DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Utah Department of Health
Docket No. 85-47
Audit Control No. 08-40152
Decision No. 893
DATE: August 31, 1987
DECISION
The Utah Department of Health appealed a determination by the Health
Care
Financing Administration (HCFA) disal- lowing $3,270,109 in federal
Medicaid
funding claimed under Title XIX of the Social Security Act.
The claims were
for services provided by the Utah State Training School,
a State-owned
intermediate care facility for the mentally retarded
(ICF/MR), during the
period July 1, 1979 to June 30, 1983. HCFA
determined that, in
calculating the Medicaid rates for the services, the
State had failed to
exclude the costs of educational activities, as
required by HCFA regulations
at 42 CFR 441.13 and the Medicaid state
plan.
On appeal, the State argued that HCFA's definition of
educational
activities conflicted with the Medicaid statute, and that the
definition
was being applied to Utah in an arbitrary manner. The State
also
asserted the defense of equitable estoppel, alleging that it
had
received advice from a federal employee which caused it to
restructure
State funding for services in the ICF/MR and to adopt a
definition of
"education" which it thought would permit funding of those
services by
Medicaid. Finally, the State argued that the disallowance should
be
reduced to eliminate costs associated with services to adults,
costs
associated with "developmentalists" providing services to
deaf/blind
residents of the ICF/MR, and administrative costs associated with
each
of these categories of cost. In response to this last argument,
HCFA
reduced the disallowance by $211,432 ($131,522 for
the
"developmentalists" and $79,910 for associated admin- istrative
costs).
As explained below, based on a prior decision, we reverse the
disallowance
for costs of services provided to adults, and associated
administrative costs
(to be determined on remand in accordance with this
decision), as
inconsistent with applicable HCFA policy. We uphold the
disallowance of
costs of services provided to children as an educa-
tional program, which we
find were educational activities under 42 CFR
441.13.
Our decision is based on the parties' written submissions,
including
depositions which the parties agreed the Board should use in lieu
of
oral testimony to the extent necessary to resolve factual issues, and
on
the transcript of an informal conference held on March 6, 1986.
Subse-
quent to that conference, this case was stayed for over a year at
the
request of the parties pending a decision in a court case involving
a
related issue. The U.S. Court of Appeals for the First Circuit issued
a
decision in that case on March 31, 1987 in Commonwealth of
Massachusetts
v. Secretary of Health and Human Services, Nos. 86-1109,
86-1118 (1st
Cir. March 31, 1987), and denied a motion for rehearing on June
2, 1987.
The parties then requested the Board to proceed to decision in
this
case. The Board granted that request and permitted the parties
an
oppor- tunity to comment on the effect on this case of the First
Circuit
decision in Massachusetts, which held basically that an overly
expansive
definition of "educational activities" had been used there.
Below, we first provide general background information on the
Medicaid
program, ICF/MR services, and the regulatory prohibition
on
reimbursement for the costs of "educational activities" in ICFs/MR.
We
then discuss prior Board decisions on this issue and the
Massachusetts
decision. We next set out the facts of this case concerning
services
provided at the Utah State Training School. In light of those
facts, we
discuss the legal issues raised by the State. We explain why
we affirm
HCFA's position that Congress did not intend Medicaid to fund the
costs
of special education services provided to children residing in
ICFs/MR.
We also explain why we reject HCFA's position here concerning
the
allowability of the services provided to adults. Finally, we
discuss
why we reject the State's arguments that the disallowance should
be
reversed either because the State relied on HHS actions to its
detriment
or because HCFA is treating Utah in a manner inconsistent with how
HCFA
is treating other states.
I. Background
In this section, we provide background information on the
Medicaid
program, the educational activities prohibition, and special
education
programs, defining the key terms necessary to understand the
issues
involved in this appeal.
