GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Massachusetts Department of Public Welfare
Docket No. 86-164
Decision No. 853
DATE: March 30, 1987
DECISION
The Massachusetts Department of Public Welfare (State) appealed
a
determination by the Health Care Financing Administration
(HCFA/Agency)
disallowing federal financial participation in the amount of
$7,752,367
claimed by the State under title XIX of the Social Security Act
for
services provided in five State-owned intermediate care facilities
for
the mentally retarded (ICFs/MR) during the period July 1, 1982
through
June 30, 1983. The State's claim was based on per diem rate
increases
approved by the State's Rate Setting Commission (RSC) for each of
the
facilities. The Agency disallowed the costs on the ground that the
rate
increases were not authorized by the State's title XIX plan.
As
discussed below, we find that there was no authority in the State
plan
for the rate increases, and we therefore uphold the disallowance.
Statutory, Regulatory and State Plan Provisions Regarding
Payment
Rates
Section 1902(a)(13)(A) of the Social Security Act states that a state
plan
for medical assistance must provide--
for payment of . . . intermediate care
facility services provided
under the
plan through the use of rates (determined in
accordance
with methods and standards
developed by the State) . . . which
the
State finds, and makes assurances satisfactory to
the
Secretary, are reasonable and
adequate to meet the costs which
must be
incurred by efficiently and economically
operated
facilities in order to provide
care and services in conformity
with
applicable State and Federal Laws, regulations, and
quality
and safety standards. . . .
1/
Implementing regulations at 42 CFR 447.252(a)(2) (1981) further provide:
The payment rates used by the Medicaid
agency must be determined
in accordance
with methods and standards developed by the agency.
In addition, 42 CFR 447.253(b) (1981) provides:
The [State] plan must specify the
methods and standards used by
the agency
to set payment rates.
The State's title XIX plan provided in pertinent part:
The State agency will pay the reasonable
cost of inpatient
hospital services in
accordance with the principles adopted
by
the Massachusetts Rate Setting
Commission . . . , and as approved
by
the Secretary. . . . 2/
Both the State plan and RSC regulations provided for use of a
prospective
rate-setting methodology to compute ICF/MR per diem rates.
Under this
methodology, actual costs reported by the facility for a base
year, defined
in this case as two years prior to the year for which the
rate is being set,
are adjusted for inflation and divided by total base
year patient days to
reach a per diem rate. This rate is multiplied by
the number of patient
days in the rate year to determine the amount
reimbursable under title
XIX.
The State plan further provided:
Base year cost increases beyond the rate
of inflation . . . may
be allowed
only on the grounds described in Section 10
below,
headed Administrative
Adjustments.
Section 10 (of Attachment 4.19-A) provided:
A hospital may apply at any time for an
administrative
adjustment. The
following incidents or circumstances may
give
rise to adjustments to the
prospective rate or to the allowed
base
cost.
The section contains ten separate bases for an adjustment. The
State
did not rely on any of these ten bases in this appeal. Instead,
it
relied on section 4 of Attachment 4.19-A of the State plan,
captioned
"Allowed Inpatient Days," which is quoted later in this
decision. The
RSC regulations also provided for "administrative
adjustment of [a] . .
. rate or charge" on various grounds including the
following:
(h) A health care facility has incurred
or expects to incur a
substantial change
in services during the base, intermediate
or
rate years, and which expenditure or
service change is exempted
from the
Determination of Need requirements. . . .
(i) A hospital not subject to the
licensing provisions of M.G.L.
c. 111,
s. 51, which did not utilize a significant number of
beds
during the base, intermediate, or
rate year due to a substantial
program
change affecting Patient days, and for which it would
be
inequitable to utilize base year
patient days in establishing
rates and
charges.
