Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Arkansas Department of Human Services
DATE: April 23, 1992
Docket No. A-92-32
Decision No. 1328
DECISION
The Arkansas Department of Human Services (State) appealed a
disallowance
by the Health Care Financing Administration (HCFA) of
$4,116,973 in federal
financial participation (FFP) claimed by the State
under title XIX of the
Social Security Act (Medicaid). The disallowance
was based on alleged
overpayments made by the State to Arkansas
Children's Hospital (ACH) for
services provided during the State fiscal
year ending June 30, 1988.
The payments were based on a State plan
amendment that was initially proposed
by the State on November 17, 1987,
amended on March 7, 1988, and approved by
HCFA on April 20, 1988.
For the reasons stated below, we uphold the disallowance for the
period
July 1, 1987 through December 31, 1987 and reverse the disallowance
for
the period January 1, 1988 through June 30, 1988. We find that with
the
amendment submitted March 7, 1988, the State intended to reimburse
ACH
using a cost-based reimbursement system for all Medicaid
services
provided during State fiscal year 1988 (SFY 88). However, the
State's
intended interpretation cannot control here since it is
inconsistent
with regulations limiting effective dates of state plan
amendments.
Under those regulations, the State's change in reimbursement
method
could not become effective prior to January 1, 1988. On the
other hand,
we find no merit to HCFA's argument that the amended payment
method
applied only to services rendered on or after June 30, 1988;
this
argument fails to recognize (and give the greatest permissible
effect
to) the language of the State plan amendment. HCFA approved
that
amendment and is required by statute to give states maximum
flexibility
in determining hospital reimbursement methods consistent with
applicable
requirements. Accordingly, we remand the case to HCFA for
recalculation
of the disallowance in accordance with this
opinion..BACKGROUND
Title XIX of the Social Security Act, commonly known as Medicaid, is
a
federal-state cost sharing program designed to assist states
in
providing medical care to certain low-income and
medically-needy
persons. Under Medicaid, each state receives FFP in
expenditures for
medical services provided to eligible recipients, made in
accordance
with an approved state plan. As part of its state plan, each
state must
specify comprehensively the methods and standards used by the
state
Medicaid agency to set payment rates for providers of Medicaid
services.
42 C.F.R. . 447.252(b). FFP is available for payments the
state makes
in accordance with an approved plan. 42 C.F.R. .
447.253(g).
Prior to the Omnibus Budget Reconciliation Acts of 1980 and 1981
(Public
Laws 96-499 and 97-35), states could reimburse providers of
inpatient
hospital services on a "reasonable cost" basis. States would
develop
plans containing payment methods which complied with
applicable
regulations. HCFA would then review and approve or
disapprove the
state's payment methods as contained in the plans.
Under current law, each state still develops a state plan which
is
consistent with applicable laws and regulations and submits it to
HCFA
for approval. However, as a result of the 1980 and 1981
enactments, the
plan must provide for reimbursement of hospital services, as
well as
certain other services not applicable here, at rates which the
state
assures:
are reasonable and adequate to meet the costs which must
be
incurred by efficiently and economically operated facilities
in
order to provide care and services in conformity with
applicable
State and Federal laws, regulations, and quality and
safety
standards . . . .
Social Security Act, section 1902(a)(13)(A). 1/ Once the state
provides
these and other required assurances to HCFA, HCFA must approve the
state
plan regardless of the state's chosen method of reimbursement.
At the beginning of each quarter, a state estimates the amount of FFP
to
which it will be entitled for expenditures incurred under the state
plan
during that quarter. HCFA then pays the state quarterly payments
based
on these estimates, adjusted by any overpayments or underpayments
made
in prior quarters. See generally section 1903(d), Social Security
Act.
Beginning at least as early as July 1, 1985, the State had in effect
an
approved state plan which provided for reimbursement of all
inpatient
hospital services according to a prospective payment system.
See HCFA
Ex. 1, at 1. A prospective payment system is a payment method
designed
to provide reimbursement to providers at a flat rate which may
be
adjusted by certain factors, such as a patient's age and diagnosis,
but
is not subject to adjustment based on the actual cost of providing
the
services. On November 17, 1987, the State submitted a transmittal
and a
state plan amendment which contained, in part, a new
retrospective,
cost-based reimbursement system for pediatric hospitals.
