Case Summary (G.R. No. 205490)
Factual Background: PSALM’s Health Maintenance Program and Its Expansion
The source of PSALM’s program was PSALM’s own Board actions, initially grounded on AO 402. AO 402 authorized the establishment of an annual medical check-up program for government officials and employees, to be granted to permanent and temporary personnel who had been in service for at least one year, with exclusions for recipients of a similar benefit or supplementary medical allowance beyond Medicare. It also provided a defined benefit package, including diagnostic procedures such as physical examination, chest X-ray, complete blood count, urinalysis and stool examination, and additional diagnostic components for employees aged forty and above, including ECG. It further stated that benefits might be increased upon the availability of funds, and it expressly contemplated that GOCCs not offering a free medical check-up or supplementary allowance should establish a similar program.
Pursuant to these issuances, PSALM’s Board approved Board Resolution No. 06-46 dated August 2, 2006, establishing a Health Maintenance Program for PSALM officials and employees. The program was described as aiming to identify and address ailments at an early stage or prevent their occurrence to sustain a healthy workforce. The Board Resolution specified a comprehensive annual physical examination package and the addition of immunization components.
After one year, PSALM’s Board approved Board Resolution No. 07-67 dated October 31, 2007, continuing the health program and adding further activities. In addition to annual examinations and vaccination, it authorized measures involving the purchase of emergency over-the-counter drugs and prescription drugs, reimbursement of expenses in emergency and special cases, and related services, including the establishment of a mini-clinic and mini-gym and sports and exercise programs. The Resolution imposed conditions: entitlement was limited to plantilla personnel and qualified dependents, with a maximum annual amount per employee and a non-cumulative, non-convertible-to-cash feature. Funds were to be charged to PSALM’s corporate operating budget.
Subsequently, Board Resolution No. 2008-1124-004 dated November 24, 2008 expanded the program further. It extended coverage to members of the Board of Directors and the Board Review Committee, directed an adjusted residency requirement for eligibility, and increased the allotment ceiling, again with non-cumulative and strictly non-convertible-to-cash limitations, and with implementation subject to guidelines issued by PSALM’s President and CEO.
COA Audit Findings and Disallowance of the Expanded MABs
On January 22, 2009, State Auditor IV Gina Maria P. Molina issued Audit Observation Memorandum No. 2008-06, opining that the medical assistance benefits included in PSALM’s expanded 2008 MAB lacked legal and factual basis. PSALM responded that the 2008 MAB was based on AO 402 and CSC Memorandum Circular No. 33. Despite this response, the Auditor issued Notice of Disallowance (ND) No. 2008-002 (2008) on April 23, 2009, disallowing the expanded 2008 MABs in the total amount of P5,702,517.42.
PSALM sought reconsideration, but it was returned without action. PSALM then appealed to the COA-Office of the Cluster Director, Corporate Government Sector—Cluster B on November 5, 2009. In the same period, PSALM allegedly requested authority from the Office of the President for retroactive grant of additional benefits, namely a corporate performance-based incentive and medical assistance involving purchase of prescription drugs and reimbursement for emergency and special cases. PSALM claimed the Office of the President granted the request.
On March 12, 2010, State Auditor Molina issued a similar disallowance for the 2009 MAB under ND No. 10-001-(2009). PSALM appealed anew on September 10, 2010.
COA-Cluster Director Proceedings: Affirmance of Disallowance
By Decision Nos. 2011-003 (dated April 1, 2011) and 2011-005 (dated June 2, 2011), the COA-Cluster Director IV Divina M. Alagon affirmed the disallowance of the expanded 2008 and 2009 MABs in P5,702,517.42 and P5,586,999.60, respectively.
The COA-Cluster Director emphasized that AO 402 contemplated an annual medical check-up program and did not authorize an expanded health services plan beyond diagnostic procedures and the defined entitlement framework. The disjunctive structure of AO 402, as understood by the COA-Cluster Director, meant an office could avail of either a free medical check-up or supplementary medical allowance over and above Medicare benefits, but not both. The records showed that PSALM had already entered into a Memorandum of Agreement with Hi-Precision Diagnostic Center Inc. for annual physical examinations covering eighteen physical and laboratory examinations, thus limiting the scope of any additional benefit consistent with AO 402.
