Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Louisiana Department of Health and Hospitals
DATE: January 7, 1993
Docket No. 91-104
Decision No. 1378
DECISION
The Louisiana Department of Health and Hospitals (Louisiana) appealed
a
decision by the Health Care Financing Administration (HCFA)
disallowing
$1,344,569 in federal financial participation (FFP) claimed by
Louisiana
under title XIX (Medicaid) of the Social Security Act for the
period
November 1, 1985 through October 31, 1986. HCFA determined
that
Louisiana did not follow the applicable regulations in extending
the
automatic cancellation dates of facilities' provider agreements.
HCFA
therefore found that Louisiana made unallowable payments to
30
facilities for periods in which no valid provider agreements were
in
effect. During the course of Board proceedings, HCFA withdrew
the
disallowance for three facilities.
For the reasons discussed below, we sustain the disallowance with
respect
to 18 facilities and reverse the disallowance for nine
facilities.
Statutory and Regulatory Background
Title XIX of the Social Security Act (Act) provides federal funding
to
states for expenditures for "medical assistance" for needy
individuals
under an approved state plan. During the period at issue
here, the Act
defined "medical assistance" to include payment for services
provided by
intermediate care facilities (ICFs). Section 1905(a) of the
Act. To
participate as an ICF, a facility had to meet standards
specified in
HCFA regulations. Section 1905(c) of the Act; 42 C.F.R.
Part 442,
Subparts E, F, and G (1985). Each facility had to have a
provider
agreement with the "single state agency" designated to administer
the
Medicaid state plan (also referred to in this decision as the
"Medicaid
agency"). Section 1902(a)(27) of the Act.
A state survey agency performed surveys to determine whether a
facility
wishing to participate in Medicaid met program requirements
for
certification for participation as a Medicaid provider, so that
the
Medicaid agency could enter into a provider agreement with it.
Sections
1902(a)(33)(B) and 1910(c) of the Act. HCFA regulations in
effect
during the relevant time period provided:
. . . FFP is available in expenditures for . . . ICF
services
only if the facility has been certified as meeting
the
requirements for Medicaid participation, as evidenced by
a
provider agreement executed under this part. An agreement is
no
longer valid evidence that a facility has met those
requirements
if HCFA determines that --
* * *
(2) The survey agency failed to follow the rules and
procedures
for certification set forth in Subpart C of this part
and
[section] 431.610 of this subchapter;
*
* * (4) The survey agency failed to use
the
Federal standards and the forms, methods and procedures
prescribed by
HCFA in current general instructions . . . for
determining the
qualifications of providers; or
(5) The agreement's terms and conditions do not meet
the
requirements of this subpart.
42 C.F.R. . 442.30(a) (1985).
In addition, implementing regulations at 42 C.F.R. . 442.16 provided
that
a Medicaid agency could extend a provider agreement for a single
period of up
to two months beyond the original expiration date of the
agreement, if it
received written notice from the survey agency, before
the expiration date of
the agreement, that the extension would not
jeopardize the patients' health
and safety, and, as pertinent, that the
extension either was needed to
prevent irreparable harm to the facility
or hardship to the recipients in the
facility, or was needed because it
was impracticable to determine before the
expiration date whether the
facility met the certification requirements.
Moreover, the regulations provided that if a survey agency found
a
facility deficient in meeting the standards specified for ICFs
under
Subpart E or F of Part 442, the survey agency could certify the
facility
for Medicaid purposes under the following conditions:
(a) The agency finds that the facility's
deficiencies,
individually or in combination, do not jeopardize the
patient's
health and safety, nor seriously limit the facility's
capacity
to give adequate care. The agency must maintain a
written
justification of these findings.
(b) The agency finds acceptable the facility's written plan
for
correcting the deficiencies.
42 C.F.R. . 442.105.
An automatic cancellation date is a date specified in a
facility's
provider agreement on which certification of the facility
will
automatically expire unless --
(1) The survey agency finds that all deficiencies have
been
satisfactorily corrected; or
(2) The survey agency finds and notifies the Medicaid
agency
that the facility has made substantial progress in
correcting
the deficiencies and has a new plan for correction that
is
acceptable.
42 C.F.R. . 442.111(c).
Procedural Background
The Board previously considered disallowances of payments to the
same
facilities for the same time periods as are involved here.
Louisiana
Dept. of Health and Hospitals, DAB No. 1116 (1989). 1/ That
decision
involved a disallowance issued by HCFA in April 1988 of FFP claimed
for
payments to 140 long-term care facilities for periods during which
HCFA
found that the facilities did not have valid provider agreements.
FFP
in payments to 33 of these facilities was disallowed based on
HCFA's
determination that automatic cancellation dates (ACDs) of
the
facilities' provider agreements were improperly extended. In DAB
No.
1116, the Board rejected HCFA's argument that the ACD of a
facility's
provider agreement could never be extended under 42 C.F.R. .
442.16.
Id. at 27-29. The Board concluded that until Louisiana had
notice from
HCFA to the contrary, Louisiana could reasonably interpret
section
442.16 to permit extensions of the provider agreements beyond
ACDs,
provided that conditions set forth in that regulation were
satisfied.
Thus, the Board reversed the disallowance for payments to the
33
facilities based on HCFA's finding that extensions of
provider
agreements beyond the ACDs were improper.
HCFA requested partial reconsideration of the Board's decision
regarding
these 33 facilities. HCFA did not challenge the Board's
holding that
Louisiana could have extended the provider agreements beyond the
ACDs.
Rather, HCFA challenged what it saw as implicit in the Board's
holding:
a finding that Louisiana's Certification and Transmittal forms
(C&Ts)
for the questioned facilities constituted compliance with 42
C.F.R. .
