GAB Decision 582
Docket No. 83-282
November 1, 1984
Pennsylvania Department Public Welfare;
Ballard, Judith; Ford, Cecilia Teitz, Alexander
The Pennsylvania Department of Public Welfare (State) appealed the
decision of the Health Care Financing Administration (Agency, HCFA) to
disallow $247,159 in federal financial participation (FFP) claimed under
Title XIX of the Social Security Act for the period July 1975 through
July 1979. The disallowed amount represents the federal share of the
cost of emergency room services provided by members of a group of
physicians.
The Agency took the disallowance on the basis that the State's
reimbursement regulations prohibited the payment of a fee for emergency
room services to a group of physicians when a fee for the same services
was also being paid to the hospital.
The State argued that the disallowance should be reversed because (1)
the Agency failed in its disallowance letter and in subsequent
submissions to state a factual or legal basis to support the Agency's
claim, (2) the Agency's seeking an adjustment from the State before the
State's actual recovery of overpayments is legally deficient, (3) no
improper payments were made by the State because these payments were
made according to the State's official policy, and (4) the State waived
the provisions of the State's reimbursement regulations. In addition,
the State argued that, with regard to the costs claimed for services
provided during the period July 1975 through June 1977, the Agency's
disallowance should be reversed because the disallowance was untimely.
For the reasons discussed below, we uphold the disallowance.
BACKGROUND
MCP Emergency Services (MCPES) was a group of physician residents and
interns which rendered emergency medical services at the Medical College
of Pennsylvania. MCPES was organized in 1973 to attract and train
interns and residents in emergency medicine and provide emergency
medical care at the hospital. The HCFA Validation Review Report
(#3-03-0010-19) indicated that MCPES and the (2) hospital both submitted
bills for emergency room services to the State from July 1975 to August
1977. /1/ Starting in August 1977, when the State stopped paying claims
made by MCPES, individual physicians in the group billed for emergency
room services in addition to the hospital's billing. The State stopped
paying all MCPES and individual member physicians' claims starting in
1979.
The validation report stated that MCPES was not certified to receive
emergency room payments and that the entire Medicaid payment to MCPES
should be considered an overpayment. The report recommended that the
Agency reduce FFP to the State by the amount of the federal share of the
overpayment.
The Agency followed the recommendation of the validation report and
disallowed $247,159--the federal share of the overpayment. This was the
amount of FFP covering all payments to MCPES or individual physician
members of the group from 1975 through 1978 for emergency room services
at the Medical College of Pennsylvania.
State Regulations
Pennsylvania Medical Assistance Manual (MAM) Section 9412.11
(effective August 1, 1974) provides the conditions under which physician
groups may receive payment for providing emergency room services. It
states:
. . . Hospital outpatient clinics or approved physician group
practices that have assumed that complete operation of a hospital . . .
emergency room . . . will be eligible to receive a maximum fee of $9.00
per clinic visit . . . .
In addition, MAM Section No. 9412.76 provided that:
Independent private physicians are permitted to bill for certain
selected services performed in the emergency room of a hospital on an
outpatient basis. When these services are provided, the hospital will
be reimbursed . . . for the use of the emergency room.
Medical Assistance Memorandum No. 40 (effective 1/1/73) provides for:
(3) Payment for Emergency Room Services
. . . private and independent physicians and group practice
physicians providing Emergency Room services at hospitals may bill for
certain . . . procedures . . . performed in the Emergency Room of a
hospital.
I.Sufficiency of Agency's description of disallowed charges.
The State argued that the Agency did not provide the State sufficient
information about the disallowed charges or the methodology of
calculation to allow the State the opportunity to justify the disallowed
charges. The State argued that the Agency did not give the State
information necessary to locate charges from MCPES that may have been
allowable as services provided by independent private physicians to
private patients under Pennsylvania Medical Assistance Manual Section
9412.76 and Medical Assistance Memorandum No. 40.
