DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Arkansas Department of Human
Services Docket No. 87-125
Decision No. 998
Audit Control No. CIN-A-06-86-60154
DATE: December 6, 1988
DECISION
The Arkansas Department of Human Services (State) appealed a
determination
by the Health Care Financing Administration (HCFA or
Agency) disallowing
$2,645,491 in federal financial participation (FFP)
claimed under the
Medicaid program for payments to the Benton Services
Center (Benton), which
included a nursing home certified as both an
intermediate care facility (ICF)
and a skilled nursing facility (SNF).
HCFA disallowed the payments for
services provided between July 1, 1981
and December 31, 1985. The
disallowance was based on audit findings in
five areas: the costs of housing
state prison inmates in exchange for
labor, the costs of operating a School
of Psychiatric Technician Nursing
at Benton, the costs of providing fringe
benefits in the form of staff
housing and meals to certain employees, the
costs of services provided
by barber and beauty shops at Benton, and costs
associated with two cost
allocation concerns.
Based on a series of written briefs and supporting documents submitted
by
the parties, we uphold in full the Agency's disallowance of the costs
of
housing state prison inmates, the costs of providing fringe benefits,
the
costs of barber and beauty shops, and costs relating to the
overallocation of
two items. We remand the portion of the disallowance
for the nursing
school costs for calculation of the value of services
performed by student
nurses at the nursing home. We explore each of
these five issues in
turn below.
The Housing of Prison Inmates in Exchange for Labor
Under an interagency agreement between the State Department of
Human
Services and the State Department of Corrections, the Benton
facility
provided room and board to State prison inmates in exchange for
labor
services to the facility, such as dietary services, maintenance,
and
housekeeping. Neither the Department of Corrections nor the
inmates
received any actual compensation for the work of the inmates.
Instead,
the State allocated part of the costs associated with housing
the
inmates to the Medicaid program. HCFA disallowed $920,622 in FFP
which
the State claimed on this basis.
As explained below, we uphold the disallowance of the costs of
housing
state prison inmates. While the State's Medicaid program may
have
received some benefit from the services performed by the inmates,
the
State Medicaid plan did not provide for the allowability of these
costs
and, moreover, HCFA reasonably determined that their housing was
a
general expense required to carry out an overall responsibility of
the
State government. Such costs are generally unallowable under the
cost
principles in Office of Management and Budget (OMB) Circular A-87.
The State argued in effect that the services provided by the inmates
were
necessary for the care of patients and thus that the Medicaid
program
received a benefit from the arrangement for which the federal
government
should provide a matching share. State's Opening Brief, p.
2. The
State also maintained that, unless the Agency were to reimburse
for the costs
of housing the inmates, the Agency would be "unjustly
enriched" by the labor
services. State's "Final Statement," pp. 2, 5.
Initially, the State made no attempt to measure the imputed benefit to
the
Medicaid program from the use of the inmate labor, but instead
continued to
rely on the alleged responsibility of the Medicaid program
to bear some
undefined part of the cost to the facility from providing
room and
board. State's Opening Brief, p. 3. As the appeal developed,
the
State apparently realized that such an approach was deficient from
an
accounting standpoint since it depended on the unsubstantiated
assertion that
the cost of providing room and board was somehow
equivalent to the value of
services provided by the inmates. In its
final brief to the Board, the
State made a rough attempt to calculate
the imputed benefit of the inmate
labor by comparing the total costs
which the State charged to the Medicaid
program (including both the
State and federal share) with the number of hours
of labor provided to
the facility by the inmates. Dividing the total
disallowed amount of
$1,360,498 by 442,520 hours, the State arrived at an
hourly rate of
$3.0744. State's Final Statement, p. 5. The State
noted that this wage
is below a typical "minimum wage of compensation."
Id.
In reply, the Agency made no effort to dispute this calculation,
but
instead continued to maintain its general argument that such costs
in
principle were unallowable, since they were not reasonable and
necessary
to the Medicaid program and constituted a general expense necessary
to
carry out an overall State government responsibility. Whether or
not
the State's calculation of an imputed benefit is correct, the
Agency
maintains that such costs are unallowable.
