DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Georgia Department of Medical Assistance
Docket No. 86-81
Audit Control No. 04-50211
Decision No. 798
DATE: October 22, 1986
DECISION
The Georgia Department of Medical Assistance (DMA or State) appealed
a
decision by the Health Care Financing Administration (HCFA or Agency)
to
disallow $678,634 in federal financial participation (FFP),
claimed
under Title XIX (Medicaid) of the Social Security Act (Act).
HCFA based
the disallowance on an audit of State records identifying amounts
of
Medicaid payments made for recipients later determined to have
been
ineligible (recipient overpayments). The auditors found that the
State
did not pay back the FFP claimed in the original payments until
the
State collected the amounts from the recipients. HCFA
disallowed
$604,567 as the federal share of uncollected recipient
overpayments made
prior to April 1, 1979, and $74,067 as the federal share of
uncollected
recipient overpayments made from October 1, 1982 through March
31, 1983.
(During the intervening period, erroneous payments for
ineligible
individuals were subject to special disallowance provisions
related to
the.Medicaid quality control system.)
The State argued that section 1903(d)(3) of the Act precluded HCFA
from
disallowing the federal share of recipient overpayments prior to
the
State's recovery of the overpayment from the recipient. The State
also
raised a number of arguments based on the age of some of the
identified
overpayments, including arguments based on a federal statute
of
limitations, the equitable doctrine of laches, and
general
considerations related to the fairness of the disallowance. The
State
alleged, for example, that because some of its records had
been
destroyed or were not readily accessible, it would have difficulty
in
collecting the payments at this late date or in documenting that
the
amounts were not in fact overpayments or had already been collected.
For the reasons stated below, we conclude that HCFA is not precluded
from
taking the disallowance here based on any of the arguments advanced
by the
State. Section 1903(d)(3)
- 2 -
does not apply to payments for ineligible recipients, and neither
the
statute of limitations nor laches apply here. The State's
other
arguments concerning fairness do not provide a basis for reversing
the
disallowance. HCFA's disallowance was based on State records and
the
evidence presented by the State is insufficient to show specifically
to
what extent those records were inaccurate or incomplete so that
HCFA
could not reasonably rely on them. For the reasons explained at
pages
10-11, however, we have determined that the State should have
an
opportunity to provide evidence for the limited purposes outlined
below.
Accordingly, we uphold the disallowance, subject to reduction if
the
State can make the requisite showing.
Discussion
1. HCFA is not required to wait until the State recovers
overpayments
from the recipient.
Title XIX of the Act provides for the payment of federal funds to
states
for aid in financing state medical assistance programs for
eligible
individuals. Section 1903(d)(2) authorizes the Secretary of
the
Department of Health and Human Services to pay grant funds to
each
participating state for the federal share of quarterly expenditures
in
amounts:
reduced or increased to the extent of any
overpayment or
underpayment which the Secretary
determines was made under this
section to such state
for any prior quarter and with respect to
which
adjustment had not already been made under this subsection.
.
. .
In numerous cases involving overpayments by states to medical
assistance
providers, such as hospitals or nursing homes, the Board has held
that,
under this section, the Agency may require adjustment of the grant
award
for the federal share of improper or excess payments to providers,
even
if a state has not yet recovered the amounts from providers. See,
e.g.,
Arkansas Department of Human Services, Decision No. 717, January
8,
1986; New York State Department of Social Services, Decision No.
311,
June 16, 1982.
The State argued that section 1903(d)(2) is limited by section
1903(d)(3),
which states:
The pro rata share to which the United States is
equitably entitled
. . . of the net amount recovered
during any quarter by the State .
. . with respect
to medical assistance furnished under the State
-
3 -
plan shall be considered an overpayment to be
adjusted under this
subsection.
The State asserted that, under section 1903(d)(3), an amount must
have
been recovered from the recipient before it is an overpayment
for
purposes of section 1903(d)(2).