(114.1 CMR 5.09(1)(h) and 5.09(1)(i))
Factual Background
On May 5, 1983, the RSC approved administrative rate adjustments for
the
five facilities in question for State fiscal year 1983. (State's
appeal
file, Ex. 17). The adjustments were requested under the
provisions of
114.1 CMR 5.09(1)(i), quoted above. The only explanation
given was that
"[t]he decrease in patient days from those used to determine
the current
rate necessitates this request." (State's appeal file, Ex.
1) The
decrease in patient days referred to in the request resulted
from
deinstitu- tionalization," the movement of patients for whom it
was
appropriate out of ICFs/MR into community placements, required
by
consent decrees to which the State was a party. The adjusted rates
were
computed using intermediate year (fiscal 1982) patient days rather
than
base year (fiscal 1981) patient days in the denominator. The
State
later claimed that the adjustment could also be justified under
114.1
CMR 5.09(1)(h). 3/ The Agency disallowed the costs claimed on the
basis
of the rate increases on the ground that neither provision cited by
the
State to justify the rate increases was contained in the approved
State
plan. In addition, the disallowance stated that 114.1 CMR
5.09(1)(h)
required a substantial increase in expenditures in order to
justify a
rate increase, and noted that the State had not provided evidence
of any
cost increase.
State's Arguments
The State argued first that the RSC regulations at 114.1 CMR
5.09(1)(h)
and 5.09(1)(i) were "subsumed" in the State plan. (State's brief,
p. 15)
The State reasoned that since the State plan, in conformity with
section
1902(a)(13)(A) of the Act, provided that the State "will pay
the
reasonable cost of inpatient hospital services," any RSC
regulations
which accomplished this goal were thereby part of the plan.
The State
asserted that the adjustments granted under the RSC regulations
noted
above in fact accomplished this goal, contending that unadjusted
rates
would have left the five facilities underfunded by $4.9 million
FFP.
The Agency subsequently conceded that the unadjusted rates would
have
resulted in costs exceeding reimbursement, although by less than
$4.9
million. 4/
The State also noted that it had conceded in an earlier appeal to
this
Board that a similar rate increase granted by the RSC for a prior
fiscal
year was not authorized by 114.1 CMR 5.09(1)(i)
because
deinstitutionalization was not the kind of "substantial program
change"
contemplated by that provision. The State argued in the instant
case,
however, that this provision was adopted expressly for the purpose
of
alleviating the "financial impact" of deinstitutionalization.
(State's
brief, p. 12)
The State also argued that the rate adjustment was authorized by section
4
of Attachment 4.19-A of the State plan. The stated purpose of
that
provision was to adjust the inpatient days reported by hospitals
"for
excessive empty beds . . . to produce Allowed Inpatient Days."
Allowed
inpatient days are used as the denominator in the rate
calculation.
Section 4 provided that for hospitals which are subject to
State
licensure requirements, allowed inpatient days equals the greater
of
actual bed days or a percentage of available bed days, defined as
the
number of licensed beds times the number of days in the year.
(This
calculation was to be performed separately for maternity,
pediatric,
medical-surgical, and long-term care beds; a different formula
applied
to newborn beds.) For hospitals operated by the State, however,
section
4 provided that allowed inpatient days in all cases equals actual
bed
days. 5/ The State asserted that the rate adjustment, which
substituted
intermediate year patient days for base year patient days,
was
authorized by this provision since "intermediate year patient days
came
closest to reflecting actual bed days." (State's brief, p. 17)
Discussion
The State's contention that the adjustment provisions in the
RSC
regulations are subsumed in the State plan is without merit.
As
indicated previously, the State plan itself (at section 10 of
Attachment
4.19-A) contains specific adjustment provisions. These provisions
are
similar in format and level of detail to the adjustment provisions
in
the RSC regulations. Thus, the latter provisions are not simply
a
detailed implementation of the State plan adjustment
provisions.
Moreover, some of the State plan adjustment provisions are
essentially
the same as adjustment provisions in the RSC regulations.
