Florida Agency for Health Care Administration, DAB No. 3032 (2021)

DECISION

The Florida Agency for Health Care Administration (Florida or State), which operates Florida’s Medicaid program, challenges a January 19, 2017 reconsideration determination by the Centers for Medicare & Medicaid Services (CMS) to disallow $63,233,036 in federal financial participation (FFP), or the federal share of over $104 million, in Low Income Pool (LIP) funds Florida paid to certain hospitals under Florida’s Medicaid reform waiver demonstration program established pursuant to section 1115 of the Social Security Act (Act), to help defray the hospitals’ uncompensated costs of providing care to low-income Floridians.  The challenged disallowance amount represents the federal share paid to Florida based on LIP payments Florida allegedly made to four hospitals – Jackson Memorial Hospital, Memorial Regional Hospital, Tampa General Hospital, and Broward General Hospital – for costs the hospitals incurred during the first three years of the demonstration (July 2006 - June 2009).  CMS disallowed the federal share essentially on the ground that Florida did not substantiate the costs’ eligibility for reimbursement from the LIP.1

Under the waiver, Florida may claim FFP for the hospitals’ LIP-permissible costs up to hospital-specific LIP cost limits calculated in accordance with the waiver terms.  We therefore must first address the issue of whether the costs associated with the four hospitals that CMS has disallowed were, or were not, LIP-permissible costs because, were we to find that all of those costs were LIP-permissible costs, there arguably would be no basis for a disallowance of the federal share of those costs in the absence of evidence that the LIP payments the four hospitals received caused the hospitals to exceed their cost limits for demonstration years (DYs) 1-3.  As explained below, we determine

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that with one exception (Memorial Regional’s costs), Florida has not borne its burden to show that the disallowed costs are LIP-permissible costs.    

Our determination that most of the costs CMS has disallowed are not LIP-permissible costs and thus may not be included in the LIP cost limits does not end our analysis, however.  The waiver allows claims for FFP for the hospitals’ LIP-permissible costs up to correctly calculated hospital-specific LIP cost limits.  Broadly stated, Florida maintains that the hospitals had sufficient LIP-permissible costs over and above the disallowed costs such that, even if the disallowed costs are removed from the cost-limit calculations, the resulting cost limits still exceed the LIP payments for which FFP was claimed.  Thus, Florida asserts, ultimately, there is no cost subject to disallowance.  Florida has offered cost calculations that it believes support its position that the hospitals had sufficient LIP-permissible costs to effectively negate the disallowance.  Furthermore, Florida alleges that CMS has made multiple computation errors related to certain Jackson Memorial costs that inflated the disallowance by as much as $50 million.  Florida also identifies errors by the hospitals concerning certain cost calculations (such as not including certain permissible costs in their cost limits) that Florida says worked against the hospitals.  CMS, however, has not actually determined whether any of the costs the hospitals erroneously omitted from their cost limits are LIP-permissible, as Florida claims.  CMS has declined to accept the cost calculations Florida has offered, asserting that Florida has not produced sufficient documentation to support such costs.  As we explain, CMS has authority to reject Florida’s cost calculations for inadequate documentation.  CMS must, however, explain what specific costs it rejects as impermissible or questionable, why it rejects them, and state what proof Florida must furnish to substantiate them.  The record as it stands does not show that CMS has yet done so.  For these reasons, we are unable to now resolve the parties’ cost disputes and determine whether, ultimately, any disallowance is warranted and, if so, the disallowance amount.  We must therefore remand this case for further action in accordance with our remand instructions. 

Additionally, as we explain, although we have determined that Memorial Regional’s costs that CMS has disallowed are LIP-permissible, further action is necessary to resolve a remaining dispute about whether Florida might have submitted duplicate claims for those costs.  CMS asserts the costs were claimed twice; Florida disagrees.  In addition, the parties dispute whether some of Jackson Memorial’s disallowed costs, specifically for DYs 1 and 2, were actually included in computing the hospital’s LIP cost limits.  Florida asserts that they were not included in the computation.  We are unable to now resolve these disputes based on the record before us.  They must be addressed on remand.

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Background

1.     Overview of the Medicaid program and Florida’s Medicaid reform waiver

The Medicaid program, established under title XIX of the Act, is jointly funded by the federal government and states to provide medical assistance (that is, health insurance benefits) to financially needy and disabled persons.  Act §§ 1902(a)(2), 1902(a)(10)(A), 1902(e)-(f); 42 C.F.R. Parts 430, 435, 436.  Each state that chooses to participate administers its own Medicaid program under broad federal requirements and the terms of its “plan for medical assistance” (commonly referred to as the “state plan”), which must be approved by CMS on behalf of the Secretary of Health and Human Services.  Act § 1902; 42 C.F.R. Part 430, subpart B.  Once the state plan is approved, a state becomes entitled to receive FFP for a percentage of its allowable program-related expenditures.  Act § 1903(a). 

The Secretary, acting through CMS, has authority to waive compliance with certain statutory requirements applicable to the Medicaid program and approve experimental, pilot, or demonstration projects that promote Medicaid program objectives.  See Act § 1115.  A section 1115(a) waiver demonstration project “may, for example, expand coverage to individuals not eligible for Medicaid, provide services typically not covered by Medicaid, or use innovative service delivery systems to improve care, increase efficiency, or reduce costs.”  N.J. Dep’t of Human Servs., DAB No. 2780, at 3 (2017).  “CMS approves each section 1115(a) demonstration project subject to specific terms and conditions.”  Id. 

Florida proposed a section 1115 waiver demonstration project designed to improve the coverage and quality of care provided to Florida’s Medicaid beneficiaries through a change in the structure of its Medicaid program from a fee-for-service model to a managed-care model.  In 2005, CMS approved Florida’s plan to launch the project beginning in 2006.  In 2011, CMS extended the project through June 30, 2014.  FL Ex. 48.     

Prior to the implementation of the demonstration project, Florida made annual supplemental payments under the Upper Payment Limit program to reimburse uncompensated costs of certain types of care provided to Medicaid beneficiaries, underinsured patients, and uninsured patients.  FL Br. at 2.  Florida recognized that Upper Payment Limit funding is not available to supplement capitation payments made under a managed care model.  Id. (citing 42 C.F.R. § 438.60).  The demonstration project therefore included a Low Income Pool (LIP) (with funding capped at $1 billion annually) to replace the Upper Payment Limit payments.  Id. at 2-3.  The effect was to increase the total funding available for uncompensated costs of providing care to low-income individuals (including those without insurance or those for whom insurance or Medicaid

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did not cover their care costs) and to expand the types of providers eligible to receive such funding.  Id. at 3.  

The waiver is governed by agreements between CMS and Florida called “Special Terms and Conditions” (STCs), “which set forth in detail the nature, character, and extent of Federal involvement in the [waiver] and [Florida’s] obligations to CMS during the life of the [waiver].”  FL Ex. 1 (A-17-64), at 1; FL Ex. 2 (A-17-64), at 1.2   The STCs in turn refer to a separate document titled “Reimbursement and Funding Methodology.”3   FL Ex. 1, at 24 (A-17-64); FL Ex. 2, at 17 (A-17-64).  The RFMD sets out specific provisions concerning the LIP, including which expenditures may be reimbursed from the LIP and what limits apply to LIP payments to a provider (“LIP Cost Limit”).  Payments from the LIP are made to hospitals and other providers to help them defray uncompensated costs of furnishing care to Medicaid, underinsured, and uninsured populations.4   FL Ex. 1 (A-17-64), at 25 (STC 94).  A state may receive FFP for LIP payments that it makes in accordance with the waiver terms and other applicable federal requirements.  See id. at 25 (STC 97), 27 (STC 107).

LIP payments may be made only for “permissible expenditures,” which are defined generally to mean the uncompensated costs of providing medical services that fall under the Medicaid statute’s definition of “medical assistance” (including inpatient and outpatient hospital services) and which are furnished to Medicaid patients, the uninsured, and the underinsured.  Act § 1905(a); FL Ex. 1 (A-17-64), at 25 (STC 94); FL Ex. 2 (A-17-64), at 18 (STC 54); FL Ex. 4 (A-17-64), at 6.  Under the RFMD, Florida was required to submit for CMS approval a document defining LIP-permissible costs or expenditures.  FL Ex. 1 (A-17-64), at 24-26 (STCs 93, 97, 100.a).  Florida agreed that it would “not receive FFP for Medicaid and LIP payments to hospitals in excess of cost.”  Id. at 25 (STC 97).

The waiver also included an LIP payment “reconciliation” process, which required Florida to verify the amount of LIP payments made to a provider for the fiscal period being reconciled, and then to compare that payment total to the provider’s LIP Cost Limit

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for that period.  FL Ex. 4 (A-17-64), at 21-22.  If the provider’s LIP payments for the fiscal period exceeded its LIP Cost Limit, the provider was required to return the excess payment to Florida.  Florida was required in turn to refund the federal share of that payment to CMS.  Id. at 14-15, 18, 21; see also FL Ex. 5 (A-17-64), at 4.     

2.     The Reimbursement and Funding Methodology Document

Florida submitted a proposed RFMD to CMS in 2006, shortly before the first demonstration year, which began July 1, 2006.  FL Ex. 6; FL Ex. 31, ¶ 5.  The 2006 RFMD states that the annual LIP Cost Limit for any hospital with Medicaid, uninsured, or underinsured patients participating in the waiver sets the maximum amount of permissible expenditures (uncompensated medical care costs incurred by the hospital in providing services to Medicaid patients, the uninsured, and the underinsured) for which the hospital may receive LIP payments.5   FL Ex. 6, at 10, 17, 19.  According to the 2006 RFMD, the LIP Cost Limit is the sum of two amounts:  a hospital’s “Medicaid shortfall” (uncompensated costs associated with services provided to Medicaid patients) and the “uninsured and underinsured shortfall” (uncompensated costs associated with services provided to the uninsured and underinsured).  Id. at 17, 31-32; FL Ex. 31, ¶ 5.  The 2006 RFMD specifies categories of medical and other healthcare-related costs that may be counted in determining the shortfall amounts and indicates how a hospital was expected to identify and document those costs.  FL Ex. 6, at 10-11.  The 2006 RFMD states that the Medicaid shortfall reflected, among other things, “Medicaid reimbursable” costs shown on the hospital’s Medicare cost report, plus certain “additional Medicaid costs” – that is, costs incurred by the hospital for services provided to the Medicaid population but not factored into the Medicaid-reimbursable amounts shown on the cost report.  Id. at 10-11, 31.