In prior decisions, the Board rejected similar arguments that
section
1903(d)(3) limits federal recoupment of the federal share of
provider
overpayments until the state has recovered the funds.
Section
1903(d)(3) applies only to those amounts which would be allowable
as
"medical assistance furnished under the state plan." The Board
concluded
that section 1903(d)(3) does not preclude treatment as overpayments
of
amounts which would be unallowable as "medical assistance,"
under
section 1905(a) of the Act, or are otherwise not in accordance with
a
state plan. See Arkansas, supra. The Board's analysis has been
upheld
in two United States Court of Appeals decisions: Massachusetts
v.
Secretary, 749 F.2d 89 (lst Cir. 1984), cert. denied, 105 S. Ct.
3478
(1985), and Perales v. Heckler, 762 F.2d 226 (2d Cir..1985).
1/
The State argued that the Board's analysis leaves section
1903(d)(3)
without any effect. This is incorrect; section 1903(d)(3)
applies when
the State properly incurs costs of medical assistance, claims
FFP in
those costs and, subsequently, recovers some of those costs.
For
example, the State may receive a payment by a recipient's relative
or
from an insurance company. Section 1903(d)(3) simply makes it
clear
that in these situations the Agency can recoup the appropriate
federal
share by means of an offset to the next grant award.
The State attempted to distinguish this case from prior Board decisions
on
the basis that those cases involved provider overpayments and this
case
involves recipient
1/ See also Florida v. Heckler, Civ. No. 82-0935 (N.D. Fla.
1984).
The Eighth Circuit is currently considering the issue in an appeal
of
Missouri Department of Social Services v. Heckler, No.
84-4106-CV-C-5
(W.D. Mo. Sept. 27, 1984). The district court in
Missouri reversed a
Board decision, but based its holding on the
Massachusetts district
court opinion at 576 F. Supp. 1565 (D. Mass
1984), which was reversed
on appeal in Massachusetts v. Secretary,
supra. In any event, the
rationale used by the district court would not
apply to payments for
ineligible recipients.
- 4 -
overpayments. While the Board has not previously directly
considered
whether adjustments due to recipient overpayments should be
treated
differently, the State did not present any justification for doing
so.
2/ Indeed, since 1905(a) defines "medical assistance" as payments
for
eligible individuals, payments for ineligible recipients would
fall
outside the scope of section 1903(d)(3) more clearly than some of
the
provider overpayments which the Board has addressed in prior cases.
Although the State alleged that it had no notice that such
an
interpretation of the statute would apply, 45 CFR 201.5(a)(3)
clearly
requires states to report on quarterly statements of expenditures
not
only amounts which have been recovered but also all acknowledged
or
identified "expenditures not properly subject to federal
financial
participation." 3/ The State presented no reason why this
regulatory
requirement would not apply to expenditures acknowledged by the
State to
be payments for ineligible recipients.
In sum, we do not find merit in the State's arguments that the Agency
can
require adjustment of claims due to recipient overpayments only
after the
State has recovered the funds.
2/ In one of the State's initial responses to the audit
findings, the
State suggested that some of the recipient overpayments may
have been
uncollectible, and that federal participation in such losses would
be
consistent with the federal-state partnership concept implicit in
the
Medicaid program. The State did not point to any provision in
the
applicable statute or regulations which would indicate that the
federal
government agreed to fund such recipient overpayments as part of
the
Medicaid program. We incorporate here the discussion of this
argument
contained in Arkansas, supra., pp. 15-16 and New York, supra., p.
7. We
note that the Consolidated Omnibus Budget Reconciliation Act of
1985
(COBRA), Pub. L. 99-272, contains a provision which would permit
states
to retain FFP for overpayments to bankrupt providers or which
are
otherwise uncollectible. This provision is effective, however, only
for
overpayments identified for quarters after October 1, 1985.