The Agency relied for its position upon the following prohibition in
OMB
Circular A-87, the cost principles applicable to grants with State
and
local governments:
To be allowable under a grant program, costs must .
. . be
necessary and reasonable for proper and
efficient administration of
the grant programs, be
allocable thereto under these principles,
and except
as provided herein, not be a general expense required
to
carry out the overall responsibilities of State .
. . governments."
OMB Circular A-87, Att. A, section C.1.a. (emphasis added).
See
Agency's Opening Brief, pp. 3-5..The State, by roughly calculating
the
imputed wages "earned" by the inmates for their services,
apparently
sought to address the Agency's argument that the State had
not
demonstrated that the costs claimed were "necessary and
reasonable."
However, this does not address the separate concern that these
costs
were a general expense required to carry out an overall
responsibility
of the State government, i.e., housing its prison
population. On a
government-wide basis, the cited OMB rule effectively
precludes payment
of what might well be allowable costs, if those costs
otherwise would be
borne generally by the state in the absence of the
Medicaid (or other
unrelated federal) program. This is a common-sense
policy which avoids
subsidization of regular state obligations with federal
dollars when a
state program coincidentally overlaps a specific federal
program. A
state's penal system appears to be a fine example for
application of the
OMB rule: while using prisoners in nursing homes may
be a good thing to
do, the practice cannot result in Medicaid subsidization
of state penal
system costs.
Even if there was a benefit to the Medicaid program, the point
remains
that the State would need to have borne the cost of housing the
inmates
whether or not the prisoners were used to provide services to
the
nursing home. By effectively charging the federal government for
part
of these costs, the State would be passing on to the Medicaid
program
the costs of the State's penal system--just the kind of
approach
Circular A-87 prohibits.
The State was unable to dispute the fact that the claimed costs were
part
of the general expense of incarcerating prisoners, nor did the
State allege
that the allowability of these costs was supported by any
provision of its
State plan. Nonetheless, the State continued to
maintain that:
[i]t is true that if [Benton] had not provided room
and board, the
Department of Corrections would have
had to [have] obtained that
service elsewhere, but
it is equally true that if the Department of
Corrections had not provided inmate labor for use at [Benton],
the
[nursing home] would have had to [have] obtained
the labor
elsewhere.
State's Opening Brief, p. 4. The obvious response to this
observation
by the State is that it does not address the clear prohibition
in
Circular A-87 against reimbursing costs which are a general
expense
necessary to carry out overall State responsibilities. While
the State
apparently meant that the present case should constitute an
exception to
the general preclusion of the allowability of general
government
expenses, the State provided no basis for such an exception.
Whether it
might be true that the State would need to have "obtained the
labor
elsewhere" (which the State never in fact established), the
State's
charging the federal government for the unavoidable and basic
local
expense of housing its prison inmates would be a windfall to the
State's
penal system and is a cost which the federal government clearly
should
not have to bear. To adopt the State's approach arguably would
render
the prohibition in Circular A-87 a nullity, which we cannot do, and,
in
any event, the State plan apparently did not provide for this
particular
reimbursement scheme.
The Board has previously upheld Agency disallowances of costs which
it
found were general expenses of the State government. For instance,
in
Pennsylvania Department of Public Welfare, DAB No. 398 (1983), the
Board
found that welfare fraud prosecution costs incurred by local
district
attorneys were unallowable costs to the Title IV-A (Aid to Families
with
Dependent Children) program, since they were general government
expenses
that were a basic responsibility of the district attorney, even if
the
federal program may have incurred some incidental benefit from
the
district attorney's exercise of his duties.
In the one appeal in which the Board upheld the State's argument
that
certain claimed costs were not prohibited by the cost
principle
concerning general government expenses, there were two
factors
identified by the Board which distinguished the situation of that
case.