The 2006 RFMD included a worksheet laying out a formula for computing a hospital’s LIP Cost Limit.  Id. at 31-32.  The 2006 RFMD instructed hospitals to submit completed cost-limit worksheets (plus supporting documentation) to Florida and further indicated that Florida would review each hospital’s worksheet and perform a “cost/payment reconciliation” to ensure that no LIP payment made (or to be made) during a given “demonstration year” exceeded the hospital’s LIP Cost Limit for that year.  Id. at 17, 19-20, 31-32. 

CMS, however, did not approve the 2006 RFMD, or the revised version of the RFMD submitted in 2008.  FL Ex. 31, ¶ 5.6

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3.     2008 financial management review of demonstration year 1 costs

Between July and October 2008, CMS conducted a financial management review (FMR) of the LIP’s “reimbursement and funding” methodology (as described in the RFMD).  CMS Ex. 4, at 1, 5; CMS Ex. 1, ¶ 4.  The FMR covered the first demonstration year (July 2006 - June 2007), the only year for which providers had (at that point) submitted cost-limit worksheets.  CMS Ex. 4, at 7.  The review involved site visits to 11 providers, including the four hospitals whose costs are at issue.  Id. at 7-8.  The stated purpose of the FMR was to determine whether the RFMD was “in compliance with Federal and State regulations” and “whether providers were adhering to requirements for calculating the LIP Cost Limit.”  Id. at 6.  

The FMR found that the hospitals had overstated the Medicaid shortfall amounts reported on their cost-limit worksheets by including “improper” and “duplicated” costs; failing to use “proper” methodologies in “determining Medicaid costs”; and failing to subtract Medicaid payments received.  FL Ex. 20, at 4.  In both its draft and final reports on the FMR (issued in August 2009 and April 2010, respectively), CMS stated that the Medicaid shortfall overstatements had occurred in part “because instructions and forms provided for the LIP calculation by” Florida – an apparent reference to the 2006 RFMD – were “vague and lack[ed] clarification.”  Id.; CMS Ex. 4, at 8.  

The FMR further found that the hospitals had likely overstated their uninsured and underinsured shortfalls by failing to apply cost-to-charge ratios “properly or consistently”; including “duplicated” charity care costs; counting unallowable costs such as uncollected deductibles and co-payments for persons with Medicare or other third-party insurance as “bad debt”7 ; and using “estimates” of bad debt derived from financial statements.  FL Ex. 20, at 4, 6-7.  These problems were also attributed to Florida’s alleged failure to provide “definitive guidance . . . concerning cost elements to be included” in the cost-limit calculation.  Id. at 7.  Finally, the FMR found that providers had been inconsistent in their use of “inflation factors.”  Id. at 8. 

The final FMR report did not quantify the extent to which a hospital’s or provider’s cost limit was, or may have been, overstated or determine that any had received an LIP overpayment as a result.  Nor did the FMR report indicate which of the noted problems had been found with respect to which hospitals or providers.  The report did say, however, that CMS’s reviewers had found “vast inconsistencies in the way providers [had] collect[ed] and report[ed] cost data in the LIP cost limit”; that only one provider

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had “maintained adequate detail for proper analysis”; and that Florida had not made “any effort to verify LIP calculation data or cost elements included by individual providers.”  FL Ex. 20, at 4, 7.  “As a result,” said the report, “inconsistent treatment of factors on the LIP cost limit forms could potentially result in LIP payments to providers being over/understated.”  Id. at 7, 8.  To address the shortcomings found during the FMR, CMS recommended that Florida issue new or revised procedures, instructions, worksheets, or other material to ensure that providers correctly determined their cost limits in accordance with applicable requirements.  Id. at 1, 5-8.  

4.     2009-2010 revision of cost reconciliation procedures

In June 2009, a few months before CMS issued its draft FMR report, Florida submitted another revised RFMD, which CMS approved in December 2009.  FL Ex. 19; FL Ex. 20, at 9; FL Ex. 31, ¶ 5.  In addition to clarifying cost-limit and other LIP-related requirements for upcoming years (starting with DY 4), the approved RFMD prescribed a “hospital reconciliation” methodology applicable to DYs 1-3 (July 2006 - June 2009).8   FL Ex. 19, at 14.  That methodology entailed an adjustment of the “original Cost Limit established for each provider” and was apparently intended to address CMS’s concern that hospitals had improperly counted certain “non-allowable” costs – most notably, unpaid deductibles and coinsurance – in calculating uncompensated costs of providing services to uninsured and underinsured individuals.9   FL Ex. 31, ¶ 7; FL Ex. 19, at 14-15. 

Under the approved reconciliation methodology for DYs 1-3, hospitals were to report DY 4 cost data concerning services rendered to the uninsured and underinsured and use that data to develop a ratio (or percentage) of unallowable-to-allowable costs that “would have been expected in the previous operating years.”  FL Ex. 19, at 14-15.  That ratio, as adjusted to incorporate a growth rate for unallowable (LIP-ineligible) costs, would then be applied retrospectively (“backcasted”) to revise the hospitals’ original calculations of uninsured and underinsured costs for DYs 1-3.  Id.; FL Ex. 21, at 19; FL Ex. 31, ¶¶ 7-8.  According to the approved RFMD, the purpose of the retrospective adjustment is to –

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provide an adjusted cost limit that will be used to complete the reconciliation [for DYs 1-3].  The payments to the provider through the [LIP] program and Disproportionate Share Hospital [(DSH)] Program will be totaled for the period being reconciled.  This total will then be compared to the total cost of the allowed uninsured and Medicaid shortfall costs.  If the total payments are at or below the total costs, the requirement of not exceeding the cost limit is met.  If the payments exceed the cost, the provider will be required to refund the overpayment amount.

FL Ex. 19, at 14.

In January 2010, CMS approved Amendment 105 (STC 105) to the waiver terms.  FL Ex. 20, at 9.  To implement recommendations made by CMS during the FMR, STC 105 called for Florida to develop, in consultation with CMS, a “reconciliation review tool” setting out “instructions,” “definitions,” and “procedures” to ensure that, in future years (beginning in DY 4), hospitals and other providers “correctly calculated,” and included only “allowable costs” in, their LIP Cost Limits.  FL Ex. 21, at 1-2; FL Ex. 20, at 9-10.  STC 105 also established a schedule for Florida to make “retroactive adjustment and reconciliation” for DYs 1-3.  FL Ex. 21, at 1-3.

Florida drafted the reconciliation review tool and submitted it to CMS in the spring of 2010.  FL Ex. 31, ¶ 9.  CMS did not object to the review tool, which included details about how the “retroactive adjustment and reconciliation” for DYs 1-3 were to be performed.  Id.; FL Ex. 21, at 1, 19-21.

5.     2010-2011 cost reconciliations for DYs 1-3

In late 2010 and 2011, Florida sent CMS “Low Income Pool Hospital Reconciliation” reports for DYs 1-3.  FL Ex. 31, ¶¶ 9-11; FL Ex. 22.  Those reports reproduce – in columns 1-24 – the content of each hospital’s original LIP Cost Limit worksheets, with the original LIP Cost Limit shown in column 24.  FL Ex. 22.  The reports also purport to show, in columns K-N, the retrospective (backcasting) adjustments performed by Florida and, in column O, the LIP Cost Limits reflecting those adjustments.  For each of the four hospitals at issue, the reconciliation reports show, in column P, that the hospital’s adjusted LIP Cost Limits for DYs 1-3 exceeded the sum of its LIP and DSH payments for those years, as shown below:

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Excess of Adjusted LIP Cost Limit over LIP and DSH Payments (as shown in FL Ex. 22)

	DY1	DY2	DY3
Jackson Memorial	$113,595,094	$99,166,920	$309,619,849
Memorial Regional	$30,493,783	$26,113,645	$35,207,368
Tampa General	$69,937,470	$70,189,944	$85,245,045
Broward General	$13,207,048	$12,049,313	$51,788,099

6.     CMS’s follow-up review and 2012 findings; Florida’s response

After Florida submitted its hospital reconciliation reports for DYs 1-3, CMS initiated a follow-up review “to determine if LIP payments to providers [for those years] were supported by uncompensated care as defined in the RFMD.”  CMS Ex. 10, at 1-2; see also CMS Ex. 1, ¶ 7.  The review was limited to “certain providers that received significant LIP allocations.”  CMS Ex. 10, at 2.  The review involved on-site visits and review of documentation furnished to support costs included in the provider’s cost limits.10  Id.; CMS Ex. 1, ¶ 7; CMS Ex. 7, at 18-19; FL Ex. 31, ¶ 11.  According to an undated “Reconciliation Review Summary” (attached to a March 2012 CMS-authored email), CMS’s follow-up review focused on:

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• “identifying, understanding and verifying those costs included on the provider cost limit worksheets as ‘additional hospital costs,’[11 ] costs included in the approved LIP Funding and Reimbursement Document that would not normally be identified as Medicaid costs, or costs eligible for DSH”; and
• “reviewing the reconciliation [for DYs 1-3] to determine the treatment of bad debt and copay costs.”

CMS Ex. 9, at 18.

In a July 2012 document, CMS reported the results of its follow-up review of the hospitals’ cost-limit reconciliations for DYs 1-3.  CMS Ex. 10.  CMS found that the adjusted LIP Cost Limits for the four hospitals reflected, in the aggregate, $104,351,578 in costs that were either inadequately documented or ineligible for reimbursement from the LIP.  Id. at 2-5; FL Ex. 25; see also CMS Ex. 9, at 3-17.  CMS referred to these costs as “unallowable” or “questionable.”  CMS Ex. 10, at 2; CMS Ex. 9, at 18 (discussing what the reviewers meant by those terms). 