442.16. 2/ HCFA contended that since the record failed to show
that the
requirements of the regulation were met, such a finding was
unwarranted.
In denying HCFA's request for reconsideration, the Board
specifically
stated that it had neither held nor found that Louisiana met
the
requirements of section 442.16 in extending the ACDs for
these
facilities. Louisiana Department of Health and Hospitals, Ruling
on
Request for Reconsideration of DAB No. 1116, at 2. The Board
stated
that its decision did not preclude HCFA from requiring Louisiana to
show
whether it had received C&Ts or other documentation from the
survey
agency which met the requirements of section 442.16 before it
extended
the provider agreements beyond the ACDs.
HCFA then notified Louisiana that it would conduct a review to
determine
whether Louisiana complied with the requirements of section
442.16.
Louisiana was asked to provide documentation showing that the
ACD
extensions for the questioned facilities were granted in accordance
with
the requirements of section 442.16. HCFA Exhibit (HE) 1.
Louisiana
submitted documentation including C&Ts in support of its
position that
the provider agreements for the disputed facilities had been
extended
properly. State Exhibit (SE) 1-29. HCFA agreed that one
provider
agreement was properly extended and concluded that disallowances
were
appropriate for 30 facilities because Louisiana had not met
the
requirements of section 442.16 and had therefore improperly extended
the
provider agreements beyond the ACDs. 3/ HCFA indicated that none of
the
C&Ts used to extend the provider agreements for these
facilities
contained the required assurance that the extension would not
jeopardize
the patients' health and safety. HCFA also found that some
of the
questioned C&Ts did not meet certain other requirements of
section
442.16 (discussed later). As a result, HCFA disallowed
$1,344,569, the
amount of FFP in payments made to these facilities for
services provided
after the ACDs of the facilities' provider agreements and
before the new
certification dates. HCFA later withdrew the
disallowances for three
facilities: Bayou Village, Madison Parish Home
for the Aged, and Port
Allen Care Center. Letter to Board from HCFA
dated April 14, 1992.
On appeal to the Board, Louisiana first argued that the
disallowances
covering all 27 facilities in question here were barred by
the
affirmative defense of res judicata. Louisiana also argued that it
had
no notice of the method for extending ACDs and, therefore,
the
disallowances for all the facilities should be reversed. In
addition,
Louisiana argued that the ACDs were properly extended under
section
442.16. Louisiana contended further that ACDs were not
necessary for
several facilities since there were no standard level
deficiencies
involved. Finally, Louisiana claimed that for certain
other facilities,
it had shown substantial progress in correcting the
deficiencies before
the ACD and that the ACD could have been rescinded.
We discuss each of
these arguments below.
I. The affirmative defense of res judicata isinapplicable.
Louisiana argued that the affirmative defense of res judicata
was
applicable here. 4/ It contended that the same parties and the
same
action are involved as were involved in DAB No. 1116. Louisiana
claimed
that HCFA was therefore precluded from now bringing a
separate
disallowance on the ground that Louisiana did not follow
the
requirements of section 442.16 in extending the ACDs. Louisiana
argued
that HCFA could have brought up this ground for the disallowance in
the
proceedings in the earlier appeal resulting in DAB No. 1116 and
that
this would have prevented needless litigation and unnecessary burden
and
expense.
Louisiana's argument, however, misconstrues the scope of DAB No. 1116
and
the Ruling on Reconsideration related to that decision. DAB No.
1116
merely decided the threshold legal issue of whether an ACD may
be
extended. That decision did not consider whether, for the facilities
in
issue here, Louisiana had shown that it met the requisite
requirements
for extending the ACD as set forth in section 442.16.
Moreover, in our
Ruling on Request for Reconsideration of DAB No. 1116, we
specifically
stated that --
The Board's decision does not preclude HCFA from requiring
that
Louisiana show whether it in fact has C&Ts or other
documents
which extend the ACDs for these facilities and which meet
the
requirements of section 442.16. This does not mean,
however,
that we should reopen the proceedings leading to DAB No.
1116.
If HCFA intends to disallow on the basis of section 442.16,
that
is an entirely new basis for a disallowance, and the
appropriate
procedure, under the circumstances here, would be for HCFA
to
issue a new determination. This is particularly so
since
Louisiana has not yet had an opportunity to show HCFA that
it
met the requirements of 442.16 for the facilities, and it
is
unclear whether Louisiana would pursue an appeal if it
cannot
make such a showing.
Ruling on Reconsideration at 2-3.
While some of the same considerations which support application of
res
judicata in court are relevant in administrative proceedings (and
that
principle has been applied to administrative proceedings), there
are
additional considerations present here. HCFA's original findings
were
based on its review of State documentation showing that Louisiana
had
extended ACDs. Determining whether Louisiana had met the
specific
regulatory requirements for extending provider agreements would
have
required review of further documentation, in Louisiana's possession,
and
would have been unnecessary if the Board had agreed with HCFA's
original
position. Moreover, from the Board's standpoint, delay of
the
proceedings to permit such further review was unwarranted since
it
affected only a relatively small part of the disallowance, and it
was
not clear that such review would result in any dispute which the
Board
would need to resolve. In such circumstances, the Board often
chooses
to resolve only threshold issues, without prejudice to an
agency's
ability to apply federal requirements which were not applied in
an
initial audit.
Consequently, we conclude that since the issue before us in this
appeal
was not considered in DAB No. 1116 and is a new basis for
disallowance,
the defense of res judicata does not preclude the Board from
hearing
this issue here.
II. Louisiana had notice of the required method ofextending ACDs.
Louisiana argued that it had no reasonable notice of what was required
to
extend ACDs. Louisiana noted that in DAB No. 1116, HCFA
originally
argued that ACDs could not be extended. Louisiana contended
that if
that was HCFA's argument there, it follows that HCFA had no
procedures
for extending ACDs and could not rely on the very same provisions
of
section 442.16 which HCFA previously had argued were inapplicable
to
ACDs.