3/ This regulation, published in 1970, was a codification
of
provisions which previously appeared in the Handbook of
Public
Assistance Administration. 35 Fed. Reg. 12180 (July 29,
1970). - 5 -
II. The Board will not reverse a part of the disallowance
merely
because of the age of the alleged overpayments.
The State argued that the Agency is precluded from requiring
adjustment
for the part of the disallowance relating to alleged overpayments
made
prior to April 1, 1979 because the disallowance was untimely. The
State
asserted that the statute of limitations set forth at 28 U.S.C.
2415
acts as a bar to the disallowance with respect to overpayments
made
prior to six years before the Agency requested adjustment
(e.g.,
overpayments made prior to March 19, 1980). The State also
advanced the
defense of laches, based upon the failure of the federal
government to
pursue the federal share of the overpayments earlier.
Traditionally, statutes of limitations and laches did not apply
against
the United States because of the historical privileges of the
sovereign.
See, e.g., S.E.R., Jobs for Progress, Inc. v. United States, 759
F.2d 1,
6-8 (Fed. Cir. 1985). Since 1966, however, the statutory
provision at
28 U.S.C. 2415 has placed limitations on certain actions by the
United
States for money damages. The State alleged that this provision
barred
the proceeding here because it is an action which was not filed
within
six years after the right of action accrued.
The Board has previously rejected arguments that this statute
of
limitations is applicable in administrative proceedings. See
Community
Action Commission of Belmont County, Ohio, Decision No. 565, August
28,
1984. Although the statute does not specify that it applies only
to
judicial actions, the Board found that the context of the statute,
the
separate treatment of administrative proceedings within the statute,
and
the legislative history indicate that the statute refers to actions
in
federal court. Id., pp. 6-8; S. Rep. No. 1328, 89th Cong., lst
Sess.,
(1966) reprinted in 1966 U.S. Code Cong. & Ad. News, 2502-2514.
4/
4/ The State argued that the applicable provision is in 28
U.S.C.
2415(b). We note that 28 U.S.C. 2415(a) may be more
apposite. See
Community Action Commission. We do not find it
necessary to determine
which provision is pertinent, since we conclude that
neither applies.
We note that section 2415 contains an exception where
"otherwise
provided by Congress," which might be a further basis for
determining
that section 2415 does not apply here. Section 1903(d)(2)
of the Act
provides for adjustments of the federal share of an overpayment
"for
(Continued on next page) - 6 -
Since the State has not presented any authority for the application of
the
statute of limitations in an administrative forum, we again conclude
that
this limitation does not apply in cases before the Board.
Similarly, laches is unavailable against the federal government in
cases
before the Board. Laches is an equitable doctrine under common
law
which traditionally does not apply to the federal government, and
that
immunity has not been waived here by statute. United States
v.
Summerlin, 310 U.S. 414, 416 (1940); Chevron U.S.A. v. United
States,
705 F.2d 1487 (9th Cir. 1983).
We note that our decision here does not imply agreement with the
State
that, if applicable, either the statute of limitations at 28 U.S.C.
2415
or the doctrine of laches would bar the action here. The State's
view
appears to be premised on the notion that HCFA was obliged to act
within
six years of the time the payments were made for ineligible
recipients.
Yet, the State was responsible for determining eligibility for
Medicaid
and for recovering overpayments it identified. While HCFA may
adjust
the federal share of an overpayment prior to recovery, HCFA also
has
discretion to permit the State an opportunity to first recover
the
overpayment. Even if HCFA could have discovered earlier that the
State
was not timely adjusting the federal share of overpayments it was
unable
to collect, there is a question of whether this delay prejudiced
the
State. As discussed below, the State has not yet established
such
prejudice. Moreover, any delay by HCFA in requiring the State to
adjust
the federal share gave the State additional time to recover the
amounts
from the recipients, as well as use of funds which otherwise would
have
had to be paid back.
III. The State has not shown any other reason why the disallowance
was
unfair.