2/ See
Arkansas Reply Ex. 1. A retrospective cost-based
reimbursement system
differs from a prospective payment system in that a
provider submits an
itemized report of the actual costs incurred in treating
each patient,
and all reasonable costs are reimbursed through adjustments to
an
"interim" rate paid on the basis of a prior year's costs.
The November 17, 1987 submittal to HCFA did not contain certain
assurances
required by applicable regulations. 3/ On March 7, 1988 and
in response
to a January 14, 1988 letter from HCFA, the State provided
the required
assurances necessary to make the plan amendment approvable,
including an
assurance that the public had been given notice of the
proposed change.
4/ The March 7 cover letter stated that "[t]he State
has changed the
effective date to June 30, 1988 . . . ." Arkansas Ex.
E, at 3.
The revised amendment itself, however, stated:
Pediatric hospitals are reimbursed based on interim per
diem
rates with year end cost settlement for cost reporting
periods
ending on or after June 30, 1988.
Arkansas Ex. A (emphasis added). On April 20, 1988, HCFA sent the
State
a letter stating that the plan amendment had been "approved
for
incorporation into the official Arkansas State Plan effective June
30,
1988." HCFA Ex. 2.
On October 27, 1988, the State issued notice of the new
reimbursement
methodology for pediatric hospitals along with the procedures
for
applying for pediatric specialty status. On that same day, ACH
filed a
revised cost report for the annual cost reporting period ending June
30,
1988 using the cost-based reimbursement system. HCFA Ex. 3, at
5. On
December 5, 1988, ACH submitted an application to be classified
as a
pediatric hospital for reimbursement purposes, which the State
granted
retroactive to the beginning of SFY 88 (i.e. to July 1, 1987).
Id.
On December 12, 1988, the State sent ACH an initial cost settlement
for
SFY 88 under the cost-based reimbursement system. Arkansas Ex.
B. In
May 1989, the State began paying ACH for future quarters at an
interim
rate calculated under the amended cost-based reimbursement
methodology
rather than under the prospective payment system. HCFA Ex.
3, at 5. On
June 21, 1989 and July 20, 1990, the State sent ACH
additional cost
settlements for SFY 88. Arkansas Exs. C-D. These
three settlements
were made by the State under the cost-based reimbursement
methodology
for pediatric hospitals as contained in the March 7, 1988
plan
amendment.
In December 1990, HCFA issued a "Review of the Reimbursement Process
for
Pediatric Hospitals in Arkansas -- Report of the Focused Spectrum
Review
for the Period July 1, 1987 - June 30, 1988." HCFA Ex. 3 (SFY 88
Audit
Report). HCFA found that, for SFY 88, ACH had received from the
State a
total of $5,690,155 above the payments calculated using the
prospective
payment system rate. Stating that ACH should not have been
reimbursed
according to the cost-based reimbursement system for services
rendered
prior to June 30, 1988, HCFA finally disallowed $4,116,973. 5/
ANALYSIS
This dispute revolves around one simple question: which of two
approved
state Medicaid plans controls reimbursement for ACH for SFY
88. The
answer is either the plan containing the prospective payment
system for
all inpatient hospital services, which was in effect at the
beginning of
SFY 88 (the plan); the plan amendment containing the
cost-based
reimbursement system for pediatric hospitals which was approved
during
SFY 88 (the amendment); or both.
The State asserted that since the amendment was to apply to
"cost
reporting periods ending on or after June 30, 1988" and ACH had
an
annual cost reporting period ending on June 30, 1988, the new
payment
system should apply to ACH for all of SFY 88. The State
therefore
asserted that it followed its applicable state plan language in
applying
the new cost-based reimbursement system to ACH for SFY 88.
I. The Board's Analysis of the State
Plan
A state's interpretation of its plan methodology for
provider
reimbursement is given great weight by the Board if it is
reasonably
supported by the language of the plan. Virginia Dept. of
Medical
Assistance Services, DAB No. 1207 at 4 (1990). This is due to
the fact
that the Boren Amendment was enacted specifically to give states
more
control over the method of funding of Medicaid services provided
by
hospitals and other facilities within their boundaries. See 46
Fed.
Reg. 47946 (September 30, 1981). However, a state's interpretation
of
its plan advanced in a disallowance dispute is not always controlling.