Approximately $87.5 million of the “unallowable” and “questionable” costs are attributable to Jackson Memorial and allegedly were incurred to provide or support:  dialysis services; helicopter transportation services; Jackson North Mental Health (JNMH) facility; toddler shelter; “Other County Community Clinic” for indigent patients; and community-based organizations.  CMS Ex. 10, at 2-3.  CMS also reported that Jackson Memorial had not implemented, or not correctly or fully implemented, the required retrospective adjustment to account for amounts improperly reported as bad debt.  Id. at 3 (stating that the hospital “did not compute and include the required ratios in its DY 1-3 reconciliations to accurately adjust for unallowable costs related to co-pays, deductibles, and bad debts”).

As for Memorial Regional, CMS stated that it had identified approximately $12 million in “unallowable costs,” evidently reported as charges for uninsured and underinsured patients, associated with the hospital’s Uninsured Discount Program (UDP).  However, it then commented that “[t]he State [had] provided justification for inclusion of these uncompensated care costs which CMS determined [was] reasonable.”  CMS Ex. 10, at 4.

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CMS identified smaller amounts of impermissible costs incurred by Broward General and Tampa General – approximately $3.1 and $1.7 million, respectively.12   Id. at 4-5.  According to CMS’s July 2012 report, Florida had “agreed to remove” these costs from the hospitals’ cost-limit calculations and further agreed to “recoup the Federal share” in the event that the hospitals’ LIP Cost Limits showed an “overpayment” after the impermissible costs were removed.  Id.

In sum, the follow-up review found that the following costs used in calculating LIP Cost Limits for DYs 1-3 were not permissible costs under the waiver terms and thus ineligible for LIP reimbursement:

Hospital	Unallowable Costs	Questionable Costs	Hospital Total
Jackson Memorial	$26,289,906 (Jackson North Mental Health) $  2,815,514 (Toddler Shelter) $37,713,076 (Other County Community Clinic for Indigent Patients)                                                                                                $11,165,376 (Community-Based Organizations) Subtotal:  $82,942,375 (reflects CMS’s application of an inflation factor of about 1.06, see CMS Ex. 10, at 2)	$3,233,434 (dialysis) $1,295,100 (helicopter) Subtotal:   $4,528,534	$87,470,909
Memorial Regional	$12,058,394 (Uninsured Discount Program)		$12,058,394
Tampa General	$1,731,902 (pharmacy research and study)		$1,731,909
Broward General	$3,090,373 (county intergovernmental transfer)		$3,090,273
Total For All Hospitals	$99,823,044	$4,528,534	$104,351,578

See CMS Ex. 10, at 2-5; CMS Ex. 1, ¶ 6.13

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CMS commented in its July 2012 report that, based on its own calculations and “[r]elated workpapers developed by” its financial management review staff, some of the hospitals had “remaining uncompensated care costs” for DY 1 or DY 2 or both, and that no calculations of remaining uncompensated costs had been done for DY 3.  CMS Ex. 10, at 3-5.  The report did not express any concerns about the “remaining” costs (that is, costs reflected in the hospital’s adjusted LIP Cost Limits but not flagged as unallowable or questionable during the follow-up review).  

On July 31, 2014, in a letter approving Florida’s request to extend the waiver, CMS advised Florida of its intention to disallow the federal share of $104,351,578 in “payments made to [Jackson Memorial, Memorial Regional, Tampa General, and Broward General] through the LIP” for DYs 1-3.  FL Ex. 26, at 1-2.  When Florida learned of that intention, the Safety Net Hospital Alliance of Florida (Alliance)14 initiated discussions with CMS to address what it believed to be CMS’s concerns about its member hospitals’ reconciliations for DYs 1-3.15   See FL Ex. 27.  In the course of those discussions, the Alliance provided CMS and Florida with revised cost-limit calculations for the four hospitals.  Id. at 4-5.  The Alliance advised CMS that its revised calculations excluded costs that CMS had identified as impermissible.  Id. at 4.  The Alliance also indicated that the revised calculations incorporated the retrospective adjustments required by the approved RFMD to ensure that any amounts reported as bad debt did not include unpaid deductibles, copayments, and other unallowable costs.  Id. at 4-5.  According to the Alliance, its revised cost-limit calculations yielded annual LIP Cost Limits that, in each instance, exceeded the amount of LIP payments received by the hospital, meaning that no “overpayment” of LIP funds had occurred.  Id. at 4.    

7.     The disallowance determination and reconsideration

On September 28, 2016, CMS notified Florida that it was disallowing $63,233,036, the federal share of $104,351,578 of LIP payments made to the four hospitals for DYs 1-3.  FL Ex. 28.  In support of that determination, CMS stated that the hospitals had included various “unallowable” or “questionable” costs in the calculation of their LIP Cost Limits and had not provided “adequate documentation to support [those] costs.”  Id. at 1, 3-4.  CMS further stated that, during its FMR and follow-up review, Florida and the hospitals

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“did not produce adequate documentation that allowed CMS to conduct a complete analysis of whether the LIP cost limit calculation and associated reconciliation were performed consistent with federal requirements,” including the waiver terms, and that it was therefore “unable to verify the cost limits for each provider” or “determine that the LIP payments to providers were consistent with the LIP cost limits.”  Id. at 3.  CMS stated that Florida’s “inability to properly document its cost limit results” violated grant administration requirements in 45 C.F.R. Part 92 and federal cost principles.  Id. at 2.  Finally, CMS stated that the “claimed expenditures” violated STC 97, which states that Florida would not receive FFP for Medicaid and LIP payments in excess of cost, and STC 94, which states that LIP funds may be used for health care expenditures consistent with the definition of “medical assistance” in section 1905(a) of the Act.  Id. at 2-3. 

In accordance with section 1116(e)(1) of the Act, Florida requested reconsideration of the disallowance determination.  FL Ex. 29.  In its reconsideration request, Florida claimed that it could “demonstrate that many of the costs identified as questionable or unallowable [were] in fact permissible expenditures to take into account for purposes of calculating the LIP Cost Limit.”  Id. at 2.  Florida further contended that, regardless of how the “allowability issues” are resolved, the disallowance should be reversed because the “LIP payments the Hospitals received for each of [the demonstration years] 1-3 [do] not exceed their LIP Cost Limits even when the challenged costs are excluded from the LIP Cost Limit calculation” and the retrospective adjustment required by the 2009 RFMD is performed.  Id. at 2-3.  In support of that position, Florida cited and resubmitted the Alliance’s revised cost-limit calculations.  Id. at 2-3 & n.1.  Florida also complained that CMS’s disallowance letter did not cite regulations or waiver terms and conditions to support CMS’s findings that certain costs were “unallowable,” explain why Florida’s documentation was inadequate, or indicate “what documentation CMS believe[d] would be sufficient” to support the disputed costs.  Id. at 3-4.

On January 19, 2017, CMS denied Florida’s reconsideration request and affirmed the disallowance of $63,233,036 in FFP.  FL Ex. 30.  CMS acknowledged that the Alliance had submitted revised cost-limit calculations.  Id. at 1.  However, CMS asserted that it was improper to assume that the resulting cost limits were compliant with the waiver terms and conditions because they did not account for all of the problems identified in the final FMR report, including the fact that the hospitals had initially performed their cost-limit calculations using a version of the RFMD that “did not provide adequate guidance to providers” (i.e., the 2006 RFMD).  Id. at 1-2.  CMS stated that the providers had “knowingly overstated the Medicaid Cost Limit” in a number of ways – by including improper costs; using improper methodology for certain providers and ambulance costs; not properly netting recoveries/payments against expenses; duplicating costs; inflating bad debts and charity costs; improperly calculating and using the Medicaid cost-to-charge ratio; and inconsistently using the inflation factor.  Id. at 2.CMS stated that the Alliance and Florida needed to do more than “simply remove[ ] additional costs” from the hospitals’ cost-limit calculations; they needed to demonstrate affirmatively with

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“supporting documentation” that the hospitals had “calculated the Medicaid cost limit properly and in accordance with the STCs and federal regulations.”  Id.  Also, in response to Florida’s assertion that CMS did not provide sufficient information to support its disallowance, CMS stated that it has worked with Florida and providers to determine whether the disputed costs were allowable, but, despite “repeated efforts to obtain supporting documentation” from Florida or the providers, “none was provided.”  Id.

In sum, CMS’s position on reconsideration was that Florida could not rely upon a recalculated cost limit without documenting that all of that limit’s constituent cost and revenue items are compliant with the terms of the waiver or, at minimum, without showing that the recalculations remedied the shortcomings identified in the final FMR report.  The proposition that Florida needs to fullyjustify any recalculated cost limit is echoed in the October 9, 2018 declaration of Anna Dubois, a CMS Funding Specialist, who stated:  “It was not sufficient to simply remove the disallowed cost and assume that all other costs in the cost limit were correct.  We have still not seen any supporting documentation regarding the other costs included in the hospitals’ cost limits. . . .  CMS found substantial issues with the four hospitals’ calculation of their LIP cost limits[, and] CMS identified many problems during the FMR that were not remedied through the reconciliation process. . . .  In the absence of a reliable cost limit and documentation to support the costs included in the cost limit, CMS could have disallowed a substantially higher amount of the LIP funds that the hospital providers received.”  CMS Ex. 1, ¶¶ 9-11. 

8.     Florida’s appeal to the Board; intervenor participation

Florida timely appealed the January 19, 2017 determination in accordance with section 1116(e)(2) of the Act.  The parties filed briefs in accordance with the briefing schedule set by the Board and the applicable regulations in 45 C.F.R. Part 16.  Also, the Alliance filed briefs in Board appeals A-17-64 and A-17-65.  The Board determined that the Alliance “has a clearly identifiable and substantial interest in the outcome” of the dispute between Florida and CMS and that the Alliance’s participation in these appeals would be helpful to the Board’s resolution of the appeals.  Accordingly, the Board permitted the Alliance to file briefs as an intervenor.  June 13, 2018 Ruling Granting Request to Submit Amicus Brief (quoting 45 C.F.R. § 16.16(b)).

