Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Illinois Department of Public Aid
Docket No. 90-67
Decision No. 1206
Audit No. A-01-87-00008
DATE: November 9, 1990
DECISION
The Illinois Department of Public Aid (Illinois or State) appealed
a
determination of the Health Care Financing Administration (HCFA
or
Agency) to disallow federal financial participation (FFP) claimed
under
title XIX (Medicaid) of the Social Security Act (Act). 1/ The
payments
claimed were made between October 1, 1984 and March 1, 1985
for
outpatient clinical diagnostic laboratory tests furnished on or
after
July 1, 1984. The Agency disallowed the payment amounts in excess
of
those determined allowable under Medicaid.
For the reasons set forth below, we uphold the disallowance in the
reduced
amount of $180,672.03.
Background
Medicaid, set forth in title XIX of the Act, provides grants to states
for
medical assistance to eligible low- income persons. Title
XIX
authorizes partial federal reimbursement of states' expenditures
for
medical care and services, including payments for clinical
diagnostic
laboratory tests. See section 1905(a) of the Act. Medicare,
set forth
in title XVIII of the Act, is a federally administered program of
health
insurance for persons entitled to social security or
disability
benefits. Part B of Medicare is a voluntary program of
supplementary
medical insurance covering a percentage of the charges for
physician
services and other medical and health services, including
clinical
diagnostic laboratory tests. See sections 1832, 1833, and 1861
of the
Act.
In 1984, Congress enacted the Deficit Reduction Act of 1984 (DEFRA),
Pub.
L. 98-369 (July 18, 1984), which added sections 1833(h) and
1903(i)(7) to the
Social Security Act. Section 1833(h) required the
Secretary of Health
and Human Services to establish fee schedules for
clinical diagnostic
laboratory tests for which payment would be made
under Medicare. This
provision required the establishment of a fee
schedule for all non-inpatient
laboratory services, including those
furnished by hospital outpatient
departments. The statute provided that
the fee schedules could be
established on a regional, statewide, or
carrier basis for tests furnished
from July 1, 1984 to December 31,
1989. Section 1903(i)(7) provided
that FFP would not be paid under
Medicaid for amounts in excess of those
recognized for Medicare under
section 1833(h).
Under section 1842 of the Act, the Secretary was authorized to
contract
with private carriers to administer the payment of Medicare claims
on
his behalf. Generally, a carrier determined whether a claimed service
or
item was medically necessary and was covered by Medicare. Although
some
states had more than one carrier, for the time period at issue,
Health
Care Service Corporation was the carrier for Illinois. HCFA's
Br., p.
5.
HCFA instructed Medicare carriers to provide the fee schedules to
the
Medicaid state agencies by August 31, 1984. See Chicago
Regional
Intermediary Letter No. 66- 84. HCFA's Ex. 5. Since
Illinois was
serviced by only one Medicare carrier for Medicare Part B, it
had only
one fee schedule. HCFA's Br., p. 5. HCFA also provided
Illinois with a
letter explaining the new Medicaid requirements for
reimbursement of
outpatient clinical laboratory tests. See Chicago
Regional State Letter
No. 33-84 (October 1984). State Ex. D.
The State acknowledged that it received a magnetic tape containing the
fee
schedule information from Health Care Service Corporation on
September 7,
1984. A hard copy of the fee schedule was enclosed with
the magnetic
tape. State's Ex. C, p. 1.
By letter dated December 20, 1984, Illinois requested that HCFA allow
the
State to "implement the reduction in laboratory fees to the
Medicare
allowable amount effective February 1, 1985, without loss of
federal
financial participation." State's Ex. C, p. 2. By letter
dated
February 4, 1985, a HCFA associate regional administrator responded
to
the State's request:
Although implementation of Medicare laboratory fee
schedules
effective October 1, 1984 was mandated by
section 2303 of the
Deficit Reduction Act (P.L. 98-
369), we recognize that you were
unable to achieve
timely implementation despite your efforts to do
so.
You have indicated that you will implement the fee
schedule
effective March 1, 1985. We have
coordinated this issue with our
Division of
Financial Operations, which agrees, for the period
October 1, 1984 through February 28, 1985, this office will
not
take any adverse action involving the
withholding of FFP based upon
failure to implement
section 2303 effective October 1, 1984.
State's Ex. E., p. 1.
Subsequently, the Office of Inspector General (OIG) conducted an audit
of
the implementation of the DEFRA laboratory fee schedules in 18
states.
The OIG determined that between October 1, 1984 and March 1,
1985, Illinois
had paid for outpatient clinical laboratory tests in
excess of the amounts
recognized under the DEFRA Medicare fee schedules.
