Missouri Department of Social Services, DAB No. 3019 (2020)

DECISION

The Missouri Department of Social Services (State) has appealed a March 2, 2018 determination by the Centers for Medicare & Medicaid Services (CMS) to disallow $487,351 in federal financial participation (FFP) for Missouri’s Medicaid program.  CMS based the disallowance on findings of an audit conducted by the United States Department of Health and Human Services’ Office of Inspector General (OIG).

The federal Medicaid statute authorizes FFP (that is, federal reimbursement) for 90 percent of a state Medicaid program’s expenditures for “family planning services and supplies.”  The OIG audit examined whether Missouri’s Medicaid program properly claimed 90 percent FFP for prescription drug expenditures – including expenditures for contraceptive drugs – classified as related to family planning.  To perform the audit, the OIG selected a statistical sample of paid Medicaid prescription drug claims included in the State’s requests for 90 percent FFP during 2009 and 2010.  Based on its review of the sampled claims, the OIG found, and CMS concurred, that Missouri’s Medicaid program had improperly received 90 percent FFP for some prescription contraceptive drugs, either because those drugs had been prescribed for purposes other than family planning, or because the State was unable to produce documentation verifying that the drugs had been prescribed for a family planning purpose.  The disallowance amount ($487,351) reflects the OIG’s estimate, derived from its review of sample claims, of the amount of FFP received by the State because of improper claiming of 90 percent FFP during the audit period.

In urging reversal of the disallowance, the State contends that contraceptive drugs are, by virtue of their therapeutic effect, related to “family planning” and therefore always eligible for 90 percent FFP.  And for that reason, the State further contends that a state Medicaid agency need not have documentation verifying the actual purpose for which a contraceptive drug was provided in order to receive 90 percent FFP for the cost of that item.

Page 2

We conclude, however, that the State’s position is inconsistent with CMS’s longstanding and reasonable interpretation of the statutory provision which authorizes 90 percent FFP for family planning services and supplies, and with federal regulations that obligate state Medicaid programs to demonstrate that their FFP claims meet applicable federal requirements.  Because the State has not shown that the disallowance is legally erroneous or based on material errors of fact, we affirm the disallowance. 

Legal Background

The federal Medicaid statute, sections 1901-1946 of the Social Security Act (Act), authorizes federal funding for states that provide health insurance benefits – “medical assistance,” in statutory parlance – to low-income persons and families.  Act §§ 1901, 1903; 42 C.F.R. § 430.0.  A state that operates a Medicaid program in accordance with federal requirements and the terms of its approved “State plan for medical assistance” is eligible for FFP at varying percentages.  Act §§ 1902(a), 1903(a); 42 C.F.R. §§ 430.30, 430.10-.15.  Most Medicaid program expenditures for healthcare services and supplies are eligible for FFP at the “federal medical assistance percentage” (FMAP), which varies by state based on per capita income and can range from a statutory minimum of 50 percent to a maximum of 83 percent.1  Act §§ 1903(a)(1), 1905(b); 42 C.F.R. § 433.10(a)-(b).

For some types of expenditures, the Medicaid statute authorizes FFP at rates higher than the FMAP.  Relevant here, section 1903(a)(5) authorizes 90 percent FFP for state Medicaid program expenditures “attributable to the offering, arranging, and furnishing . . . of family planning services and supplies” (italics added).  Section 1905(a)(4)(c) of the Act requires state Medicaid programs to furnish “family planning services and supplies . . . to individuals of child-bearing age who are eligible under the State plan and who desire such services and supplies.” 

Neither the Medicaid statute nor federal Medicaid program regulations define the phrase “family planning services and supplies.”2  See 42 C.F.R. § 440.40(c) (reserving definition).  However, a definition appears in CMS’s State Medicaid Manual (SMM),3

Page 3

which communicates official CMS policies and legal interpretations concerning the availability of FFP for state Medicaid program expenditures, as well as guidance concerning the submission and substantiation of FFP claims.  See Pa. Dep’t of Human Servs., DAB No. 2883, at 3 n.3 (2018).  Section 4270, paragraph B of the State Medicaid Manual states:

[T]he Senate Report accompanying the law stresses Congress’ intent of placing emphasis on the provision of services to “aid those who voluntarily choose not to risk an initial pregnancy,” as well as those families with children who desire to control family size.  In keeping with Congressional intent, [a state Medicaid agency] may choose to include in [its] definition of Medicaid family planning services only those services which either prevent or delay pregnancy, or [it] may more broadly define the term to also include services for the treatment of infertility.

Appeal File (AF) at 40 (italics added, underlining in original). 

The State Medicaid Manual also discusses the availability of 90 percent FFP for family planning services and supplies.  Section 4270, paragraphs B.1 and B.2 of the manual state:    

1.  Services Available for 90 Percent FFP Rate. – In general, FFP at the 90 percent matching rate is available for the costs of counseling services and patient education, examination and treatment by medical professionals in accordance with applicable State requirements, laboratory examinations and tests, medically approved methods, procedures, pharmaceutical supplies and devices to prevent conception, and infertility services, including sterilization reversals.  FFP at the 90 percent rate is available for the cost of a Medicaid sterilization if a properly completed sterilization consent form, in accordance with the requirements of 42 CFR 441, Subpart F, is submitted to you prior to payment of the claim.

2. Services Not Available For FFP 90 Percent Rate. – FFP at the 90 percent rate is not available for the cost of a hysterectomy . . . nor for costs related to other procedures performed for medical reasons, such as removal of an intrauterine device due to infection.  Only items and procedures clearly provided or performed for family planning purposes may be matched at the 90 percent rate.  Abortions may not be claimed as a family planning service. . . .  Similarly, transportation to a family planning service is not eligible for the 90 percent match. . . .

Page 4

AF at 41 (italics added, citations and underlining omitted).  These provisions have been in effect, and unchanged, since at least 1988.  AF at 10, 40 (date notation of “9-88”).

Case Background

As noted in the introduction, the OIG performed an audit to determine whether Missouri’s Medicaid program had “complied with Federal and state requirements” in claiming FFP at the 90 percent rate for “family planning prescribed drugs” (including contraceptive drugs) during calendar years 2009 and 2010.4  AF at 228.   