The State presented several general arguments alleging that it would
be
unfair to uphold a disallowance at this time for such old
overpayments
because the State may be unable to
4/ Cont. any prior quarter." In addition,
Congress has now imposed
limits on the time period
for states to submit claims for prior
quarters
(i.e., proposed adjustments for underpayments to the
states), but did not indicate any corresponding time limit
for
adjustments for overpayments made to the
states. See section 1132
of the Act. - 7
-
respond by recouping money from recipients at this time, because
the
supporting documentation may be unreliable or unavailable, or
because
the cost of verifying the accuracy of the disallowance is very
high.
As we discuss below, we find little merit to the State's
arguments
regarding its ability to collect from the recipients or regarding
the
cost to the State to obtain documentation which may be
relatively
inaccessible. Further, we find that the State's arguments
that the
disallowance was based on unreliable or unavailable documentation
were
unsupported by the type of evidence necessary to overcome the
audit
findings. Nevertheless, we have determined that there are reasons
why
the State should be given an opportunity to present more
specific
evidence relating to particular parts of the disallowance. 5/
a. The disallowance does not affect the State's ability
to
recoup identified overpayments from recipients in a
timely
manner.
The State alleged it was unfair to impose a disallowance when "the
lapse
of years makes it unlikely that any of the recipients that HHS
asserts
were ineligible can be located so that DMA can recoup any
overpayments."
State's Brief, p. 3. The Agency's right to adjust the
federal share of
payments to ineligibles is not contingent on the ability of
the State to
recover the payments from the recipients. Moreover, the
State should
have been seeking to recoup any recipient overpayments as an
ongoing
matter, as soon as the overpayments were discovered. In fact,
the State
did collect some of the overpayments from at least 20 percent of
the
ineligible recipients; the State must have understood that there was
no
need to wait for a disallowance from the Agency to recoup.
Agency's
Brief, p. 4; State's Ex. 4.
5/ The disallowance was based on State or local records
identifying
amounts as overpayments for ineligible recipients and the
auditors'
general finding that the State was not crediting the federal share
of
these overpayments prior to recovering from the recipients. The
Board
has previously held that when HCFA is relying on a determination made
by
a state, that state must be given an adequate opportunity to show
that
that reliance is not reasonable. See, e.g., Ohio Department of
Public
Welfare, Decision No. 637, April 2, 1985, p. 11-14. Our analysis
below
takes into account the fact that HCFA was relying here on
State
determinations.
- 8 -
b. The State has not shown that the disallowance was based
on
unreliable or unavailable documentation.
The disallowance was based upon an audit examining central State
records
and data, as well as information obtained through on-site visits to
some
county offices, and telephone and mail inquiries to other
county
offices. The auditors calculated net overpayments to 412
recipients
identified by a computerized recipient overpayment data base
obtained
from the State. The auditors validated from State and county
records
the reason for the overpayment determination, the amount, and the
status
of any collection efforts. Audit Report, State's Ex. 5, p.
3. The
auditors did not make independent determinations of
overpayments, but
relied on the State's own determinations that overpayments
had been
made. Id.
The State argued that the Board should reverse the part of
the
disallowance relating to alleged overpayments made prior to April
1,
1979 because of the unavailability or unreliability of the
supporting
documentation. The State alleged generally that "records
on
overpayments refunded to the State are retained for four years
only."
State's Brief, p. 2. The State also indicated that the
disallowance was
based on information in the State's automated client
tracking system
which the State alleged was unreliable because the automated
system as
revised in 1983 did not reflect closed cases. The State
contended that
the lack of documentation affected the merits of the
disallowance and
prejudiced the State by diminishing its ability to respond
to the
disallowance.
The mere existence of a record retention period in the State does
not
necessarily indicate that documentation retained beyond that period
is
unreliable or unavailable. Nor is the Agency precluded from
requiring
documentation beyond that time period, if such documentation
exists.