The RSC
adjustment provisions in question here are not paralleled in the
State
plan. We therefore conclude that the RSC adjustment provisions
were not
intended as part of the State plan. This conclusion is based
on a
comparison of the State plan and RSC regulations; however, we note
in
addition that the State presented no extrinsic evidence that the
RSC
regulations were intended to implement the State plan rather than
to
establish independent adjustment authority. 6/
In any event, we are not persuaded that a rate increase based on the
RSC
regulations was necessary to carry out the goal of the State plan to
pay
the reasonable cost of ICF/MR services. The rates in question here
were
determined based on a prospective rate-setting methodology. This
sets a
rate in advance at a level designed to give the provider an incentive
to
keep costs down. As we noted in a prior decision, "[t]he
underlying
intent of such a methodology--to encourage providers to better
control
costs--is defeated if adjustments to reflect actual costs are
available
in any case where the prospective rate does not reimburse the
provider
for all costs incurred. . . ." Massachusetts Department of
Public
Welfare, Decision No. 730, March 20, 1987, p. 5. 7/ Thus, the fact
the
State incurred actual costs for its facilities in excess of
what
reimbursement would have been under the unadjusted rates does
not
necessarily mean that the State would not be reimbursed for
the
reasonable costs of efficiently and economically operated
facilities;
reasonable costs in this case may well be those covered by
the
unadjusted prospective rates. Since the consent decrees which
mandated
deinstitutionalization and allegedly led to the situation here had
been
in effect for several years, the State cannot reasonably argue that
it
could not have taken action to control costs after the rates were set.
Thus, we conclude that the State plan did not implicitly include the
RSC
adjustment provisions in question. In light of this conclusion, we
need
not reach the question whether the rate increases were authorized
under
the terms of the RSC adjustment provisions themselves.
The State's contention that section 4 of the State plan authorized
the
rate increases is similarly without merit. As discussed below,
the
State's interpretation of section 4 is inconsistent with both
its
language and apparent purpose. Moreover, as we noted in Decision
No.
730, we find it appropriate to interpret the State plan narrowly
in
considering rates for State-owned facilities; these per diem
rates
affect only the amount of FFP to which the State is entitled and not
the
cost to the State for running the facilities. Also, a
broad
interpretation of the State plan would defeat the intent of
the
prospective rate-setting system.
The State argued that it could substitute intermediate year patient
days
for base year patient days for purposes of the rate calculation based
on
the statement in section 4 that, for hospitals not subject to
State
licensure requirements, allowable patient days equals actual bed
days.
However, section 4 does not appear to permit a change in the
rate
calculation simply because the number of actual bed days may change
from
one year to another. Instead, the statement relied on by the
State
implies that for such hospitals actual bed days is a constant,
rather
than a figure subject to adjustment. In context, we read actual
bed
days to mean actual bed days during the base year since there is
no
dispute that this is what the rate calculation generally calls
for.
This view is supported by the fact that the RSC regulations define
the
denominator, "allowed inpatient days," as "[a]ctual inpatient
days
during the base year." (114.1 CMR 5.03(23)) 8/
Furthermore, the rate increases in question here are inconsistent with
the
apparent purpose of section 4 to set a lower rate for a facility
with
excessive empty beds. A rate decrease results from applying this
provision in
the case of licensed hospitals since it calls for the use
of the greater of
actual bed days or a percentage of available bed days
in the denominator of
the fraction used to calculate the rate. Where
there are "excessive
empty beds," this acts to increase the denominator,
which in turn decreases
the rate. The language on which the State
relied merely indicates that
State-owned facilities not subject to
hospital licensure requirements cannot
make this adjustment and
therefore may use actual beds. We see no
justification for reading into
this exception authorization for a wholly
different type of adjustment
which would have the effect of rewarding a
facility for having excessive
empty beds.
Conclusion
For the foregoing reasons, we find that the rate increases on which
the
State's claim was based were not authorized by the State
plan.