The COA-Cluster Director further reasoned that while the last paragraph of Section 3 of AO 402 allowed increased benefits upon availability of funds, such increases had to remain parallel to the kinds of medical services enumerated in AO 402. The majority of what PSALM disbursed under the expanded benefits did not relate to physical examination or laboratory/diagnostic examinations. Instead, it covered items characterized as non-parallel to diagnostic services, including vitamins, dermatological services such as acne surgery and facial treatments, and dental services such as braces and retainers. The COA-Cluster Director also found that the medical services were extended ultra vires to employees’ dependents, despite AO 402 being limited to government employees. Finally, it found that PSALM’s approved corporate operating budget did not support the disbursements claimed under the expanded MABs. It also noted that the CSC did not approve the 2008 MAB as a negotiated item in the collective negotiation agreement, and that most medical expenses had already been covered by PhilHealth. It also rejected PSALM’s claimed confidential presidential authority document because it did not bear the President’s signature and was not in the records of the Malacañang Records Office.
COA-CP Decisions: Affirmance for 2008 and 2009 Expanded MABs
On appeal, the COA-CP affirmed. In G.R. No. 218177, the COA-CP issued Decision No. 2014-0364 on March 5, 2014, and in G.R. No. 205490, it affirmed the 2009 disallowance through Decision No. 2012-270 dated December 28, 2012. It also denied PSALM’s motion for reconsideration through a Resolution dated January 26, 2015.
The COA-CP stressed that the notices of disallowance covered the additional aspects of PSALM’s Health Program, particularly the purchase of prescription drugs, reimbursement for emergency or special cases, and expenses for employees’ dependents. It maintained that even if the President had approved PSALM’s request for retroactive additional benefits, such approval could not cure the defect that the expanded benefits lacked legal basis.
The COA-CP therefore treated PSALM’s reliance on presidential approval as immaterial to the legal authoritativeness required by AO 402, and it sustained the disallowance for lack of legal support for the expanded and expanded-to-dependents benefits.
Issues Raised
The petitioners raised the following principal issues: first, whether the COA-CP acted with grave abuse of discretion amounting to lack or excess of jurisdiction in affirming the disallowance of the 2008 and 2009 expanded MABs; and second, whether the PSALM officers who authorized the benefits and the employees who received them were liable to return the disallowed amounts.
Arguments of the Parties: Authorization Under AO 402 and Alleged Presidential Approval vs. Lack of Legal Basis
PSALM argued that the expanded MABs were authorized by AO 402 and CSC Memorandum Circular No. 33. It relied on Section 3 of AO 402, asserting that it speaks of “initial benefits” and that these “may be increased upon availability of funds.” PSALM argued that the COA-CP’s strict interpretation was allegedly retrogressive and contrary to the protective purpose of general labor welfare laws, and it urged that a liberal interpretation should allow discretion by the PSALM Board to determine appropriate medical procedures and persons entitled to the benefits.
PSALM also maintained that former President Arroyo approved its request on December 30, 2009 for the retroactive grant of the expanded medical assistance benefits, and that such approval carried the force and effect of law that other agencies must respect. It added that its Board resolutions were approved by members of the President’s Cabinet, and it invoked the operative fact doctrine, asserting that the Board resolutions were valid prior to their being adjudged illegal. PSALM further argued that officers and employees acted in honest belief that the benefits were due, and thus the disallowed amounts should not be returned.
The COA-CP countered that AO 402 was limited to a medical check-up program for government personnel and did not authorize an expanded health services plan. It emphasized that Section 2 referred to the establishment of a similar medical check-up program, and that Section 3 limited benefits to diagnostic procedures. Applying ejusdem generis, it insisted that any increase had to remain within the class of diagnostic services. It also stressed that the title and structure of AO 402 limited its scope to medical check-up and to government personnel, and not to dependent beneficiaries. It characterized the disallowed expenditures as non-diagnostic, including prescription drug benefits, reimbursement for hospitalization, and treatments that treat rather than diagnose. It further rejected the claimed presidential authorization for lack of signature and for absence from official records. It also held that good faith could not justify payment in violation of the clear scope of AO 402.