HCFA's Ex. 1. The OIG's
audit report recognized that a regional HCFA
official had sought to excuse
Illinois late implementation of the
Medicare fee schedules. HCFA's
Ex. 1, p. 7. However, the report
stated that:
No statutory or regulatory provision authorizes HCFA
to allow any
exceptions to this congressionally
imposed limitation.
HCFA's Ex. 1, p. 2.
HCFA agreed with the OIG's findings and recommendations and
instructed
their regional offices to initiate recovery of any
overpayments. HCFA's
Ex. 1, p. 8.
Illinois' arguments
Illinois did not dispute that it was required, but failed, to
implement
the fee schedules mandated in DEFRA beginning October 1, 1984
for
periods after July 1, 1984. Instead, Illinois argued that it
had
attempted to implement the fee schedules, but was unable to do
so
because of faulty and unreliable fee schedule information provided
by
the Medicare carrier. The State asserted that because of
these
difficulties, HCFA had exercised an implicit authority under the
statute
and granted Illinois an extension of time until March 1, 1985, in
which
to implement the required fee schedules. The State argued that
this
extension excused it from implementing the Medicare fee schedule
by
October 1, 1984.
It was also the State's position that Congress, in enacting
DEFRA,
intended implementation of a uniform and reliable system of
laboratory
fee schedules based upon accurate information. Thus, the
State argued
that in order to carry out congressional intent and to avoid an
absurd,
unreasonable, or unjust result, the Board should find that
HCFA's
extension of time for implementation of the fee schedules
was
appropriate. State's Br., pp. 5-7.
Analysis
Section 1903(i)(7) of the Act provided that:
payment shall not be made with respect to any amount
expended for
clinical diagnostic laboratory tests
performed by a physician,
independent laboratory, or
hospital, to the extent such amount
exceeds the
amount that would be recognized under section
1833(h)
for such tests performed for an individual
enrolled under Part B of
Title XVIII.
(emphasis added).
Section 1903(i)(7) applied to Medicaid payments for calendar
quarters
beginning on or after October 1, 1984. See section 2303(j)(2)
of DEFRA.
As noted above, section 1833(h) established fixed fee schedules under
Part
B of the Medicare program for outpatient clinical laboratory
diagnostic tests
furnished on or after July 1, 1984. Thus, Illinois was
prohibited by
section 1903(i)(7) from making Medicaid payments in excess
of the amounts
provided for in the Medicare fee schedule for clinical
diagnostic laboratory
tests furnished after July 1, 1984.
HCFA disallowed FFP for the State's excess payments because they
were
unallowable costs, i.e., costs not authorized by law. State's Ex.
A.
Federal funds for the Medicaid program are paid to the states "from
the
sums appropriated" pursuant to section 1903(a) of the Act, and must
be
paid in accordance with congressional authority. Since it is
undisputed
that the Act, on its face, precluded payment of the costs in
issue, the
question before us is whether HCFA's interpretation that the
Act
contains no "implicit" waiver authority is reasonable. We conclude
that
it is.
At the outset, we find no legal authority for the general proposition
that
a federal agency can reimburse a state with federal funds on a
theory of
"implicit authority" when Congress has explicitly mandated
that no funds are
to be paid. Nevertheless, we proceed to respond to
Illinois's argument,
which essentially is that special aspects of the
Medicaid and Medicare
programs and DEFRA imply such authority.
Illinois argued that the Agency's disallowance is contrary to
Congress's
intent to provide for uniform fee schedules in the Medicare and
Medicaid
programs. However, contrary to the State's argument, the
legislative
history demonstrates that HCFA's position in disallowing federal
funding
in this case is consistent with both the purpose and policy of
section
2303 of DEFRA.
Since the federal government has substantial responsibility in
funding
both Medicare and Medicaid, Congress continually scrutinizes
these
programs for cost- saving opportunities. It is apparent from
the
legislative history that Congress enacted DEFRA for the purpose
of
reducing the amount of the deficit:
the first objective of the bill is to reduce these
budget deficits
in order to safeguard the economic
recovery.
H. Rep. No. 432, 98th Cong., 2d Sess. 1094, reprinted in 1984 U.S.
Code
Cong. & Admin. News 697, 770.
As noted by the Agency, DEFRA consisted of two divisions: (1) Division
A,
the Tax Reform Act of 1984; and (2) Division B, the Spending
Reduction Act of
1984. See DEFRA section 1(b). Title III of Division B
was
entitled "Medicare and Medicaid Budget Reconciliation Amendments of
1984,"
and was enacted with the purpose of achieving "substantial
spending
reductions." H. Rep. No. 432, 98th Cong., 2d Sess. 1097,
reprinted in
1984 U.S. Code Cong. & Admin. News 697, 774. HCFA's Br.,
p.