We find Louisiana's argument without merit. The Board
specifically
found in DAB No. 1116 that Louisiana could and did reasonably
interpret
the regulations to permit extensions of provider agreements beyond
ACDs.
The Board explained that, under section 442.16, provider agreements
may
be extended beyond their original "expiration dates" and that
this
reasonably could include ACDs since ACDs function as expiration
dates.
However, the Board specified that "extending a provider agreement
beyond
an ACD would require the written notice specified under section
442.16."
DAB No. 1116, at 28.
Louisiana argued here that it did not in fact rely on any
specific
regulation as authorizing it to extend ACDs. However, the
only
authority for extending ACDs is the authority in section 442.16
to
extend provider agreements. Consequently, the regulations
cannot
reasonably be interpreted to permit a state to extend ACDs
without
meeting the requirements of section 442.16. 5/
We conclude, therefore, that Louisiana had notice that, to properly
extend
the ACDs, it was required to make the findings and to give the
written notice
specified under section 442.16.
III. Louisiana did not extend the provider agreementspursuant to
the
requirements of section 442.16.
Louisiana argued that it had properly extended the ACDs of the
provider
agreements for all the disputed facilities in accordance with
the
requirements of 42 C.F.R. . 442.16. It claimed that the statement
by
the survey agency, included on each of the initial C&Ts, that none
of
the deficiencies posed a threat to the health and safety of
the
residents was sufficient notice to the Medicaid agency. Quoting
from
DAB No. 1116, Louisiana contended that it met the two purposes of
the
regulation which are (1) "to ensure that the agency responsible for
the
provider agreement knows that it has been extended" and (2) "to
ensure
that the requisite findings are made before an extension is
given." DAB
No. 1116, at 20. Consequently, in Louisiana's view,
any failure to
execute a new C&T, before the ACD expired, which contained
a statement
that there was no jeopardy to the health and safety of the
patients
should be considered merely an administrative oversight.
We agree with HCFA that Louisiana did not extend the ACDs of the
disputed
facilities in accordance with the requirements of the
regulations. The
regulations provided that a Medicaid agency could
extend a provider agreement
for up to two months beyond its original
expiration date if it received
written notice from the survey agency,
before the expiration date of the
agreement, that the extension would
not jeopardize the patients' health and
safety, and that the extension
is needed either to prevent irreparable harm
to the facility or hardship
to the recipients in the facility, or is needed
because it is
impracticable to determine, before the expiration date, whether
the
facility meets certification standards. 42 C.F.R. . 442.16.
Contrary to Louisiana's assertions, this regulation clearly required
that
an assurance be made in writing at the time an extension was
requested that
the extension would not jeopardize the patients' health
and safety. It
is not sufficient that the original C&Ts contained that
assurance because
circumstances might change between the time that
assurance is made in the
C&T and the time an extension is granted. We
have previously
determined that the requirement for a contemporaneous
written notice of such
a finding at the time an extension is requested
was more than a technical
requirement, but was "intended to ensure that
patients are not left in a
facility indefinitely without some assurance
that they will not be in
jeopardy." DAB No. 1116, at 21. Moreover, in
Florida Dept. of
Health and Rehabilitative Services, DAB No. 942 (1988),
the Board stated that
the required notice that the extension would not
jeopardize the patients'
health and safety "cannot be implied from the
mere fact of approval of the
extension; such an interpretation would
make the requirement
meaningless." Id. at 9.
Thus, in order to establish that it complied with section
442.16,
Louisiana had to provide contemporaneous documentation containing
the
requisite assurances. We reviewed the C&Ts by which Louisiana
attempted
to extend the ACDs for the facilities in dispute. However,
none of
these C&Ts contained the assurance that the extension would
not
jeopardize the patients' health and safety. 6/ .Moreover,
the
regulations specifically required that the written notice from
the
survey agency be received by the Medicaid agency before the
expiration
date of the agreement. Thus, even if these C&Ts had
contained the
requisite assurances, Louisiana still would not have fully
complied with
the regulation. The Board previously considered whether
the requirement
of written notification of an extension was overly technical
and could
be waived under certain circumstances. The Board determined
that this
requirement was clear from the regulation and could not be waived
and
that the notice must be received by the Medicaid agency before
the
expiration. 7/ New Mexico Human Services Dept., DAB No. 907
(1987).
Our review of Louisiana's documentation indicated that for all but
three
of the disputed facilities, the C&Ts not only failed to contain
the
required finding of no jeopardy to the patients but were submitted
by
the survey agency to the Medicaid agency after the provider
agreement
had expired.
On the basis of these findings, we conclude that Louisiana did not
extend
the ACDs for the disputed facilities in accordance with the
requirements of
42 C.F.R. . 442.16.
IV. Louisiana was required to set ACDs.
Louisiana argued that, since 42 C.F.R. . 442.105 provided that ACDs
were
necessary only when a facility was "deficient in meeting the
standards"
for Medicaid facilities, Louisiana was not required to set an ACD
if a
facility had only "element level" deficiencies. Louisiana asserted
that
the facilities Manhattan Manor, Heritage Manor, St. Ann's
Convalescent,
Glen Oaks, Glen Retirement Village, Greenhills Nursing Home,
Pierremont,
Evangeline Oaks, Jefferson Health Care, Ringgold Nurse Care, St.
Mary's
Guest Home, Meadowview, Pinehill Senior Citizens, Helena Community
Home,
Springhill Community Home, and Consolata Home had only element
level
deficiencies and no standard level deficiencies. SE 30. 8/
Louisiana
also contended that, in training for state survey staff, a HCFA
trainer
indicated that ACDs were set only for standard level
deficiencies.