To perform the audit, the OIG identified a relevant population of 358,779 paid Medicaid prescription drug claims for which the State had obtained FFP at the family planning rate.  Id. at 229.  From that population, the OIG selected a stratified random sample of 107 claims.  Id.  (Each sample claim represented payment by Missouri’s Medicaid program for one prescribed drug.  Id. at 235.)  For each sample claim, the OIG asked the prescribing physician or practitioner to indicate whether the drug specified on the claim had been “prescribed for a family planning purpose (as defined in the [State Medicaid] Manual).”  Id. at 236. 

The OIG found that 85 of 107 sample claims “complied with requirements” – that is, were eligible for 90 percent FFP – and that the remaining 22 did not comply.  Id. at 230.  Of the 22 ineligible claims, the OIG found that “21 were eligible for reimbursement only at the regular FMAP.”  Id.  Regarding the 21 FMAP-eligible claims, the OIG found that:

• 13 were for drugs that had been prescribed for purposes other than family planning5; and

• 8 were supported by “prescriptions from the relevant pharmacies,” but that information about the “purpose of the prescriptions” was lacking. 

Id. at 230-31.  The OIG found that one sample claim (from the group of 22 found ineligible for 90 percent FFP) was ineligible for any FFP because “neither the provider [the prescriber] nor the pharmacy identified on the State agency’s records had documentation to support the prescribed drug.”  Id. at 231.  The State has offered

Page 5

evidence,6 not refuted by CMS, that the 22 sample claims found ineligible for 90 percent FFP were for prescription contraceptive drugs provided to women of child-bearing age. See id. at 2-5.

Based on its sample findings, the OIG estimated that the State had received at least $487,351 in unallowable FFP for calendar years 2009 and 2010.  Id. at 230.  The OIG commented that the “overpayment” of FFP had occurred because the Missouri Medicaid program’s “internal controls” – including the program’s system for processing prescription drug claims – “automatically classified contraceptive drugs as family planning services even in cases when the medication in question may have been prescribed for another (non-family planning) purpose.”  Id. at 230, 231.  The State has not disputed this finding, admitting that it “submits all contraceptive pharmaceuticals for reimbursement at the 90% match rate.”  AF at 2. 

In a letter responding to the OIG’s draft findings, the State explained that Missouri’s Medicaid program “uses the First Data Ban[k] contraceptive therapeutic class codes to determine if a drug claim is for family planning purposes for the additional federal financial participation.”  Id. at 240.  The State contended that Medicaid payment for any drug in the “contraceptive therapeutic class” is eligible for enhanced FFP because it “could . . . prevent a pregnancy,” regardless of the reason it was prescribed.  Id.  The State further asserted that the Health Insurance Portability & Accountability Act of 1996 (HIPAA) requires retail pharmacies to use a “nationally standardized” format for submitting insurance claims; that diagnosis codes “are not part of” of that format; and hence, there is “no way for [a] pharmacy to transmit diagnosis information” to Missouri’s Medicaid program in order to establish the claimed drug had been prescribed for a family planning purpose.  Id.  In addition, the State contended that it is “not consistent with current medical practice” for a pharmacy to request or obtain diagnostic information from the prescribing physician, and that to do so “outside of the currently approved system” for submitting pharmacy claims would “cause[ ] a delay in dispensing the contraceptive which interferes with access.”  Id. 

The OIG responded to these comments by quoting the following passage from New York State Department of Social Services, a 1992 Board decision which upheld a disallowance of state Medicaid program expenditures claimed at the 90 percent family-planning rate:   

Page 6

[T]he State [Medicaid agency] bears the burden of justifying claims for enhanced rates. . . .  It is not enough that the claims could possibly relate to family planning, or that the diagnoses do not preclude such a determination.  Rather, the State [agency] must affirmatively document that the services were sought for family planning reasons.

AF at 232-33 (quoting DAB No. 1364, at 8-9 (1992)).    

Based on the OIG’s findings, CMS disallowed $487,351 in FFP for Missouri’s Medicaid program for calendar years 2009 and 2010.  CMS’s March 2, 2018 disallowance letter, attached to Missouri’s Notice of Appeal.  In response to the State’s admission that it claimed 90 percent FFP for all drugs in the “contraceptive therapeutic class,” regardless of the actual purpose for which the drugs were prescribed, CMS stated in its March 2, 2018 disallowance letter that the State’s claiming practice regarding contraceptive drugs did “not comply with requirements in federal law, regulation and policy.”  Id. at 2.  In support of that statement, CMS noted that although section 4270.B.1 of the State Medicaid Manual indicates that 90 percent FFP “is available for the costs of pharmaceutical supplies,” section 4270.B.2 indicates that “only items and procedures clearly provided or performed for family planning purposes may be matched at the 90% FFP rate.”  Id.  CMS accordingly accepted the OIG’s finding that 22 sample contraceptive drug claims were ineligible for 90 percent FFP because the drugs associated with those claims had been prescribed for non-family planning purposes, or because “Missouri could not document that the drugs [had been] prescribed for a family planning purpose.”  Id.

The State then filed this appeal of the disallowance, restating and elaborating points that it made to the OIG which we summarized above.  Notice of Appeal; Brief of Appellant Missouri Dept. of Social Servs. (Mo. Br.).  CMS generally responds that “contraceptive drugs are reimbursable at the enhanced rate only if prescribed for a family planning purpose,” that this condition is founded on a “reasonable” interpretation of section 1903(a)(5) of the Act, and that a state Medicaid agency seeking 90 percent FFP “must affirmatively document that the services for which it seeks enhanced reimbursement were sought and provided for family planning reasons,” and that the State did not carry that burden with respect to the 22 sample claims that the OIG found ineligible for 90 percent FFP.  Response Br. at 1-2, 6-7.  

Scope of Board Review

Under the administrative appeal regulations in 45 C.F.R. Part 16, Board review of a disallowance is generally limited to resolving disputes about material facts and deciding whether the disallowance is consistent with applicable statutes and regulations.  See 45 C.F.R. § 16.14 (titled “How Board review is limited” and stating that the Board is “bound by all applicable laws and regulations”); Leake and Watts Servs., Inc., DAB No. 2910, at

Page 7

14 (2018) (holding that, under 45 C.F.R. Part 16, the Board’s “role on review” of an adverse Head Start determination is to “apply the governing statutes and regulations to the facts underlying” the federal agency’s determination); S.A.G.E. Communications Servs., DAB No. 2481, at 5 (2012) (stating that the Board must uphold a disallowance when it is “authorized by law” and its “factual basis” has not been “disproved”). 

