GAB Decision 765
July 10, 1986
Pennsylvania Department of Public Welfare;
Docket Nos. 85-106; 85-223;
Audit Control No. 03-50601
Settle, Norval D.; Garrett, Donald F. Ballard, Judith A.
The Pennsylvania Department of Public Welfare (State) appealed the
determinations of the Health Care Financing Administration (Agency,
HCFA) to disallow $7,329,690 and $8,227,210 in federal financial
participation (FFP) claimed under Title XIX (Medicaid) of the Social
Security Act (Act). The disallowances were based on reviews of State
records listing outstanding and uncollected overpayments to
institutional providers of medical services; the reviewers found that
the State had not credited the federal government with a refund of FFP
advanced for certain overpayments. HCFA disallowed FFP for alleged
overpayments involving facilities which had not appealed the State's
overpayment determinations, which had appealed (but whose appeal had
been pending for over one year), or which had been identified as closed
or bankrupt facilities.
On appeal, the State alleged that many of the overpayments at issue
had
been settled, reversed on appeal, or collected from the
providers.
During Board proceedings, the Agency agreed to a remand of
these
overpayments, on the terms described below on pages 3-4. With
respect
to the remaining overpayments, the State argued generally that
section
1903 (d) (3) of the Act precludes adjustment of the federal share of
the
overpayments prior to recovery by the State from the
providers
(particularly when the overpayment represents the difference
between an
interim and final reimbursement rate); that Agency policy on
what
constitutes an overpayment had been inconsistent, or had changed;
and
that, in any event, overpayments which were uncollectible should
be
considered an unavoidable administrative cost of operating a
Medicaid
program. With respect to overpayments where a provider appeal
was still
pending, the State alleged that the State audits on which
the
overpayment determinations were based were not reliable and that
Agency
use of these audits was procedurally unfair. The State also
raised a
question about overpayment determinations resulting from referrals
by
the State's Medicaid Fraud Control Unit (MFCU), suggesting that
this
question should also be remanded.(2)$% For the reasons stated below,
we
conclude that adjustment of the federal share of these overpayments
is
not contingent on the State's recovery from the providers, even when
an
interim rate is involved, that Agency policy on this has
been
consistent, and that uncollectible overpayments are not
allowable
administrative costs. With respect to overpayments for which
an
administrative appeal is still pending, however, we conclude that
the
Agency could not reasonably rely on the State audit findings under
the
circumstances here, given the State's policy on collection and
the
Agency's own policy issuances in this area, absent a finding that
the
State unreasonably delayed its appeal process. Finally, we conclude
that
a remand of the MFCU issue is not warranted since the State failed
to
identify any MFCU overpayments here. Accordingly, we uphold
the
disallowance except with respect to overpayments allegedly
settled,
reversed, or collected (which we remand pursuant to the
parties'
agreement) and with respect to overpayments for which an appeal is
still
pending (which we remand for a HCFA determination about whether
the
appeal has taken too long).
Relevant Statutory Provisions
Title XIX of the Act provides for the payment of federal money to
states
to aid in financing state medical assistance programs. Any state
that
wishes to participate in the Medicaid program must develop and submit
a
plan that meets certain requirements set forth by the Secretary of
the
Department of Health and Human Services (HHS). Realizing that
many
states might have difficulty financing a Medicaid program even
if
subsequently reimbursed by the federal government, Congress
also
established a funding mechanism by which HHS advances funds to a
state,
on a quarterly basis, equal to the federal share of the estimated
cost
of the program. After review of a state's quarterly statement
of
expenditures, the Secretary may adjust future payments to reflect
any
overpayment or underpayment which was made to the state for any
prior
quarter. Section 1903 (d) of the Act.
The major issue of statutory interpretation in this case concerns
section
1903 (d) (2) of the Act, which states:
The Secretary shall then pay to the State . . . the amounts
so
estimated, reduced or increased to the extent of any overpayment
or
underpayment which the Secretary determines was made under this
section
to such state for any prior quarter and with respect to which
adjustment
had not already been made under this subsection. . . .(3)
Section 1903 (d) (3) of the Act states:
The pro rata share to which the United States is equitably
entitled .
. . of the net amount recovered during any quarter by the State .
. .
with respect to medical assistance furnished under the State plan
shall
be considered an overpayment to be adjusted under this subsection.