In Oregon Department of Human Resources, DAB No. 493 (1983), Request
for
Reconsideration denied (1984), the Board found that the State
could
charge to the child support enforcement program (funded under Title
IV-D
of the Social Security Act) the costs of jailing prisoners found to
be
in contempt of court for disobeying child support orders.
The Board noted two important factors in the Oregon appeal which are
not
present in this appeal by Arkansas: the costs in question would
not
have been incurred "but for" the existence of the child
support
enforcement program, and a federal regulation specifically
authorized
the payment of FFP in the circumstances of that case.
Oregon, pp. 9, 2.
In the present appeal, by contrast, the State relied upon
no regulation
or other written directive that might have authorized the
charging to
the federal program for the costs of housing prison inmates, nor
do the
circumstances here provide any indication that the housing costs were
in
any way additional costs that were specifically incurred because of
the
existence of the federal program.
On the basis of the foregoing, we conclude that HCFA reasonably
determined
that the costs of housing State prison inmates were
unallowable.
Costs of Operating the School of Psychiatric Technician Nursing
The State operated a nursing school at the Benton facility, the "School
of
Psychiatric Technician Nursing," which provided students a
clinical
experience at the nursing home. The audit report noted that
the
school's course curriculum required that there be two hours
of
laboratory practice, including patient care, to each hour of
classroom
time for major courses. Audit report, p. 6. During the
audit period, a
part of the operating costs of the school were charged to the
Medicaid
program, including stipends to the student nurses, instructor
salaries,
and general administration costs, such as depreciation, fire
and
security, plant operation, and housekeeping. Id. Although
the
disallowance covered the entire audit period of July 1, 1981
through
December 31, 1985, the State increased the allocation of costs to
the
school and to the Medicaid program after July 1, 1984 by allowing
for
the reimbursement of classroom time which had previously not
been
allocated to Medicaid. The Agency disallowed $700,778 FFP for
costs
charged to Medicaid before the closing of the school on July 26,
1985.
As explained below, we have determined to remand this part of
the
disallowance for the parties to determine the amount which is
equivalent
to the value of the patient care services provided by the
student
nurses. We do so because, unlike the case of penal system
costs
discussed above, here the record does not show that the costs
involved
were reasonably subject to the prohibition on general
governmental
expenditures. On the other hand, the record as it
presently stands also
does not justify finding that the State is entitled to
the amount
claimed.
The State's rationale for allowing the nursing school costs was that
the
care provided by the nursing students as part of their training
was
"essential" to patients, and that if the services had instead
been
provided by "any other personnel," their costs would not have
been
questioned. State's Opening Brief, p. 5. The State argued
that its
State plan supported the claiming of these costs, since the
plan
provided that "allowable and reasonable nursing staff costs will
be
included as allowable cost." State's Ex. C. According to the
audit
report, each student was initially assigned one or two patients
"for
total care including bathing, feeding, dressing, etc." The report
noted
that, if students progressed satisfactorily, they gave medications
to
patients or performed catheterization. Audit report, p. 6.
The Agency disallowed the nursing school costs charged to Medicaid on
a
similar basis as the disallowance of the costs of housing state
prison
inmates, i.e., that they were neither necessary nor reasonable and
were
a general expense required to carry out the overall responsibilities
of
state government, citing OMB Circular A-87, Attachment A, section
C.1.a.
We conclude that the Agency's argument that the nursing school costs
were
a general expense required to carry out an overall State
government
responsibility is not supported by the record here and, in the
facts of
this case, is an unreasonable reading of the OMB Circular. The
audit
report itself did not cite this prohibition as a basis for
the
disallowance. Audit report, pp. 6-7. The Agency in its
briefing merely
made the conclusory remark that the training of student
nurses "at a
State-owned and operated school of nursing is a responsibility
the State
has undertaken and, once undertaken, is a 'general expense required
to
carry out the overall responsibilities of State . . .
government.'"
Agency's Reply Brief, p. 5. However, merely because an
activity was
being performed by the State clearly does not per se make it an
overall
responsibility of state government. The Agency did not allege
or
present evidence to the effect that nurses in Arkansas or
elsewhere
generally are trained only at publicly funded schools, or that
such
State-level training is required to carry out overall state
government.