Standard of review

The Board is authorized to review specified “final written decisions,” including “disallowances” under title XIX of the Act (Medicaid).  45 C.F.R. Part 16, App. A,
¶ B(a)(1).  The Board must sustain a disallowance “if it is supported by the evidence submitted and is consistent with the applicable statutes and regulations.”  W. Va. Dep’t of Health & Human Res., DAB No. 2185, at 20 (2008) (citing 45 C.F.R. §§ 16.14, 16.21).  In decisions reviewing disputed disallowances, the Board “has consistently held that a

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state has the burden to document the allowability and allocability of its claims for FFP” once CMS has set out a lawful basis for its action.  N.J. Dep’t of Human Servs., DAB No. 2328, at 4-5 (2010).

The federal agency must first articulate the basis for disallowing a claim for FFP and provide sufficient detail for the non-federal party claiming the FFP to understand the issues and the federal agency’s position.  The non-federal party must then bear its burden to show that federal funds were claimed only in accordance with applicable authorities.  See Mass. Exec. Office of Health & Human Servs., DAB No. 2218, at 11 (2008), aff’d, Mass. v. Sebelius, 701 F. Supp. 2d 182 (D. Mass. 2010); Me. Dep’t of Health & Human Servs., DAB No. 2292, at 9 (2009), aff’d, Me. Dep’t of Human Servs. v. U.S. Dep’t of Health & Human Servs., 766 F. Supp. 2d 288 (D. Me. 2011); Az. Health Care Cost Containment Sys., DAB No. 2490, at 18 (2012); Mo. Dep’t of Soc. Servs., DAB No. 2994, at 6 (2020) (and cited cases).

Analysis

I.     Florida has not shown that the disallowed costs for Jackson Memorial, Tampa General, and Broward General for DYs 1-3 were permissible costs to include in the LIP cost limits; Memorial Regional’s UDP costs are permissible to include in the LIP cost limits, but must be reviewed further on remand.

We look first at what CMS stated as the basis for its disallowance.  CMS determined that the four hospitals had included certain impermissible costs (or categories of costs) totaling $104,351,578 (for DYs 1-3) in calculating their LIP cost limits and, accordingly, disallowed $63,233,036 in federal share of LIP payments “associated with” those costs.  FL Ex. 28, at 1.  It explained its position that Florida had failed to substantiate the disallowed costs as LIP-permissible costs.  Id. at 2-3.  On appeal, Florida therefore bears the burden of proof to substantiate the permissibility of those costs as part of the LIP cost limits under the waiver provisions discussed earlier.   

The section 1115 waiver terms were developed and agreed to by CMS and Florida as part of their “partnership” to share the financial burden for Florida’s Medicaid program.  See Ga. Dep’t of Cmty. Health, DAB No. 1973, at 1 (2005) (Medicaid is “a partnership between the federal government and individual states” in which each shares in the cost of the Medicaid program pursuant to formulae established in the Medicaid statute and regulations). 

Under those waiver terms, LIP payments may be made only for “permissible expenditures,” that is, the uncompensated costs of providing medical services that fall under the Medicaid statute’s definition of “medical assistance” (including inpatient and outpatient hospital services) and which are furnished to Medicaid patients, the uninsured, and the underinsured.  Act § 1905(a); FL Ex. 1 (A-17-64), at 25 (STC 94); FL Ex. 2 (A-

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17-64), at 18 (STC 54); FL Ex. 4 (A-17-64), at 6.  Florida may not receive FFP for LIP reimbursement to hospitals in excess of the hospitals’ LIP-permissible costs.  FL Ex. 1 (A-17-64), at 25 (STC 97).  The waiver terms include provisions on how to calculate a hospital’s LIP Cost Limit, which is the maximum amount of permissible expenditures (uncompensated medical care costs for providing services to Medicaid patients, the uninsured, and the underinsured) for which the hospital may receive LIP payments (even if it actually incurred more uncompensated costs).  FL Ex. 6, at 10, 17, 19.  Essentially, the LIP Cost Limit is determined by adding a hospital’s “Medicaid shortfall” (uncompensated costs associated with services provided to Medicaid patients) and its “uninsured and underinsured shortfall” (uncompensated costs associated with services provided to the uninsured and underinsured).  Id. at 17, 31-32; FL Ex. 31, ¶ 5.  The waiver terms also permitted certain types of medical and other healthcare-related costs, characterized as “additional Medicaid costs” (e.g., non-physician practitioner costs; provider-based ambulance services; provider-based clinic services; services contracted to other providers) that could be factored into determining the shortfall amounts to be added together in computing the LIP Cost Limit.  See FL Ex. 6, at 10-11; FL Ex. 19, at 13.

In subsections a-c below, we address in this context the four hospitals’ disallowed costs.  (In subsection c we discuss the costs for Tampa General and Broward General together.) 

a.     Jackson Memorial Hospital

CMS determined that Jackson Memorial did not adequately document the costs for which Florida claimed FFP and that CMS was “unable to determine if [the unallowable] costs are covered by” the waiver.  FL Ex. 28, at 3.  The costs CMS determined were “unallowable” (or impermissible) costs were associated with the hospital or the following cost centers affiliated with the hospital:  JNMH facility; toddler shelter; “Other County Community Clinic” for indigent patients; and community-based organizations.  Id.  CMS also disallowed “questionable” costs related to dialysis services and helicopter services.  Id. 

In general, Florida asserts that “at least three categories of costs” included in Jackson Memorial’s LIP Cost Limit calculation that CMS disallowed – those related to the JNMH facility, dialysis services and helicopter transportation – were LIP-permissible costs.  FL Br. at 23.  Florida acknowledges it “has been unable to conclude that” Jackson Memorial’s costs for the toddler shelter, other county community clinic for indigent patients, and community-based organizations “qualified as LIP permissible expenditures,” but denies that Jackson Memorial included those costs in its reconciliation for the relevant years.  Id. at 23 n.18.

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i.     JNMH facility – not permissible

Florida asserts that JNMH facility costs were LIP-permissible costs because they were for “provider-based clinic services,” which is a category of “additional Medicaid costs” permitted under the approved RFMD.  FL Br. at 26 (citing FL Ex. 19 (2009 RFMD), at 13) & 26 n.21.  Florida also states that the Act’s definition of “medical assistance” (Act § 1905(a)(2)(A)) encompasses those costs, and Florida Statutes section 409.908 authorizes the reimbursement of costs of community mental health services and hospital outpatient care.  Id. at 26.  The services, Florida maintains, were provided to uninsured patients consistent with the 2009 RFMD.  Id. n.20. 

On appeal CMS does not argue that the JNMH facility costs do not fall in the category of “additional Medicaid costs” in the form of “provider-based clinic services.”  However, Ms. Dubois stated that, in accordance with STC 97, any “‘additional costs’ must be ‘mutually agreed upon’” by the parties and that CMS and Florida did not “mutually agree” to the JNMH facility costs.  See CMS Ex. 1, ¶¶ 21-24, 34.16   In its disallowance determination, CMS stated that Florida has not produced adequate supporting documentation for the JNMH facility costs.  FL Ex. 28, at 3.  During the appeal, CMS more specifically states that Florida did not provide “patient level data that identified the patients that were served, the types of services they received, and charges for the services” or “any data identifying any payments received for any sources (including Medicare, Medicaid and third party insurance).”  CMS Response Br. at 13 (citing CMS Ex. 1, ¶ 31). 

Florida does not deny that it may be required to produce the type of documentation CMS now seeks or assert that such documentation is immaterial to the question of whether the JNMH facility costs were properly disallowed.  Rather, Florida argues that the CMS auditors could have asked for, but did not ask for, patient-level documents specific to the types of costs now at issue.  Reply Br. at 8-9.  Florida adds that it did not obtain these patient-level data for the audit because they were not requested and CMS led it to believe that more detail was unnecessary given Florida’s explanation that, even without the costs about which CMS expressed concerns during the audit, the hospitals still had more than enough LIP-eligible costs to support all of the LIP payments received.  Id. at 8-9, 13.

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CMS counters that, based on “years of communication” between Florida and CMS, Florida should have known that CMS had ongoing significant concerns about the specific hospital costs.  Sur-reply at 5.  Thus, CMS’s position is that Florida had reason to know, all along, that it would need to produce adequate proof of specific costs.

We need not, however, resolve the questions of whether CMS failed to clearly explain its need to see patient-level documentation for specific costs, as Florida argues.  Resp. to Sur-reply at 3.  On appeal, CMS has explained what it needed to see as to the JNMH facility costs.  Florida thus has had an opportunity to produce such documentation during the appeal.  Florida does not assert that it produced such documentation or identify it in the record materials put before us. 

We conclude that Florida has not proven the JNMH facility costs are permissible.

ii.     Dialysis services – not permissible

Florida asserts that the costs of providing dialysis services were LIP-permissible expenditures, constituting “medical assistance” costs of “clinic services furnished by or under the direction of a physician” in accordance with section 1905(a)(9) of the Act.  FL Br. at 28 n.23 & 28.  Florida states that the hospital obtained services through contracts with renal care providers consistent with the 2009 RFMD and provided the services to uninsured individuals.  Id. at 27-28, 30 (citing FL Ex. 19, at 13 (section IV(A)(4)(i), stating that costs of “services contracted through other providers,” “provided to Medicaid beneficiaries or the uninsured” may be included in the LIP Cost Limit calculation)).  Florida adds that state Medicaid law authorized reimbursement provided to Medicaid patients.  Id. at 28 (citing Fl. Stat. §§ 409.906(9), 409.908 (2006)).  Florida maintains that the dialysis services costs are documented in the hospital’s cost reports and general ledger entries for DYs 1-3.  Id.    