Louisiana argued that it had a practice of monitoring
facilities
throughout the year which allowed it to require facilities to
address
minor deficiencies and which was more stringent than
required.
Louisiana asserted that it had used ACDs to monitor and achieve
100
percent compliance with all required elements and, thus,
Louisiana
should not be penalized for complying with its own stricter
standards.
We agree with HCFA that 42 C.F.R. . 442.105 did not stand for
the
proposition that a facility with only element level deficiencies
could
be certified without an ACD. The term "standards" in that
regulation
does not refer to standard-level deficiency as Louisiana argued;
rather,
the context clearly indicates that "standards" means all the health
and
safety requirements that a facility must meet. Indeed, section
442.101
required notice that a facility either met any requirements not
waived
or was "certified with provision for correcting deficiencies in
meeting
those requirements . . . ." Nothing in the applicable
regulations
distinguishes between "standards" and "elements" or "standard
level" and
"element level" deficiencies. Louisiana presented nothing to
support
its argument that the relevant statutory and regulatory authority
made
some distinction between the kind of deficiencies.
Moreover, during the time period in dispute, HCFA consistently
interpreted
this regulation to apply to all deficiencies, whether
element level or
standard level, and to require a plan of correction for
even minor
deficiencies. In the preamble to proposed regulations to
amend section
442.105, HCFA explained that ACDs --
were established to ensure timely corrections of
all
deficiencies. . . . Because the automatic cancellation
clause
is applicable even when the deficiencies are minor,
a
substantial percentage of nursing homes is subject to
automatic
cancellation at any time.
47 Fed. Reg. 23405 (May 27, 1982)(emphasis added). In fact,
the
proposed regulations, which were never adopted in final,
suggested
elimination of the requirement at 42 C.F.R. . 442.111 that an
ICF
provider agreement, accepted on the basis of a plan of correction
of
deficiencies, be automatically cancelled unless the deficiencies
were
corrected by the predetermined date. 47 Fed. Reg. 23405
(1982). The
language in the preamble and the fact that HCFA never
implemented the
proposed provisions that would eliminate the requirement in
section
442.111 for automatic cancellation clearly show that HCFA intended
to
require a state to set an ACD if a state accepts a provider agreement
on
the basis of a plan of correction of deficiencies, even if
the
deficiencies are minor.
Louisiana also indicated that it believed HCFA's position to be that
ACDs
applied only to standard level deficiencies on the basis of
comments made by
HCFA staff during a training course for state surveyors
in December of
1986. The only reference to this interpretation is in a
February 10,
1987 letter written by Louisiana to HCFA asking for
clarification of HCFA's
position. AF Ex. 21 of DAB No. 1116. We do not
find this
persuasive. First, the letter merely indicated
Louisiana's
understanding of HCFA's comments; it is not a HCFA statement of
its
policy. Moreover, this training course was conducted after
the
disallowance period and the letter also was sent to HCFA well after
the
disputed time period. Thus, the record does not establish that
HCFA
staff interpreted the regulation in the manner argued by
Louisiana.
Furthermore, Louisiana's other documentation fails to support
the
assertion that HCFA had stated such a policy during the period
in
dispute. A form letter the Medicaid agency sent to providers had
three
possible situations for the Medicaid agency to check off: that
the
provider was in full compliance with the certification standards;
that
the provider was in compliance with standards with a waiver; or that
the
provider's certification for participation was based on
correctable
deficiencies subject to automatic cancellation if the
deficiencies were
not corrected. SE 2 at 3. This form mirrors the
regulatory requirement
for an ACD if participation is conditioned on
correcting deficiencies.
We find, further, that at all times relevant to this
dispute, it was
Louisiana's practice, consistent with the federal
requirements, to set
an ACD if a provider agreement was accepted on the basis
of a plan of
correction, even for deficiencies that were minor. Since
Louisiana set
ACDs for the facilities in question here, it was not confused
or misled
by any ambiguity introduced by the use of the word "standards"
in
section 442.105.
We conclude, therefore, that Louisiana had notice that it was required
to
set an ACD for any provider agreement accepted on the basis of a plan
of
correction of deficiencies in meeting federal requirements even if
the
deficiencies were minor.
V. Louisiana could have rescinded some of the ACDs for
substantial
progress.
Under regulations applicable when a facility was certified with an
ACD,
the certification would be automatically cancelled on the ACD unless
--
(1) The survey agency finds that all deficiencies have
been
satisfactorily corrected; or
(2) The survey agency finds and notifies the Medicaid
agency
that the facility has made substantial progress in
correcting
the deficiencies and has a new plan for correction that
is
acceptable.
42 C.F.R. . 442.111(c).
Louisiana argued that for nine facilities the ACDs should have
been
rescinded because the facilities had made substantial progress
in
correcting their deficiencies. Louisiana did not claim that any of
the
disputed facilities had corrected all deficiencies by the ACD;
rather,
Louisiana claimed that it had conducted follow-up surveys prior to
the
ACDs and that some of the facilities had made substantial progress
in
correcting the deficiencies and had submitted acceptable plans
of
correction. 9/
HCFA argued that Louisiana could not properly rescind the ACDs for
these
facilities since the survey agency did not, prior to the
ACDs,
specifically find that substantial progress had been made.
Moreover,
HCFA argued that Louisiana did not provide written notice to
the
Medicaid agency that substantial progress had been made.