A State Medicaid Agency’s Burden of Proof in a Disallowance Appeal

The Board has long held, consistent with Medicaid program regulations, that a state Medicaid agency (or other non-federal grantee) has the “burden to document” the allowability of a disputed FFP claim.  Pa. Dep’t of Human Servs., DAB No. 2835, at 5 (2017); 42 C.F.R. § 430.42(b)(2)(ii) (stating that “[i]n all cases, the State has the burden of documenting the allowability of its claims for FFP”).  The Board has also held that because an enhanced FFP rate (such as the 90 percent family planning rate) may incentivize improper cost-shifting, “a state’s ever-present burden to document the allowability of its costs is especially heavy when FFP is being claimed at an enhanced rate, requiring a clear showing that all claimed costs meet applicable reimbursement requirements.”  N.J. Dep’t of Human Servs., DAB No. 2518, at 4 (2013) (italics added); see also Ill. Dep’t of Public Aid, DAB No. 2021, at 17 (2006) (noting the potential for improper cost-shifting), aff’d, Ill. Dep’t of Healthcare & Family Servs. v. U.S. Dep’t of Health & Human Servs., Nos. 06-C-6402 & 6412, 2008 WL 877976 (N.D., Ill. Mar. 28, 2008); Ca. Dep’t of Health Servs., DAB No. 665, at 4 (1985) (holding that a state “must demonstrate at least to a reasonable certainty that the services involved were for family planning purposes” and thus were entitled to 90 percent FFP); Iowa Dep’t of Human Servs., DAB No. 2378, at 20 (2011) (noting that a state must make a “clear showing” that all requirements for claiming an enhanced FFP rate are met (quoting Mont. Dep’t of Public Health, DAB No. 2020, at 8 (2006)).  And the Board has held that when a disallowance is based on audit findings (as the disallowance here is), a grantee has the burden to show that those findings are “legally or factually unjustified.”  Az. Health Care Cost Containment Sys., DAB No. 2981, at 22 (2019).

Analysis

As outlined above, the challenged disallowance reflects the results of the OIG’s review of a statistical sample of 107 paid Medicaid prescription drug claims for which the State received FFP at the 90 percent rate applicable to “family planning services and supplies.”  In this appeal the State:

• raises no issue regarding OIG’s sampling methodology;
• does not question how the OIG calculated its estimate of unallowable costs based on the sample findings;

Page 8

• does not dispute the audit finding that one of the 107 sample claims was completely undocumented and thus ineligible for FFP at either the FMAP or the 90 percent family-planning rate;
• does not contest the audit finding that 13 of the 107 sample claims were for  contraceptive drugs that had been prescribed for other than family-planning purposes; and
• does not dispute the OIG’s finding that eight other sample claims were for contraceptive drugs for which there was no documentation (from the prescribing practitioner, the pharmacy, or other sources) showing the reason they had been prescribed.  

Given these concessions or omissions, our scope of review, and a state Medicaid agency’s burden to demonstrate the allowability of its FFP claims, the two primary questions we must answer are:  First, did CMS lawfully decide that prescription contraceptive drugs are ineligible for 90 percent FFP unless the drugs were prescribed for a family planning purpose?  Second, assuming the answer to the first question is yes, did the State demonstrate that it met the family-planning-purpose condition with respect to the sample prescription drug claims found ineligible for the enhanced FFP rate?  We answer both questions in favor of CMS, for the reasons stated below.

1.        CMS lawfully determined that a prescription contraceptive drug is reimbursable at the 90 percent rate only if it was provided for a family planning purpose.    

Because section 1903(a)(5) of the Act does not define the term “family planning services and supplies,” that provision leaves uncertain the scope or limits of its authorization of 90 percent FFP.  However, section 4270 of the State Medicaid Manual, and subsequent CMS policy statements that apply the manual’s guidance, seek to clarify the statutory authorization.  SMM § 4270, AF at 40-41 (specifying “services available” and “services not available for” 90 percent FFP). 

Section 4270 (whose content has remained unchanged since 1988) indicates that a state Medicaid program expenditure may be reimbursed at the enhanced rate authorized by section 1903(a)(5) when it meets two basic conditions.  First, the expenditure must be for a service or supply that prevents or delays pregnancy or treats infertility (if the state has opted to cover infertility treatment under the family planning benefit).  SMM § 4270.B, AF at 40 (stating that a state Medicaid program may “include in [its] definition of Medicaid family planning services only those services which either prevent or delay pregnancy” or “broadly define the term to also include services for the treatment of infertility”); see also State Health Official (SHO) Letter # 16-008, “Medicaid Family Planning Services and Supplies” (dated June 14, 2016), AF at 253 (stating that the “family planning benefit provides coverage for services and supplies to prevent or delay

Page 9

pregnancy”).7  As specified in section 4270B.1, the general types of services and supplies that fulfill this first condition (and whose costs are therefore potentially reimbursable at the 90 percent rate) include “counseling services and patient education, examination and treatment by medical professionals in accordance with applicable State requirements, laboratory examinations and tests, medically approved methods, procedures, pharmaceutical supplies and devices to prevent conception, and infertility services, including sterilization reversals.”  AF at 41; see also AF at 253, SHO Letter # 16-008 (stating that a Medicaid family planning benefit may cover “education and counseling in the method of contraception desired or currently in use by the individual, a medical visit to change the method of contraception, and (at the state’s option) infertility treatment”). 