As discussed below, Pennsylvania argued that section 1903 (d)
(3)
constitutes a limiting definition of the term "overpayment" in
section
1903 (d) (2). Under this view, adjustments could be made only
for
amounts recovered by the State from the provider.
Case Background
The Agency imposed a disallowance on May 14, 1985 for the amount
of
$7,329,690 in FFP, which the Agency had determined was required
because
of outstanding and uncollected overpayments by the State
to
institutional providers as of June 30, 1984. The Agency
determination
was based on State audit findings. Under State
regulations, providers
of long term care medical services had a right to
appeal these findings
for administrative review. All of the alleged
overpayments had either
been under appeal for over one year or had been made
to closed or
bankrupt facilities.
On October 4, 1985, the Agency issued an additional disallowance
of
$8,227,210 in FFP in outstanding provider overpayments by the State
as
of April 30, 1985 for hospitals, county nursing homes, intermediate
care
facilities for the mentally retarded, and for outstanding
overpayments
by the State as of March 31, 1985 for privately owned nursing
homes.
These State overpayment determinations were identified as either over
30
days old for which no appeal had been filed, or under appeal in
excess
of one year.
Discussion
I. Settled, Reversed or Collected Overpayments
The State provided information indicating that some of the
alleged
overpayments (involving approximately $10.15 million in FFP) had
been
settled, reversed on appeal, or collected from providers. The
State
indicated that it had credited the federal account with an
appropriate
share of all amounts collected from providers or paid pursuant to
a
settlement.(4)
The Agency agreed to accept a remand of these allegedly settled,
reversed
or collected overpayments. The Agency reserved the right to
examine the
record of each case involved and to later challenge the
propriety of any
settlements or reversals, or to challenge the
contention that collected funds
were properly credited to the federal
account. Telephone Conference
Call, February 19, 1986.
Therefore, we remand all alleged overpayments which the State
identified
as settled, reversed or collected in its letters dated February
12, 1986
and February 24, 1986. The Agency may examine these cases
individually
and is not foreclosed from further challenges.
II. Overpayments for Which No Administrative Appeal Is Pending
The State made several arguments applicable to all alleged
overpayments,
including those for which no appeal is pending (and which have
not been
the subject of a settlement, reversal, or collection). Most of
these
arguments have been addressed by the Board in previous decisions.
We
will address each of the State's arguments in our discussion of
the
holdings below.
A. HCFA is not required to wait until collection from the
provider
by the State to recover identified overpayments from the State.
As the Board has stated in numerous prior decisions, the Social
Security
Act provides authorization for the Agency to reduce grant awards to
the
extent of any overpayment to the State determined by the Secretary
to
have been made and not already used as the basis for a reduction
in
federal grant funds. See, e.g., Arkansas Department of Human
Services,
Decision No. 717, January 8, 1986; Pennsylvania Department of
Public
Welfare, Decision No. 426, May 24, 1983. Section 1903 (d) (2)
states
that the Secretary may reduce or increase payments to a State "to
the
extent of any overpayment or underpayment which the Secretary
determines
was made . . . to such State for any prior quarter and with
respect to
which adjustment has note already been made. . ." The Board has
found,
on the basis of section 1903 (d) (2), that the Agency has
statutory
authority to recoup the federal share claimed in an amount
determined to
have been an overpayment to a provider prior to the State
collecting
from the provider. See Arkansas, supra.
The State did not contest the Agency's statutory authority to reduce
grant
awards by the amount of the federal share of identified
overpayments, but
requested that the Board (5) reconsider its holding
that the Agency may
require repayment prior to the State's recovery from
the providers.
The State presented us with no persuasive reason why the analysis used
in
prior Board decisions on this issue was incorrect. In our
prior
decisions, we rejected arguments that section 1903(d) (3) limits
federal
recoupment of overpayments to those for which the State has
recovered
the underlying overexpenditure. Section 1903(d) (3) states
that "(the)
pro rata share to which the United States is equitably entitled,
as
determined by the Secretary, of the net amount recovered . . . by
the
State . . . with respect to medical assistance furnished under the
State
plan shall be considered an overpayment to be adjusted . . . ."
