GAB Decision 505
Docket No. 83-157
January 31, 1984
Washington State Department of Social and Health Services;
Garrett, Donald; Settle, John Teitz, Alexander
The Washington State Department of Social and Health Services (State)
appealed a $993,442 disallowance by the Health Care Financing
Administration (Agency) of federal financial participation (FFP) in the
cost of services to Medicaid recipients claimed under Title XIX of the
Social Security Act. The services were provided by State owned and
operated intermediate care facilities for the mentally retarded (ICF/
MR) during the periods July 1 - December 31, 1979 and July 1 - September
30, 1980.
Title XIX of the Social Security Act (the Act), 42 U.S.C. 1396 et
seq., provides for the establishment of cooperative federal-state
programs, commonly called "Medicaid," to provide "medical assistance"
to
certain needy "individuals whose income and resources are insufficient
to meet the cost of necessary medical services." Section 1901 of the
Act. States are not required to institute a Medicaid program, but if
they choose to do so, they must submit to the Secretary a satisfactory
"state plan" which fulfills all the requirements of the Act. Section
1902(a). The Secretary must approve a plan which meets all requirements
of the statute and implementing regulations. Sections 1902(b) and (c).
With that approval, a state becomes entitled to federal funds
reimbursing part of the expenditures which the state has made in
providing medical assistance to eligible individuals under the state
plan, in accordance with federal conditions.
The Medicaid regulations generally entitle a state to be reimbursed
at a rate not to exceed what a provider customarily charges the general
public. The regulations make an exception for state-owned facilities,
however. The state can be reimbursed for services to Medicaid
recipients on a reasonable cost-related basis (Medicaid rate) if the
state provides services to the general public in those facilities free
or at a nominal charge. 42 CFR 447.315(a) and (b), and 41 Fed. Reg.
45560 (April 13, 1976).
(2) The issue in this case is whether the State's charge for services
was a "nominal charge." The Agency argued that the State used a rate
called the Washington Administrative Code, or WAC, rate; the State
contended that its rate was the amount it actually collected. Neither
party contested that the WAC rate would not be nominal, while, in the
facts of this case, a rate based on the aggregate amount collected would
be nominal.
Pursuant to the provisions of the Revised Code of Washington, the
Department of Social and Health Services annually establishes an average
per capita cost of operating the State facilities, known as the
Washington Administrative Code, or WAC, rate. Residents of those
facilities "who possess assets over and above the minimal amount
required to be retained for personal use" are financially responsible
for the cost of their care, as determined by the WAC rate, up to the
limit of their ability to pay. With due notice and an opportunity to be
heard, the State makes a finding of financial responsibility and imposes
charges on the accounts of residents in accordance with that finding.
The State is required to collect the charges so imposed. The accounts
also reflect the costs being accrued at the WAC rate. If a resident is
later determined to be able to pay more than the original finding of
financial responsibility, that finding may be modified (after due
process) to enable the State to collect a greater share, if not ost, of
the accumulated cost based on the WAC rates for the periods the resident
was given care. /1/ During the periods in question, the total amount
collected from residents was approximately five percent of the cost of
care at the WAC rate.
The Board had to decide in this case whether the State provided
services to the general public at the WAC rate (as the Agency
contended), or at a rate based on the amount collected (as the State
argued). We find that under the circumstances here the amount
collected, which the Agency did not dispute was nominal, constituted the
State's actual charge and thus the State was entitled to the Medicaid
rate.
(3) Analysis
This case aross because for the periods in question the Medicaid rate
was higher than the WAC rate. /2/ The State claimed reimbursement at
the Medicaid rate, but the Agency concluded that the WAC rate was the
State's customary charge and disallowed the federal share of the amount
in excess of the WAC rate.
The Agency contended that the amount which the State charged the
general public was the WAC rate, which was not a "nominal charge"
within
the meaning of 42 CFR 447.315(b). It argued that the State imposed the
WAC rate as a charge and that the term "charge" as used in the Medicaid
regulations did not mean the amount collected, however nominal it might
be.
The term "nominal charge" is not defined in the Medicaid regulations,
but the parties agreed that the Medicare definition found in 42 CFR
405.455(b)(4) was applicable:
A public provider's charges are considered nominal where the
aggregate charges are less than one-half of the reasonable cost of
services or items represented by such charges.
The State alleged, and the Agency did not dispute, that the amount
collected from residents was approximately five percent of the cost
computed on the basis of the WAC rate. From this the State concluded
that the residents were being charged only a nominal amount and thus it
was entitled to the Medicaid rate.
The Agency argued that the State had an "elaborate system" to try
to
collect the full cost, employing investigators to determine the assets
of residents. It described these collection efforts as "significant,"
citing its findings that the State was investigating 37 cases with a
potential value of $1.6 million and that in calendar years 1979 and 1980
the State collected over $2000 each from 43 residents for a total of
$275,000.