Second, according to section 4270 (and subsequent CMS policy statements), “[o]nly items and procedures clearly provided or performed for family planning purposes may be matched at the 90 percent rate.”  SMM § 4270.B.2, AF at 41; see also SHO Letter # 16-008, AF at 254 (stating that a service or supply furnished during a medical visit is eligible for 90 percent FFP if it was furnished “for the purpose of preventing or delaying pregnancy (or at the state’s option, for treating infertility)”).  In other words, a state Medicaid expenditure is eligible for 90 percent FFP only if preventing or delaying pregnancy (or treating infertility) was the actual reason, or at least one of the actual reasons, the Medicaid-financed service or supply was “provided or performed.”  See Feb. 1, 1990 HCFA8 Family Planning Services Mem., AF at 43 (advising a regional office that certain diagnostic and treatment services, though provided or performed at family planning clinics or as follow-up to a family planning service, are ineligible for 90 percent FFP because they “are not services performed primarily for family planning purposes” but “would need to be performed to identify and treat a medical condition, regardless of whether or not the woman [is] seeking to limit or expand the size of her family”); Feb. 22, 1990 HCFA Comments on Ga. State Plan Amendment, AF at 42 (noting that pregnancy testing is “not generally covered [that is, not reimbursed at the enhanced FFP rate] because it is normally not performed primarily for family planning purposes”).  The State Medicaid Manual and CMS policy statements accordingly instruct state Medicaid agencies that 90 percent FFP is unavailable for a service or supply that may result in, or have the effect of, delaying or preventing pregnancy but which is provided to serve a non-family planning purpose.  For example, says the State Medicaid Manual, a hysterectomy is ineligible for 90 percent FFP when the procedure is performed to treat a medical condition.  See SMM § 4270.B.2, AF at 41.  Likewise, the removal of an

Page 10

intrauterine device due to infection would be considered a procedure performed for medical reasons and thus ineligible for 90 percent FFP even though the procedure has a family planning implication.9  See id. 

By defining what may be considered “family planning services and supplies” and clarifying when a family planning-related expenditure qualifies for 90 percent FFP, section 4270 of the State Medicaid Manual functions as an interpretive rule, advising the state Medicaid agencies and others about CMS’s construction of section 1903(a)(5).  Mass. Exec. Office of Health & Human Servs., DAB No. 2218, at 14 (2008) (relying on Shalala v. Guernsey Memorial Hosp., 514 U.S. 87, 99 (1995)), aff’d, Commonwealth of Mass. v. Sebelius, 701 F. Supp. 2d 182 (D. Mass. 2010).10  In general, the Board will defer to, and apply, a federal agency’s interpretation of a statute that the agency is responsible for implementing if that interpretation is “reasonable” and the non-federal party had adequate and timely notice of the interpretation.  Az. Health Care Cost Containment Sys., DAB No. 2824, at 2 (2017), aff’d, Az. Health Care Cost Containment Sys. v. CMS, No. CV-17-04462, slip op., 2020 WL 805235 (D. Az. Feb. 18, 2020), appeal docketed, No. 20-15598 (9th Cir. Apr. 6, 2020); N.J. Dep’t of Human Servs., DAB No. 2780, at 5 (2017); N.J. Dep’t of Human Servs., DAB No. 1773, at 6 (2001).  Even absent such notice, the Board will defer to the federal agency’s reasonable interpretation unless the non-federal party can show that it actually relied to its detriment on a reasonable alternative interpretation.  Az. Health Care Cost Containment Sys., DAB No. 2824, at 10.  

CMS’s interpretation of section 1903(a)(5) of the Act – and particularly its view that the statute permits 90 percent FFP only for services or supplies that are “performed or provided” for a family planning “purpose” – is not only reasonable, it is consistent with the statute’s legislative history.  As section 4270 of the State Medicaid Manual accurately states, Congress enacted section 1903(a)(5) and section 1905(a)(4)(C) to ensure that states made family planning services and supplies available on a voluntary and confidential basis to Medicaid recipients (and other low-income persons) “who are of child-bearing age” and who “express a desire” not to risk an initial pregnancy, and also to help eligible parents with children “control family size in order to enhance their capacity and ability to seek employment and better meet family needs.”  S. Rep. 92-1230, at 297-

Page 11

98 (1972).11  To ensure that the enhanced federal financial support authorized under section 1903(a)(5) promotes the “voluntary choice” or expressed “desire” of Medicaid recipients to prevent or delay pregnancy and control family size, it is sensible to construe that authorization as limited to expenditures for services and supplies that are provided to serve those purposes (and not to serve other, non-family planning purposes). 

The State does not argue that CMS’s interpretation of section 1903(a)(5) as authorizing 90 percent FFP only for services and supplies provided for a family planning purpose is inconsistent with statutory text or relevant legislative history or is otherwise unreasonable.  Nor does the State allege that it lacked adequate notice of that longstanding interpretation when it made and claimed FFP for the contraceptive drug expenditures implicated by the disallowance.  In addition, the State does not allege or offer evidence that its practice of claiming 90 percent FFP for any contraceptive drug, regardless of the purpose for which it was prescribed, is based on its own reasonable interpretation of the Medicaid statute and regulations.  We therefore defer to CMS’s interpretation of section 1903(a)(5) and conclude that CMS could lawfully disallow 90 percent FFP claimed by the State for prescription contraceptive drugs absent some showing that the drugs had been prescribed for a family planning purpose (i.e., for the purpose of delaying or preventing pregnancy).

2.       The State did not proffer documentation or other evidence verifying that the sample claims found ineligible for 90 percent FFP were for contraceptive drugs that had been sought or prescribed for a family planning purpose.

The State argues that it met the family-planning-purpose condition with respect to the sample contraceptive drug claims that the OIG and CMS found ineligible for 90 percent FFP.  Mo. Br. at 1 (asserting that family planning is “a purpose of every contraceptive prescription”).  In support of that position, the State stresses that contraceptive drugs are “intimately tied to family planning and reproductive health” and, when used, “always produce a family planning effect [preventing conception], whether specifically prescribed to prevent unwanted pregnancy or for other medical [non-family-planning] purposes.”  Id. at 12, 16 (italics added).  For that reason, says the State, a contraceptive drug furnished to a woman of child-bearing age should always be regarded as having been

Page 12

provided for a family planning purpose12 and therefore eligible for 90 percent FFP, even if it was actually prescribed for a non-family-planning purpose.  Id. at 1, 12, 16.  And because a contraceptive drug’s effect renders it “always related to family planning” (id. at 16), says the State, a state Medicaid program need not produce documentation of the actual reason (what the State sometimes refers to “primary” reason or purpose) it was prescribed in order to support an FFP claim for the drug at the enhanced rate (id. at 1, 11-14).  In the State’s view, a National Drug Code (NDC)13 “indicating that [a] drug is in the therapeutic contraceptive class is sufficient to ‘affirmatively document’” that the drug is eligible for 90 percent FFP.  Id. at 16.