While
this section provides for repayment of FFP subsequent to recovery by
the
State, it applies only to those payments which would be allowable
as
"medical assistance" under section 1905(a) of the Act and the
State
plan. Section 1903(d) (3) provides that recoveries of these
payments
will be treated as overpayments, but does not preclude treatment
of
unallowable payments as overpayments. See Arkansas, supra.
The Board's analysis has been upheld in two United States Court of
Appeals
decisions: Massachusetts v. Secretary, 749 F.2d 89 (1st Cir.
1984),
cert. denied, 105 S. Ct. 3478 (1985) and Perales v. Heckler, 762
F.2d (2d
Cir. 1985); see also Florida v. Heckler, 762 F.2d (2d Cir.
1985);
see also Florida v. Heckler, Civ. No. 82-0935 (N.D. Fla 1984).
The Eighth
Circuit is currently considering the issue in an appeal of
Missouri
Department of Social Services v. Heckler, No. 84-4106-CV-C-5,
W.D. Mo., Sept.
10, 1984. The district court in Missouri rejected the
Board's analysis,
but it based its holding on the Massachusetts district
court opinion at 576
F. Supp. 1565 (D. Mass. 1984), which was reversed
on appeal in Massachusetts
v. Secretary, supra.
B. The difference between interim and final rates under
a
retrospective reimbursement system is an overpayment.
Many of the overpayments arose out of the operation of
Pennsylvania's
retrospective rate system. Providers are paid for
services rendered at
an "interim" rate based on historical costs adjusted for
inflation and
other relevant factors. The interim rate is an estimate,
which is
subsequently adjusted by the State, based on actual costs, to arrive
at
a "final" rate. If the final rate is higher than the interim rate,
the
State pays the difference to the provider, and claims additional
FFP
from the federal government. If the final rate is lower than
the
interim(6) rate paid, the State tries to collect the difference from
the
provider, either directly or by reducing later payments to the
provider.
The State argued that the language of the reimbursement provision
at
section 1903(a) (1) indicates that the difference between interim
and
final rates is not an overpayment subject to recoupment under
section
1903(d) (2). Section 1903(a) (1) requires federal reimbursement
for a
percentage of all funds "expended . . . as medical assistance under
the
State plan." The State argued that the interim rate was the
amount
actually paid out, or expended, that it was paid to providers
for
medical assistance, and that it was properly paid under the
provisions
of the approved State plan. The State concluded that
although
subsequent adjustments were made, these adjustments were
not
overpayments, because the interim rate had been properly paid and
was
properly reimbursable.
The State failed to recognize that payments which are in excess
of
allowable costs were not properly paid as medical assistance, even
if
the State chose a payment system which allowed such payments to be
made.
Medical assistance is defined as "payment of part or all of the cost"
of
specified services. Section 1905(a) (emphasis added). The Act
requires
that each state have a state plan to determine proper rates
for
reimbursement of provider services. Section 1902(a) (3).
These rates
must be "reasonable and adequate to meet the costs which must
be
incurred by efficiently and economically operated facilities."
Id.
Amounts paid which are in excess of what a state plan establishes as
the
proper reimbursement for services are not within the definition
of
medical assistance.
Under the State's retrospective reimbursement system, the State
is
permitted to advance funds to a provider based on an interim
rate
constructed from past cost reports and to claim advances of FFP based
on
the amount to be advanced. This State advance, however, is subject
to
adjustment to conform to a final payment rate based on reports of
the
actual costs of services. The final rate is the State's
determination
of the proper reimbursement for provider services. In
examining
retrospective rate systems, the Board has found that the final
rate,
based on the State's determination of the actual cost of
services,
determines the allowable amounts of medical assistance paid.
See, e.g.,
New York, Decision No. 311, June 16, 1982, aff'd, Perales v.
Heckler,
supra.
Payments in excess of the amount established by the State plan as
the
amount which the provider is entitled to retain(7) are not
properly
medical assistance, and, therefore, are not eligible for FFP
under
section 1903(a) (1). The Secretary may require repayment of the
federal
share of the excess amount by adjusting current federal payments
under
section 1903(d) (2) of the Act and under authority to disallow
claims
which are outside of the statutory authorization for federal
financial
participation. See, e.g., section 1116(d) of the Act;
45 CFR 201.5 and
201.66. As we stated above; since the State's
claims were not for
allowable medical assistance, section 1903(d) (3) does
not apply.