A. Relevant statutory and regulatory provisions
Title XIX of the Social Security Act (Act) establishes a grant
program
(Medicaid) under which each state with an approved state plan
receives
federal financial participa- tion (FFP) in expenditures for
"medical
assistance" to needy individuals. Under the Medicaid program,
covered
"medical assistance" may include payment for "intermediate care
facility
services" for persons who, because of their physical or
mental
condition, require institutional care and services above the level
of
room and board. Section 1905(a)(15). The term "intermediate
care
facility services" also may include "services in a public
institution
(or distinct part thereof) for the mentally retarded or persons
with
related conditions" if certain requirements are met. Section
1905(d).
Medicaid funding is available only if the institution's primary
purpose
is "to provide health or rehabilitative services for mentally
retarded
individuals," the institution meets standards prescribed by
the
Secretary of Health and Human Services, and the individual for
whom
Medicaid payments are made is "receiving active treatment."
Sections
1905(d)(1) and (2). In addition, any state claiming Medicaid
funds for
ICF/MR services must have agreed generally to maintain
non-federal
expenditures for services to ICF/MR patients. Section
1905(d)(3).
The provision covering ICF/MR services (enacted in 1971) is an
exception
to the general Medicaid rule that services in public institutions
(other
than medical institutions) are not to be reimbursed. See
section
1905(a) of the Act; 42 CFR 435.1008 (1978). The legislative
history
indicates that the purpose for including ICF services in
public
institutions for the mentally retarded was to improve "medical care
and
treatment of the needy mentally retarded rather than to
simply
substitute Federal dollars for State dollars." H.R. REP. No.
231, 92d
Cong., 1st Sess. 111, 112 (Ways and Means Report on H.R.1).
Pursuant to authority delegated under the Act, the Secretary
promulgated
regulations to implement the ICF/MR program under Medicaid.
Section
1102 of the Act; section 1905(d) of the Act. Specifically,
these
regulations defined "active treatment" and set standards for ICFs/MR.
y
1/
The ICF/MR standards require, among other things, that professional
and
special programs and services be provided to each resident based
upon
the individual's need for such services. 42 CFR Part 442, Subpart
G
(1979); 42 CFR 442.454. Besides services such as dental services,
food
and nutritional services, and physical and occupational therapy,
the
facility must provide to all residents "training and
habilitation
services" which are included in the individual's plan of care
and have
been formulated on the basis of an individual evaluation of
the
resident. 42 CFR 442.457; 42 CFR 442.465; 42 CFR 442.486; and 42
CFR
442.463.
The Medicaid regulations provide at 42 CFR 440.2 that FFP is
available
under the state plan for ICF/MR services "except as specifically
limited
in Part 441." Section 441.13(b) provides:
Prohibitions on FFP: Institutionalized Individuals
* * *
(b) Payments to institutions for the mentally
retarded or persons
with related conditions . . .
may not include reimbursement for
vocational training and
educational activities.
The regulations do not define "educational activities." As discussed
next,
however, two Agency interpretative documents provided further
guidance on the
effect of the funding prohibition.
B. Relevant Agency guidance on prohibition
On September 30, 1974, the Agency issued a program regulation
guide
(MSA-PRG-33) which discussed the prohibition against Medicaid funding
of
educational activities found in the earlier version of the
ICF/MR
regulations. y 2/ This guide explained why these costs are not
fundable
under Medicaid: "These are not medical care costs (services)
as defined
under title XIX and are assumed to be financed by other Federal
agencies
or to be a traditional service of the State for all
appropriate
population groups." MSA-PRG-33, September 30, 1974, p. 4
(emphasis in
original). The guide further stated: "Educational activity
here means
formalized classroom programs. It excludes training such as
toilet
training, feeding, dressing, etc., provided to patients by the staff
of
the IMR. . . ." Id.
On November 29, 1978, the Agency issued an action transmittal
(AT-78-104)
which discussed the relation- ship between Medicaid services
in ICFs/MR and
federally funded education services. The purpose of the
transmittal was
to clarify issues concerning Medicaid coverage of
habilitation services in
light of the Education for All Handicapped
Children Act. The
transmittal is not a model of clarity. As we discuss
below, however,
the Board has previously found this transmittal
sufficiently clear to give
notice that "special education" mandated
under federal education programs
would not be reimbursable under
Medicaid.