The proposition that a contraceptive drug’s “effect” or properties makes the drug always, or automatically, eligible for 90 percent FFP is incompatible with CMS’s valid interpretation of section 1903(a)(5) as requiring that an item or service be “provided or performed” for a family-planning “purpose.”  Although a contraceptive drug is, as the State says, “engineered” to prevent pregnancy, bringing about that “effect” may not be the purpose for which the drug is prescribed or used, as the OIG’s findings illustrate.  The State Medicaid Manual and CMS policy statements have (since the late 1980s) consistently advised state Medicaid agencies that 90 percent FFP is unavailable when the claimed service or supply is provided for a non-family planning reason (to treat a medical condition, for example), even when the service or supply is expected to delay or prevent pregnancy or have other family-planning implications.  See, e.g., Feb. 1, 1990 HCFA Mem., AF at 43 (stating “[s]ervices which are medically required regardless of family planning intent must be claimed at the regular medical assistance matching rate” (italics added)).  Consequently, when a claim for 90 percent FFP in a prescription contraceptive drug is questioned, a state Medicaid agency must come forward with some evidence that family planning was the reason, or at least one of the reasons, the drug was prescribed for the Medicaid recipient.  In other words, a state Medicaid agency must have some evidence, which the State did not provide in this case, that the health care provider prescribed or furnished the drug in order to promote the patient’s desire to prevent or

Page 13

delay pregnancy or limit family size.14  Cf. id. (stating “only those services directly related to an individual’s desire to determine family size may be claimed at the higher family planning match”); SHO Letter #16-008, AF at 253 (“clarify[ing] previous guidance on the delivery of family planning services and supplies to all Medicaid beneficiaries”) and 254 (stating that a service or supply furnished during a medical visit is eligible for 90 percent FFP if it was furnished “for the purpose of preventing or delaying pregnancy (or at the state’s option, for treating infertility)”).  The mere fact that a drug in the contraceptive therapeutic class has been prescribed to a woman of child-bearing age is insufficient evidence of the drug’s eligibility for the enhanced rate given the undisputed fact that contraceptive drugs are commonly prescribed for medical reasons, even for women of child-bearing age.15

We do not decide here what type of information or documentation the State needed to submit in order to establish the allowability of the disallowed expenditures.  We merely hold that an expenditure for a prescription contraceptive drug is ineligible for 90 percent FFP unless the state Medicaid agency produces some evidence, besides a procedure code or the drug’s National Drug Code, that it was made for a family planning purpose. 

 3.       CMS program guidance and policy statements do not permit the State’s practice of claiming 90 percent FFP for all contraceptive drug expenditures regardless of purpose.

The State suggests, on various grounds, that its practice of claiming 90 percent FFP for any contraceptive drug regardless of the reason it was prescribed is consistent with CMS guidance and policy.  For example, the State points to the statement in section 4270.B.1 of the State Medicaid Manual that the 90 percent matching rate is “available for . . . pharmaceutical supplies and devices to prevent conception.”  Mo. Br. at 12.  Besides “pharmaceutical supplies and devices to prevent conception,” section 4270.B.1 indicates that 90 percent FFP is also available for “counseling,” “patient education,” “examination and treatment by medical professionals,” and “laboratory examinations and tests.”  AF at 41.  It is clear from this listing that section 4270.B.1 merely specifies general types or categories of services and supplies (including pharmaceuticals) for which a state Medicaid agency may claim 90 percent FFP but does not establish any rule of automatic eligibility for such reimbursement.  “Counseling,” “patient education,” and other listed services would be eligible for FFP only to the extent they are furnished for family

Page 14

planning and not some other purpose, as paragraph B.2 of section 4270 indicates.  Paragraph B.1 does not purport to exempt “pharmaceutical supplies and devices” from that condition. 

Next, the State contends that, in recommending and issuing the disallowance, the OIG and CMS placed “undue emphasis” on the statement in section 4270.B.2 of the State Medicaid Manual that “[o]nly items and procedures clearly provided or performed for family planning purposes may be matched at the 90 percent rate.”  Mo. Br. at 14.  The State submits that, although the quoted statement refers to “items” and “procedures,” the statement’s “focus is clearly on the latter” given that it “appears in a paragraph explaining that costs related to hysterectomies and ‘other procedures performed for medical reasons’ are not reimbursable at the 90 percent rate.”  Id. (quoting SMM § 4720.B.2).  This argument is no more convincing than the one that parsed section 4270.B.1.  Section 4270.B.2’s stated condition for obtaining 90 percent FFP – an expenditure made for a family planning purpose – expressly covers both “items . . . provided” (such as prescription drugs) and “procedures . . . performed.”  This clear statement that “items” (such as drugs) prescribed for medical reasons do not qualify for enhanced funding is in no way undercut by other language in section 4270.B.2 specifying when surgeries or other “procedures” do not qualify for enhanced funding.  Nothing else in section 4270.B.2 indicates that CMS, in interpreting section 1903(a)(5), intended to make eligibility for the enhanced rate dependent on whether the claimed expenditure is for a “procedure” or for an “item.”16

The State also relies on the statement in section 4270.B of the State Medicaid Manual that states are “free to determine the specific services and supplies which will be covered as Medicaid family planning” as long as they “either prevent or delay pregnancy” and “are sufficient in amount, duration and scope to reasonably achieve their purpose.”  Mo. Br. at 11-12 (quoting SMM § 4270.B, AF at 40).  Contrary to the State’s suggestion, this statement does not tell state Medicaid programs that the 90-percent FFP rate is available for any drug that may, or may be expected by the patient to, “prevent or delay pregnancy.”  The statement merely advises a state Medicaid program that it has flexibility in deciding what kinds of services and supplies – for example, the types and brands of contraceptive drugs – it will cover under the Medicaid family planning benefit.