Accordingly, we uphold the disallowance in the amount of
$7,752,367.
________________________________ Charles
E.
Stratton
________________________________ Norval
D.
(John) Settle
________________________________ Judith
A.
Ballard Presiding Board Member
1. This provision applies here since under 42 CFR
447.251
intermediate care facilities include ICFs/MR.
2. Although for federal purposes an ICF/MR is not a
hospital, the
State plan provisions on rate-setting define "hospitals" to
include
ICFs/MR.
3. In responding to the Agency's report on its review
of this
matter, on which the disallowance was based, the State cited
an
additional basis for the rate increase; a third adjustment provision
in
the RSC regulations (114.1 CMR 5.09(1)(B)) and an identical provision
in
the State plan. However, on appeal to the Board, the State did not
rely
on these provisions.
4. The parties compared total costs for all five
facilities to total
reimbursement using the unadjusted rates. Since a
separate rate
adjustment was granted for each facility, we think it would
have been
more relevant to compare the figures for each facility
separately. In
the absence of a facility-by-facility comparison, we
assume for purposes
of this decision that the costs of each facility would
have exceeded
reimbursement for that facility based on an unadjusted
rate.
5. Section 4 of the State plan reads as follows:
Actual inpatient days reported by hospitals are adjusted, if
necessary,
for excessive empty beds by service to produce Allowed Inpatient
Days.
A provider's total reported inpatient days are subdivided and
adjusted
as follows:
a. Allowed maternity days are either actual maternity bed days or
65
percent of total available maternity bed days, whichever is greater.
b. Allowed pediatric days for teaching hospitals are either
actual
pediatric bed days or 80 percent of total available pediatric bed
days,
whichever is greater. For all other hospitals, allowed pediatric
days
are actual days or 75 percent of total available pediatric bed
days,
whichever is greater.
c. Allowed medical-surgical days for teaching hospitals are
either
actual medical-surgical bed days or 85 percent of total
available
medical-surgical bed days, whichever is greater. For all
other
hospitals, allowed medical-surgical days are actual bed days or
80
percent of total available medical-surgical bed days, whichever
is
greater.
d. Allowed long-term-care bed days are either actual long-term-
care
bed days or 95 percent of total available long-term-care bed
days,
whichever is greater.
e. Adjusted well newborn days are actual well newborn days
multiplied
by one-third.
Available bed days are calculated by multiplying the number of
licensed
beds times the number of days in the year. In the case of
hospitals
that are not subject to the hospital licensure requirements of
the
Commonwealth, including hospitals operated under the authority of
the
Commonwealth of Massachusetts' Department of Public Health or
Department
of Mental Health, the calculation of available bed days is not
possible.
Thus, for hospitals not subject to these licensure requirements,
allowed
bed days are in all cases equal to actual bed days.
6. Apparently, rates set by the RSC are used for
purposes other than
Medicaid reimbursement. That the State may be
authorized to set higher
rates under RSC regulations does not automatically
mean that it can use
those rates when claiming Medicaid funding.
7. The point that a state's failure to recover its
actual costs
under a prospective reimbursement system does not alone justify
changing
the plan was also made by the court in State of Arkansas v.
United
States, No. 150-85C (Ct. C1., filed February 20, 1986). The
court,
affirming a Board decision, held that the State could not properly
be
reimbursed for actual costs in excess of prospective rates incurred
with
respect to state-owned ICFs/MR. The court noted that "the states
were
on notice that a prospective reimbursement system might not be
as
accurate as a retrospective one." The court further found that
allowing
states to change their plans on their own "would seriously undermine
the
desired Federal supervisory role regarding FFP," concluding
that
"Plaintiff drafted the Plan in question and now must live with
it.
(Id., p. 16)
8. We do not read the State's argument as
distinguishing between bed
days and patient days, and indeed it appears that
the State plan uses
the two terms interchangeably. The relevant
distinction is between
available and actual bed/patient