In considering whether a state has interpreted its plan
language
reasonably and has then followed its plan in accordance with
that
interpretation, the Board first examines the plan language
for
ambiguities. South Dakota Dept. of Social Services, DAB No. 934
(1988);
Virginia Dept. of Medical Assistance Services at 4. If the
plan
language is unambiguous, then the plain language of the plan
controls.
If the language contains ambiguities, the Board will consider
whether
the state's asserted interpretation is reasonable. It is
reasonable if
it gives effect to the plan as a whole and to the intent and
purpose of
the provision at issue. In order to determine the state's
intent for
the provision, absent clear documentary evidence, the Board
will
consider whether the state's concurrent administrative practices
were
consistent with its proposed interpretation. A state's
interpretation
will not be considered reasonable, however, if it conflicts
with
applicable statutory or regulatory requirements. Id.
II. Ambiguities in the State Plan
As stated above, we first look to see if there are ambiguities in
the
plan's language. If there are no ambiguities, then we apply the
clear
language of the plan regardless of the interpretation urged by
the
state. A sentence in the plan amendment itself states that it
is
effective "for cost reporting periods ending on or after June 30,
1988."
This provision, by itself, does not appear ambiguous: since ACH
had an
annual cost reporting period for SFY 88 beginning on July 1, 1987
and
ending on June 30, 1988, it seems from the face of the amendment
that
ACH was to receive reimbursement under the amended plan for the
entire
one-year period. However, this is not the only language which
must be
considered.
The original submittal to HCFA on November 17, 1987 did not contain
this
effective date provision. The language was included later when
the
State submitted the revised plan amendment on March 7, 1988. The
cover
letter from the State accompanying the amendment stated that
"[t]he
State has changed the effective date to June 30, 1988 . . . ."
The
April 20, 1988 approval letter from HCFA stated that "[t]he
amendment
has been approved for incorporation into the official Arkansas
State
Plan effective June 30, 1988." Neither the March 7 cover letter
nor the
April 20 approval letter restated or referred to the language in
the
amendment regarding cost reporting periods.
The State is required to comprehensively specify its
reimbursement
methodology in an approvable state plan. 42 C.F.R. .
447.252(b). Yet,
at the same time, HCFA shares responsibility for the
apparent ambiguity
when these documents are read together. HCFA should
have been more
explicit in its approval letter or should have asked the State
to revise
the language of the amendment to conform to the cover letter
and
approval letter. Since HCFA's approval took place on April 20,
1988,
there was adequate time to accomplish this revision.
We find that the plan amendment documents as a whole are
ambiguous
concerning what, if any, effect the change in reimbursement
methods
should have on payments for services provided during SFY 88.
The March
7 cover letter from the State did not parallel the amendment
language.
HCFA's approval letter likewise does not refer to any cost
reporting
period, nor does it clearly state what is the effective date of the
plan
amendment. Because of this ambiguity, we have to consider whether
the
State's proposed interpretation of the plan amendment gives
reasonable
effect to the plan as a whole and to its purpose and intent, and
whether
it is consistent with applicable laws and regulations.
III. The Plan as a Whole and the Provision's
Intent
As discussed below, the State's evidence on its administrative
practice
shows that the State intended to reimburse pediatric hospitals at
the
amended reimbursement level for the entire period encompassed in SFY
88.
HCFA argued that it intended to provide FFP in State payments at
the
amended level only for services rendered on or after June 30, 1988,
the
last day of SFY 88. We find that the State's proposed
interpretation of
the amendment is much more plausible generally than HCFA's
proposed
interpretation and gives reasonable effect to the plan as a
whole.
The State would apply the new payment methodology to all services
rendered
during SFY 88, which constitutes a single cost reporting
period. HCFA,
on the other hand, would apply the new payment
methodology to services
rendered only on June 30, 1988 and would apply
the former payment methodology
to services rendered on all other days
during SFY 88. See HCFA Br. at
4. It is unlikely that HCFA would have
intended for the State to
undergo the accounting ordeal that would be
necessary in order to reimburse
providers at a new rate for services
rendered on a single day. It is
much more likely that HCFA would have
intended for the State to start its new
payment methodology with the new
cost-reporting period beginning on July 1,
1988. Yet, if this was
HCFA's intention, HCFA could have easily
requested that the State amend
its plan language to be effective for cost
reporting periods ending
after June 30, 1988, rather than on or after June
30, 1988. Likewise,
it could have stated in the approval letter that
the new reimbursement
system was effective "for services rendered on or after
July 1, 1988" or
"after June 30, 1988." We find that the State's
interpretation of the
plan provision gives effect to the plan as a whole and
to the common
sense feasibility of beginning the new payment system with a
new
cost-reporting period and on the first day of a quarter. We find
that
the State intended for the effective date to be July 1, 1987, the
first
day of SFY 88.