The State cited HCFA validation report for Emergency Room Services
(Pennsylvania) 3-03-1013-9 as substantiating the lack of the Agency's
underlying data. /2/ The State contended that this report states that
"no statistical data of Pennsylvania Blue Shield was available for the
year 1975," and therefore argued that the figures presented by the
Agency had no credibility. /3/ (State brief, p. 13)
Actually this statewide validation report did not explicitly say that
no statistical data was available "for the year 1975." The exact
language was:
The statistical data does not include Medicaid payments from 1973 to
1975. This data was not available from Pennsylvania Blue Shield. . . .
(page 6; emphasis supplied)
(4) This is not an isolated use of the preposition "to." In the
next
sentence to the one quoted above there again appears the reference to
data "for the 1973 to 1975 time period."
The disallowance period began with July 1975. On its face the second
validation report refers to the lack of statistical data for the years
1973 and 1974, to (not through) 1975. In the next sentence (on the next
page) this validation report uses the word "through" to identify the
end
of an inclusive period. It speaks of services rendered "from 1973
through the first quarter of 1980." (State Exhibit 7, p. 7) This shows
that the author of the report knew how to identify an inclusive period
of time by using the word "through" and the use of "to"
was not merely
inadvertent.
Even if the State's contention were accepted, that lack of
statistical data from 1973 to 1975 somehow includes July 1975 through
December 1975, it would not affect the validity of the first report.
The second validation report cited by the State was a statewide report
that did not specifically discuss or report on MCPES. Even if the
second report did not have data available for all emergency rooms in the
State for 1975, the first validation report, on which HCFA relied, did
have the data for 1975 for MCPES.
The State also asserted that the Agency had failed to satisfy the
provisions of 45 CFR 201.14 and 45 CFR 74.304. Section 201.14 applies
only to disallowances of items for which FFP is claimed under the
various titles of the Social Security Act, which respect to which
reconsideration was requested prior to March 6, 1978. The Notice of
Appeal in this case was dated December 14, 1983. Therefore, 45 CFR
201.14 does not apply.
Section 74.304(c) provides that with regard to final decisions by
departmental components:
(c) The decision is brief but contains --
(1) A complete statement of the background and basis of the
component's decision, including reference to the pertinent statutes,
regulations, or other governing documents; and
(2) Enough information to enable the grantee and any reviewer to
understand the issues and the position of the HHS component.
The Agency identified the charges disallowed as being all payments
made the MCPES for 1975 through 1979. The reason for the disallowance,
as stated by the Agency, was that payments to MCPES (5) constituted
duplicate payments prohibited by State regulations. We find that the
Agency has stated a factual and legal basis for the disallowance. There
is no need for detailed calculations when the Agency disallowed all
claims made by MCPES. Furthermore, the disallowance was based on data
obtained by Pennsylvania Blue Shield which processed the State's
Medicaid claims. The State has not advanced any other figure as the
correct amount of the disallowance.
If any of the claimed services that were disallowed were allowable
under Medical Assistance Manual Section 9412.76 or Medical Assistance
Memorandum No. 40, the burden is on the State to document that these
services were allowable. Here, the State would have to document that
the services were provided by independent private physicians on an
outpatient basis or that the services were certain specific listed
procedures provided by private and independent physicians or group
practice physicians. The State has failed to document these
assertions.The Agency has no obligation to identify for the State which
claims represent services provided by private independent physicians to
private patients in the emergency room.
For the reasons stated above, we find that the Agency provided
sufficient description of the disallowed charges.
II. MCPES was not an "approved physician group practice" that had
"assumed the complete operation of an emergency room."
The State argued that MCPES qualified as an approved group physician
practice and that MCPES was qualified to receive payments for the
provision of emergency room services. The State alleged that MCPES had
assumed the complete operation of the emergency room of the hospital of
the Medical College of Pennsylvania and was therefore authorized to
receive payment for the provision of emergency room services under MAM
Section 9412.11.