The Agency's approach would render unallowable any activity merely
because
it coincidently arose from some state source, obviously an
overbroad reading
of the OMB Circular provision. The Circular prohibits
general expenses
required to carry out the overall responsibilities of
state government.
Penal system costs fall clearly within this
prohibition, but -- absent an
agency rule so specifying -- otherwise
allowable costs associated with
student nurses who just happen to be in
a public, rather than private, school
do not.
However, as to the reasonableness of the amount of costs claimed, we
agree
with the Agency that the full amount initially claimed by the
State was not
supported by the record. The Agency calculated that,
while 18 percent
of the students' time was devoted to patient care, as
much as 65 percent of
nursing school costs were allocated to the nursing
home. Audit report,
p. 8. Indeed, the State itself initially appeared
to have no response
to the Agency's position that the State had failed
to demonstrate the
reasonableness of the costs being charged to the
program. As the appeal
progressed, the State seemed to acknowledge the
Agency's argument concerning
the reasonableness of the full amount of
claimed costs, by abandoning its
initial position and instead
maintaining that it was entitled to some
"setoff" of the amount of the
disallowance to reflect the value of the
services which the student
nurses performed. State's "Final Statement,"
pp. 6, 12.
The State proposed a rough methodology for calculating such a
setoff,
noting that the patient care provided by the student nurses
was
equivalent to the care provided by a "Mental Health Worker,"
compensated
at a grade 7, step 5 (apparently under some applicable
standardized pay
scale), and that an estimate of the total time provided from
the student
clinical experience at the nursing facility was 90,561
hours. State's
Final Statement, p. 6. The State requested that
the Board remand the
matter to the Agency to calculate some reasonable
reduction in the
disallowance on this basis. Id., p. 12.
Without commenting on whether this specific proposal by the State
for
calculating a reduction in the disallowance was reasonable, we
agree
that the $700,778 disallowance should be reexamined to determine
the
value of Medicaid-related services actually performed by the
student
nurses. The Agency never disputed that the students provided a
real
service to the patients in the nursing home, whose value would seem
to
be easily calculated on some equivalence basis.
The Agency submitted two reasons for rejecting the State's proposal
to
reduce the disallowance on this basis. First, the Agency argued
that
the State had not demonstrated that it was less costly to use
the
student nurses to supply care than to use nurses on the "open
market."
Second, the Agency argued that the State did not demonstrate that
the
number of hours devoted to patient care by the students was at all
based
on need, but that it was instead rigidly established by the
nursing
school curriculum. Agency's Reply Brief, p. 7.
As to the Agency's first argument, we agree, and the record does
not
indicate that the State contended that a reduction of the
disallowance
should be calculated by regarding the student nurses as being
worth the
free market value of a professional nurse's services. The
appropriate
equivalent that should be used in calculating an imputed wage for
the
nurses would a matter for further discussion between the parties,
but
would presumably be based on what student nurses typically earn in
the
industry.
As to the Agency's reasonable concern that the hours devoted by
the
student nurses were not specifically based on patient need, this
is
another factor that should be addressed in calculating a
reasonable
reduction. We note that the auditors themselves reported
that the
student nurses were assigned one or two patients for "total care"
and
that they might eventually dispense medicine and
perform
catheterizations. Audit report, p. 6. The Agency did not
contend that
it was at all unusual or improper for a health care facility to
make use
of student interns in providing patient care.
The Agency's audit report also made the point that the Benton facility
met
the State's program certification standards regarding the amount of
nursing
staff without considering the activities of the student nurses.
Audit report,
p. 7. However, we agree with the State that nothing in
the record here
precludes the facility from receiving Medicaid
reimbursement for the use of
more than only minimum staffing levels.