Page 15

Next, the State points to Medicaid program guidance published by CMS on January 11, 2017.  Mo. Br. at 20.  In that guidance, CMS advised states that it would not provide a list of billing codes for family planning services and supplies, stating “[t]his is a state operational matter, and as such states should develop criteria so that claims for FFP at the 90 percent rate for family planning services and supplies are documented with codes that indicate that the underlying item or service was a family planning service or supply.”  CMS, Frequently Asked Questions, Medicaid Family Planning Services and Supplies (Jan. 11, 2017), AF at 265.  Relying on that passage, the State contends that, “[a]s a ‘state operational matter,’ it should be within the State’s discretion to conclude that any drug in the contraceptive therapeutic class ‘pertains to family planning’ and is reimbursable at 90%.”  Mo. Br. at 20. 

If the State is contending here that CMS may not review a state Medicaid program’s determination that particular services and supplies are eligible for enhanced FFP, it cites no legal authority for that stance.  Nothing in the January 2017 guidance suggests that state Medicaid agencies have “discretion” to decide that a particular service or supply is eligible for 90 percent FFP, or that a Medicaid claims processing system’s classification of a pharmaceutical as a family planning supply is necessarily sufficient to support a claim for 90 percent FFP.  The guidance merely tells state Medicaid agencies that they have some discretion in deciding how they identify and “document” what constitutes family planning services and supplies which might qualify for 90 percent FFP.  Whether or not a particular service or supply provided to a patient is in fact eligible for 90 percent FFP is ultimately a matter to be determined by CMS in accordance with federal law (and CMS’s reasonable interpretation of federal law).  Cf. 42 C.F.R. Part 430, subpart C (authorizing audits, program reviews, withholding of payments, deferral and disallowance of FFP, and other measures by CMS to ensure that state Medicaid programs comply with applicable federal requirements); N.J. Dep’t of Human Servs., DAB No. 115, at 6 (1980) (describing the federal government’s role in Medicaid as ensuring that states act in accordance with conditions set forth in the Medicaid statute), aff’d, New Jersey v. Dep’t of Health & Human Servs., 670 F.2d 1284 (3d Cir. 1982), cert. denied, 459 U.S. 824 (1982). 

Next, the State asserts that neither the Medicaid statute and regulations, nor the State Medicaid Manual, nor any other CMS guidance or Board precedent requires a state Medicaid program to verify that a contraceptive drug was “prescribed specifically” or “primarily” for a family planning purpose in order to claim the 90 percent FFP for that item.  Mo. Br. at 11-14.  In a related vein, the State complains that “CMS has never instructed States that they must set up processes to distinguish contraceptive drugs dispensed expressly for ‘family planning purposes’ from those that are not, nor has it provided any guidance as to how such a system could be developed consistent with

Page 16

current medical practice, in which diagnosis codes are not included on prescriptions.”17  Id. at 18.

It is true that the law and CMS policy do not specify the information or documentation a state Medicaid program must acquire or maintain in order to substantiate a claim for 90 percent FFP in its contraceptive drug expenditures, or instruct a program about how its claims processing system should be structured to generate that information or documentation.  However, the absence of such detailed directives does not preclude a disallowance in these circumstances because longstanding federal regulations, HHS grant administration requirements, and CMS program guidance make state Medicaid agencies responsible for acquiring and, when an expenditure’s eligibility for FFP is questioned, for producing documentation or information sufficient to verify that the FFP claim meets federal requirements.18  Having been notified in the State Medicaid Manual (and elsewhere) that CMS interprets section 1903(a)(5) of the Act as allowing 90 percent FFP only for services and supplies actually provided for a family planning purpose, it was incumbent on the State to have systems and records enabling the agency (and any subsequent reviewer) to verify that its contraceptive drug claims met that requirement before including them in its claims for 90 percent FFP.  CMS was not required to first spell out how state Medicaid programs should structure their operations and procedures to meet the requirement.  See Pa. Dep’t of Human Servs., DAB No. 2883, at 7-10 (2018) (holding that relevant “conditions for allowability adequately notified the State” of the need to collect and preserve documentation that the conditions were met, and rejecting an argument that the disallowance was invalid because CMS did not have regulations or policies spelling out what documentation was necessary).

Page 17

4.       The Board’s New York decision is instructive.

The State questions CMS’s reliance on New York Department of Social Services, DAB No. 1364 (1992).  Mo. Br. at 15.  At issue in New York was the probative value of a “family planning indicator” on a Medicaid claim form.  When the dispute in that case arose, the New York Medicaid program’s claims processing system classified certain medical procedure and diagnosis codes as related to family planning, and the program included all covered services billed under those codes in its requests for 90 percent FFP.  DAB No. 1364, at 3.  New York also claimed FFP at the 90 percent rate for any service for which the billing provider had checked the Medicaid claim form’s family-planning-indicator box, even when the service had not been billed to the program using a predesignated family planning procedure or diagnosis code.  Id. 

The specific claims at issue in New York’s disallowance appeal were for physician, laboratory, and other services billed without family planning procedure or diagnosis codes but for which the providers had checked the Medicaid claim form’s family-planning-indicator box.  Id. at 4-7, 8.  In opposing the disallowance, New York argued that procedure and diagnosis codes appearing on the claim forms indicated that it was “possible” that the billed services had been performed for a family planning purpose, and thus the checked family-planning-indicator boxes should have been “deferred to as the medical judgment of the attending physician as to the purpose of the service[s]” and as sufficient evidence of their eligibility for enhanced FFP.  Id. at 7-8.  According to New York, the family planning indicator was “determinative” evidence of a family planning purpose absent information (such as procedure codes, diagnoses, etc.) positively showing that the service was unrelated to family planning.  Id. at 1-2, 7.   

The Board held that New York had not carried its burden of demonstrating the disputed claim’s eligibility for enhanced FFP because the family planning indicator was unreliable – there being “evidence [from the audit whose findings triggered the disallowance] that providers marked the [family-planning-indicator] box in error [when the billed service was clearly not related to family planning] in a substantial number of cases.”  Id. at 2, 8-11.  Given the family planning indicator’s unreliability, and the fact that the submitted diagnosis or procedure codes indicated only the possibility that the services were related to family planning, “[New York] was required to substantiate the eligibility of [the disputed] claims for enhanced funding by other evidence of their relation to family planning” – more specifically, “affirmative[ ] document[ation] that the services were sought for family planning reasons.”  Id. at 9, 11.  The Board indicated that its holding was supported by the statement in section 4720.B.2 of the State Medicaid Manual that “[o]nly items and procedures clearly provided or performed for family planning purposes may be matched at the 90 percent rate.”  Id. at 9 (emphasis in original).