The Court’s Ruling on the Merits: Expanded MABs Lack
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Case Syllabus (G.R. No. 205490)
Parties and Procedural Posture
- Power Sector Assets and Liabilities Management Corporation (PSALM), represented in G.R. No. 205490 by Mr. Emmanuel R. Ledesma, Jr. as President and CEO, and in G.R. No. 218177 by Ms. Maria Lourdes S. Alzona as Officer-in-Charge, filed petitions questioning Commission on Audit - Commission Proper (COA-CP) rulings.
- In G.R. No. 205490, PSALM challenged COA-CP Decision No. 2012-270 dated December 28, 2012, which affirmed the disallowance of the two thousand nine (2009) expanded Medical Assistance Benefit (MAB) in the amount of P5,586,999.60.
- In G.R. No. 218177, PSALM challenged COA-CP Decision No. 2014-0364 dated March 5, 2014, which affirmed the disallowance of the two thousand eight (2008) expanded MAB in the amount of P5,702,517.42, and the COA-CP Resolution dated January 26, 2015 denying reconsideration.
- PSALM proceeded to the Supreme Court on the merits after recognizing that COA-CP Decision No. 2012-270 was immediately executory and after noting that the issues on appeal were the same as those passed upon at the first level by COA-Office of the Cluster Director, CGS - Cluster B.
Controlling Administrative and Policy Issuances
- The Court treated Civil Service Commission (CSC) Memorandum Circular No. 33, series of 1997 as establishing a policy that all government agencies and Government-Owned and/or-Controlled Corporations (GOCCs) shall provide a health program for employees that includes free annual mental and medical-physical examinations.
- The Court relied on Administrative Order No. 402 (AO 402), series of 1998, which ordered an Annual Medical Check-up Program for government officials and employees.
- Under AO 402, the program covered all permanent and temporary personnel of national government agencies who had been in service for at least one year, with exclusions for those already receiving a similar benefit or supplementary medical allowance over and above Medicare.
- AO 402 required GOCCs to establish a similar program if they did not offer free medical check-ups or supplementary allowances above Medicare.
- The benefit package under Section 3 of AO 402 initially included specified diagnostic services, including physical examination, chest x-ray, complete blood count, urinalysis and stool examination, and ECG for those age forty (40) years and above, with the express authorization that benefits could be increased upon availability of funds.
- The Court focused on the statutory and regulatory characterization of the benefit as a medical check-up program, not an expanded health services plan.
Background: PSALM’s Board-Approved Health Programs
- PSALM adopted Board Resolution No. 06-46 dated August 2, 2006, approving a Health Maintenance Program anchored on AO 402 and related issuances, and designed to identify and address ailments at an early stage or prevent their occurrence.
- PSALM’s 2006 program included diagnostic components such as physical examination, chest x-ray, urinalysis and fecalysis, complete blood count, ECG, pap smear for female employees, blood chemistry, and dental examination.
- PSALM added immunization components, including Influenza (flu) and Hepatitis B, and contemplated emergency medicine purchases stored by its personnel services department.
- PSALM later approved Board Resolution No. 07-67 dated October 31, 2007, which continued the health maintenance program while adding medical assistance components that included purchase of emergency over-the-counter drugs and prescription drugs, dental and optometric medications, and reimbursement of expenses for emergency and special cases, with a maximum availment capped at P25,000.00 per year.
- PSALM further expanded the program by adopting Board Resolution No. 2008-1124-004 dated November 24, 2008, which expanded coverage to Members of the Board of Directors and Board Review Committee members and their alternates, and increased entitlements and budgets.
- The 2008 expansion increased the entitlement from P25,000.00 to P35,000.00 and added a P10,000.00 supplemental coverage per employee, with claims to be charged against PSALM’s Maintenance and Other Operating Expenses [Account Code 969].