CMS again relies on Ms. Dubois’s statement that, as with the JNMH facility costs, CMS and Florida did not “mutually agree” to the dialysis costs.  CMS Ex. 1, ¶¶ 23, 24.  CMS also questions the sufficiency of the evidence to show contractual agreements between Jackson Memorial and renal care providers for dialysis services.  CMS Response Br. at 15 (acknowledging that Florida submitted some documents, e.g., 2012 memorialization of hospital policy to obtain outpatient dialysis services by contract, which Florida asserts was in effect during 2006-08, but also stating Florida has not provided proof that the policy was in effect during the period the disallowed costs were incurred, or the “original contract” to obtain dialysis services for uninsured patients).  Moreover, CMS asserts Florida has not documented that the dialysis costs included on the hospital’s LIP Cost Limit worksheets were incurred only for services furnished to the uninsured, or that dialysis costs were actually incurred, as Florida maintains.  Id. at 14-15 & 15 n.8; CMS Ex. 1, ¶ 36.  According to CMS, Florida did not submit “any invoices” to support the

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dialysis costs during the appeal or any time before the disallowance was issued.  CMS Response Br. at 15 (CMS’s emphasis).

In reply, Florida again emphasizes that the dialysis services are contracted services, the costs of which are permissible under the waiver as “additional Medicaid costs.”  Reply Br. at 13.  Florida asserts that CMS has not “countered” Florida’s showing that services were provided to the uninsured and that “CMS does not identify any basis for suggesting that Jackson Memorial failed to pay the amounts” for those services.  Id. 

Florida also responds that it previously offered to give CMS copies of some invoices that Jackson Memorial was able to locate and an opportunity to review the hospital’s general ledger entries database associated with the dialysis services invoices.  Reply Br. at 13-14.  It acknowledges that its ability to substantiate the costs is limited because Jackson Memorial now has access to only a portion of the invoices – “cover[ing] a little over half the dollar amount of the dialysis disallowance” – due to a 2010 flood at the hospital vendor’s off-site storage location and due to the operation of a document retention policy.  Id. at 13-14 and 14 n.9; FL Br. at 23 n.17.  Furthermore, although Florida says it offered CMS an “opportunity” to review the hospital’s general ledger entries, it does not say that it ever produced them for CMS examination.  See Reply Br. at 14 and 14 n.9 (stating that “[t]he general ledger database appears too unwieldy to transmit to CMS in its entirety”).

Even assuming the hospital did contract with renal care providers to provide dialysis services during the time period in question (as Carmen Fernandez, Associate Vice President of Finance at Jackson Health System, attests in her declaration, see FL Ex. 32,  ¶¶ 18, 22), Florida does not assert that it has produced invoices or other similar documentation to show the services actually provided (to the uninsured, as asserted) and the costs actually incurred.  Florida suggests that at best it could access some subset of invoices now.  See id. ¶ 21 (Ms. Fernandez, stating that the hospital “located some of the invoices . . . but other invoices appear to have been destroyed”).  With respect to the hospital’s general ledger entries, Florida has neither produced them nor made clear exactly what they show or how they provide substitute proof for other, primary documents, such as invoices, that are admittedly unavailable.

We conclude that Florida has not shown that the dialysis services costs are permissible.  

iii.     Helicopter transportation services – not permissible

Florida asserts that the helicopter transportation costs were LIP-permissible costs incurred for services provided to Medicaid beneficiaries or the uninsured, obtained pursuant to an “implied-in-fact” contract between the hospital and Miami-Dade County.  FL Br. at 31-32 (citing FL Ex. 19, at 13, “services contracted to other providers”).  Florida says that federal regulations permit states to claim medical assistance transportation costs necessary to secure medical examinations and treatment, and that

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Florida law authorizes Medicaid reimbursement of the costs of appropriate transportation services.  Id. (citing 42 C.F.R. § 440.170; FL Ex. 7 (Fl. Stat. § 409.905 (2006)).  Florida adds that the state’s Ambulance Transportation Services policy authorized air ambulance services under certain critical, emergency circumstances.  Id. (citing FL Ex. 10, at 2-3).

CMS acknowledges that Florida submitted Miami-Dade County budget documents purporting to show that “the Public Health Trust was expected to pay $900,000 to the County for Air Rescue Services,” as well as various cost reports and general ledger entries, but contends that none of these documents supported the helicopter transportation service costs.  CMS Response Br. at 16.  CMS says, “As [Florida] notes, the County budget documents show that the County expected the Public Health Trust to pay for helicopter services, [but] they do not demonstrate that Jackson [Memorial] actually incurred these costs and [Florida] has not provided the general ledger entries.”  Id. (CMS’s emphasis).  Moreover, CMS says, there is no indication as to how the amount the hospital was expected to pay was calculated, and if the amount has any relation to the services provided.  CMS asserts that Florida has not proven that the County provided the helicopter services, or that the hospital paid for the services but was not reimbursed for them.  Id.; see also CMS Ex. 1, ¶¶ 36, 37 (declaration of Ms. Dubois, detailing why CMS determined Florida did not substantiate the helicopter transportation costs).      

Florida replies that CMS has not “countered” Florida’s showing that the services were provided to uninsured patients and that “CMS does not identify any basis for suggesting that Jackson Memorial failed to pay the amounts” for those services.  Reply Br. at 13.  Florida also says the costs were LIP-permissible “additional Medicaid costs” recognized by the RFMD.  Id.  Florida represents that it invited CMS to meet with hospital staff to review the general ledger entries, and asserts that, because the services were provided to the uninsured, neither the hospital nor the County would have received payment for the services.  Id. at 14 and 14 n.10.

We understand Florida to be stating that it cannot produce proof such as documentation of receipt of payments from the recipients of the helicopter transportation services because the services were provided to uninsured individuals who did not pay for the services.  The question, then, is what other documentation Florida has to prove that the hospital actually incurred charges for providing (through the county, as Florida indicates) helicopter transportation services to uninsured individuals.  Florida has not explained exactly what the general ledger entries would show.  If the general ledger entries include information indicating that the services were furnished to uninsured individuals and that the hospital paid the county for those services, Florida has not made that clear.  In any case, whatever the general ledger entries might show about the costs incurred for helicopter transportation services, Florida has not produced the general ledger entries.  Furthermore, even if the need to produce the general ledger entries was not made clear to Florida in the FMR review process, Florida has since had an opportunity before us to produce them or any other relevant documentation that could help support that the

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hospital actually incurred the charges (such as the identity of the patients to whom the services were provided as uninsured patients), but it has not produced any such documentation.  We therefore find that Florida has not shown that the helicopter transportation services costs are permissible.   

iv.     Toddler shelter, Other County Community Clinic, community-based organizations costs – not permissible, but DYs 1-2 costs to be further considered on remand

CMS disallowed these costs, stating that it was “unable to determine if these costs are covered by” the waiver and, “[c]ertainly, Jackson Memorial did not provide adequate documentation to support these costs.”  FL Ex. 28, at 3.  On appeal, Florida does not actually assert that the costs are LIP-permissible costs.  Rather, Florida states it “has been unable to conclude” that these costs “qualified as LIP permissible expenditures under the waiver.”  FL Br. at 23 n.18.  Florida maintains, however, that Jackson Memorial did not include these costs on the LIP Cost Limit worksheets submitted to Florida for DYs 1 and2 and that the costs therefore were not included in the reconciliation reports Florida submitted to CMS for those years.  Thus, according to Florida, Jackson Memorial “never used” these costs to support its LIP distributions for DYs 1 and 2.  Id.

Inasmuch as Florida does not raise any arguments about the costs for DY 3, CMS understands Florida to be conceding that those costs are “not allowable.”  CMS Response Br. at 11 n.7.  Florida in subsequent briefing does not assert that CMS misunderstands Florida’s position as to the costs for DY 3 or otherwise argue that DY 3 costs are LIP-permissible costs or that it has adequate documentation of the DY 3 costs. 

As for the costs for DYs 1 and 2, CMS asserts that the hospital included them in its LIP Cost Limit worksheets for those years.  CMS Response Br. at 11 n.7.  According to CMS, the LIP Cost Limit worksheets for DYs 1 and 2 show the hospital had refiled worksheets with Florida that included the costs.  Id. (citing CMS Ex. 16, at 1, 2, 18, 19). 

In reply, Florida says that “it appears that Jackson Memorial never actually filed the costs” with Florida for DYs 1 and 2.  Reply Br. at 14.  It points to the June 13, 2018 declaration of Carmen Fernandez, who stated that the costs were not included in the hospital’s “original” cost limit worksheets for DYs 1 and 2.  Id.; FL Ex. 32, ¶ 27.  However, Ms. Fernandez acknowledged that the hospital included the costs in “revised” worksheets prepared in 2008 in connection with the CMS audit, but stated that the hospital “never submitted” the revised worksheets to Florida so those costs were “never used” to support LIP payments for DYs 1 and 2.  FL Ex. 32, ¶ 27.  Florida also points to the December 6, 2018 supplemental declaration of Ms. Fernandez, who Florida says “expressed the view that the ‘refiled’ information [meaning CMS Ex. 16] was not submitted to [Florida] as support for the LIP payments, but merely reflected discussions between Jackson Memorial staff and the CMS auditors.”  Reply Br. at 14; FL Ex. 51

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(supplemental declaration), ¶ 5 (“In my assessment, the ‘refiled’ LIP Cost Limit Calculation included as CMS’s Exhibit 16 appears to be information provided directly by Jackson Health System to CMS auditors during the 2008 audit.  I have found no record of this information being provided to [Florida], as support for the LIP payments Jackson Memorial received or otherwise.”).17

Ultimately, Florida acknowledges it “has been unable to conclude” that the costs “qualified as LIP permissible expenditures.”  FL Br. at 23 n.18.  Florida thus essentially concedes that it may not be paid FFP for the costs, for any of the three years.18   We agree with CMS that Florida has not substantiated its claim for FFP for the costs. 