We reject the State's contention that an interim payment should
be
considered an expenditure for medical assistance eligible for FFP
also
because the State's position would weaken a major check on the
State's
administration of the Medicaid program. If payment of the
interim rate
qualified as a "medical assistance" expenditure, the State would
have
less incentive to establish interim rates with care and to
adjust
payments to providers based on the final rate. We therefore
reject the
State's view and reaffirm our earlier decisions on this issue.
C. The State presented no evidence of inconsistent
Agency
interpretation of these points, and had notice of Agency policy.
The State alleged that the Agency had been inconsistent in its policy,
or
that Agency policy had changed. The State also argued that since
the
State's interpretation of the statute was reasonable, and since
the
Agency had not given the State notice of any consistent
Agency
interpretation, that the State was not bound by later Agency adoption
of
its present policy. The only evidence presented by the State was a
1979
Agency memorandum which stated that the author could find no
Agency
policy to support a disallowance prior to the State's recovery of
funds.
Appeal File 50a-52a. /1/
.(8)
But this memorandum specified that a regulation, 42 CFR 447.296,
applied
to support a disallowance for overpayments to institutional
providers
identified through audit. The memorandum distinguished its
facts -
individual providers who had agreed to make restitution - from the
facts
found in this case. In this case, the disallowance
involved
institutional providers identified through audit.
The regulatory provision at 42 CFR 447.296 gave notice to the State of
the
Agency's interpretation that adjustment of FFP for overpayments to
nursing
homes is not contingent upon collection by the State. This
provision
required that the State "must account for overpayments found
on the quarterly
statement of expenditures no later than the second
quarter following the
quarter in which the overpayment was found."
This regulation was issued originally in 1974 and later recodified at
42
CFR 447.296. It was issued with a set of regulations detailing
required
State audit procedures and practices. It was repealed in 1981
along
with the other audit regulations in that section, and replaced with
a
more general regulation stating that states must provide for
periodic
audits of participating providers. 42 CFR 447.265. The
Agency stated
that the purpose of the repeal was to grant the State
greater
flexibility in fulfilling audit requirements. The Agency did
not
indicate any intention to change its interpretation that it
could
require adjustment for overpayments prior to collection by the
State.
Furthermore, shortly after repealing 42 CFR 447.296 in 1981, the
Agency
issued a section of the State Medicaid Manual which stated, at
2555.2(
B):
Overpayments are not considered payments made in accordance with
a
State Plan and, therefore, no FFP is available for such payments.
The
Federal share must be returned to HCFA in the same quarter in which
the
overpayment is (9) and is neither contingent upon, nor subsequent
to,
the State's recovery of any portion of the overpayment.
This provision clearly states that the Agency may require adjustment
for
overpayments prior to recovery of the amounts by the State, and
could
have left no doubt that this policy had not been changed in repealing
42
CFR 447.296.
As stated above, the Act itself indicates that the difference
between
interim and final rates should be considered an overpayment.
Payments
to providers in excess of the final rate determined under the State
plan
are not allowable medical assistance costs even if made as an
interim
payment. No separate Agency interpretation was necessary to
give the
State notice of this fact.
D. Uncollectible overpayments are not authorized as
"administrative
costs" allowable for federal financial participation.
The State presented no statutory or regulatory authority which
supported
its claim that uncollectible payments should be considered
as
"administrative costs" in which the federal government must
participate.
Under section 1903(a)(3)(7) of the Act, FFP is available at a
50% rate
in "amounts expended . . . as found necessary by the Secretary for
the
proper and efficient administration of the State plan." /2/
We addressed the issue of federal participation in overpayments
to
bankrupt and closed facilities in greater detail in
Massachusetts
Department of Public Welfare, Decision No. 262, February 26,
1982, aff'd
in Massachusetts v. Secretary, supra, and in Pennsylvania
v. Department
of Public Welfare, Decision No. 426, May 24, 1983.
Although we noted
that such overpayments may be uncollectible and may be
considered a loss
by the State, we(10) found many reasons why HCFA acted
reasonably in
refusing to participate in such overpayments. It is the
State's
responsibility to establish and operate a payment system which
minimizes
overpayments and to expeditiously recover overpayments which have
been
made. The Agency has no direct role in either of these
functions.