Louisiana responded that, even if it had not at the time specifically
made
a finding of substantial progress for each facility, it had in
effect done
so. Louisiana presented testimony that the reason it had
not rescinded
the ACDs at the time of the follow-up survey was that it
felt that its
practice of requiring that all corrections be made before
rescinding the ACD
(and, if necessary, extending the ACD to permit a
second follow-up visit)
provided more leverage to ensure that the
providers would complete
corrections. Tr. at 31-32. Louisiana asserted
that it would not
have extended any provider agreement unless it had
accepted a new plan of
correction and had determined that the provider
was likely to complete the
corrections within the two-month extension
period. Louisiana argued
that it had therefore made findings which were
equivalent to substantial
progress findings. Louisiana presented
testimony by the manager of the
state survey agency office responsible
for surveying nursing homes to support
its argument that, prior to the
ACDs, each of these facilities had made
substantial progress in
correcting deficiencies.
HCFA objected that it was too burdensome for it to have to evaluate,
after
the fact, whether substantial progress had been made. However,
HCFA
presented testimony at the hearing from regional officials on what
their
policy was for determining whether substantial progress had been
made and why
they had concluded that the disputed facilities had not
made substantial
progress. At the hearing it became clear that the
parties had different
interpretations of what was required for
substantial progress. HCFA
took the position that a facility had to
have made substantial progress in
correcting each of its deficiencies.
Indeed, if a State surveyor had noted
various subparts to a deficiency
finding, HCFA said that substantial progress
was necessary for each
subpart. Louisiana took the position that
substantial progress had to
be based on evaluating a facility's progress in
correcting its
deficiencies as a whole.
We discuss below whether Louisiana was required to give specific notice
to
the Medicaid agency that these facilities had made substantial
progress in
correcting their deficiencies, what substantial progress
means and who has
the burden to show it, and finally, whether
substantial progress was made by
these facilities in correcting their
deficiencies. We conclude that
Louisiana's failure to make specific
findings and to give notice about
substantial progress does not require
a disallowance in the context
here. We further conclude that Louisiana
had the burden of showing that
all nine facilities had made substantial
progress in correcting the
deficiencies prior to the ACDs and met that
burden here.
A. Whether specific findings and notice of substantial
progress
were required
HCFA's authority to question whether these facilities were
properly
certified stems from the provisions of 42 C.F.R. . 442.30.
These
provisions are known as procedural "look behind" provisions because
they
allow HCFA to look behind a provider agreement where a state failed
to
follow procedural requirements for survey and certification. The
effect
of a state's failure to follow procedural requirements is that
the
provider agreement is no longer valid evidence that the facility
met
certification requirements.
In Illinois Dept. of Public Aid, DAB No. 876 (1987), the Board
determined
that a disallowance is not necessarily required in a
procedural "look behind"
situation. Rather, as the Board stated in DAB
No. 876, "the fact that a
provider agreement was not executed in
accordance with the required
procedures does not necessarily mean that a
state's evidence that the
facility met the requirements for Medicaid is
insufficient." Id. at
9. Since in these cases, there is no question
that the facility
provided services to eligible Medicaid recipients, the
state is entitled to
FFP if it can show that the services met the
certification requirements.
In DAB No. 876, the Board stated that even though Illinois did not
comply
with the procedures for certifying a facility with deficiencies
by setting an
ACD, a disallowance was not warranted where a follow-up
survey showed
correction of all deficiencies, so that the ACD (if set)
could have been
rescinded. The evidence was sufficient to show that the
facility was
certifiable. The Board specifically distinguished this
situation from
other cases involving procedural "look behind" where the
procedural defect
resulted in a lack of a specific type of documentation
required to show that
the requirements for participation were met. For
example, to extend a
provider agreement, 42 C.F.R. . 442.16 requires
specific documentation,
namely, written notice from the survey agency to
the Medicaid agency, prior
to the ACD, containing specific findings.
HCFA argued here that, like the extension provision at section 442.16,
the
regulation allowing for rescission of an ACD for substantial
progress
required a specific type of notice. Therefore, HCFA argued,
these
facilities could not be found certifiable, even if they made
substantial
progress, because Louisiana did not have any contemporaneous
documentation
showing that such a notice had been given.
We disagree. Section 442.111(c)(2) requires only that the survey
agency
"find and notify" the Medicaid agency that substantial progress has
been
made. Unlike section 442.16, section 442.111 does not require that
the
notice be written. The requirement for written notice of an
extension
of a provider agreement helps to assure that no extension is
given
without a contemporaneous, documented finding that there is no
jeopardy
to the health and safety of the patients from the extension.
After-the-
fact examination of the facility's status at the time of the
extension
would not provide the same assurances. However, HCFA did not
point to
any comparable function special and separate written notice
of
substantial progress would have served here. Louisiana
maintained
contemporaneous documentation from the follow-up surveys of
the
corrections made by the facility. The only apparent purpose
written
notice to the Medicaid agency would have served would be to
indicate
that the provider agreement, which would otherwise be
automatically
cancelled on the ACD, was still in effect, and, therefore,
Medicaid
payments to the facility were appropriate. Here, since the
survey
agency had notified the Medicaid agency to extend the
provider
agreements, the lack of separate written notice of substantial
progress
did not result in any apparent difference in program
administration.
Consequently, we conclude that the mere lack of specific notice
of
substantial progress to the Medicaid agency is not a basis
for
sustaining the disallowance.
B. Who has the burden to show substantial progress
While we conclude that Louisiana was not required to give specific
written
notice here of substantial progress, this does not mean that
there is no
consequence to Louisiana's failure to follow the regulatory
procedures.
Since the provider agreement is no longer valid evidence
that the facility is
certifiable, Louisiana had the burden to present
evidence sufficient to show
that the facilities were otherwise
certifiable within the provisions of the
regulation. This would require
evidence that the facilities had made
substantial progress in correcting
the deficiencies. 42 C.F.R. .
442.111(c)(2). (HCFA did not deny that
the facilities had submitted
acceptable plans of correction for
deficiencies remaining in the follow-up
surveys, as required.)