The record is not clear, however, about whether the impermissible costs for DYs 1 and 2 were in fact included in the LIP Cost Limits.  Florida asserts that the costs for DYs 1 and 2 were not included.  FL Br. at 23 n.18.  Because we must remand to CMS for other reasons to redetermine the correct amount of the disallowance, we will permit Florida on remand to provide documentation clarifying whether the revised worksheets containing these costs did result in their inclusion in the relevant LIP Cost Limits.  

b.     Memorial Regional Hospital – UDP costs are permissible components of the LIP Cost Limit, but are to be reconsidered on remand

According to Florida, the UDP costs of $12,058,394 CMS disallowed as impermissible (CMS Ex. 28, at 3) account for financial assistance that Memorial Regional provided to uninsured (and some underinsured) patients whose incomes are below the federal poverty guidelines, but higher than the levels that qualified patients for charity care under state-wide guidelines.  FL Br. at 35; FL Ex. 33 (Davis declaration), ¶ 31.  Florida asserts that the UDP costs should not have been disallowed because they “were almost all permissible charity care costs” under the 2009 RFMD, section IV(A)(3), which permits inclusion of uncompensated medical care costs in computing the LIP Cost Limit.  FL Br. at 35 (citing FL Ex. 19, at 11-13).

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On appeal, CMS acknowledges that, during the FMR, “a CMS employee stated in her review of [Florida’s] reconciliations that ‘[t]he State provided justification for inclusion of these uncompensated care costs which CMS determined reasonable.’”  CMS Response Br. at 17.  CMS does not now offer any reason that the UDP costs would not be permissible as a category of costs.  Nevertheless, CMS asserts that the UDP costs were properly disallowed because Florida failed to adequately document them inasmuch as Florida did not prove that the UDP costs are “not duplicated costs” the hospital had also claimed as “bad debts and charity care.”  Id. at 17-18 (citing CMS Ex. 1, ¶ 38 (Ms. Dubois’s declaration, stating, “CMS is unable to determine that [the UDP] costs are not duplicated in the amounts claimed for bad debts and charity”)). 

Florida states that, based on CMS’s July 2012 summary of the UDP costs for DYs 1-3 prepared following the FMR (FL Ex. 25), it understood CMS to have agreed the costs were “reasonable” and takes issue with CMS’s questioning, years later, during the appeal, whether the costs might have been duplicative.  FL Br. at 34, 38-39.  Nevertheless, attempting to address CMS’s concerns, Florida maintains that the UDP costs were not actually duplicative because Florida could have included the UDP costs with other charity care costs on line 11 of its LIP Cost Limit worksheets, but instead included them separately, on line 13 of the worksheets.  Id. at 35; Reply Br. at 15 (asserting that “CMS’s only argument against use of the UDP costs appears to be a suspicion (not previously disclosed to [Florida] or Memorial Regional staff) that these costs might be duplicated if they were also included as part of the bad debt and charity care amounts shown on lines 11 and 12” of the worksheets).  Florida offers the declarations of Scott J. Davis, who was involved in performing the hospitals’ cost reconciliations.  FL Ex. 33 (Davis declaration); FL Ex. 50 (Davis supplemental declaration).  Florida submits that Mr. Davis reviewed the UDP charges included in the hospital’s original cost limit worksheets and made adjustments to conform to the reconciliation review tool, to include removing certain charges related to the discounts given to patients with some third-party coverage (underinsured), to result in total revised UDP costs of $15,352,466.  FL Br. at 35-36 (citing FL Exs. 33 and 47); FL Ex. 33, ¶¶ 31-33.  Florida offers to make available for CMS examination patient data Mr. Davis used to verify and recompute the UDP amounts, which Florida says would show there is no duplication of the UDP amounts, and to have Mr. Davis respond to any CMS questions about the data.  Reply Br. at 15-16; FL Ex. 50, ¶ 8 (Davis supplemental declaration, stating that he can provide CMS relevant data and walk CMS staff through the data, to verify there is no duplication of UDP costs).

We conclude that the UDP costs as a category of uncompensated care are permissible components of the LIP cost limits.  However, the question raised now by CMS of whether Florida made duplicate claims for FFP for the UDP costs cannot be resolved on the present record.  Florida asserts that it can provide responsive documentation.  Since we must remand this case as explained elsewhere in our decision, on remand, Florida will have an opportunity to further address CMS’s concern about the UDP costs possibly having been claimed twice; CMS will have an opportunity to examine the evidence and

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determine whether it satisfactorily resolves its concern.  If, on remand, Florida documents that the UDP costs were incurred and were not duplicative, then the costs should be included in Memorial Regional’s LIP Cost Limit used to determine any ultimate disallowance amount.

c.     Tampa General Hospital and Broward General Hospital – not permissible

CMS disallowed the amounts associated with Tampa General and Broward General, $1,731,902 and $3,090,373, because, CMS said, Florida previously had agreed to remove those costs from the hospitals’ cost-limit calculations as not supported by adequate documentation and to recoup the federal share.  FL Ex. 28, at 3-4; CMS Ex. 10, at 4-5. CMS understands Florida to be conceding that the disallowed costs for Tampa General and Broward General are not allowable, or permissible, costs.  CMS Response Br. at 11 n.7.   

In its briefs Florida does not directly address the disallowed amounts attributable to Tampa General and Broward General.  It does not deny that it previously agreed to remove these costs, or assert that the costs are LIP-permissible.  It does not point to any evidence in the record as proof that they were permissible and properly claimed.  Florida thus has not borne its burden to show that the disallowed amounts for Tampa General and Broward General represent FFP properly claimed in accordance with the waiver terms and other applicable requirements.19   We therefore conclude that these costs were not permissible to include in the calculation of the hospitals’ LIP cost limits in the relevant years. 

We discuss below the question raised by Florida of whether, even removing these costs (and other impermissible or questioned costs) from the calculation of the LIP cost limits, the limits based on permissible uncompensated care costs alone were high enough to support the claims for FFP.

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II.     We must remand because our determination as to which costs were permissibly included in the LIP cost limit calculations does not suffice to resolve whether the claims for the hospitals’ LIP payments were properly disallowed.

a.      Our conclusion that some costs were impermissible does not suffice to support the disallowance.

Our determinations about which of the disallowed costs could permissibly be included in the LIP cost limits for these hospitals does not end our inquiry, however, as to whether the disallowance is proper.  Under the waiver, Florida may reimburse a hospital for LIP-permissible costs up to the LIP Cost Limit, which is derived by combining the hospital’s “Medicaid shortfall” and the “uninsured and underinsured shortfall.”  Florida then could claim, and be paid the federal share of, those proper hospital reimbursements.  CMS could only properly disallow FFP claims for LIP payments to the extent those payments exceeded the LIP Cost Limit for a given hospital (once that cost limit is correctly calculated including only permissible costs) or if some or all of those claims are shown to be unallowable for other reasons.

CMS, in its FMR and its briefing on appeal, raised some general questions about the hospitals’ reconciliation processes and about the adequacy of the documentation for uncompensated care costs overall.  However, the disallowance and briefing only identify with any clarity the costs already discussed above.  CMS has not established that removing those costs found impermissible from the hospitals’ LIP Cost Limits results in specific LIP overpayments to any hospital beyond that hospital’s correctly calculated cost limits.  Florida is entitled to clear notice of which costs are questioned, on what basis and in what amount, and how those costs impact the allowability of LIP payments.  If the basis for disallowance is that LIP payments exceeded the permissible LIP cost limits, that needs to be clarified.  Because the focus of the disallowance here was only on the inclusion of impermissible costs in the cost limit calculations, the record is not developed enough to resolve what amount, if any, could properly be disallowed.  Consequently, as we discuss below, it is necessary to remand this appeal to CMS to determine what disallowance, if any, is appropriate here.

b.     Assent to the cost reconciliation procedures did not in itself preclude CMS from taking a disallowance. 

We first reject the argument that CMS was not authorized to disallow FFP in LIP payments based on reviews other than the reconciliation process.  It is true that the parties agreed to a process, prescribed by the amendment to STC 105 and the 2009 RFMD, to reconcile the hospitals’ costs for DYs 1-3.  Florida argues that this reconciliation process effectively superseded all the FMR findings and constitutes the “sole process” and the “basis” for determining whether a hospital had been overpaid for any of the first three

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demonstration years.  FL Br. at 16-17.  In other words, Florida contends that CMS, having agreed to the reconciliation procedures, must use the reconciliation procedures alone to resolve any DYs 1-3 cost disputes.  See id. at 11.

Moreover, according to Florida, when the reconciliation process is properly applied,20 it becomes clear that none of the LIP payments exceeded the cost limits even with all of the disallowed costs removed from the calculations (with one limited exception as to Jackson Memorial’s DY 2 costs).  Id. at 11, 13, 18, 21, 37.  Florida offers Mr. Davis’s calculations in support of its argument that the hospitals had sufficient remaining permissible expenditures to support the LIP payments they received even after applying the reconciliation process and eliminating the disallowed costs.  Id. at 18-21.  Florida concludes that CMS has no basis for a disallowance.  Id. at 11.  

CMS does not disagree that the agreed reconciliation process applied to determining the permissibility of costs under the LIP cost limits.  However, CMS argues that (1) Florida did not follow the reconciliation process correctly, and (2) in any case, following the reconciliation process would not resolve the dispute since CMS has questions about whether the costs supporting the LIP payments (other than those identified as impermissible in the disallowance) were adequately documented.  CMS Response Br. at 10-12 & 11 n.6.  CMS asserts that, “like [Florida’s] arguments generally, [Mr. Davis’s] analysis assumes that the underlying costs were adequately documented” but Mr. Davis “[did] not provide any new documentation to support the costs he contends should offset the disallowed costs.”  Id. at 19.  According to CMS, therefore, Florida’s offer to resolve the dispute using Mr. Davis’s calculations “do[es] not remedy the fundamental problem with the cost limit calculations and reconciliations,” which is “that the providers have overstated their cost limits, and have not provided adequate documentation of the costs included in the cost limit.”  Id. at 19-20.  For those reasons, CMS declined to accept Ms. Davis’s alternative analysis. 