IV. Administrative Practices
The State's interpretation must not only be reasonable in theory;
it
should be verified by practice. Otherwise, a state could argue that
a
provision had a particular meaning, which it was never intended to
have,
in order to avoid an impending disallowance when a draft HCFA
audit
review was issued. In order to discern whether the State intended
to
apply the interpretation of its amendment advanced here, we look
at
whether the State's concurrent administrative practices were
consistent
with its asserted interpretation of the amendment.
The SFY 88 Audit Report indicates that the State issued notice of the
new
cost reimbursement methodology for pediatric hospitals on October
27,
1988. On this same date, ACH revised its cost report for SFY 88
to
conform to the amended payment system. On December 5, 1988 ACH
filed
for pediatric hospital status for reimbursement purposes, which
the
State granted retroactive to all of SFY 88. In May, 1989, the
State
revised the system of payments to ACH for future periods to reflect
the
amended payment methodology. We note that all of these actions
which
the State and ACH took to conform to the new cost-based
reimbursement
method of payment occurred prior to the time the SFY 88 Audit
Report was
issued by HCFA in December, 1990. Therefore, there is no
reason to
believe that the State argued for a different interpretation of
the
amendment, as a result of the SFY 88 Audit Report, than it intended
for
it to have when it was submitted and approved.
We also note that neither ACH nor any other facility was classified as
a
pediatric hospital until after the close of SFY 88. Therefore,
the
State acted reasonably and consistently with its asserted
interpretation
of the plan amendment in making payments according to the
prospective
payment system to ACH during that year. The State could
have reasonably
expected that it would retroactively adjust payments to
pediatric
hospitals once one or more facilities were reclassified as
pediatric
hospitals. While we do not fully understand why ACH did not
request a
reclassification until four months after the close of SFY 88 and
why the
State did not adjust its payment system for future payments until
May,
1989, HCFA did not challenge these actions. Therefore, we find
that the
State's concurrent administrative actions were consistent with
its
asserted interpretation of its amendment.
We find that the State intended the March 7 amendment to apply to
the
entire annual period encompassed in SFY 88. Therefore, if the
only
consideration were the State's intended interpretation of its
amendment,
we would apply it beginning July 1, 1987. However, this is
not the sole
consideration.
V. Program Requirements and Applicable
Regulations
A state plan or plan amendment must comply with applicable statutes
and
regulations. Title XIX limitations and procedures for FFP in
payments
for services are implemented by 42 C.F.R. Part 447. During the
time
period at issue in this disallowance, the general
administrative
requirements applicable to Department of Health and Human
Services
(DHHS) grants to states for other public assistance programs (45
C.F.R.
Parts 201 and 205) also applied to Medicaid state plans.
Part 447 provides that a state Medicaid plan amendment, which
is
subsequently approved, becomes effective not earlier than the first
day
of the calendar quarter in which an approvable amendment is
submitted.
42 C.F.R. . 447.256(c). The amendment must be submitted in
accordance
with 45 C.F.R. .. 201.3(g) 6/ and 447.253. Id. Section
447.253
requires that the plan amendment be accompanied by certain
enumerated
assurances from the state before it is considered approvable.
7/ In the
case of this particular plan amendment, those assurances were
not
submitted until March 7, 1988, even though the original draft of
the
plan amendment was submitted on November 17, 1987. Therefore the
state
plan amendment did not become an approvable amendment until March
7,
1988 for purposes of section 447.256(c). For this reason, the
amendment
could not take effect under this provision earlier than January 1,
1988,
the first day of the calendar quarter in which an approvable
amendment
was submitted.
The preamble to the Part 447 regulations, as published in the
Federal
Register, gave insight into the intent of the effective date
provision.