Massachusetts v. Secretary, supra, p. 96. While there may be
some
instances in which a state can not have avoided making the
overpayment
or failing to collect it prior to the provider declaring
bankruptcy or
taking some other action which rendered the payment
uncollectible,
deciding the issue of whether a state was not at fault would
require a
highly judgmental, case-by-case analysis. (See in this regard
the
Board's discussion at pages 15-16 in Arkansas, Decision No.
717,
supra.) We also note that these uncollectible overpayments are
no
different, in essence, from bad debts, for which the State
was
unquestionably precluded from claiming FFP under the cost
principles
established by OMB Circular A-87, Attachment B, Section D(1),
made
applicable to HHS grants to states by 45 CFR 74.171(a).
III. Alleged Overpayments for Which an Administrative Appeal Is Pending
The State identified 16 facilities which are contesting
alleged
overpayments through administrative appeals (involving
approximately
$1.3 million in FFP). The State argued, generally, that
the State did
not have to return the federal share of these overpayments
until the
appeals were resolved. This argument was based upon contentions
that the
State audit reports alleging the provider overpayments were not
final
findings of overpayments; that the Agency had not clearly adopted
any
policy requiring repayment of FFP for alleged provider
overpayments
prior to the resolution of provider appeals; and that,
even if the
Agency had such a policy, it represented a change in policy
adopted
without following required procedures.
In submitting a list of overpayments subject to pending provider
appeals,
the State excluded overpayments to hospitals for services other
than "long
stay" nursing services. State's Letter of February 24, 1986.
We,
therefore, restrict discussion below to only those overpayments
identified in
the State's submission. We note that since the State's
arguments are
based on a regulatory provision applying only to nursing
home services, 42
CFR 447.296 (deleted in 1981), the State's arguments
are inapplicable to
overpayments for inpatient hospital services.(11)
The major issue with respect to alleged overpayments under appeal is
one
of timing: When has a state made an overpayment determination that
the
federal government may use as a basis for disallowing the federal
share
of the overpayment and requiring a state to adjust its
claims
accordingly?
Neither party disputed that the Agency may issue a disallowance based
upon
an independent audit of State or provider accounts, regardless of
any State
determination or appeal process. In this case, however, the
Agency
relied on State audit findings, which the State alleged were not
a sufficient
basis to support a disallowance since provider appeals are
pending. No
independent federal review was conducted. See Agency
letter of February
25, 1986.
A. Agency reliance on state audit findings
This Board has considered the use of state audit reports in several
prior
decisions. See, e.g., Ohio Department of Public Welfare, Decision
No.
637, April 2, 1985. The Board held that the Agency may reasonably
rely
on state audits when a state conducts those audits under
established
standards as a part of its provider reimbursement system,
and when the
following criteria have been met:
- The Agency provides sufficient detail as to the audits from
which
the disallowed amounts are derived.
- The State is provided an opportunity to show that
- adjustments have been made to the audit findings;
- the audits are not reliable for some reason;
- the State has already recovered the amount identified in the
audit
as an overpayment and has already adjusted the federal share;
and
- the State never claimed FFP in the overpayment in the first place.
The State's argument here that the audit findings are unreliable
because
the providers have appealed was raised and addressed in
California
Department of Health Services -- Accounts Receivable, Decision No.
334,
June 30, 1982.(12)
Here, however, the State also based its arguments on the Agency's
own
policy and procedural fairness; in our view, these arguments
presented
a new factor to be considered in determining whether the
Agency's
reliance on the audits prior to resolution of the appeals
was
reasonable.
In California Accounts Receivable, the Board rejected
California's
argument that the mere fact that providers of inpatient
hospital
services had appealed State audit findings meant the State
determination
was not reliable. The Board declined to adopt a rule
which would always
required the Agency to make an independent analysis of the
facts and law
underlying the State's determination in order to support a
disallowance
taken prior to the end of the State's two-level appeal
process. The
Board noted that there were countervailing
considerations: a state is
put into a difficult position in defending a
federal disallowance at the
same time it is litigating with the
provider; on the other hand, the
states have control over the provider
appeal process, and federal
recovery of unallowable costs should not have to
wait indefinitely for
the end of state administrative proceedings.