The Agency asserted that the validation report indicated that MCPES
was not a group of independent private physicians. The report found
that MCPES had not signed a contract with the hospital to provide
emergency services. (p.4) The report went on to describe the
relationship between MCPES and the hospital:
Prospective residents and interns apply to the Director, MCP
Emergency Services, who is also in charge of emergency medicine at the
hospital. Upon acceptance into the program, the director signs the
letter of acceptance on hospital stationary and provides a standard
contract for signature. . . . We noted that the contract is between the
hospital and participant. All salary payments and fringe benefit (6)
expenses are incurred by the hospital. The hospital issues salary
checks and W-2 statements. Hence, an "employer-employee" relationship
exists between the hospital and resident or intern. (p. 4)
The State has offered nothing to contradict these facts and the
finding of an "employer-employee" relationship based upon them. In
its
September 19, 1984 response to the Board's questions the State included
the following statement:
The State maintains that the State's letter dated August 2, 1979,
from MCP to the Department substantiates its view that emergency room
physicians were part of a private independent group practice. See
Exhibit 2A of State's Response brief dated April 26, 1984.(State
response to questions, p. 2)
The statement in the letter that the section of emergency medicine at
the Medical College of Pennsylvania is "a private and independent group
practice for physicians providing emergency room services at the
Hospital" is a self-serving statement without any factual support. The
finding in the validation report that the members of MCPES are employees
of the hospital because the hospital pays their salary and fringe
benefits and issues them W-2 statements has not been contradicted.
III. The payments to MCPES were contrary to the State regulations.
The Agency's position was that State regulations were clear on their
face. Its assertion was that the regulation called for payment to the
hospital or approved physician groups that have assumed the complete
operation of the emergency room. The Agency asserted that the paying of
fees to the physician group as well as the hospital was violative of the
State's own regulations and, therefore, there should be no federal
financial participation in these payments.
The Agency relied on the decision of the Supreme Court of
Pennsylvania in Commonwealth of Pennsylvania v. Forbes Health System,
422 A.2d 480 (1980), which found that "Section 9412.11 plainly does not
authorize separate charges by both hospitals and emergency room
physicians." (422 A.2d at 483) /4/
(7) The State argued that a State's interpretation of its own
administrative regulation is controlling, unless it is plainly erroneous
or inconsistent with the regulation. (State brief, p. 12) This
contention was not disputed by the Agency; in fact, it agreed most
emphatically with it. This argument of the State in fact buttresses the
disallowance. The State's highest court in Forbes supported the State's
interpretation of Section 9412.76 and Memorandum No. 40 as prohibiting
payment both to the hospital and a group of physicians for the same
emergency room services.
In fact, the State admitted that any payments to MCPES for services
provided subsequent to the decision by the Supreme Court in Forbes
"constitute overpayments." (State brief, p. 19)
But the State's interpretation of its regulations had been the same
before. The State admitted that where it had made payments to MCPES
they were contrary to its own interpretation of its regulations. The
State never varied in its position as to what the regulations meant
during the period covered by the validation review which is the basis of
the disallowance.
The validation review covers payments beginning with July 1975. On
February 19, 1975, the Director of the State's Bureau of Medical
Assistance wrote the hospital of the Medical College of Pennsylvania
that MCPES had withdrawn its application for the $9.00 reimbursement fee
for emergency room services. (Letter, Johnson to Wenrich, Exhibit 2,
Agency brief) This letter went on to say that a previous letter of
November 14, 1974, authorizing MCPES to receive the $9.00 per emergency
room visit, "has been retracted."
The continuing interpretation of the State was that payment to both
the physician group and the hospital was not allowed. On August 26,
1977 the same Director of the Bureau of Medical Assistance again wrote
the hospital. (Exhibit 3, Agency brief) This letter pointed out that
MCPES "does not have any contractual arrangement with the Hospital,"
even though both MCPES and the hospital were billing the Medical
Assistance Program for Emergency Room Services. The State was emphastic
"that this billing procedure is not allowed under our Program."