Audit report, p. 5. The State
explained that the availability of the
student nurses increased the quality
of care and allowed Benton to "be
flexible in its staffing to provide a
greater than.bare minimum nursing
personnel to provide services and attention
to the patients." State's
Opening Brief, p. 5. Thus, we conclude
that the full amount of the
disallowance should be examined to establish the
value of
Medicaid-related services provided at the nursing home by student
nurses
trained at the School of Psychiatric Technician Nursing.
The State will have 30 days from the date of receipt of this decision
(or
such longer time as HCFA allows) to submit further information, if
any, that
it wishes to submit solely related to the calculation of the
value of the
nursing services in question. HCFA should respond in
writing as
promptly as reasonably possible, specifying its response to
the State's
submissions and the amount of the disallowance HCFA
continues to maintain is
owed. If Arkansas disputes the redetermined
amount, it may return to
the Board on that issue alone, within 30 days
after receiving HCFA's
determination. We suggest that the parties try
to resolve this by
cooperation and mutual agreement if possible.
Fringe Benefit Costs
The Benton facility provided two types of fringe benefits to
employees
which were disallowed by the Agency as violating the terms of
the
Arkansas State plan. The facility provided one free meal per day
to
dietary employees and provided on-site housing to
selected
"management-level" employees. The Agency disallowed $469,955
FFP for
the meal costs and $119,739 FFP for the housing costs, for a
total
disallowance of $589,694 FFP. Based on our analysis below, we
uphold
the disallowance of both these categories of fringe benefit costs.
The State plan provided for the period in question:
Discriminatory fringe benefits are those fringe
benefits offered to
only certain employees of the
facility, and are normally not
allowable.
To be allowable, fringe benefits must be offered to
all full-time,
non-probationary employees on a
universal basis in accordance with
an employee
benefit policy established in writing.
Facilities
desiring to offer select employees
additional benefits due to
special circumstances
should obtain prior written approval from the
Director, Office of Long Term Care.
Attachment 4.19-D of State Plan at p. 4-6, Agency's Ex. C.
The parties presented argument concerning whether the fringe benefits
in
question were "discriminatory" under the meaning of this State
plan
provision. The Agency argued that the circumstances here met the
plan's
definition of discriminatory fringe benefits because they were
extended
to only a select group of employees and not on a "universal
basis."
Agency's Opening Brief, pp. 10-11.
The State, on the other hand, defended the practice of providing
both
types of fringe benefits as a "legitimate business decision" which,
the
State argued, the State plan intended to permit. State's Opening
Brief,
p. 6. As to the dietary employees,the State explained that
these
employees were "on call during their meal time and were allowed only
20
minutes to eat." The State further explained that the city of Benton
is
ten minutes driving time from the nursing home, making it impossible
for
the employees to eat and still be on call during meal time. Id.,
pp.
6-7. As to the employee housing, the State noted that the
Benton
nursing home is located in a rural area and that, in order to have
staff
available and on call, the facility decided it was necessary to
provide
on-campus housing to administrative and medical employees, as well
as
some maintenance, fire, and security employees. See audit report,
p.
11. The State maintained that the employees who were provided
the
housing were all "critical employees" who might be needed at any hour
of
the day. State's Opening Brief, p. 7..Regardless of whether there
may
have been a legitimate "business" need for providing both of the
types
of fringe benefits, the existence of such a need would not satisfy
the
clear prohibition of the State plan against allowing these
expenses
except where prior, written approval was obtained. The State
did not
dispute that the meals in question were provided to "only
certain
employees of the facility" and not to "all full-time,
non-probationary
employees on a universal basis." Likewise, the State
did not dispute
that the housing benefit in question here was provided only
to a
discrete group of employees. The State plan therefore compels
the
conclusion that the meals and housing were "discriminatory"
fringe
benefits, and, under the terms of the plan, such fringe benefits
would
be allowable only if prior written approval is obtained from
the
Director of the Office of Long Term Care. The State did not argue
nor
does the record indicate that the facility here made any effort
to
obtain this approval. A basic principle of
Medicaid reimbursement is
that a state's claim for FFP must be in accordance
with the terms of its
approved State plan. Sections 1902(a)(13) and
1903(a) of the Act;
Tennessee Department of Health and Environment, DAB No.