Under the particular
circumstances of the California case, the Board rejected
the State's
assertion that its audit findings were not sufficiently
valid. A major
factor was that the State itself would act to recover
the overpayments
at the end of the first level of appeal (completed for the
audit
findings at issue).
This case is distinguishable from California Accounts Receivable and
from
other cases where we have upheld disallowances of overpayments
irrespective
of provider appeals. Here, Pennsylvania did not use its
State audit findings
as a basis for collection from the providers at
issue prior to the end of the
appeal process. The State submitted a
section of the Pennsylvania Code
which allows nursing homes to retain
amounts in dispute pending an
appeal. 55 Pa. Code 1181.101(f) (2). The
State promulgated a broader
provision in 1983 permitting collection from
all providers within six months
after an overpayment determination. 55
Pa Code 1101.84(b) (4);
Respondent's Appeal File, Tab C. However, the
State asserted that,
under a subsequent legal interpretation of its
regulations, nursing homes
still had a right to retain disputed funds.
When the Board asked the State to
support this assertion, the State
submitted evidence that its current policy
is that it will not seek (13)
collection where a nursing home specifically
invokes its right to retain
funds pending appeal. /3/
In addition, this case is distinguishable because the overpayments
were
for nursing home services, not impatient hospital services as
in
California Accounts Receivable. There, the Agency had admitted that
it
had a policy, between 1977 and 1981, allowing the State six months
after
a provider appeal process had been exhausted before accounting
for
nursing home overpayments, but had explained that this policy did
not
apply to hospitals because of differences in the reimbursement
system.
As we explain below, the fact that the overpayments here were to
nursing
homes is critical because of the history of the Agency's
policy
regarding such overpayments.
B. Agency policy regarding accounting for overpayments to nursing homes
In 1974, the Agency promulgated a regulation concerning nursing
home
overpayments, which was later recodified at 42 CFR 447.296.
That
provision required that states "account for overpayments found in
audits
on the quarterly statement of expenditures no later than the
second
quarter following the quarter in which the overpayment was found."
In
Action Transmittal 77-85 (AT-77-85), the Agency clarified
the
regulation, stating that "(the)' quarter in which found' means
the
quarter during which the administrative hearing procedures of the
State
have been exhausted and a determination of overpayment has
been
sustained." The Agency did not contest that, under this rule, the
State
would not be(14) required to repay alleged overpayments
under
administrative appeal until the appeal had been concluded, stating
only
that this rule was never intended to apply if the Agency disallowed
the
amount on the basis of an independent audit or if the State had
failed
to diligently pursue the appeal.
Under 42 CFR 447.296, as interpreted by AT-77-85, the State had
less
incentive to require immediate repayment of disputed amounts because
the
State itself did not have to repay the federal share until the
appeal
was resolved. If the State had to repay the federal share prior
to
resolution of the appeal, then the State would have a strong
incentive
to change its relationship with providers to require
immediate
repayment. Otherwise, the State would be doubly penalized --
forced to
repay the federal share of alleged overpayments while providers
retained
the disputed funds.
The Agency argued that the deletion of 42 CFR 447.296 in September
1981
implicitly repealed AT-77-85 and revoked any exception to a
statutory
policy requiring immediate repayment of overpayments.
We find that the deletion of 42 CFR 447.296 gave no notice of any
change
in policy. The regulation was deleted along with other
audit
regulations in a measure to conform the regulations to the
Omnibus
Budget Reconciliation Act of 1981. In deleting the provision,
the
Agency did not indicate any reason for the deletion which would
call
into question the continuation of the policy in AT-77-85. In fact,
the
notice of the deletion stated that the reason was to give states
greater
flexibility, not to impose new requirements. 46 Fed. Reg.
47066, 47967
(Sept. 30, 1981).
The repeal of 42 CFR 447.296 left no guidance, either statutory
or
regulatory, regarding the time states must adjust claims for FFP.
In
December 1981, shortly after the deletion of 42 CFR 447.296, the
Agency
issued a new section of the State Medicaid Manual which stated that
an
overpayment "must be returned in the same quarter in which
the
overpayment is identified. . . ." State Medicaid Manual Section
2555.2.
This section did not address the key issue of when an overpayment
is
reliably "identified." Therefore, this issuance cannot be said to
have
established any clear Agency policy or guidance on the effect
of
provider appeals.