Neither the waiver documents nor the reconciliation procedures expressly state that the cost disputes for DYs 1-3 must be resolved solely through the reconciliation procedures or preclude CMS from taking appropriate action if impermissible costs included in the cost limits result in Florida claiming FFP to which it was not entitled, based on those

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costs inflating the cost limits.21   We find no evidence that CMS agreed to accept retrospective reconciliation adjustments for DYs 1-3 as sufficient remediation of any and all claiming problems found with respect to the four hospitals.

In developing and negotiating the waiver terms, the parties agreed that “[a]ll requirements of the Medicaid Program expressed in law, regulation, and policy statement” that the waiver documents did not “expressly waive[ ]” or “identif[y] as not applicable” would govern the waiver.  FL Ex. 1 (A-17-64), at 3 (STC 2); FL Ex. 2 (A-17-64), at 3 (STC 2).  We read this provision as meaning that the parties contemplated that Florida may be held to requirements in addition to the agreed-upon waiver terms, such as any applicable cost principles, to include those concerning documentation requirements CMS cited in its disallowance determination.  Thus, we conclude that CMS has authority to inquire whether any costs Florida included in the hospitals’ LIP cost limit calculations in addition to those identified in the disallowance were permissible and whether they were claimed consistent with other applicable requirements.  CMS is not precluded from relying on and holding Florida to the basic requirement to adequately support its claims for FFP.  The requirement that a claim for FFP be adequately documented is an overarching one.  See Pa. Dep’t of Human Servs., DAB No. 2883, at 8 (2018).  That

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requirement must be considered together with the waiver terms.22   

c.     CMS must identify any other DYs 1-3 costs (not addressed above) it rejects as impermissible or insufficiently documented and explain its rationale for rejecting them.

We have concluded that CMS has authority to review other costs included in the LIP cost limits before determining whether the LIP payments to any hospital exceeded the applicable cost limits using only permissible costs. As to such costs, however, no disallowance determination has been made and thus no disallowance amount for those costs is ripe for our review. CMS must first sufficiently state what costs it is rejecting as impermissible or questionable and why, to then enable Florida to attempt to meet its burden of proof as to those costs. We must, therefore, remand this matter to CMS for further review and development.

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We agree with Florida that the FMR report alone is not sufficiently specific to support the current disallowance.  FL Br. at 15-16.  The report identified the 11 providers reviewed that received LIP funds for DY 1, but did not state which providers presented the problems, or quantify the effect of these problems.  See id. at 15.  The FMR began with a review of cost limit data for DY 1, and CMS’s final report of the FMR findings addressed the data reviewed for that year only.  See CMS Ex. 7.  CMS did perform a follow-up review that expanded the scope of review to additional data to cover DYs 1-3, but at the same time narrowed the focus to certain cost elements for four of the 11 hospitals that were reviewed initially.  Compare CMS Ex. 7, at 6 and CMS Ex. 10, at 2.23

The next question is whether CMS’s findings after completion of the follow-up review for DYs 1-3 put Florida on sufficient notice as to which costs – other than those costs of the four hospitals that were addressed in the follow-up review findings – CMS was questioning as impermissible or questionable and why.  CMS points to various irregularities in the cost-limit calculations that, according to CMS, inflated the cost limits.  See CMS Response Br. at 6, 20 n.14; see also, e.g., CMS Ex. 1, ¶¶ 10-19.

In the absence of a specific determination about what the hospitals’ cost limits are and whether any of the hospitals actually exceeded those limits – a determination CMS has not made – CMS may not simply reject unidentified costs by relying on broad, generalized criticisms about allegedly inflated cost limits and improper claiming.  If CMS is questioning the permissibility of certain costs in addition to those identified in the disallowance, then CMS must identify those costs and explain why Florida has not substantiated them.  See Ohio Dep’t of Job and Family Servs., DAB No. 2643, at 31 (2015).  Then Florida must meet its burden to produce supporting evidence.  A revised disallowance should establish whether and to what extent LIP payments to a given hospital exceeded the hospital’s LIP cost limits calculated to include permissible, adequately documented costs meeting the applicable provisions of the waiver and reconciliation process.

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Conclusions and remand instructions

We conclude that CMS has shown that certain costs were impermissibly included in determining LIP cost limits but has not yet sufficiently identified LIP payments that were rendered unallowable as a result.  We therefore reverse the outstanding disallowance and remand the matter to CMS to make determinations consistent with this decision and then revise and reissue a disallowance if appropriate.

Specifically, Florida has not proven that Jackson Memorial’s costs for the JNMH facility; dialysis services; helicopter transportation services; toddler shelter, Other County Community Clinic for indigent patients, and community-based organizations; Tampa General’s costs; and Broward General’s costs were permissible costs.  These costs must therefore be excluded from the calculation of LIP cost limits on remand.

On remand, however, CMS should revisit the two areas in which we found that the record before us was insufficient for resolution.  CMS should thus reconsider whether Memorial Regional actually included a duplicative claim for UDP costs.  If on remand it is determined that Memorial Regional did not claim UDP costs twice and that Florida did not receive excess FFP based on a duplicative claim, then CMS is to reduce the costs excluded as impermissible accordingly.

CMS should also reconsider Florida’s assertions that CMS made calculation errors concerning certain Jackson Memorial costs that effectively inflated the disallowed amount by over $50 million (see FL Br. at 12, 23 n.18, 25, 38) and make any necessary adjustments. 

Before issuing any revised disallowance, CMS should determine the effect of any impermissible costs included in the cost limits on whether any LIP payments exceeded the applicable limits and therefore were unallowable.  In making that determination, CMS may review any costs included in the cost limits which it has reason to believe are impermissible or undocumented.  If CMS identifies other impermissible costs included in claims for LIP payments, it must be specific about what those costs are, to which hospital those costs belong, and for which demonstration year those costs were claimed, and sufficiently explain why such costs are not permissible or reimbursable through the LIP program.  If CMS determines that any such cost is not sufficiently documented, it must be specific as to what documentation is needed.  CMS should then provide Florida an

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opportunity to furnish any additional documents supporting those questioned costs.24   If on further document review and discussions CMS determines that a disallowance (for a revised amount) is appropriate and issues a new disallowance determination, Florida may then seek review of that determination by the Board. 

The parties may take other appropriate actions in furtherance of resolving their dispute to the extent not inconsistent with our remand.25

1. Florida filed another appeal (Board docket number A-17-64), which challenges CMS’s disallowance of $97,570,183, for demonstration years (DYs) 1-7 (July 2006 – June 2013).  Although the disallowances in appeals A-17-64 and A-17-65 are similar since both involve FFP payments made under the waiver and partially overlap in the demonstration years covered, there is no duplication of the disallowed amounts.  Fl. Br. (A-17-64) at 2 n.2.  Also, the parties’ briefs in appeal A-17-64 raise arguments that are different from those raised in appeal A-17-65.  For these reasons, the Board has decided to issue a separate decision for appeal A-17-64, but, in this decision, we refer to the discussion in Florida’s briefs or exhibits in appeal A-17-64 as appropriate.    
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2. As noted, this appeal concerns the disallowance of over $63 million in FFP for DYs 1-3.  The STCs governing the first five DYs are of record as Florida’s exhibit 1 in appeal A-17-64; the STCs in effect for subsequent DYs are of record as Florida’s exhibit 2 in appeal A-17-64.  The STCs provide that “[a]ll requirements of the Medicaid Program expressed in law, regulation, and policy statement” that the waiver documents did not “expressly waive[ ]” or “identif[y] as not applicable” govern the waiver project.  FL Ex. 1 (A-17-64), at 3; FL Ex. 2 (A-17-64), at 1.
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3. The parties refer to this document as the “Reimbursement and Funding Methodology Document” or the “RFMD,” as do we.
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4. The “underinsured” are persons who have some third-party (non-Medicaid) coverage that is insufficient to cover their needs.  See FL Ex. 19, at 6 (distinguishing the “uninsured,” who are persons with “no source of third party coverage,” from the “underinsured,” who are persons with no third-party coverage “for services provided”).
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5. The 2006 RFMD occasionally refers to the cost limit as “total allowable cost” or “total allowable expenditures.”
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6. The parties do not explain why the 2006 RFMD and the revised 2008 RFMD were not approved.
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7. Under the cost-limit worksheet attached to the 2006 RFMD, a hospital was to count, as uncompensated costs, “[b]ad debts (net of Medicare bad debts).”  FL Ex. 6, at 32 (line 12).  In this context, “bad debt” means unreimbursed costs incurred for persons who have some third-party (non-Medicaid) coverage.  Cf. 73 Fed. Reg. 77,904, 77,909-10 (Dec. 19, 2008) (determining “bad debt” in the disproportionate share hospital (DSH) context).
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8. The approved RFMD states that “[p]roviders in receipt of LIP funds are required to submit documentation” of permissible expenditures used to calculate the LIP Cost Limit, but does not specify the nature of any required documentation beyond stating that the documentation should include cost reports, financial statements, and other “auditable” provider records.  FL Ex. 19, at 3, 11.
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9. According to Florida, CMS was primarily concerned that the uncompensated costs hospitals recorded for services provided to uninsured and underinsured individuals should not include unpaid copayments (or coinsurance) and deductibles for individuals with third-party coverage.  FL Br. at 16.  Both the draft and final FMR reports (concerning DY 1) pointed to uncollected coinsurance and deductibles, among various other types of costs, under the category of “unallowable” charity care and bad debts.  See CMS Ex. 4, at 10; FL Ex. 20, at 6.
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10. On February 9, 2011, a CMS employee involved in the follow-up review sent an email to a state Medicaid agency employee indicating that CMS was seeking the following types of information or documentation to support the cost-limit calculations that it had decided to review:



All supporting document[s] for each number represented on the LIP cost limit worksheet for 06-07 and 07-08 [i.e., DYs 1 and 2].  This includes cost reports, other documentation, supplemental worksheets, and calculations.  If there are numbers that cannot be directly ascertained from the documentation, please provide a step by step narrative of how the number was developed.  Where the provider included additional costs as itemized in the protocol, the provider should provide a list of those costs and support for how the costs were determined including any cost report data or supplemental calculations or narratives that clearly explain the calculation of the costs.