The regulations as originally published on September 30, 1981
state that
section 447.256(c) is "a limitation on the retroactivity of rates"
and
that it is "necessary to conform the revised regulations to the
current
regulations on the effective date of new plans and plan
amendments"
found in 45 C.F.R. . 201.3(g). 46 Fed. Reg. 47967
(September 30, 1981).
It is important to note that, from the language of the
preamble, it is
clear that section 447.256(c) was intended to be a limitation
on the
retroactivity of rates, not on the timing of payments.
Therefore, the
State's argument that HCFA intended that the State reimburse
ACH for the
entire annual cost reporting period at the amended rate for
pediatric
hospitals, as long as it did not make payments prior to the
effective
date of June 30, 1988, is simply not plausible. 8/
The preamble also stated that section 447.256(c) was intended to extend
to
all new plan amendments the requirements of 45 C.F.R. . 201.3(g).
Section
201.3(g) provides that new plans and certain plan amendments,
that is, those
which add additional categories of services or
recipients, shall become
effective not earlier than the first day of the
quarter in which the plan
amendment is submitted. Section 201.3(g) has
been interpreted to
prevent exactly the kind of retroactive application
of rates that the State
is attempting to impose in this case. See New
Jersey Department of
Human Services, DAB No. 115 (1980), aff'd, New
Jersey v. Dept. of Health and
Human Services, 670 F.2d 1284 (3rd Cir.
1981). 9/
In addition to the restrictions found in Part 447 relating to
the
effective date of state plan amendments, Part 205 limits
federal
financial participation to the first day of the quarter in which
either
the state plan amendment was submitted or became effective,
whichever
was later. 45 C.F.R. . 205.5(b). As we discussed
earlier, the State's
intended effective date of the plan amendment in
question, as applied to
ACH, was July 1, 1987. However, because of the
regulations in Parts 447
and 201 restricting the effective date to the first
day of the quarter
in which an approvable amendment was submitted, we find
that the actual
effective date could not have been earlier than January 1,
1988 since
the approvable amendment was submitted March 7, 1988. Since
section
205.5(b) allows FFP beginning with the later of the quarter of the
plan
amendment's submission or of the effective date, we find that an
actual
effective date for receiving FFP of January 1, 1988 is also
consistent
with section 205.5(b). 10/
Finally, we note that the FY 1988 Continuing Appropriations statute,
cited
by both parties, contains a provision that payment under Medicaid
may be made
for any quarter between June 1, 1987 and September 30, 1988
"with respect to
any State plan or plan amendment in effect during such
quarter, if submitted
in, or prior to such quarter and approved in that
or any such subsequent
quarter." HCFA Ex. 6; Public Law No. 100-202,
101 Stat. 1329, at
269. We have not been able to locate any discussion
in the House,
Senate or Conference Committee reports which would
indicate the particular
reasoning behind the provision. However, we do
not find any merit to
the State's argument that this provision limits
only when, not what, can be
paid. Arkansas Reply Br. at 3. From the
face of the language, it
appears that the provision was intended to
enact into law for FY 88 a limit
on the retroactivity of rates similar
to that encompassed by Parts 447, 201,
and 205 of the regulations.
We likewise find no merit to the State's argument that the four
paragraphs
of the HCFA Medicaid grants section of the FY 88 Continuing
Appropriations
statute, when read together, would allow for the
application of a retroactive
rate under the facts of this case. HCFA
Ex. 6; Public Law No. 100-202,
101 Stat. 1329, at 268-269. This section
provides for the appropriation
of such sums as may be necessary for
unanticipated costs incurred by HCFA
during the fiscal year. These
unanticipated costs refer to costs which
the federal government is
obligated to pay. There is no obligation for
HCFA to pay expenses which
are not covered by the state plan in effect for
the time period in which
coverage is sought. Therefore, this provision
does not place any
statutory responsibility on HCFA to cover, at an amended
rate, costs
incurred in quarters during which the state plan amendment
containing
the new rate, due to restrictions in the regulations, could not
have
been in effect.
Furthermore, we note that it was not necessary for the State to pay
ACH
for hospital services at a rate in excess of what the hospital
could
reasonably expect at the time of providing the services. General
grant
principles limit costs to those "necessary" to the grant
programs. OMB
Circular A-87, made applicable to Medicaid grants by 45
C.F.R. . 74.171.