The Agency apparently recognized the difficulty for a state to
readjust
its relationship to the providers without notice. In a
Financial
Management Review Guide, issued 1982 as an internal reference
guide, the
Agency stated that "(the) regulations (42 CFR 447.296), and the
AT
interpretation, are still applicable to overpayments made to
LTC(15)
(long-term care) facilities during periods when they were in
effect,
July 1, 1976, through September 29, 1981." State's Appeal File, p.
16a.
Yet, the Agency did not explain, in this case, why it did not
treat
overpayments made before September 29, 1981 under the policy of 42
CFR
447.296 and AT-77-85. The Guide also asserted prospectively
that,
absent 42 CFR 447.296, the Agency may adjust immediately
for
overpayments it determines have been made. State's Appeal File,
pp.
11a-31a, and 16a. This issuance, however, did not discuss
specifically
when the Agency may rely on appealed state audit findings as the
basis
for a disallowance. Furthermore, the Financial Management Review
Guide
was an internal Agency publication.
On April 5, 1983, the Agency proposed a new regulation which would
address
the use of audit findings as a basis for adjustment of claims
for FFP. 48
Fed. Reg. 14664. Although the proposed rule would have
introduced a
requirement that adjustment be made within certain time
periods even if the
audit findings were "tentative" (two years if a
tentative finding was
appealed), no final regulation has been issued.
Additionally, the preamble to
the proposed regulation did not indicate
any shift in existing Agency policy
on provider appeals since 42 CFR
447.296 was in force.
We agree with the Agency that it has a certain amount of discretion
in
deciding the timing of when it will require a state to adjust
the
federal share of alleged overpayments. Once the Agency has
exercised
its discretion to permit states to wait until the appeal process
has
been completed, however, the Agency cannot simply adopt a
different
interpretation without adequate notice, particularly where the
original
interpretation had an effect on the State's relationship with
its
providers. /4/
(16)
We do not reach the question of whether the Agency must use notice
and
comment rulemaking to establish its policy regarding appealed
audit
findings, or may use a less formal procedure. Here, subsequent to
the
issuance at AT-77-85, the Agency has not issued any policy statement
on
this issue.
We conclude that the Agency cannot reasonably rely on the appealed
State
audit findings alone. The Agency gave insufficient notice to the
State
that appealed audit findings should be used to adjust claims for FFP
and
Agency use of appealed State audits to require adjustment
was
inconsistent with the Agency's only articulated policy statements on
the
subject under which the State permitted providers to retain
disputed
funds.
This conclusion is limited to Agency treatment of appealed State
audit
findings under the particular circumstances here. We do not
suggest any
limitation on the authority of the Agency to independently review
State
claims for FFP and require adjustments under section 1903(d) (2) of
the
Act.
Our decision is also qualified in another respect. The Agency
asserted
that, even under AT-77-85, it could impose a disallowance if the
State
had been remiss in processing the appeals in a timely fashion.
The
State agreed that the Agency could disallow overpayments under appeal
if
the appeal has taken an unreasonable amount of time.
Telephone
Conference, February 25, 1986. We therefore remand the
disallowances
for alleged overpayments under administrative appeal,
identified in the
State's letter of February 24, 1986, for Agency
consideration of whether
the appeal process has taken an unreasonable amount
of time. We agree
with the State that this cannot be a purely mechanical
review. The
Agency may not simply reassert the position taken by the
auditors,
finding that any overpayment where the appeal has taken over one
year
should be disallowed (the "one-year rule" challenged by the State).
The
Agency must provide an opportunity for the State to explain any
delays
involved in these appeals.
IV. Medicaid Fraud Control Unit Referrals
In a prehearing conference, the State argued that a memorandum by
the
Chief of the State Fraud Branch of the Office of Inspector General
of
the Department of Health and Human Services, dated March 6,
1984,
indicated that unrecovered overpayments identified by Medicaid
Fraud
Control Units (MFCUs) should not be subject to Agency(17)
disallowance.
Appeal File at 53a. The State withdrew its prior argument
based on that
memorandum. See note 3. HCFA indicated a
willingness to reconsider any
MFCU-referred overpayments on a remand.