CMS Ex. 6.  (It is not clear why CMS did not seek documentation regarding DY 3.)  According to the CMS auditor who provided a declaration supporting the disallowance, the only documentation provided by Florida during the follow-up review were hospital cost reports.  CMS Ex. 1, ¶ 8.  Florida does not contest that particular statement.  However, a CMS-authored “Reconciliation Review Summary” states that Florida provided “DSH audit summaries” for DYs 1 and 2 in addition to the hospital cost reports for those years.  CMS Ex. 9, at 18.

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11. These “additional hospital costs” are counted in determining the Medicaid shortfall.  See FL Ex. 22 (columns 2 and 5); FL Ex. 14, at 1-2.  Both the 2006 RFMD and the approved RFMD include a list of services or programs whose costs could be counted as additional hospital costs in the calculation of the Medicaid shortfall.  They also include language indicating how those costs should be “determined.”  FL Ex. 6, at 10-11; FL Ex. 19, at 13.
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12. Those costs were incurred for pharmacy research and study (Tampa General) and a county’s intergovernmental transfer used to provide the non-federal share of Medicaid payments (Broward General).  See CMS Ex. 9, at 3-4, 9-11, 17-18.
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13. Despite CMS’s earlier statement that Florida had provided reasonable justification for including uncompensated costs for Memorial Regional, as addressed below, CMS disallowed the federal share of those costs.  And, although Florida earlier indicated it would remove Tampa General’s and Broward General’s costs and later recoup and repay the federal share of those costs, the disallowed amount included those two hospitals’ costs and Florida appealed the disallowance in its entirety.  Accordingly, of the total computable amount for the four hospitals for DYs 1-3, $104,351,578, $63,233,036 in federal share was disallowed and remains in dispute on appeal.
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14. The Alliance is a statewide organization of member hospital systems that collectively function as the primary “safety net” provider of hospital services to low-income Floridians.  Alliance Br. (A-17-65) at 1.  (As we note later, in accordance with 45 C.F.R. § 16.16(b), we permitted the Alliance to participate in this appeal and appeal A-17-64 as a non-party intervenor.  The Alliance filed briefs in both appeals.)  The four hospitals at issue (or the hospital systems to which the hospitals belong) are Alliance members.  Id. at 1 n.2.
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15. According to the Alliance, CMS advised it during a July 2014 teleconference that “additional issues” regarding Jackson Memorial’s inclusion or handling of “unallowable cost associated with deductibles and copays” needed to be addressed with “supporting documentation.”  FL Ex. 27, at 2.
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16. According to Ms. Dubois, CMS “mutually agreed” only as to “one claim of $4,462,037 requested by Jackson Memorial Hospital.”  CMS Ex. 1, ¶ 25 (referring to “line 5a of Jackson Memorial’s cost limit included in [FL] Ex 14 at page 3”).  Florida’s exhibit 14 provides Jackson Memorial’s LIP Cost Limit worksheets for DYs 1-3.  Exhibit 14, pages 3 and 4, show worksheets for DY 2; line 5a, at the bottom of page 3, shows $4,462,037 for “Other Medicaid additional cost[s]”; the top of page 4 shows that the line 5a amount includes $4,375,162 for “ACC Clinic Cost” and $86,875 for “J Reaves Clinic Cost.”  FL Ex. 14, at 3-4.
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17. It is not clear why the hospital revised the worksheets to include the costs for 2008 CMS audit review purposes but then did not submit them to Florida for claiming of FFP based on those costs.  Possibly the hospital later determined the costs were not LIP-reimbursable and ultimately decided not to submit those costs to Florida.  Ms. Fernandez admitted that the hospital “has been unable to locate documentation that would provide the support needed to make a strong case” for reimbursement of the costs.  FL Ex. 32, ¶ 27.
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18. It is worth noting that Scott J. Davis, Administrative Director of Reimbursement and Revenue Integrity at Memorial Healthcare System in Hollywood, Florida, who was involved in reviewing the hospitals’ cost reconciliations, states that Jackson Memorial “has been unable to provide documentation that would allow [him] to conclude that” the costs in question “qualified as allowable costs for purposes of computing LIP Cost Limits.”  FL Ex. 33 (Davis declaration), ¶ 29.  However, Mr. Davis added that these costs “do not appear in the reconciliation reports [Florida] submitted to CMS” for DYs 1 and 2.  Id. 
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19. Mr. Davis stated:  “I have been unable to confirm that the disallowed costs related to [Broward General and Tampa General] were allowable under the terms of the 2009 RFMD.  Therefore, I have not included these costs in my second set of revised LIP Cost Limit calculations.”  FL Ex. 33, ¶ 34.
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20. Florida contends it complied with the reconciliation process, with one exception for Jackson Memorial, for which the reconciliation reports omitted the backcasting ratio, and that it has since corrected that omission.  FL Br. at 17-18 & 17 n.6.
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21. CMS represents that, although the parties intended the backcasting adjustments would remedy certain problems identified during the audit, they “did not agree” that those adjustments “could substitute for the requirement that [Florida] adequately document the LIP costs.”  CMS Response Br. at 7 (citing CMS Ex. 1, ¶ 29).  Florida does not specifically assert that this CMS statement is inaccurate or point to any evidence that causes us to question CMS’s representation.
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22. CMS’s position finds some support in Oregon Department of Human Services, which involved Oregon’s alleged use of an outdated payment rate to calculate its supplemental Medicaid payments to a hospital (for which Oregon claimed a federal share), contrary to the state plan requiring Oregon to use the current, applicable payment rate, which caused Oregon to exceed the Medicaid Upper Payment Limit, or UPL.  Oregon is distinguishable from this case for a number of reasons, but some of its language is instructive here.  The Board stated: 



Oregon contends that the validity of the disallowance ultimately should be judged according to whether its SFY 2003 Medicaid payments exceeded the applicable UPL [Upper Payment Limit] in [42 C.F.R.] section 447.272.  It suggests that CMS must reimburse a state for hospital payments whose amounts exceed what the state plan’s payment methodology allows as long as the payments do not, in the aggregate, cause noncompliance with the applicable UPL.  We find no merit to that suggestion, for which Oregon has offered no legal authority.  A state must provide assurance that its Medicaid hospital payments will not exceed applicable UPLs.  But merely providing such assurance does not necessarily mean that the state intends or is authorized by its state plan to make hospital payments up to the UPL.  Nor does it mean that CMS must reimburse a state for the federal share of expenditures up to the UPL regardless of whether the state complies with other Medicaid requirements.  The amount or level of hospital payments is determined in accordance with rate-setting “methods and standards” in the state plan, and those methods or standards may in fact be designed to ensure that hospital payments fall substantially below the applicable UPL.  Whatever the case, a state must adhere to the rate-setting methods and standards set out in its state plan, and may obtain FFP for hospital payments only if they were made in accordance with those methods and standards.

Or. Dep’t of Human Servs., DAB No. 2208, at 24 (2008) (citations to regulations and decisions omitted; italics supplied).  Oregon’s argument that all payments up to the UPL are automatically allowable is sufficiently analogous to Florida’s argument that all the hospitals’ costs included in the LIP cost limits must be accepted as allowable if they are LIP-permissible based on the state’s reconciliation.  In Oregon, the Board made clear that CMS is not obligated to pay for the federal share of expenditures up to the UPL without regard to whether the state complied with other applicable requirements.  Similarly, here, we conclude that CMS is not barred from reviewing the permissibility of costs included in the LIP cost limits beyond those identified in the disallowance.

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23. CMS states that it “disallowed only certain costs,” but that its decision to do so “does not mean that the remainder of the LIP costs included in the hospital providers’ cost limits were allowable and properly included in the calculation of [the] providers’ cost limit.”  CMS Response Br. at 18.  CMS states that it “could have disallowed a much greater portion of the LIP funds that the hospital providers received from [Florida].”  Id.; see also CMS Ex. 1, ¶ 11. The report of the follow-up review of DYs 1-3 suggests CMS chose to focus on the four hospitals and certain types of costs.  CMS Ex. 10, at 2 (“The scope of review was limited to certain providers that received significant LIP allocations.”).  CMS was free to do so but did not identify or disallow other questioned costs.  The limited costs addressed in the disallowance letter are simply insufficient to resolve whether any LIP payments exceeded proper cost limits so we cannot determine that Florida was not entitled to FFP based on LIP-permissible costs without regard to the disallowed costs.  Accordingly, the matter must be remanded.
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24. In December 2018, while Florida’s appeal to the Board was pending, Florida offered to arrange for two of the four hospitals to provide CMS “patient-level” documentation in support of certain costs and to make hospital representatives available for face-to-face meetings with CMS staff to review the documentation.  FL Ex. 52.  CMS declined Florida’s offer as evident in its January 11, 2019 letter to Florida, stating, in part, that CMS believed it would be inappropriate to review “new” documents and meet with the hospitals while the appeal was pending.  CMS Ex. 17.  Since the Board is remanding this case, the parties may arrange for CMS to review any additional documents and have hospital representatives meet with CMS staff. 
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25. We have addressed the major issues to be addressed on remand and have drawn broad parameters intended to guide the parties on the actions they need to take on remand.  This remand does not address every argument related to the cost disputes the parties raise in their briefs.  For example, Florida says it has identified an error involving Jackson Memorial’s dialysis costs that worked against the hospital.  According to Florida, the hospital included the costs in the Medicaid Shortfall portion of its worksheets, with the result that the costs were reduced by application of the hospital’s Medicaid utilization ratio.  However, the costs should have been included in the Uninsured Shortfall part of the ratio.  FL Br. at 30.  Also, Florida says, Jackson Memorial made a similar error as to its helicopter services costs that also worked against the hospital.  Id. at 33-34.
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