950 (1988).
While generally we defer to a state's interpretation of the
provisions
of its own state plan, in this case there is no ambiguity to
interpret,
since the State plan itself has specifically defined what it means
to be
a prohibited "discriminatory fringe benefit," and that
definition
clearly encompasses the present situation. The State argued
that the
purpose of the State plan prohibition was to "preclude
arbitrary
assignment of free meals and housing," apparently meaning that
fringe
benefits to selected employees were not "discriminatory" if there
were
some logical basis for awarding the benefits to certain
employees.
State's Opening Brief, p. 6. Nevertheless, however sensible
such a
definition might seem in the abstract, the State presented absolutely
no
authority for such an interpretation, which contradicts the
express
terms of the plan itself. The Agency in issuing the
disallowance here
is not imposing its own definition of the word
"discriminatory," nor
relying upon some more general definition of the term,
but is merely
applying the definition as provided specifically in the State
plan.
For these reasons, we uphold in full the Agency's disallowance of
fringe
benefit costs provided to a select group of employees.
Barber and Beauty Shop Services
The Agency also disallowed $307,373 FFP for the operation of a barber
and
beauty shop at Benton. The basis for the disallowance was
another
provision of the Arkansas State plan, which prohibited the
allowability
of "services performed by licensed barbers or beauticians." The
section
of the State plan concerning the provision of "routine services"
reads,
under a column designated "Allowable Cost Items":
Personal Services-Laundry (does not include dry
cleaning).
Shampoos, daily hair groom-shaving when
performed by a Facility
Staff Member. (Does
not include services performed by licensed
barbers
or beauticians). . . .
State plan, p. B-2, State's Ex. E. Also, according to the audit
report,
the State plan, in its listing of various non-allowable costs,
included
as one entry "costs directly related to the provision of beauty
and
barber services to patients." State plan, Appendix C, p. 15, cited
in
audit report, p. 14.
We uphold the disallowance of barber and beauty shop costs. While
the
Agency apparently would not have questioned the allowability of
the
incidental costs of haircuts performed by staff at the nursing
home
(which the State plan provides to be allowable), the Agency here
found
that the State operated a "barber and beauty shop" by licensed
barbers
and beauticians some distance from the actual nursing home, which
served
parts of the Benton facility other than only the nursing home.
We find
that the State's operation was in specific violation of the State
plan's
prohibition on the allowability of costs of licensed barbers
and
beauticians. Moreover, we agree with the Agency that the
services
performed at the barber and beauty shop were "over and above
the
personal grooming services" normally performed by the Benton
nursing
staff and that, under the State plan, their general costs were
not
chargeable to the Medicaid program. Audit report, p. 13.
At the time of the audit, there were two barbers and three
beauticians
employed. Audit report, p. 12. According to the audit
report, "The
types of services provided included haircuts, shampoos, sets,
color
rinses, permanents, and other miscellaneous services." Id. The
audit
report also noted that the barber and beauty shops in question
were
"located in a building several blocks away from the main
buildings
housing ICF and SNF [nursing home] patients." Id. The
facility charged
to the Medicaid program the operating costs of the barber
and beauty
shops, which, in addition to salaries, included depreciation
of
buildings, the cost of movable equipment, and a portion of
certain
administrative and general expenses. Audit report, p. 13.
The State argued that the barber and beauty shop costs were
allowable
because all the barbers and beauticians were on Benton's payroll
and
thus were "facility staff members." State's Opening Brief, p. 8.
The
audit report confirmed that "no revenues were collected from
patients
for services rendered." Audit report, p. 12. The State also
emphasized
in its brief that the barbers and beauticians "provide services
only to
the residents of the Center." State's Opening Brief, p. 12.
Nevertheless, the State did not dispute the Agency's explanation that
the
"facility" and "Center" to which the State referred concerned more
than the
nursing home itself, the only program which was apparently
eligible for
Medicaid reimbursement. The audit report noted that, while
most of the
services provided by the barbers and beauticians were
provided to the nursing
home, some were provided to the other programs
located on the grounds of the
Benton facility, such as State programs
for the Chronic Mentally Ill and for
Alcohol and Drug Abuse. Audit
report, p. 12.
