GAB Decision 492
Docket No. 83-84
December 30, 1983
Louisiana Department of Health and Human Resources;
Ballard, Judith; Teitz, Alexander Ford, Cecilia
The Louisiana Department of Health and Human Resources (appellant,
State) appealed a disallowance by the Health Care Financing
Administration (respondent) under Title XIX of the Social Security Act.
The respondent disallowed $1,441,711 of appellant's claim for federal
financial participation (FFP) for services in State-owned intermediate
care facilities for the mentally retarded (ICFs/MR) provided during the
period October 1, 1978 through May 31, 1980.
This dispute concerns the interpretation of State plan language
setting the inflation factor for salaries and fringe benefits used in
calculating individual facility prospective payment rates. The parties
submitted written arguments and the Board held three telephone
conferences during which the parties presented arguments and information
concerning the interpretation of the plan. /1/ For the reasons
discussed below, we sustain the disallowance.
Background
The respondent's auditors determined that the appellant failed to
follow the provisions of its State plan regarding the determination of
the inflation adjustment factor used in establishing prospective payment
rates and that, consequently, reimbursement for services in the
State-owned ICFs/MR was excessive. Audit Report, ACN. 06-2051, p. 13.
The auditors recalculated the rates for each facility for the period in
question using the percentage increase in average hourly earnings for
private non-farm economy workers as the inflation factor for the salary
and fringe benefit components of the rate. The State, in response to
those findings, argued that the auditors had failed to follow the State
plan provision in calculating the inflation factor for salaries (2) and
fringe benefits. The State also recalculated the rates, basing the
inflation factor on the percentage increase in minimum wage. See,
State's letter of December 16, 1982. The State acknowledged that it had
failed to follow the provisions of its State plan in setting its
original rates. State's Brief, p. 4. The State's total claim for
reimbursement based on its recalculated rates was less than the amount
it previously claimed but more than reimbursement based on the auditors'
recalculated rates. The amount in dispute is the difference between
reimbursement based on the auditors' recalculated rates and
reimbursement based on the State's recalculated rates.
State Plan
The Louisiana State plan under Title XIX of the Social Security Act
in effect during this period provided that ICF/MR facilities would be
paid for services on the basis of individual, prospectively determined
payment rates equal to each facility's allowable costs for a preceding
period, adjusted by an inflation factor. /2/ Louisiana State Plan for
Title XIX, Attachment 4.19-D, p. 155.
The State plan provided a method for determining the inflation
adjustment factor. It divided facility costs into five categories: (1)
salaries; (2) fringe benefits; (3) food costs; (4) fixed costs; and
(5) variable costs. The percentage that the costs in each of these
categories was to the total allowable costs was termed a category
percentage. Each category percentage (except for fixed costs) was
multiplied by an inflation factor to determine the increase for
inflation. The resulting "weighted factors" were then added to give
the
inflation adjustment factor used to actually calculate the rate. (3)
The inflation adjustment factor formula as set forth on page 110 of
Attachment 4.19-D of the State plan is, in part, as follows:
To these category percentages in applied the corresponding inflation
factor representing the percentage increase for the prior twelve month
period with fractional increases to account for periods in excess of 12
months.
Salaries and Fringe Benefits x Percent increase * in average
hourly earnings for private
non-farm economy
The respondent's interpretation was that the primary inflation factor
for salaries and fringe benefits was the percentage increase in average
hourly earnings for private (4) non-farm economy workers. According to
the respondent, this factor would be further adjusted by the minimum
wage increase when appropriate, i.e., where a facility employs workers
covered by federal minimum wage requirements. Respondent's Brief, pp. 9
and 10. This interpretation would be applied in practice as follows.
The inflation factor provision of the State plan applied not only to
State-owned but also to privately owned ICFs/ MR. The respondent noted
that the State-owned facilities, which are the subject of this dispute,
do not have employees who are subject to federal minimum wage rates.
The respondent argued that, therefore, the footnoted provision, to
adjust the primary inflation factor by any increase in minimum wage, was
valid only in regard to privately-owned facilities but was not
applicable to State-owned facilities which do not employ persons subject
to the federal minimum wage. Respondent's Brief, p. 10. Respondent
pointed to an adjustment calculation contained in another part of the
State plan as illustrative of the calculation that would be used to
adjust the primary factor to reflect increases in the federal minimum
wage. This calculation results in an additional percentage, based on
the percentage of a facility's employees covered by the federal minimum
wage, which is added to the primary factor.
The Board, when faced with two possible interpretations of a state
plan, will give greater weight to the state's interpretation if the
state has interpreted the provision consistently over a period of time.
See, Michigan Department of Social Services, Decision No. 224, October
29, 1981. But in this case, we cannot do so. We are faced here with
two after-the-fact interpretations of the inflation factor provision.