In summary, we find that the amended plan language, to the extent that
the
State intended to implement it for services provided between July 1,
1987 and
December 31, 1987, would violate applicable regulations
restricting the
effective dates of state plan amendments. Therefore we
decline to give
effect to the amended state plan for this period. We
find that the
amended plan language can be given effect consistent with
applicable
regulations beginning January 1, 1988 through June 30, 1988.
We hold that FFP
was available to the State in payments to ACH for
services provided during
this period based on rates set in accordance
with the plan amendment.
VI. Other Arguments and Issues
Both parties cite Heckler v. Community Health Services, 467 U.S.
51
(1984), on the issue of whether the government should be
equitably
estopped from denying payment under the amended plan language on
the
basis that the language, which can be interpreted to violate
federal
regulations, was approved by an agent of HCFA. We do not agree
with the
State that the core issue of Heckler is whether the action or
remedy
involved is legal or equitable. What is important are the
general
principles which can be gleaned from Heckler.
Heckler stands for the proposition that those who deal with the
government
must know the applicable laws and regulations and may not
rely on the conduct
of government agents where it is contrary to law.
Heckler specifically states
that those who deal with Medicare have an
affirmative duty to familiarize
themselves with cost reimbursement
principles and requirements of the
program. We see no reason why this
would not also apply to those who
deal with Medicaid. Id. We find that
the State had a duty to
familiarize itself with federal Medicaid
requirements and to comply with
those requirements.
Both parties also discuss Levine v. New York State Dept. of
Social
Services, 434 N.Y.S.2d 572 (1980), on the issue of effective dates
as
limited by regulations. We agree with HCFA that Levine has
absolutely
no bearing on this case. Levine addressed a situation where
a
regulation was drafted in such a way that its effective date
attempted
to override an earlier effective date specified in the
provision's
enacting legislation. Here, there are no regulations which
conflict
with laws providing for earlier effective dates. To the
contrary, the
regulations of Parts 447, 201 and 205 are consistent with
the
limitations contained in the FY 88 Continuing Appropriations statute.
Furthermore, it is not inherently inequitable that the State be denied
the
higher payments provided for in the amended plan for the first half
of SFY
88. The State chose the prospective payment system and made
assurances
at the time that system was originally included in the state
plan that such
payment system was reasonable and adequate under section
1902(a)(13)(A) to
meet the costs which must be incurred by efficiently
and economically
operated providers to provide the services required by
Medicaid. Having
chosen that system, the State was bound by it until
the time at which it
submitted an approvable plan amendment.
Furthermore, part of the delay was
caused by the State's failure to
provide the required assurances when it
submitted the original version
of the plan amendment on November 17,
1987.
Finally, there is no merit to the State's argument that the Board does
not
have jurisdiction over this matter because it should be a proceeding
under 42
C.F.R. . 430.60. Section 430.60 implements section 1904 of the
Social
Security Act, which provides for alternative adjudicative
proceedings for any
state which the Secretary finds has failed to comply
substantially with its
state plan.
While the lines between noncompliance actions and disallowance actions
are
not always clear, there are certain characteristics which have been
found to
distinguish them. Noncompliance actions provide prospective
remedies
and are designed to provide incentives to states to return to
compliance with
their plans and federal requirements. The remedies may
bear no
relationship to the actual costs of the acts of noncompliance
which are at
issue. On the other hand, disallowance actions involve
retrospective
remedies for limited and specifically-focused amounts of
money. See,
e.g., Massachusetts Dept. of Public Welfare, DAB No. 262,
at 20-21 (1982),
rev'd on other grounds sub nom Massachusetts v.
Heckler, 576 F. Supp. 1565
(D. Mass.), rev'd sub nom Massachusetts v.
Secretary of Health and Human
Services, 749 F.2d 89 (1st Cir.), cert.
den. 105 S.Ct. 3478 (1984) (dispute
over amounts paid by the state to
nursing homes which were alleged to be
improperly calculated and
overly-generous was properly before Board as a
disallowance matter);
California Dept. of Health Services, DAB No. 734, at
8-9 (1986) (dispute
regarding overpayments made by state to providers, which
involved review
of state's policy for crediting overpayments, was properly
before Board
as a disallowance matter).
This case involves a retrospective remedy for a limited amount of
money
which was disallowed for a particular, limited cost period.
The
disallowance was based on an calculated overpayment and was not
intended
to serve as an incentive to induce future compliance.