In the face of these two letters by the State, it seems preposterous
for the State to argue that "an ambiguous interpretation" resulted
in
the payment to both physician groups and hospitals. (State response to
Board questions, p. 2)
If the payments to MCPES were in violation of the State's own
regulations, FFP is not allowable in these payments. OMB Circular A-87
provides in Attachment A, that to be allowable under a State (8) grant
program, costs must "(Be) authorized or not prohibited under State or
local laws or regulations. (Section C.l.b.) /5/
IV. The two Forbes decisions.
The State relied on the period between the decisions of the
Commonwealth Court and the Pennsylvania Supreme Court in Forbes as being
somehow of vital importance in this case. The State stressed that,
initially, the Forbes plaintiffs' position, which sought reimbursement
to both hospitals and physician groups operating emergency rooms, was
upheld by the Commonwealth Court. (State response to Board questions,
p. 2)
Implicit in the State's argument is the specter of the State required
by a lower court decision to change its policy and make substantial
payments which it would otherwise never have made. But the facts do not
support such an argument. The lower court decision in Forbes was on
June 28, 1979. The Supreme Court Forbes decision was on October 31,
1980. The disallowance does not include any amount for improper
payments in 1979. The last amount listed in the disallowance is for
fiscal year 1978, which ended on September 30, 1978. It appears that no
questioned payments were made to MCPES after the lower court Forbes
decision, and in fact none were made for almost ten months before.
The State nowhere stated categorically that payments were made to
MCPES between the two Forbes decisions, in reliance on the first
decision. The State submitted a letter from the Medical College to the
State Department of Public Welfare, referring to three boxes of claims
which had been returned "as ineligible for processing under the Medical
Assistance Program." (State's Exhibit 2A) The letter goes on to say that
"the billings are all in accordance with applicable regulations, as
interpreted by the Commonwealth Court of Pennsylvania." There is nothing
in the record to show that these claims were in fact paid, or if they
were, that the disallowance is based in any part on their payment.
(9) Even if the State in fact paid these resubmitted claims after the
first Forbes decision and the Agency disallowed the payments, that part
of the disallowance should not be overturned.
MCPES was not a party to the Forbes litigation. The order of the
Comonwealth Court did not direct or require the State to pay MCPES. An
examination of the Commonwealth Court decision shows clearly that the
facts pertaining to the Forbes plaintiffs were entirely different from
the MCPES situation. The physician group at the Forbes hospital had a
specific agreement with the hospital to provide emergency room
physicians. As the Commonwealth Court pointed out, the physician group
would act under the agreement at all times as an "independent
contractor" and not as an employee of the hospital. (403 A.2d at 627)
Therefore, the State could not reasonably interpret the lower court
Forbes decision as requiring it to pay the MCPES doctors, who were
salaries employees of the hospital.
V. Retention of Records.
The State also contested the disallowance on the basis that it was
untimely for the period from July 1, 1975 through June 30, 1977. The
State's argument was that since the State is required by 45 CFR 74.21(
a) (1979) to retain its records for only three years, therefore the
disallowance cannot be enforced beyond that time. /6/ The State
explained how it computed the specific required retention time for each
year. The State submitted its final Medicaid expenditure reports thirty
days after the last day of the fiscal year, namely, July 30. Therefore,
argued the State, it was obligated to maintain its records as follows:
FY (fiscal year) 1975 until July 30, 1979, FY 1976 until July 30, 1980,
FY 1977 until July 30, 1981. /7/ (State brief, p. 5)
The State claimed that it was notified of the result of a validation
report by letter dated June 25, 1981. This was the first notification
of any requirement for keeping its records (10) beyond the three-year
period, as provided for in 74 CFR 74.21(b). The three-year retention
period had already run on the records for FY 1975 and FY 1976. The
disallowance is therefore improper, claimed the Steve, for those years
since final audit resolution must take place within that time under
Grant Administration Manual (GAM) Sec. 1-105-60(c)(3)(a)(1).
The Agency in its reply pointed out that the validation report was
not an audit for purposes of GAM Chapter 1-105, so the provision cited
by the State would not apply.n8 In any event, the Board has recently
considered the effect of the GAM section in question in depth, and
concluded that it does not state that "for all disallowances, the
computation will only cover the period of time records are required to
be retained." See Community Health and Counseling Services, Decision No.
557, August 2, 1984, p. 7.
The Agency in its brief also argued that the State was required in
any event to keep its records for longer periods than the State admits.