Page 18

Unlike the State, we find New York instructive.  The Board in that case essentially held that equivocal or unreliable information on a Medicaid claim form is insufficient proof that a billed service was provided for a family planning purpose.  Here the State maintains that certain information on, or ascertainable from, a pharmacy claim – namely, the age and gender of the Medicaid recipient, and the fact that the billed item is a drug within the contraceptive therapeutic class – is necessarily sufficient evidence that the drug was provided for a family planning purpose.  However, just as the audit findings in New York demonstrated the unreliability of the family planning indicator on a Medicaid claim form, the OIG’s audit findings in this case – which identified 13 claims from a sample of 107 in which a contraceptive drug was provided for a non-family planning purpose – show that the limited information on a Missouri Medicaid pharmacy claim is not, in a substantial percentage of cases, reliable evidence of a contraceptive drug’s eligibility for enhanced FFP.  We therefore agree with CMS that the State did not clearly show that the sample contraceptive drug claims identified by CMS as ineligible for the enhanced FFP rate were in fact eligible.

5.       The Financial Management Review Guide’s “review procedures” do not legally preclude a disallowance. 

The State contends, for reasons we specify later, that the “OIG recommendation, and CMS’s resulting disallowance, are . . . contrary to” CMS’s “Financial Management Review Guide, #20:  Family Planning Services” (Guide), which CMS revises periodically.  Mo. Br. at 3-5, 12-14.  CMS responds that the Guide is “neither law nor policy” but “procedural guidance” for “CMS accountants and financial analysts to use when conducting a focused financial management review” and as such is “not relevant to the issue in this case.”  Response Br. at 7-8.

The Guide has existed since at least 1991.19  The record contains the February 2002 and May 2010 versions (the latter of which was published during the second year of the audit period).  Appeal File at 6, 52.  Both versions state that:

• The Guide is “intended . . . [to] give financial personnel] the basic knowledge, references, and review steps necessary to ascertain whether a State’s claims for 90-percent Federal Financial Participation (FFP) are allowable”;
• The Guide “reflects current law and [CMS] policy decisions” regarding such claims; and

Page 19

• The Guide’s review “methods and procedures” are those “that have been successfully pursued in prior” audits performed by the OIG or CMS regional office staff. 

AF at 9, 57.  Both versions of the Guide also cite, quote from, discuss, or reproduce (as exhibits) relevant federal statutes and regulations, CMS program guidance and policy memoranda (including section 4270 of the State Medicaid Manual), and Board decisions.  See, e.g., id. at 9-12, 40-51, 73-94.  For discussion purposes, we refer to the 2010 version of the Guide, unless otherwise indicated.

To support its contention that the disallowance is in conflict with the Guide, the State points to the Guide’s “review procedures” – that is, the steps for auditing a state Medicaid program’s claim for 90 percent FFP.  See AF at 16-28.  The Guide states that its review procedures are “based on and driven primarily” by CPT and HCPCS “procedure codes,”20 rather than by “diagnosis codes” (if any), reported on the underlying Medicaid payment claims submitted by health care providers for inpatient and outpatient services and supplies.  Id. at 17.  For outpatient payment claims identified as being for “contraception” and “sterilization” (and included in the state Medicaid program’s request for 90 percent FFP), the Guide instructs auditors to place procedure codes reported on those claims into one of three categories specified in the Guide’s “Family Planning Coding Matrix.”  Id. at 21.  The Guide defines “Category I” of the coding matrix to include claims for “services that are never or almost never” family planning services and which “should be disallowed, unless the State can provide evidence that the claim(s) represents services which were, in fact, clearly done for a family planning purpose.”  Id. at 22, 31, 32.  Category II claims “represent the kinds of services which may or may not be considered a contraception/sterilization family planning service depending on the circumstances (i.e., the patient’s primary or presenting problem or other factors).”  Id. at 22.  And category III claims, according to the Guide’s coding matrix, represent services that are “always considered family planning” and thus eligible to be claimed at the 90 percent family planning rate.21  Id. at 23, 31, 33.  The coding matrix specifies procedure codes for each of these three categories.  Category III codes include HCPCS code S4493,

Page 20

whose description is “contraceptive pills for birth control.”22  (Category III also specifies procedure codes for other contraceptive products such as cervical caps (A4261), intrauterine devices (J7300), female condoms (A4268), and male condoms (A4267).23  Id. at 33.)

The State submits that its practice of claiming 90 percent FFP for contraceptive drugs provided to women of child-bearing age, regardless of whether they were prescribed for a non-family planning purpose, is consistent with the just-described review procedures because those procedures stipulate that the services and supplies that are “‘always’ reimbursable at the 90% rate include[ ] . . . codes for all contraceptive products . . ., even though some may serve a purpose in addition to contraception.”24  Mo. Br. at 13 (italics added).  “At no point,” says the State,

does the Review Guide suggest that the State must require diagnosis codes on prescription drug claims or otherwise inquire from a provider as to the “purpose” of a contraceptive prescription.  Rather, the Review Guides appear to defer to individual State practices as to what pharmaceutical codes should be included for 90% reimbursement.  

Id. at 14.  

The State further submits that CMS may not argue on one hand that its interpretation of the Medicaid statute in the State Medicaid Manual (as requiring that a claim for 90 percent FFP include only services and supplies that were provided for family planning purposes) is entitled to deference, then claim on the other that its own Financial Management Review Guide – which the OIG report mentions and which was (according to that report) issued to state Medicaid agencies (see supra note 19) – is irrelevant and

Page 21

merely a set of “procedures for use by CMS accountants and financial analysts to use when conducting a focused financial management review.”  Reply at 1 (quoting Response Br. at 7).  Claiming that “it is hard to fathom which ‘interpretation’ of the law CMS believes is owed deference if it is not the statements and policies laid out in the [Review] Guides,” the State contends that the Guide’s approach of classifying contraceptive drugs as “always” related to family planning (and thus always reimbursable at the 90 percent rate) is “controlling” and nowhere suggests that a state Medicaid program “could not reasonably rely on [the Guide’s] statements that proper claiming for family planning services” – and for contraceptive pharmaceuticals in particular – “should be based on and driven primarily by procedure codes.”  Id. (internal quotation marks omitted). 