Community Health and Counseling Services, Decision No. 557, August
2,
1984. Although the Board has recognized that a state need not
keep
documentation for claims indefinitely, the Board has consistently
found
that record retention requirements are not equivalent to
limitation
periods on challenges to state claims. See California
Department of
Health Services, Decision No. 666, June 28, 1985.
We recognize, however, that when records are destroyed pursuant to
an
overall records management plan, the State cannot be held
to
documentation requirements otherwise applicable. We have found that
the
general requirement to provide documentation to support a claim does
not
apply when a state can show that the relevant records had
been
maintained but were, in fact, destroyed, after a reasonable - 9 -
retention period not shorter than the period required by regulation,
as
part of a regular program of record destruction unrelated to
the
disallowance. California, pp. 2-3. We specifically stated
that the
expiration of a record retention period could not enable a state
to
"retain program funds which were not authorized by statute and
which
were received solely by virtue of its erroneous claiming
practices."
Id., pp. 2-3.
The State presented no evidence that adequate documentation had
actually
been maintained, no evidence of any regular program of
record
destruction, and no evidence that any records in question here were,
in
fact, destroyed. The affidavit the State cited in support of
the
statement that relevant records had been destroyed merely indicates
that
the State record retention schedule allows recipient refund records
to
be destroyed after four years. State's Ex. 10, p. 2. The
affidavit
states that the records "had either been destroyed or were not
readily
accessible." Id., pp. 1-2. 6/
Even if DMA has destroyed some records, the relevant information may
be
available from the local county offices or other State offices.
The
auditors sought validation of DMA overpayment records at county
offices.
If the relevant information is available, then the State would not
be
harmed even if DMA did destroy some records.
The State failed to indicate any specific parts of the disallowance
which
may have been inaccurate because of unreliable or
partial
documentation. Although the State alleged that recipient
refunds may
not have been entered into the automated client tracking system,
the
State did not provide a single example of a recipient refund which
had
not been so recorded, or provide evidence that the State had
accounted
to HCFA for a greater amount of refunds than those recorded on
the
automated system. Certainly, the automated printout submitted by
the
State has some recipient refunds entered on it. We think it
was
reasonable for the Agency to assume, without any evidence to
the
contrary, that all such records were included. Furthermore, the
audit
report indicates that the auditors did not rely exclusively upon
the
automated system, but validated data with county offices. Audit
Report,
State's Ex. 5, p. 2.
6/ In California, the Board found an added reason to reverse
the
disallowance because the Agency had been aware of problems with
the
claiming practices and had not given any notice that the records
might
be questioned.
- 10 -
The State did not even provide any evidence which would indicate that
the
State itself did not rely on the documentation and the underlying
State
overpayment determinations used to calculate the disallowance.
See
Pennsylvania Department of Public Welfare, Decision No. 765, July
10, 1986,
pp. 11-13. The State apparently used these records itself as
a basis
for seeking recoveries; the State obtained partial recoveries
from some of
the ineligible recipients. 7/ See State's Ex. 4. Although
some of
the "sample" documentation submitted by the Agency appears not
to be the
final action in the case, but merely a report of a suspected
overpayment, the
State presented no evidence that any alleged
overpayments had not been
considered to be final determinations.
Agency's Supplement to Appeal File,
Att. A. 8/
As we discuss below, the fact that some of the records in question are
not
"readily accessible" does not excuse the State from the burden
of
establishing how the State records relied on by HCFA are inaccurate
or
incomplete. Here the State did not contest that it failed to credit
the
federal government by adjusting claims for FFP received in
prior
quarters for payments it identified as overpayments for
individuals
ineligible under the Medicaid program. Had the State been
properly
adjusting its claims at an earlier stage, it would not now face
a
difficult task in proving its case.