We note that the fact that Louisiana had the burden to present
evidence
showing substantial progress lessened the burden on HCFA.
While HCFA
objected to having to make any after-the-fact determination of
whether
substantial progress had been made, in our view this result is
required
by the wording of the procedural "look behind" provisions. As
discussed
above, under those provisions, failure to follow the procedures
does not
result automatically in a disallowance; it simply affects the status
of
the provider agreement as valid evidence of certifiability. If
HCFA
wanted to make disallowances automatic upon failure to meet
procedural
requirements, it should have specifically provided this in
its
regulations. In any event, this is a time-limited problem,
since
substantial revisions in the survey and certification process were
made
as a result of legislation enacted in 1987.
C. What substantial progress means
At the hearing, HCFA explained for the first time that, in
evaluating
whether the ACDs for the disputed facilities could have properly
been
rescinded, HCFA regional officials had examined whether a facility
had
made substantial progress in correcting each deficiency, and that,
if
there were more than one subpart to a deficiency described under
one
"tag number," they had examined whether substantial progress had
been
made in correcting each subpart. 10/ Two of HCFA's witnesses
testified
that the reason they had used this standard was that they thought
the
regulation provided that the facility must have made
substantial
progress in correcting "all" deficiencies. Tr. at 14-19,
23-26, 54, and
163.
As Louisiana pointed out, however, the word "all" does not appear
in
section 442.111(c)(2); it appears only in section 442.111(c)(1),
which
allows rescission of the ACD when "all" corrections are completed by
the
ACD. The relevant wording allows rescission of the ACD where
"the
facility has made substantial progress in correcting the deficiencies
.
. . ." 42 C.F.R. . 442.111(c)(2) (emphasis added). Contrary to
what
HCFA's witnesses thought, the regulation does not say that
the
substantial progress standard is applied to all deficiencies, nor
does
it say that substantial progress must be made in correcting
each
deficiency. The wording of the regulation is thus consistent
with
Louisiana's position that we should measure substantial progress
by
examining the status of the deficiencies as a whole.
HCFA was unable to point to any provision in its State Operations
Manual
or any other policy issuance that set out as HCFA's
official
interpretation the interpretation HCFA advanced at the
hearing. The
only provision HCFA referred to was section 3020 of its
State Operations
Manual, dated December 1985, which stated:
"Substantial progress" means that corrections are well
underway;
that there is tangible and visible progress. . . .
If the verification visit establishes that the facility . .
.
has made significant improvement justifying continuance of
the
agreement based on an updated plan of correction, complete
the
following . . . .
HE 6 (State Operations Manual, section 3020, dated 12/85).
This
description of substantial progress does not support the
interpretation
of the regulation HCFA advanced here. Rather, it
supports Louisiana's
interpretation since it says that "corrections" must be
well underway,
not that each correction must be well underway.
Finally, Louisiana submitted a form which HCFA at one time provided
for
use in a follow-up review to summarize deficiencies not
corrected.
While the form has space for evaluating each deficiency found in
an
original survey, the alternatives to be checked indicate that
the
deficiency has not been corrected and either "Acceptable Progress
or
Effort Shown" or "Inadequate or No Action by the Provider." SE
38.
Nowhere on the form does it require "substantial" progress for
each
deficiency, nor even that acceptable progress must be made for
each
deficiency in order to rescind the ACD.
As one of HCFA's witnesses indicated when first asked to
define
substantial progress, the surveyor should determine whether the
facility
has shown a willingness to correct the deficiencies, so that there
is a
reasonable certainty that the facility will complete the corrections
if
the ACD is rescinded. Tr. at 54. This would be necessary in
order to
justify continuance of the provider in the program. Moreover,
we agree
with HCFA that substantial progress should not depend solely on
numbers
of deficiencies corrected; the seriousness of any remaining
deficiencies
should affect the evaluation of whether an ACD should be
rescinded.
Indeed, Louisiana's witness acknowledged that these were
relevant
considerations. Tr. at 48. However, we find no basis in
the
regulation, or in the official issuances of HCFA, for the
overly
stringent application of the substantial progress requirement
here,
which was apparently based on a misreading of the regulation by
regional
officials. 11/
Thus, we conclude that, under HCFA regulations applicable here,
the
measure of substantial progress is whether, taken as a whole,
the
facility has made tangible and visible progress in correcting
the
deficiencies which evidences a willingness to correct the
deficiencies
and which leaves no remaining deficiencies which are so serious
that
rescission of the ACD (and continuing the provider in the program)
would
not be appropriate.
C. Whether Louisiana met its burden to show
thatsubstantial
progress was made
Applying this standard for substantial progress, we find that
Louisiana
met its burden of showing that all nine facilities had made
substantial
progress in correcting the deficiencies prior to the ACD so that
the ACD
could have been rescinded. First, HCFA did not dispute that,
for each
of the nine facilities, the documentation from the follow-up
survey
establishes that each facility, prior to the ACD, had
completed
corrections of most of the deficiencies from the original survey.
12/
Thus, the evidence of progress is tangible and visible for each
facility
and shows the provider's willingness to correct deficiencies.
HCFA also acknowledged that, with respect to some of the
individual
deficiencies, the facilities had made substantial progress.
The
documentation from the follow-up surveys, together with testimony
by
Louisiana's witness, who was familiar with the facilities, shows
that
continuation of the providers in Medicaid was justified (in spite of
the
remaining cited deficiencies in which HCFA did not find
substantial
progress) because:
o Some of the remaining problems cited as deficiencies were not in
fact
deficiencies under the federal requirements as interpreted by HCFA;
o Some of the citations were to State requirements which were
more
stringent than the federal requirements and therefore were not
federal
deficiencies;
o The providers had corrected some subparts of the
deficiencies
originally cited under the same "tag number" or had shown some
effort
toward correction.