Effective October 1, 1976 the federal fiscal year changed from a July 1
to June 30 cycle to an October 1 to September 30 cycle. The State was
put on notice of the validation report on August 22, 1980 when it was
sent a copy of the draft report, rather than June 25, 1981, as the State
contended. Therefore, since the expenditure report for FY 1977 would
ordinarily be filed on October 30, 1977, the State already had notice
that the retention period was extended beyond the three-year period
which would end on October 30, 1980 when it received the draft of the
validation report on August 22, 1980. So clearly the State was required
to keep its records for FY 1977 and subsequent years.
That does not mean that the disallowance is automatically not
sustainable for the prior years, FY 1975 and FY 1976. The record
retention requirement would aid the grantee only where the grantee's
records are automatically destroyed as a matter of policy at the end of
each retention period, no other records are available, and the absence
of the records prevents the grantee from contesting the disallowance.It
avails the grantee nothing if the records which were destroyed would not
have supported his contesting the disallowance.
(11) Here the disallowance is not based on lack of documentation by
the State. The disallowance is of all MCPES payments because they were
unallowable costs under State regulations. The State was no more able
to document or prove the allowability of these costs for the years for
which it was required to retain records than for the years for which it
was not required to keep records. As the Board said in Community Health
and Counseling Services, supra:
(The) grantee has not shown that any other documentation would show
that these costs were allowable. The provisions related to records
retention are not mere loopholes in a game; they fundamentally are
intended to assure only that records can be eventually destroyed without
prejudice to a grantee. (p. 8)
VI. Waiver.
In its letter of July 9, 1984 to the Board the State referred to an
issue presumably raised in the telephone conference of June 21, 1984,
that of waiver by the State of its own regulations. This was again
referred to in the State's September 19, 1984 reply to the Board's
questions.
The argument is that, if the only reason for the disallowance is that
payments to both MCPES and the hospital for emergency room services
violated the State regulations, then the State could elect to waive the
regulations. We have noted above (p. 8, n. 5) that the payments may be
unallowable under the cost principles in OMB Circular A-87, apart from
their violation of a State regulation. But in any event, until the
telephone conference of June 21, 1984, the State had never made the
waiver argument.
Assuming that the payments to both the group and the hospital were
allowable, and assuming that the State could properly waive its own
regulations prohibiting such a payment, the State has not shown that it
consciously and deliberately did so. Nothing in the record shows that
the State specifically decided, during the time in issue, to waive the
regulation. In fact, the record shows that the duplicate payments were
made, not in accordance with State policy, but erroneously, in
contradiction to the stated State policy. The Pennsylvania Supreme
Court in Forbes pointed out that the department's authorization of
double payment for a single service had been made in error. (422 A.2d
480 at 481)
The second Forbes decision upheld the department's interpretation of
its own regulations barring payment to both the physician groups (12)
and the hospitals for the same emergency room services. Nowhere in the
case, nor elsewhere in the record, does it appear that this was not at
all times the intended State policy.
The fact that the State made payments erroneously in violation of its
policy can hardly be considered a waiver of that policy. Nor can the
State's election not to attempt to recoup erroneous past payments be
considered a waiver of the policy on payment for the emergency room
services.
The waiver argument is a belated argument by the State first
presented many years after the payments in question and without support
in the record. We find that there was no such waiver of its regulations
by the State.
VII. Adjustment in FFP prior to recovery of overpayment.
The State here argued that the Agency's action in seeking an
adjustment to the quarterly grant award prior to any actual recovery by
the state "is legally deficient." (State brief, p. 15)
In the disallowance the Agency stated that the payments to MCPES were
considered overpayments and must be recovered from the State based on
section 1903(d)(2) of the Social Security Act. Since excessive payments
do not qualify as "medical assistance" under the Act, they do not
come
under section 1903(d)(3) of the Social Security Act, which the State
interprets as not requiring adjustments by the Agency until the
overpayments have actually been recovered. The disallowance letter
cites the Board's decision in Massachusetts Department of Public
Welfare, Decision No. 262, February 26, 1982, in support of the Agency
position. The State pointed out that the Board was expressly overruled
in Massachusetts v. Heckler, 576 F. Supp. 1565 (D. Mass. 1984, appeal
pending).