Triggering Audit Events
- On January 22, 2009, State Auditor IV Gina Maria P. Molina issued Audit Observation Memorandum No. 2008-06, observing that the medical assistance benefits included in PSALM’s expanded 2008 MAB lacked legal and factual bases.
- After PSALM responded that the 2008 MAB was based on AO 402 and CSC Memorandum Circular No. 33, the auditor still issued Notice of Disallowance (ND) No. 2008-002 (2008) dated April 23, 2009, disallowing P5,702,517.42.
- PSALM filed a motion for reconsideration, but the motion was returned to PSALM without action.
- PSALM appealed the disallowance to the COA-Office of the Cluster Director, CGS - Cluster B, and allegedly sought from the Office of the President authority for retroactive grant of additional benefits, including performance incentives and medical assistance.
- On March 12, 2010, the same auditor issued a similar disallowance under ND No. 10-001-(2009) for the 2009 MAB.
- On September 10, 2010, PSALM appealed anew to COA-Office of the Cluster Director, CGS - Cluster B regarding the 2009 disallowance.
COA-Cluster Director Findings
- By Decision Nos. 2011-003 dated April 1, 2011 and 2011-005 dated June 2, 2011, COA-Cluster Director IV Divina M. Alagon affirmed disallowance of the expanded MABs for 2008 and 2009 in the amounts of P5,702,517.42 and P5,586,999.60, respectively.
- The COA-Cluster Director held that AO 402 provided only an annual medical check-up and did not authorize a broader expanded health services plan.
- The COA-Cluster Director reasoned that the disjunctive use of “or” in AO 402 meant an office may avail only one of two alternative benefits, either a free medical check-up or a supplementary medical allowance, and not both.
- The COA-Cluster Director found that PSALM already had a Memorandum of Agreement with Hi-Precision Diagnostic Center Inc. for annual physical examinations and multiple physical and laboratory examinations, such that the additional disallowed medical assistance exceeded what AO 402 allowed.
- The COA-Cluster Director construed “increase upon availability of funds” as permitting increases only within the same class of services contemplated by AO 402, namely diagnostic procedures similar to those enumerated.
- The COA-Cluster Director found that the bulk of payments were for items not parallel to diagnostic procedures, including vitamins, dermatological services such as acne surgery and facial treatments, and dental services such as braces and retainers.
- The COA-Cluster Director held that AO 402 covered only government employees, yet PSALM’s implementation extended medical services to employees’ dependents, which the COA deemed ultra vires.
- The COA-Cluster Director found that PSALM’s claimed expanded MAB allocations exceeded its approved 2008 corporate operating budget allocation, noting the disparity between the approved P3,350,000.00 and the disbursement P5,702,517.42.
- The COA-Cluster Director observed that the CSC did not approve the 2008 MAB as a negotiated item in the Collective Negotiation Agreement (CNA), and only approved inclusion of annual medical/physical examination.
- The COA-Cluster Director observed that many of the medical expenses were already covered by Philhealth.
- The COA-Cluster Director found the alleged confidential presidential authorization deficient, as it lacked the President’s signature and was certified as not among records available at the Malacañang Records Office (MRO).
COA-Commission Proper’s Affirmance
- On further appeal, the COA-Commission Proper (COA-CP) affirmed the disallowance of the 2008 expanded MAB under Decision No. 2014-0364 dated March 5, 2014, and denied reconsideration in a resolution dated January 26, 2015.
- The COA-CP also affirmed the disallowance of the 2009 expanded MAB under Decision No. 2012-270 dated December 28, 2012.
- The COA-CP emphasized that the notices of disallowance pertained only to additional aspects of the health program, specifically purchase of prescription drugs, reimbursement of expenses for emergency or special cases, and expenses for employees’ dependents.
- The COA-CP ruled that the alleged presidential approval would not alter the fact that the expanded benefits had no basis in law.
- The COA-CP maintained that legality depended on AO 402, and not on claimed executive approval unsupported by lawful authorization for expanded benefits beyond medical check-ups.