be served upon the vendor in the manner prescribed for the service of a summons in civil action or be mailed to the vendor at the last known address by certified mail, return receipt requested, demanding payment within twenty days of the date of receipt.
     (3) The vendor has the right to an adjudicative proceeding governed by the administrative procedure act, chapter 34.05 RCW, and the rules of the department. The vendor's application for an adjudicative proceeding must be in writing, state the basis for contesting the overpayment notice, and include a copy of the department's notice. The application must be served on and received by the department within twenty-eight days of the vendor's receipt of the notice of overpayment. The vendor must serve the department in a manner providing proof of receipt.
     (4) Where an adjudicative proceeding has been requested, the presiding or reviewing office will determine the amount, if any, of the overpayment received by the vendor.
     (5) If the vendor fails to attend or participate in the adjudicative proceeding, upon a showing of valid service, the presiding or reviewing officer may enter an administrative order declaring the amount claimed in the notice to be assessed against the vendor and subject to collection action by the department.
     (6) Failure to make an application for an adjudicative proceeding within twenty-eight days of the date of notice will result in the establishment of a final debt against the vendor in the amount asserted by the department and that amount is subject to collection action. The department may also charge the vendor with any costs associated with the collection of any final overpayment or debt established against the vendor.
     (7) The department may enforce a final overpayment or debt through lien and foreclosure, distraint, seizure and sale, order to withhold and deliver, or other collection action available to the department to satisfy the debt due.
     (8) Debts determined under this chapter are subject to collection action without further necessity of action by a presiding or reviewing officer. The department may collect the debt in accordance with RCW 43.20B.635, 43.20B.640, and 43.20B.680. In addition, a vendor lien may be subject to distraint and seizure and sale in the same manner as prescribed for support liens in RCW 74.20A.130.
     (9) Chapter 66, Laws of 1998 applies to overpayments for goods or services provided on or after July 1, 1998.
     (10) When the department, the health care authority, or the department of early learning discovers through an audit or other review that a vendor overpayment should have been imposed against a vendor that has ceased doing business, the department, the health care authority, or the department of early learning may assess, establish, and enforce the overpayment against another vendor that the department determines is a successor as defined under RCW 43.20B.010.
     (a) Before the vendor overpayment may be assessed, the department must serve a notice of successor liability as described in section 3 of this act.
     (b) If the department establishes that the alleged successor entity is indeed a successor entity, the department, the health care authority, or the department of early learning may seek to establish the overpayment against the successor entity as provided under RCW 43.20B.675.
     (11) In consultation with the department of early learning, the department may adopt any rules ((consistent with)) it deems necessary in order to implement this section.

Sec. 5   RCW 41.05A.010 and 2011 1st sp.s. c 15 s 89 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise:
     (1) "Assistance" means all programs administered by the authority.
     (2) "Authority" means the Washington state health care authority.
     (3) "Director" means the director of the Washington state health care authority.
     (4) "Overpayment" means any payment or benefit to a recipient or to a vendor in excess of that to which is entitled by law, rule, or contract, including amounts in dispute.
     (5) "Vendor" means a person or entity that provides goods or services to or for clientele of the authority and that controls operational decisions.
     (6) "Successor" means a person, business, corporation, partnership, or other entity that receives or purchases all or part of the business or property of another person, business, corporation, partnership, or other entity where: (a) There is an express or implied agreement for the transferee to assume liability; (b) the transfer is a de facto merger or consolidation; (c) the transferee is a mere continuation of the transferor; or (d) the transfer of assets is for the fraudulent purpose of escaping liability.