7/ We note that the State alleged, in a letter responding to
the
audit, that one of the difficulties was in verifying whether
recipients
had met "spenddown" requirements by using sufficient funds for
medical
expenses to become eligible for Medicaid. The State should
have
considered these requirements in making the initial
determinations
regarding overpayment amounts. Since the State presented
no evidence to
suggest that these State determinations were incorrect, we
have no
reason to think that documentation relating to "spenddown" amounts
would
make a difference here.
8/ The State alleged that the determinations were not final
because
the recipients had not been afforded any administrative
appeal
procedures. State's Ex. 6. However, it is clear that the
State used at
least some of the determinations as the basis for collection
and
considered them final. Whether the State offered appeal rights
to
recipients could affect the State's right to enforce collection,
but
does not affect the validity of the determination.
- 11 -
Although we find that the State has not presented sufficient evidence
to
show that specific records were destroyed or were unreliable, in such
a
way as to establish that HCFA could not reasonably rely on the
existing
state records, we have determined that the State should have 30
days
from receipt of this decision (or such longer period as the
Agency
determines to be appropriate) to present evidence to the Agency
of
specific instances of destroyed or unreliable records, or of
refunds
already made. The reasons why we have determined that the State
should
have this opportunity are as follows:
o The State based its presentation here primarily on the
broad legal
issues on which it hoped to prevail, and encountered difficulties
in
making its factual presentation in part because of the need for
one
State agency (DMA), to obtain information from another State agency
(the
Department of Human Resources).
o Issues concerning the effect of prior Board decisions on
record
retention were not developed until late in the proceedings.
o The State's presentation raises some questions about
whether all of
its overpayment determinations were sufficiently final and
whether the
State may have already adjusted the federal share of some
amounts
included in the disallowance. HCFA has generally been willing
in
overpayment cases to examine state documentation in these areas.
Any evidence the State presents, however, should not be the
generalized
evidence the State has already presented, but should relate to
specific
parts of the disallowance. If the State can identify
particular records
which have been destroyed and not entered in the automated
client
system, or overpayments which had not been finally determined or
had
already been credited to the federal government, then we agree that
the
disallowance should be reduced to the extent that this shows that
the
State records used by HCFA were inaccurate or incomplete. We
note,
however, that the destruction of records is not a sufficient defense
if
the records were destroyed after the State had notice of the
audit
inquiry, or if the information that was on those records is
available
from other sources.
c. The high cost to the State of verifying the accuracy of
the
disallowance is not a ground for reversal.
The State alleged that it was shouldering an unfair burden in
being
required to use "the limited resources of the Georgia Department
of
Human Resources" to verify findings on - 12 -
overpayments going back to 1968, at the same time as those resources
were
needed to keep current error rates at a level low enough to avoid
further
disallowances. State's Initial Reply Brief, pp. 2-3. The
State
alleged that because the documentation was not readily accessible
and
because the research required labor-intensive reviews of
the
documentation, verification would be difficult if not impossible.
Under the Medicaid program, the State bears the burden of documenting
its
claim for FFP. See California, supra. The State is responsible
to
keep accurate records, and to file claims consistent with those
records.
Had the State been properly adjusting its claims in a timely
fashion,
the State would not have to review its earlier records. Had
the State
kept those records in a careful manner, and updated the status of
all
cases as it should, it would not have to examine each case to
defend
against this disallowance.
The State's staffing or administrative difficulties in managing
the
quality control program are not a basis for reversing the
disallowance.
If the State has chosen to use all its resources for current
program
needs and not to devote any resources to defending against
this
disallowance, the State must accept the consequences of that
management
judgment.
Conclusion
We uphold the disallowance of $678,634, subject to reduction if the
State
chooses to present evidence to the Agency consistent with this
decision (see
pp. 10-11 above). If the parties cannot agree on the
extent, if any, to
which the disallowance should be reduced, the State
may return to the Board
for a further determination.
________________________________ Cecilia Sparks Ford
________________________________ Donald F. Garrett
________________________________ Judith A. Ballard
Presiding
Board