For several reasons, we do not agree that the Guide’s review procedures are “controlling” in this case.  First, while those procedures were written to “reflect” applicable law and CMS “policy decisions,” AF at 9, 57, nothing in the Guide suggests that the procedures constitute official interpretations of applicable law or are properly regarded as authoritative expressions of CMS policy regarding the extent to which contraceptive drug expenditures are eligible for 90 percent FFP.  The review procedures, including the coding matrix, are what they purport to be:  tools that help auditors conduct accurate and efficient audits based “primarily” on a review of procedure codes.  The use of a simple matrix in audit screening does not establish a new authoritative standard for applying the legal requirements in the statute as elucidated in applicable substantive guidance.

Second, contrary to the State’s assertion, the Guide does not indicate that “proper claiming” of 90 percent FFP may be based entirely on “procedure codes.”  The Guide indicates only that CMS’s audits will be based “primarily” on a review of procedure codes associated with the Medicaid payment claims supporting a 90 percent FFP request.  The Guide does not instruct a state Medicaid program about what type of documentation or information it must have on hand to substantiate a claim for 90 percent FFP in a contraceptive drug if that claim’s allowability is questioned.  Nor does the Guide suggest that CMS will in all cases accept a relevant procedure code or National Drug Code as sufficient evidence of a contraceptive drug’s eligibility for 90 percent FFP.

Third, we are unable to determine, based on the contents of the coding matrix, that the matrix categories were developed with an understanding that contraceptive drugs are sometimes prescribed for non-family planning purposes.  Although the coding matrix states that contraceptive drugs (or at least oral contraceptive drugs) are “always considered family planning . . . services” (AF at 33), the review procedures (of which the coding matrix is a part) do not say whether that is because of the drugs’ inherent properties or primary therapeutic effect, or because prescription contraceptive drugs are always, or almost always, provided (or thought to be provided) for a family planning

Page 22

purpose, or because of other circumstances.25  The Guide elsewhere indicates that a prescription contraceptive drug’s eligibility for 90 percent FFP should be determined based on the reason it was prescribed, stating that “pharmaceutical supplies and devices are covered if provided for family planning purposes.”  AF at 11.  The review procedures nowhere indicate that this overarching limitation is inapplicable to a contraceptive drug that has been prescribed for a non-family planning purpose.  We properly enforce that limitation because it – and not the coding matrix – constitutes CMS’s interpretation of the governing statute.

Finally, the State alleges no reliance on the Guide in claiming the disallowed FFP, nor does it indicate why such reliance, assuming it occurred, would preclude CMS from applying its longstanding reasonable interpretation of the statute. The designation of oral contraceptive drugs under category III of the coding matrix as “always considered family planning” appeared for the first time in the May 2010 version of the Guide (issued during the second year of the audit period). The State does not say when it first saw that version of the Guide or assert that it relied on the Guide’s coding matrix in adopting its practice of claiming 90 percent FFP for any contraceptive drug without regard to whether it had actually been provided for a family planning purpose.

6.       The State’s policy and other concerns do not invalidate the disallowance.

Finally, the State submits that in order verify the family planning purpose of a contraceptive drug prescription, its Medicaid program would have to require the prescribing physician to document that purpose in the patient’s medical records or instruct the dispensing pharmacy to obtain a diagnosis code related to the prescription.  Either requirement, says the State, would be “inconsistent with current medical practice,” “pose[ ] confidentiality concerns,” yield inaccurate information, “unnecessarily intru[de] on the doctor-patient relationship,” be administratively burdensome on Medicaid

Page 23

providers (and cause them to leave the program or limit the number of Medicaid patients they accept), and “likely” delay or impede access to prescription contraceptives, “even though the intent of the mandatory [family-planning] benefit [under section 1905(a)(4)(C) of the Medicaid statute] and the 90% funding [under section 1903(a)(5)] is to ensure that they are widely available.”  Mo. Br. at 1, 16-18.   

These policy and program administration concerns presuppose that CMS will accept nothing less, or nothing other, than the prescribing physician’s chart notes or a diagnosis code supplied by the physician to the pharmacy as adequate proof that a contraceptive drug was provided for a family planning purpose.  As the State acknowledges, however (Mo. Br. at 20), CMS has accepted other information as adequate to support a claim for 90 percent FFP in a state Medicaid program’s contraceptive drug expenditures.26  In order to resolve audit findings similar to the ones at issue in this case, the state of Colorado submitted a plan of correction, ultimately approved by CMS, under which CMS will consider a prescription contraceptive drug to have been provided for a family planning purpose on a specific occasion if the state Medicaid agency shows that the drug was prescribed within one year after a “family planning visit” by the patient.  See Appeal File at 209-13, 245-46, 277.  The State does not say whether or not this approach satisfactorily addresses the concerns it has raised.  

The issue presented by the disallowance is narrow:  whether CMS lawfully – that is, in accordance with applicable statute and regulations – required the State, as a condition for receiving 90 percent FFP for prescription contraceptive drugs, to produce someevidence that family planning was the actual reason they were provided to Medicaid recipients.  As discussed, the disallowance is consistent with section 1903(a)(5) of the Medicaid statute (as CMS has reasonably interpreted that provision), with Medicaid regulations that make a state Medicaid agency responsible for demonstrating that its FFP claims meet federal requirements, and with relevant Board precedent.  The State does not point to any legal authority permitting or requiring the Board to weigh its various policy and administrative

Page 24

concerns (assuming they are valid27) in deciding whether the disallowed expenditures met the statutory condition for 90 percent FFP.    

Conclusion

For the reasons outlined above, we affirm CMS’s March 2, 2018 determination to disallow $487,531 in FFP for the state of Missouri’s Medicaid program.