8. Nothing elsewhere in DEFRA or its legislative history suggests
that
Congress had any other goal in mind concerning the fee schedules.
2/
The loss of federal funds for noncompliance with the
statutory
requirements of DEFRA is not unreasonable, unjust, or absurd in
this
case. Congress, through this legislation, sought to limit Medicare
and
Medicaid payments. The State made payments prohibited by
that
legislation and cannot expect nevertheless to receive federal funds.
There is no provision in DEFRA for granting an exception to
section
1903(i)(7), and HCFA has acknowledged that its regional official
lacked
the authority to agree not to take adverse action against the State
for
failure to implement the required fee schedules. HCFA's Br., p. 16.
The
State's argument with respect to HCFA's implicit authority is
without
merit in light of the explicit congressional mandate in DEFRA.
The
Board also has no authority to grant an exception to a federal
statute,
since we are bound by all applicable laws and regulations. See
45
C.F.R. 16.14.
The cases cited by the State are also inapposite. In both Rector
of
Holy Trinity Church v. United States, 143 U.S. 457 (1892), and Perry
v.
Commerce Loan Co., 383 U.S. 392 (1966), the Courts dealt with
whether
or not provisions of statutes covered certain situations. Here,
there
is no allegation by Illinois that its Medicaid payments were not
covered
by section 2303.
Moreover, the Court in United States v. Rutherford, 442 U.S. 544,
553
(1979), specifically reaffirmed the rule that the plain language of
a
statute is controlling and that "exceptions to clearly
delineated
statutes will be implied only where essential to prevent absurd
results
or consequences obviously at variance with the policy of the
enactment
of a whole." As we noted above, the disallowance in this case
is
neither absurd or at variance with the policy of DEFRA.
Illinois also argued that Congress did not intend for the states
to
implement inaccurate information and that it had in good faith done
all
that was possible to verify and correct any inaccurate
information
supplied by the Medicare carrier.
We do note, however, that Illinois did not seek the extension from
HCFA
until December 20, 1984, more than two months after the
required
implementation date, and HCFA's reply was not relayed to
Illinois until
February 1985, five months after the effective date of section
2303. 3/
It was also unclear from the State's submission why difficulties with
some
of the figures furnished by the carrier prevented the State from
implementing
the entire Medicare fee schedule. Moreover, as pointed out
in the
Inspector General's audit report, there were other states which
encountered
difficulties in implementing the required fee schedules, and
yet did not make
payments in violation of federal law. HCFA's Ex. 1.
Conclusion
Accordingly, we uphold the disallowance in the amount of $180,672.03.
___________________________ Donald
F.
Garrett
___________________________ Alexander
G.
Teitz
___________________________ Norval D.
(John)
Settle Presiding Board Member
1. In addition to its substantive challenge to the
disallowance, the
State questioned the calculation of the disallowance amount
of $194,500.
By letter dated October 12, 1990, the Agency advised the Board
that the
amount of the disallowance should be, as maintained by the
State,
$180,672.03.
2. The State argued that the purpose of section 2303 was to
require
the establishment of laboratory fee schedules on a national basis
within
three years. State's Br., p. 6. Although there was a provision
in DEFRA
to this effect, we are not persuaded that Congress enacted
this
legislation for such uniformity as an end in itself. As noted
above,
the overwhelming evidence from the legislative history is that DEFRA
was
enacted as a cost-saving measure.
3. The Agency argued that although it did not use the term,
Illinois
was in essence arguing that HCFA was estopped from pursuing
a
disallowance in this case. HCFA's Br., pp. 21, 22. However,
the
Agency's characterization of Illinois's argument overstates it.
The
State argued that HCFA had implicit exception authority under
the
statute, not that HCFA should be estopped from claiming now that
it
lacked authority. To the extent that an estoppel argument could
be
implied however, it would not be successful on the facts of this
case
and under applicable standards.
The traditional elements for estopping a private party require
detrimental
reliance, and that reliance must have been reasonable. See
Heckler v.
Community Health, Services, 467 U.S. 51, 59 (1984). Even if
the State
did rely on the Region's representation, that reliance could
not be
reasonable. The federal government can not be estopped by
reliance on a
representation which is contrary to a published
regulation, let alone a
statute. See Federal Crop Insurance Corp. v.
Merrill, 332 U.S. 380
(1947). In any event, the Agency's representation
was directly contrary
to a provision of a federal statute appropriating
federal funds ("payment
shall not be made"), and estoppel could never
lie against the federal
government in such a case under the recent
Supreme Court case of Office of
Personnel Administration v. Richmond,
110 S.Ct. 2465
(1990).