Furthermore, this
case is substantively indistinguishable from Massachusetts,
DAB No. 262,
and California, DAB No. 734, which were both found to be
disallowance
actions and properly before the Board. The Chair of the
Board, a member
of the Board panel responsible for this decision, has
determined that
the Board has jurisdiction over this matter as a Title XIX
disallowance.
See 45 C.F.R. Part 16, App. A, .. (B)(1) and (G).
CONCLUSION
We conclude that the state plan amendment providing for a
cost-based
reimbursement system for pediatric hospitals, submitted in its
revised
form on March 7, 1988, was effective for services rendered on or
after
January 1, 1988. We affirm the HCFA decision disallowing the
difference
between payments under the cost-based reimbursement system and
payments
under the prospective payment system for ACH for the period July 1,
1987
through December 31, 1987. We reverse the disallowance for the
period
January 1, 1988 through June 30, 1988. We hold that the State
is
entitled to receive FFP in payments to ACH for services provided
during
these six months in accordance with a cost-based reimbursement system
as
provided for in the state plan amendment submitted on March 7, 1988.
We
remand this matter to HCFA to recalculate the disallowance. If
the
State does not agree with the recalculation, it may return to the
Board
within 30 days of receiving the recalculation for the limited purpose
of
reviewing the recalculation.
___________________________
Cecilia
Sparks Ford
____________________________
Norval
D. (John) Settle Board
Chairman
____________________________
Judith
A. Ballard Presiding
Board Member
1. This provision is known as the Boren Amendment.
2. ACH was the only facility classified as a pediatric hospital
during
the period at issue in this disallowance. HCFA Ex. 3, at 5.
3. Under 42 C.F.R. . 447.253, state Medicaid agencies are required
to
assure HCFA, before HCFA can approve changes in payment methods, that
1)
the new rates are reasonable and adequate; 2) the new rates take
into
consideration facilities which serve a larger share of
low-income
persons; 3) the new rates do not exceed upper payment limits; 4)
the new
procedures provide for certain appeal, cost-reporting, and
audit
procedures; and 5) the public has been given notice of the
proposed
changes.
4. HCFA noted that the State published notice of the proposed change
on
December 4, 1987 in accordance with 42 C.F.R. . 447.205. HCFA Br. at
5,
n.1. The notice must be published before the proposed effective date
of
a change in the state plan. 42 C.F.R. . 447.253(d).
5. ACH repaid the State $137,184 in response to the July 20, 1990
final
cost settlement. Of the $5,552,971 remaining, $4,116,973 was the
FFP
amount paid by HCFA. HCFA Br. at 3.
6. 45 C.F.R. . 201.3(g) limits effective dates in initial state
plans
and plan amendments which increase benefits or services or which
provide
for new categories of recipients. Therefore it is not
directly
applicable on its face to this plan amendment, which increases
neither
categories of services nor recipients. However, the preamble to
42
C.F.R. Part 447, 46 Fed. Reg. 47964 (September 30, 1981), states
that
the effective date of state plan amendments which would otherwise
fall
outside of section 201.3(g) are now intended to conform to the
effective
date requirements of those which fall within section
201.3(g). See
discussion below.
7. See previous discussion, footnote 3.
8. The actual language of the effective date provision in the
1981
draft regulations was changed before the final regulations
were
published two years later. The change appears to be technical, and
the
limitation on an effective date prior to the calendar quarter in
which
an approvable amendment is submitted remains substantially the same
in
both drafts. There is no indication that the intent of the
provision
changed between the two publications. See 48 Fed. Reg. 56047
(December
19, 1983).
9. Section 201.3(g) no longer applies to Medicaid state
plan
amendments, although it applied at all times relevant to
this
disallowance. However, the effective date provision of
section
447.256(c), which was intended to conform to section 201.3(g),
still
applies. Section 201.3(g) was replaced by 42 C.F.R. . 430.20(b)
in
regard to Medicaid state plans, and this provision went into effect
in
October 1988. Both parties advance arguments under 430.20(b), but
we
find that this section is wholly inapplicable to the disallowance
period
in question.
10. Invoking an effective date of January 1, 1988 also complies
with
the requirement of 42 C.F.R. . 447.253(f) that public notice be
given
prior to the effective date. The record indicates that public
notice
was first given on December 4,