Based on his personal knowledge of the facilities involved,
Louisiana's
witness also satisfactorily responded to questions raised by
HCFA's
witnesses concerning whether some of the remaining deficiencies
were
serious deficiencies which jeopardized the health and safety of
the
residents and therefore required termination of the
facilities. We
found his testimony credible and based on sensible
judgments concerning
whether the facilities' continuance in the program was
justified.
Moreover, the concerns HCFA's witnesses raised, while legitimate
in the
abstract, failed to consider the context here, where the
original
surveyor had found that none of the deficiencies originally
cited
jeopardized patient health or safety. See 42 C.F.R. .
442.105(a).
On the whole, HCFA's evaluation of the facilities was colored by the
view
that substantial progress had to be made for each deficiency.
Louisiana's
evidence clearly showed substantial progress, under the
standard we set out
above, based on HCFA's own policy documents. For
example, Norman Care
Center was the disputed facility with the most
deficiencies cited originally
and the most deficiencies remaining at the
follow-up survey. See,
generally, SE 19; Tr. beginning at 124. The
life safety code survey
found three deficiencies, all of which had been
corrected. The health
survey found 65 deficiencies, of which five
remained uncorrected. HCFA
conceded that the facility had made
substantial progress in correcting two of
those five deficiencies.
One of the remaining deficiencies was originally cited in three parts.
The
facility was not re-cited for two of those parts. The remaining
part
had to do with covering food in a reach-in refrigerator. On
the
follow-up survey, the surveyor found that the food was covered
with
foil, but re-cited the deficiency, apparently because he thought
that
the containers should have lids. HCFA conceded that there was
no
requirement that the containers have their own lids, and the
HCFA
surveyor said that he would not recommend terminating a facility for
not
having lids. Thus, we agree with Louisiana that this should not
have
been cited as a deficiency.
The second remaining deficiency related to a requirement that
medication
be stored in a locked cabinet. The nurse distributing
medications had
apparently not continuously observed the unlocked medication
cart during
her drug "pass." HCFA acknowledged that it had issued an
instruction
around the period of the disallowance clarifying that
continuous
observation of a cart during a drug pass was not required.
Thus, we
agree with Louisiana that this should not have been cited as
a
deficiency.
The final deficiency was in the facility's medication error rate.
The
State Operations Manual requires that a deficiency be written if
a
mistake is made in administering any significant drugs or if the
drug
error rate for significant and insignificant drugs is 5% or more.
No
deficiency in administering a significant drug was noted,
and
Louisiana's witness testified that it was State survey practice to
cite
separately any significant drug error. The HCFA surveyor said he
also
would cite any significant drug error separately. The facility
was
cited for having a medication error rate of 12.6% and had reduced
the
error rate to 8% by the follow-up survey. The HCFA surveyor took
the
position that to have substantial progress in correcting a deficiency
in
medication error rates, the facility must reduce the rate to below
5%
and that to correct the deficiency the rate must be reduced to 0%.
He
based this position on the wording of the State Operations Manual,
which
states that a surveyor should write a deficiency if the error rate is
5%
or more. He said this meant that it was still considered a
deficiency
so long as the rate was above 0%. The HCFA surveyor could
point to
nothing stating his interpretation that a reduction below 5%
was
required for substantial progress, and we think this is an
unreasonable
interpretation.
In effect, the State Operations Manual establishes a tolerance for
errors,
which means that only a rate in excess of that tolerance will be
cited as a
deficiency. The ACD clearly could have been rescinded based
on
correction of a deficiency if the rate had been reduced below 5%;
invoking
the ACD on the basis that the rate had not been reduced to 0%
would have been
subject to challenge by the facility in light of the
tolerance in the State
Operations Manual. To require the facility to
have achieved the same
level for substantial progress as for correction
does not make sense.
As Louisiana pointed out, the facility here
reduced its error rate from 12.6%
to 8%, bringing it more than halfway
toward the 5% rate. In our view,
this is tangible and visible evidence
that the facility had taken steps to
correct the deficiency and could be
expected to complete its correction (as
the facility in fact did by the
second follow-up), so the ACD could have been
rescinded even under
HCFA's interpretation that substantial progress must be
made for each
deficiency.
The facility's progress in correcting accurately cited deficiencies as
a
whole is clearly "substantial progress" under any reasonable reading
of
that term.
We have performed a similar analysis of the documentation and
testimony
for each of the other eight facilities at issue here and reached
the
same conclusion for each of those facilities.
In sum, we find that Louisiana met its burden of showing that these
nine
facilities had made substantial progress in correcting the
deficiencies.
Thus, we conclude that the ACDs could have been
rescinded. Since the
facilities were certifiable during the
disallowance periods in question,
no disallowance is warranted, and we
reverse the disallowance for these
facilities.
Conclusion
For the reasons discussed above, we uphold the disallowances in part
and
reverse them in part as follows:
o We uphold the disallowances for the following facilities:
Consolata,
Oak Park Care Center, Glen Retirement Village, Manhattan
Manor,
Hillhaven, Ringgold Nurse Care, Greenhill Nursing, Glen Oaks
Home,
Helena Community Home (for two disallowance periods), Shreveport
Manor,
Heritage Manor South, St. Ann's, Pierremont, Jefferson Health Care,
St.
Mary's, Springhill, Hollier, and Meadowview.
o We reverse the disallowances for the following facilities:
Lane
Memorial, South Park Guest Care, Norman Care, Prayer Tower,
Fountain
Lodge, Rayne Guest House, Pinehill, Patio Lodge, and Evangeline
Oaks.
HCFA should recalculate the disallowance amount in accordance with
our
decision. If Louisiana disagrees with the recalculation, it may
return
to the Board on that limited issue, within 30 days of receiving
the
recalculation.