NEW SECTION.  Sec. 6   A new section is added to chapter 41.05A RCW to read as follows:
     (1) When the authority has established a vendor overpayment as a final debt under RCW 41.05A.010 or establishes a final vendor overpayment debt on behalf of another agency, the authority may collect that debt from the vendor or from a successor.
     (2) Where the authority seeks to enforce an established vendor overpayment liability against a successor, the authority must serve a notice of successor liability on the successor. The notice of successor liability must: (a) Include a statement of the final debt owed by the vendor; (b) state the specific reasons why the authority finds the entity to be a successor liable for the vendor's overpayment; (c) cite to relevant statutory and regulatory provisions regarding establishment of successor liability; (d) notify the entity of its right to request an adjudicative proceeding; and (e) include a statement that the debt may be collected in accordance with RCW 41.05A.170 through 41.05A.220 and this section.
     (3) A notice of successor liability must be served in the manner prescribed for the service of summons in a civil action or may be served by certified mail, return receipt requested.
     (4) An application for an adjudicative proceeding must be filed with the director, or the director's designee, within twenty-eight calendar days from the date of service of such notice and finding of successor liability. The application must be written and served on the director by registered or certified mail, or by personal service.
     (5) If an application for an adjudicative proceeding is timely filed, any collection action against the alleged successor entity is stayed pending the final adjudicative order. The proceeding is governed by the administrative procedure act, chapter 34.05 RCW.
     (6) If no application for adjudicative proceeding is timely filed, the notice and finding of successor liability becomes final and the successor entity is liable for the amount claimed in the notice. In addition, the authority may charge the successor with any costs associated with the collection of any final overpayment or debt established against the successor.
     (7) The authority has authority to adopt any rules it deems necessary in order to implement this section.

Sec. 7   RCW 41.05A.170 and 2011 1st sp.s. c 15 s 104 are each amended to read as follows:
     (1) When the authority determines that a vendor was overpaid by the authority for either goods or services, or both, provided to authority clients, except nursing homes under chapter 74.46 RCW, the authority shall give written notice to the vendor. The notice must include the amount of the overpayment, the basis for the claim, and the rights of the vendor under this section.
     (2) The notice may be served upon the vendor in the manner prescribed for the service of a summons in civil action or be mailed to the vendor at the last known address by certified mail, return receipt requested, demanding payment within twenty days of the date of receipt.
     (3) The vendor has the right to an adjudicative proceeding governed by the administrative procedure act, chapter 34.05 RCW, and the rules of the authority. The vendor's application for an adjudicative proceeding must be in writing, state the basis for contesting the overpayment notice, and include a copy of the authority's notice. The application must be served on and received by the authority within twenty-eight days of the vendor's receipt of the notice of overpayment. The vendor must serve the authority in a manner providing proof of receipt.
     (4) Where an adjudicative proceeding has been requested, the presiding or reviewing ((office [officer])) officer shall determine the amount, if any, of the overpayment received by the vendor.
     (5) If the vendor fails to attend or participate in the adjudicative proceeding, upon a showing of valid service, the presiding or reviewing officer may enter an administrative order declaring the amount claimed in the notice to be assessed against the vendor and subject to collection action by the authority.
     (6) Failure to make an application for an adjudicative proceeding within twenty-eight days of the date of notice results in the establishment of a final debt against the vendor in the amount asserted by the authority and that amount is subject to collection action. The authority may also charge the vendor with any costs associated with the collection of any final overpayment or debt established against the vendor.
     (7) The authority may enforce a final overpayment or debt through lien and foreclosure, distraint, seizure and sale, order to withhold and deliver, or other collection action available to the authority to satisfy the debt due.
     (8) Debts determined under this chapter are subject to collection action without further necessity of action by a presiding or reviewing officer. The authority may collect the debt in accordance with RCW 41.05A.120, 41.05A.130, and 41.05A.180. In addition, a vendor lien may be subject to distraint and seizure and sale in the same manner as prescribed for support liens in RCW 74.20A.130.
     (9) Chapter 66, Laws of 1998 applies to overpayments for goods or services provided on or after July 1, 1998.
     (10) When the health care authority discovers through an audit or other review that a vendor overpayment should have been imposed against a vendor that has ceased doing business, the authority may assess, establish, and enforce the fine or civil penalty against another vendor that the authority determines is a successor as defined under RCW 41.05A.010.
     (a) Before the overpayment may be assessed, the authority must serve a notice of successor liability as described in section 6 of this act.
     (b) If the authority establishes that the alleged successor entity is indeed a successor entity, the authority or the department of social and health services may seek to establish the overpayment against the successor entity as provided in chapters 41.05A and 43.20B RCW.
     (11) The authority may adopt any rules ((consistent with)) it deems necessary in order to implement this section.