The respondent's interpretation is based on the auditors' interpretation
of the State plan and the auditors' subsequent findings. The appellant
has acknowledged in its written submission and in the conference calls
of December 1st and 7th, 1983 that it did not compute the original
prospective rates using an inflation factor which reflected the federal
minimum wage increases. The appellant admitted that it was only after
the draft audit report was issued and in response to the audit findings
that it developed its present interpretation of the inflation factor
provision. Tape of Conference Call, December 7, 1983.
The appellant was unable to present any records contemporaneous with,
or statements of personnel who were involved with, the drafting of the
State plan to aid in the interpretation of this provision. Tape of
Conference Call, December 7, 1983. In addition, the record indicates
that after the period in question, the appellant submitted a plan
amendment which did not provide for an inflation factor based on the
percentage increase in minimum wage. Tape of Conference Call, December
1, 1983. As a result, the appellant could not demonstrate that it had,
as a pattern of practice, consistently interpreted over a period of
time, beginning with the (5) drafting of this provision, the appropriate
salaries and fringe benefits inflation factor as being based only on the
percentage increase in minimum wage.
Furthermore, if we were to accept the appellant's interpretation of
the inflation factor provision, we would have to ignore the statement
which explicitly sets as the inflation factor the "(percent) increase in
average hourly earnings for private non-farm economy (workers)" since we
would have to construe the footnoted language "adjusted to reflect"
as
not in fact requiring an adjustment but as requiring the substitution of
a wholly different inflation factor. Appellant's interpretation is a
strained reading of the plan language. We are simply not persuaded that
the language in question can reasonably be interpreted to provide for an
inflation factor based solely on the increase in the federal minimum
wage.
The respondent's interpretation gives reasonable effect to the entire
provision by requiring the adjustment of the primary factor where a
facility actually employs workers subject to federal minimum wage
requirements. Thus, the respondent's approach is a common sense one
given that when a facility's costs would be directly affected by an
increase in the minimum wage this increase is reflected in the
facility's rate. Consequently, we consider the respondent's
interpretation more credible on its face. The parties recognized no
other possible interpretations of the State plan language; we,
therefore, uphold the respondent's interpretation as the more reasonable
of the two. /4/
(6) Conclusion
For the reasons stated above, the disallowance is sustained. /1/
Telephone conferences were tape recorded with the parties'
agreement and the tapes are included in the record. /2/ The
State plan provision at issue here implemented the requirement at 42 U:
C. 1396a(a)(13)(E) that Medicaid nursing facilities be reimbursed on a
"reasonable cost-related" basis. For a general explanation of
"reasonable cost-related" prospective rate setting systems, see,
Arkansas Department of Human Services, Decision No. 357, November 15,
1982 and Illinois Department of Public Aid, Decision No. 467, September
30, 1983. * For 1978, 1979, and 1980, this factor will be adjusted to
reflect (federal) minimum wage increase effective January 1, 1978,
January 1, 1979, and January 1, 1980. (Emphasis added)$E Discussion
While both parties argued that the State plan provision quoted above is
unambiguous, they interpreted it differently. The State argued that the
proper inflation factor for salaries and fringe benefits was based only
on the percentage increase in minimum wage. State's Brief, p. 5. The
State contended that the footnoted statement in the State plan was meant
to replace the provision "(percent) increase in average hourly earnings
for private non-farm economy." The State read the footnoted provision to
mean that the inflation factor for the years 1978, 1979, and 1980 shall
be the percentage increase in (federal) minimum wage. n3 Tape of
Conference Call, December 7, 1983. /3/ Although the appellant
argued that the percentage increase in minimum wage was the inflation
factor, the appellant actually used a calculation which resulted in a
weighted percentage increase based on the percentage increase in minimum
wage. Respondent agreed that, if the increase in minimum wage was the
sole criterion, then the State's calculation was one method that could
be used to determine the inflation factor. /4/ The State plan provided
that, with one exception not relevant here, there was "no
provision for retroactive adjustment (of the prospective rates) for over
or underpayment." Louisiana State Plan for Title XIX, Attachment 4.19-D,
p. 155. The respondent argued that the appellant was attempting to
substitute new reimbursement rates and that the State's recalculated
rates were a retroactive adjustment clearly prohibited by the State plan
and by applicable federal regulations. Although it does not alter our
conclusion here, we do not agree with the respondent. We have discussed
prospective rate setting under "reasonable cost-related" reimbursement
requirements at length in prior decisions. See footnote 2. In general,
the object is to contain costs by setting a prospective rate which is
not adjusted to reflect the costs incurred during the period during
which the rate applies. We regard this dispute as one over what the
prospective reimbursement rate would have been had it been properly
calculated in accordance with the State plan. As such, there is no
question of a prohibited retroactive adjustment.
NOVEMBER 14, 1984