Although we indicated to the State on several occasions that it
should
identify any overpayments related to this argument, the State did
not
produce even this minimal information. We initially
requested
identification of MFCU referrals at a telephone conference call
on
February 19, 1986, when the State initially raised these
arguments.
When the State failed to submit responsive information, we
specifically
repeated our request in a letter on February 28, requiring
submission
prior to the oral conference scheduled for March 18, 1986.
No
responsive information was submitted, but at the conference we granted
a
further extension of time until April 8 for the State to identify
MFCU
referrals. On April 8, the State submitted a letter listing
referrals
to the MFCU, but stating that it could not provide information
on
referrals from the MFCU for several weeks. The Board has not
received
any further information.
In light of the lengthy period of time which the State was given
to
identify MFCU referrals, and its failure to provide even
minimal
information to support its claim, we decline to order HCFA to
examine
this issue on remand. If the State raises an argument, it has a
duty at
the very least to be able to identify in a timely manner payments
to
which that argument relates. Accordingly, we find that there were
no
MFCU referrals involved.
Conclusion For the reasons stated above, we uphold the
Agency's
disallowances, with the exception of two parts which we remand
for
further Agency review, as follows. By agreement of the parties,
we
remand approximately $10.15 million of the disallowances related
to
overpayments the State has identified as settled, collected, or
reversed
on appeal (see page 4). We also remand approximately $1.3
million of
the disallowances related to overpayments to long term care
facilities
under provider administrative appeal for Agency(18) consideration
of
whether the appeals have taken an unreasonable amount of time (see
page
16).
Norval D. (John) Settle
Donald F. Garrett
Judith A. Ballard
Presiding Board Member /1/ The State originally offered an
additional
memorandum, written by
the Chief of the Office of Inspector
General State Fraud Branch, as support
for this proposition. Appeal File
53a. The State later withdrew this
memorandum from consideration on
this issue, stating that it believed the
memorandum applied only to
Medicaid Fraud Control Unit cases, which are
discussed below. Since the
State nonetheless referred to this
memorandum during oral arguments, we
note that, when the Board considered the
memorandum in Minnesota
Department of Human Services, Decision No. 653, June
7, 1985, pp. 13-15,
we found no evidence that the memorandum reflected HCFA
policy. Our
decision in Minnesota was based in part on the affidavit
from the author
of the memorandum, which is also part of the record in this
case, at
Exhibit B. The State had an opportunity to refute this
affidavit but
voluntarily withdrew both its argument and its request to
cross-examine
the author. //
We note that the Consolidated Omnibus Budget
Reconciliation Act of 1985
(COBRA) Pub. L. 99-272, contains a provision
which would allow states to
retain FFP for overpayments to bankrupt
providers or which are "otherwise
uncollectible." This provision is
effective only for overpayments identified
for quarters after October 1,
1985, however. COBRA, section 9512.
Although given an opportunity, the
State chose not to comment on this
provision. In our view, if Congress
intended the provision to merely
clarify past intent, it would have
given the provision retrospective
effect. /3/ The
State
submitted a memorandum dated April 21, 1986, from an Assistant
Counsel
to the Assistant Comptroller for Auditing regarding county
home
settlements. This memorandum states that "the determination for
the
Office of Hearings and Appeals . . . (is) the event that
triggers
collection, absent a stay by the courts." State's letter of June
4,
1986, Att. Although this memorandum is not a formal and
comprehensive
statement of State policy, we will accept the memorandum as
evidence
that repayment by nursing homes is not required under State law when
the
provider requests a hearing by the Office of Hearings and Appeals
and
declines to repay voluntarily pending the results of that hearing.
The
Agency submitted no contradictory evidence, and the State is in
a
position where it has to avoid jeopardizing any potential
litigation
with providers.
/4/ While the State attempted to change its
relation with providers in
November 1983, by promulgating a regulation
requiring all providers to repay
disputed amounts pending appeals, the
State alleged that this was attempted
as a result of internal State
concerns, since no official Agency policy had
been formally communicated
to the State. 55 Pa. Code 1181.84(b)
(4). As mentioned above, the
State continued applying an older
regulation, allowing nursing home
providers to retain disputed amounts
pending appeal, which had not been
repealed. 55 Pa. Code
1181.101(f); Appellant's Letter of February 24,
1986.