_____________________________ Donald F. Garrett
_____________________________ Cecilia S. Ford
_____________________________ Judith A.
Ballard
Presiding Board Member
1. Louisiana had requested that the record in DAB No. 1116
be
incorporated by reference in this appeal. We asked that the
parties
specify which exhibits and testimony they wished to
incorporate.
Louisiana specifically incorporated State Exhibits (Exs.) 2, 4,
5, 6, 7,
8, 9, and 10 and the testimony of Charles Purcell at 27-104 of
the
transcript of the prior hearing. HCFA indicated it wished
to
incorporate its exhibits designated as AF Exs. 15 and 21.
2. A C&T is a form by which the state survey agency notifies the
state
Medicaid agency and HCFA of action taken with regard to
the
certification of a provider.
3. HCFA originally looked at whether Louisiana properly extended
the
automatic cancellation dates of provider agreements for 33
facilities.
HCFA determined that the ACD for Empire Community Home was
properly
extended. During these proceedings, HCFA looked at 32
facilities and
took no disallowance for St. Bernard - Girls or House on Royal
because
no expenditures were made for services during the relevant time
periods
at these two facilities. Consequently, the provider agreements
for 30
facilities were disputed here initially. Louisiana, however,
failed to
present documentation to support its arguments for one
facility,
Hollier. See SE 1 - 29.
4. Res judicata is a rule that a final judgment or a decree on
the
merits by a court of competent jurisdiction is conclusive of the
rights
of the parties in all later suits on points and matters determined
in
the former suit. To be applicable, it requires identity in the
thing
sued for, as well as identity of the cause of action and the parties
to
the action. BLACK'S LAW DICTIONARY 1305 (6th ed. 1990).
5. Indeed, since ACDs are set for facilities with deficiencies, it
is
even more important that the assurances required by section 442.16
be
given when ACDs are extended.
6. For Helena Community Home, Louisiana did not provide a copy of
the
C&T that actually extended the original ACD of August 30, 1986.
Rather,
Louisiana provided a C&T dated October 17, 1986, some two months
after
the ACD, which stated it was rescinding the ACD.
Consequently,
Louisiana, in effect, had extended the ACD for two months and
failed to
give the required notice. Even if this C&T had contained
the requisite
assurances, it would not have been timely.
7. In DAB No. 1116, the Board found in particular circumstances that
a
delay of one day in submitting the written findings did not violate
the
regulations where there was other evidence that the Medicaid agency
had
other timely notice of the findings from the survey agency.
Louisiana
did not argue that the same circumstances were present for
the
facilities at issue here.
8. Originally Louisiana also listed Port Allen Care Center in the
group
of facilities for which it said ACDs should not have been
established.
See SE 30. HCFA, however, withdrew its disallowance for
that facility
on another basis. Louisiana also alternatively argued
that Evangeline
Oaks and Pinehill Senior Citizens should be included not only
with the
group of facilities to which this argument applied but with
those
facilities for which ACDs should have been rescinded (discussed
in
section V. below). See SE 30 and 31; Letter from State to Board
dated
May 6, 1992. Later in the appeal proceedings, Louisiana indicated
that
Consolata should have been included with the facilities for which
it
argued an ACD should not have been established. Letter from State
to
Board dated March 5, 1992.
9. These facilities are: Lane Memorial Hospital ICF (SE 4), South
Park
Guest Care ICF (SE 16), Norman Care ICF (SE 19), Prayer Tower ICF
(SE
20), Fountain Lodge ICF (SE 25), Rayne Guest House ICF (SE 27),
Pinehill
ICF (SE 28), Patio Lodge ICF (SE 29), and Evangeline Oaks ICF (SE
17).
During the course of the proceedings, Louisiana had made the
same
argument for Oak Park Care Center ICF and Consolata ICF, but at
the
hearing Louisiana presented evidence only with respect to the
nine
facilities, withdrawing the argument for the other two facilities.
See
Transcript (Tr.) at 5, 8.
10. "Tag numbers" are used for purposes of providing information
on
deficiencies which can be fed into a computer. Survey forms
also
include "reference" numbers, which are citations to
applicable
regulations.
11. On cross-examination, Louisiana's witness acknowledged that he
had
been informed by telephone of the regional office position. Tr.
at
50-51. HCFA failed to establish, however, when this information
was
provided. Id.
12. Lane Memorial Hospital corrected 8 out of 10 deficiencies.
Tr. at
33; SE 4. South Park corrected 51 out of 52 deficiencies.
Tr. at 79
and 80; SE 16. Norman Care corrected 60 out of 65 health
deficiencies
and all three life safety code deficiencies. Tr at 125; SE
19. Prayer
Tower corrected all but 2 of the 22 health deficiencies and
both of the
life safety code deficiencies originally cited. Tr. at 170;
SE 20.
Fountain Lodge corrected the one life safety code deficiency cited
and
26 out of the 36 health deficiencies originally cited (and 6 out of
the
10 remaining deficiencies were duplicate cross-references, so in
effect
there were only 4 remaining). Tr. at 186; SE 25. Rayne
Guest ICF
corrected all but one of the 42 health deficiencies cited and all
four
of the life safety code deficiencies. Tr. at 205 and 206; SE
27.
Pinehill ICF corrected all 13 health deficiencies and all but two of
the
life safety code deficiencies. Tr. at 228; SE 28. Patio
Lodge
corrected all but one of the eight life safety code
deficiencies
originally cited, and all but 13 of the 57 health deficiencies
cited
(and 8 out of the 13 remaining citations were
duplicate
cross-references, so in effect there were only 5 remaining).
Tr. at
250; SE 29. Evangeline Oaks corrected all 19 of the health
deficiencies
originally cited and still had one life safety code
deficiency. Tr. at
104 and 105; SE