The State contended that only one employee worked on investigations,
only five percent of the time. The State reported that the six
facilities had approximately 1,872 residents and that the operating cost
for the period July 1979 through September 1980 was $69,325,302.
State's Reply Brief, Tab 1.
(4) We conclude from the above that the State recovered a very small
part of its cost as a result of its investigative efforts. There was no
dispute that the State was bound to, and did, investigate and determine
the assets of each resident. However, 43 residents would be less than
one percent of the resident population of 1,872. And even if all of the
$1.6 million were collected, that would be approximately two percent of
the $69 million cost for a 15 month period.
We also find that regardless of the level of investigative activity,
the amount which the State actually did impose on the residents was a
nominal charge and thus entitled the State to the Medicaid rate. As the
State pointed out, these facilities are for the needy and "few, if any,
residents are financially responsible for the per capita rate." State
Brief, p. 4. The Agency remarked that "it may be accurate that the
State collects nominal fees because a considerable number of patients
are indigent." Agency Brief, p. 7. Thus, the Agency did not dispute
that for most of the residents the charges were nominal. It would be
arbitrary and unreasonable to conclude that those rates were not nominal
because the few who became financially more able were made to pay more
for their care.
The Agency's interpretation of "nominal charge" would in effect
penalize a state which charges the indigent less for their care than
those financially more able to pay. The Agency cited the desire of
Congress to keep Medicaid expenditures within reasonable bounds. Agency
Brief, p. 5. We find that the State's action is in keeping within the
general goal of both federal and state governments to keep down the cost
of government-provided medical assistance and is not inconsistent with
the avowed congressional intent.
We do not agree that allowing the State here the Medicaid rate gives
it an "unfair windfall." Agency Brief, p. 5. The Agency was referring
apparently to a hypothetical situation--unlike this case--where the
State might collect a large amount. The standard, set out in the
Medicare regulations and adopted by both parties here, is that when
charges/collections in the aggregate total more than 50 percent of the
WAC rate, they would no longer be nominal. Thus, if the State were to
collect a greater part of its costs from enough residents to constitute
such a windfall, its charges for that period would not be nominal and it
would not be entitled to the Medicaid rate. In any event, there was no
windfall-size collection in this case and the State should not be
deprived of the more favorable Medicaid rate because of the remote
possibility that a windfall might occur at some other time.
(5) The Agency noted that states were given the benefit of the
Medicaid rate in state facilities because it would have been undesirable
and unfair to apply the "customary charge" limit where the state charged
only a nominal (or no) fee to the general public. We find that it would
also be undesirable and unfair to deprive the State of the Medicaid rate
in this case solely because the State collected from its residents as
much as they were able to pay toward their cost of care. It would be
arbitrary to allow the Medicaid rate where a state charged
everyone--regardless of their ability to pay--a "nominal" rate of
49
percent of cost but to deny it here where the State collected only from
those able to pay and the total collected was approximately five percent
of cost.
The dispute here concerned the meaning of the word "charge" in the
term "nominal charge." We were asked to choose between the total
assessed under the WAC rate, which represented the amount which the
State might ultimately collect, and the aggregate amount it actually did
collect. As discussed ablve, the Agency indicated that the purpose of
the regulation was to avoid imposing an undesirable and unfair limit on
the rate at which the State could be reimbursed for services to Medicaid
recipients in State facilities. We also find that on its face the
regulation created an incentive for (or recognized the existence of)
additional measures by the State on behalf of needy persons not eligible
for Medicaid. Such persons, in addition to Medicaid recipients, are the
primary users of State facilities. In this context, and considering the
factual concerns discussed above, we conclude that the Agency's
interpretation of "charge" was unnecessarily rigid: the test is the
extent to which non-Medicaid residents of State facilities pay for their
care. The State requires them to pay only to the limit of their
ability, and most of them being unable to pay more than a nominal
amount, the State's charge meets the "nominal charge" definition.
Conclusion
For the reasons above stated, we reverse the disallowance. /1/
Residents are allowed to keep a balance in a personal needs fund
of $200. Also, a resident might be allowed to retain up to $5000 if the
State determines it would help the resident to be more rapidly
discharged from the facility and assimilated into the community. The
account showing the accumulated cost is normally cancelled when a
resident dies or has been discharged from the facility for more than six
years. Agency Brief, p. 8. /2/ The Agency stated that the
Medicaid rate was more favorable because of changes in the Medicaid
reimbursement system on July 1, 1979, but it did not specify what those
changes were. The State noted that the WAC rate did not include some
services and costs allowable under Medicaid.
NOVEMBER 14, 1984