The State further maintained that the policy of using licensed barbers
and
beauticians had a "business justification" which "includes such
factors as
the size of the facility, the locale, the nature and degree
of services
required by the patients at the Center, the security and
safety of the
patients, and the continuing obligation of the Center to
adequately meet the
personal needs of its patients." State's Opening
Brief, p. 8. We do not
find this rationale persuasive because none of
these factors relate to the
Agency's finding that the State plan
provision in question specifically
prohibited the type of costs claimed
here, where the facility was operating a
full-scale barber and beauty
shop run by licensed beauticians which served
customers other than only
at the Medicaid-funded nursing home.
The State also argued that its policy of providing Medicaid
reimbursement
for the barber and beauty shops at Benton is supported by
a 1983 Pennsylvania
trial court opinion. The opinion held that costs of
haircutting
services at a Medicaid SNF [skilled nursing facility] were
reimbursable,
notwithstanding state Medicaid rules which, according to
Pennsylvania's
interpretation, required that patients at SNF's pay for
all haircutting
services. In rejecting Pennsylvania's position that the
costs were not
reimbursable under Medicaid, the court relied on its
finding that one
condition for federal certification for SNF's is that
patients be "well
groomed." Montgomery County Geriatric and
Rehabilitation Center v.
Commonwealth of Pennsylvania Department of
Public Welfare, Medicare and
Medicaid Guide (CCH) para. 32,963 (Penn.
Commonwealth Court, No. 2962 C.D.
1981, June 27, 1983) The Benton
facility was eligible to provide SNF
services after March 1, 1984,
although it operated an ICF for the entire
audit period of July 1, 1981
through December 31, 1985. Audit report,
p. 2.
We do not find the Montgomery County decision to be controlling here,
even
for the lO-month period when Benton operated an SNF and when
the
decision might arguably apply. First, a local trial court
opinion
(from another jurisdiction) would not be controlling on this
Board.
Moreover, the facts of that case were clearly distinguishable
from the
situation here. In Montgomery County, the Commonwealth rule in
question
contained no prohibition on the use of "licensed barbers
and
beauticians," but instead prohibited billing "patients" for
"excessive
personal services" including haircuts and hair styling (which
the
Commonwealth apparently argued prohibited the billing of the
Medicaid
program as well for the services).
In the present case, by contrast, the federal Agency disallowed the
costs
of barber and beauty shop services based on a specific prohibition
in the
State plan on the costs of "licensed barbers and beauticians."
Without this
specific prohibition, the Agency might have allowed some of
the costs
here. Unlike the Pennsylvania case, the Agency in this
case
apparently objected to the excessive cost of providing a
licensed
barber and beauty shop when the State plan prohibited
reimbursement for
such a service.
In sum, we uphold the disallowance of the costs of using licensed
barbers
and beauticians because of the State plan prohibition on such
costs.
Excessive Allocation of Costs
The Agency disallowed $127,024 FFP because of the State's
alleged
overallocation of two types of costs to the Medicaid program
for
activities at the Benton facility. The State presented no argument
why
these disallowances were improper, other than to note in its response
to
the audit report that "a general review of the allocation procedures
is
being conducted, and [the State agency] is not in a position to agree
or
disagree with the audit findings." Audit report, p. 16. We
therefore
uphold without further discussion the Agency's disallowance for
the
overallocation of these costs.
Conclusion
Based on the foregoing, we uphold in full the Agency's disallowance
of
$1,994,713 FFP for the costs of housing state prison inmates, the
costs
of providing fringe benefits to certain employees, the costs of
barber
and beauty shops, and costs associated with the two cost
allocation
issues. We remand the $700,778 disallowance of nursing
school costs, in
accordance with the schedule and procedures on page 10
above.
Judith A. Ballard
Donald F. Garrett
Norval D. (John)
Settle
Presiding Board