The Agency answered that the issue in Massachusetts was whether the
Agency could recover from the State the difference between interim rates
and final lower rates of facilities which had gone into bankruptcy. The
Court stated that if a state pays a provider at an interim rate under
its state plan, and it later turns out, through no fault of the State,
that the interim rate was higher than the final rate, the prior payment
does not suddenly become improper. Under those circumstances, since the
State cannot recover the rate differential from the bankrupt providers,
the Agency cannot recover from the State.
(13) The Agency pointed out that here the payments could never have
been considered proper when made--the State recognized they were
erroneous--so this appeal is distinguishable from Massachusetts.
Furthermore, the Agency pointed out that another District Court had
decided the same issue opposite to Massachusetts. Florida v. Heckler,
No. TAC 82-0935 (N.D. Fla. 1984). /9/
The State admitted that any payments to MCPES for services after the
Pennsylvania Supreme Court decision in Forbes constituted overpayments.
(State brief, p. 19) We have found above that these payments prior to
the Forbes decision similarly constituted overpayments in violation of
the State's own regulations. Therefore, these overpayments, improper
when made, do not constitute "medical assistance" under the Social
Security Act and FFP is not allowable in them. The Agency may adjust
for these overpayments whether or not the State is able to recoup from
MCPES. /10/
(14) CONCLUSION
We find that the State made payments to MCPES for emergency room
service in violation of its own regulation. The Agency may recover the
full amount of these payments to MCPES, which, as overpayments, did not
constitute medical assistance for which the State could properly receive
FFP under the Social Security Act.
We sustain the disallowance in the full amount of $247,159. /1/ This
validation review report is undated; the State was notified of
its release by letter dated June 25, 1981. (Exhibit 3, State brief)
/2/ This validation report was also undated. It was referred to as
"recent" when it was transmitted to the State by letter dated July
22,
1982. (Exhibit 7, State brief) It was in any event later than the
validation report for MCP Emergency Services on which the disallowance
was based, since the State in listing it in its Index of Exhibits
identifies it as the "Second Federal Validation Letter and Report."
/3/ Pennsylvania Blue Shield processd the State's Medicaid claims during
the period covered by the disallowance. /4/ The significance, if any,
of the lower court decision in Forbes on this disallowance will
be discussed below. /5/ It is doubtful that duplicate payments
for the same service are allowable costs under the Cost Principles in
A-87 even if not prohibited under State regulations. Paying twice for
the same service is hardly "necessary and reasonable for proper and
efficient administration of the grant programs." Attachment A, C.l.a.
/6/ The State submitted documents to show that its State plan adopted
the federal record retention requirements. (Exhibits 2A-E, State brief)
/7/ The State is too generous in its computation. Three years plus
thirty days from the end of FY 1975, namely, July 30, 1975, would be
July 30, 1978, not 1979. The computation for the other two years is
similarly in error. /8/ The validation report would still extend
the time for record retention under 45 CFR 74.21(b) since it comes under
"any litigation, claim, negotiation, audit or other action involving the
records." /9/ The Board has consistently held that excess
payments to providers are not "medical assistance" within the meaning
of
the Social Security Act and therefore HCFA is empowered to collect the
federal share of excess payment, even if a State has not yet recovered
the excess amount from the providers. These decisions have met with
varying results recently in the federal District Courts. The Board has
been upheld in Perales v. Secretary, Case No. 83-CV-900, Northern
District of New York, October 1, 1984. The Board has been reversed in
Department of Social Services v. Heckler, Case No. 84-4106-CV-C-5,
Western District of Missouri, Central Division, September 27, 1984, and
State of Arkansas et al. v. Heckler et al., Case No. LR C 83 467,
Eastern District of Arkansas, Western Division, September 17, 1984. It
should be noted that the cases reversing the Board involve the
difference between a permitted and an excessive rate of reimbursement.
Here we have found that the entire payments to MCPES were prohibited.
/10/ It appears that timing is not necessarily an issue here, since the
State voluntarily chose not be attempt to recoup from MCPES and its
member physicians for at least some past erroneous payments during the
period of the disallowance. (See Agency brief, Exhibit 2) As to these
overpayments, the State cannot contend that the Agency should not
collect the federal share from the State before the State collects from
the recipients of the overpayments.
MARCH 19, 1985