AT-78-104 states that the purpose behind the prohibition on
Medicaid
reimbursement for "educational activities" is to "assure
non-duplication
of Federal funds."
C. Education programs for handicapped children
When Medicaid funding was authorized for ICF/MR services, federal
funding
for education of handicapped children (including the mentally
retarded) in
public institutions was already available under Title I of
the Elementary and
Secondary Education Act of 1965. (Prior to the 1978
revisions to Title
I discussed below, the relevant provision was
codified at 20 U.S.C.
241c-1.)
Education provisions for handicapped children were substantially
expanded
in the Education for All Handi- capped Children Act of 1975,
Public Law
94-142, which amended the Education of the Handicapped Act
(EHA). The
amended Act provided federal funding to states to assist
state and local
agencies in educating handicapped children. The
legislative history
indicates that the impetus for the Act was two
"landmark court cases
establishing in law the right to education for all
handicapped children." y
3/ S. REP. No. 168, 94th Cong., 1st Sess. 5
(1975); see, also, H.R.
REP. No. 332, 94th Cong., 1st Sess. 2 (1975).
These cases recognized that it was a state's traditional obligation
to
provide education appropriate to each child's needs. Thus,
Congress
provided that, in order to qualify for federal funding under EHA,
a
state must demonstrate that it has in effect a policy that assures
all
handicapped children the right to a free appropriate public
education.
20 U.S.C. 1412(1) (1975).
EHA was not intended as an invitation to states to substitute
federal
dollars for state dollars. Rather, the Act provides (in
recognition
that the costs of providing special education to the handicapped
may be
expensive) that in order for a state to receive EHA funds it
must
demonstrate that it has spent the same average amount on its
handicapped
children as it does for its non-handicapped children. Once
this is
established, a state may then receive federal funds under EHA to
meet
the excess costs of providing special education and related
services.
20 U.S.C. 1402(2); 20 U.S.C. 1414(a)(1); and 45 CFR 121a.183,
121a.184,
and 121a.1866 (1977).
The EHA regulations define "special education" as "specially
designed
instruction, at no cost to the parent, to meet the unique needs of
a
handicapped child, including classroom instruction, instruction
in
physical education, . . . and instruction in hospitals
and
institutions." 45 CFR 121a.14(a)(1). y 4/ "Special education"
also
includes "speech pathology, or any other related service, if the
service
consists of specially designed instruction, at no cost to the
parents,
to meet the unique needs of a handicapped child, and is
considered
'special education' rather than a 'related service' under
State
standards." 45 CFR 121a.14(a)(2) (emphasis added). The
regulation
defines "related services" as "transportation and such
developmental,
corrective and other supportive services as are required to
assist a
handicapped child to benefit from special education, and includes
speech
pathology and audiology, psychological services, physical
and
occupational therapy, recreation. . . ." 45 CFR 121a.13(a).
In 1978, the Title I provisions for funding education for the
handicapped
in public institutions were revised and made compatible with
the EHA
provisions. Pub. L. 95-561. Under the revised Title I program,
state
educational agencies could receive federal funding for a
percentage of the
average per pupil expenditures multiplied by the
"number of such handicapped
children in average daily attendance . . .
at schools for the handicapped
operated or supported by the State
agency, including schools providing
special education for handicapped
children under contract or other
arrangement with such State agency. . .
." 20 U.S.C. 2771.
Payments under this provision could be used only
for programs to meet special
educational needs, and the state agency had
to assure that each child counted
for purposes of determining the amount
of the Title I grant would be provided
with an educational program
commensurate with his special needs. 20
U.S.C. 2772. Children who
were counted for purposes of Title I
funding for the handicapped could
not be counted for purposes of funding
under the EHA.
II. Relevant Board and court decisions
A. Prior Board decisions
In Oklahoma Department of Human Services, Decision No. 367, December
17,
1982, this Board concluded that, under the action transmittal, the
costs
of "related services" under EHA are not generally considered costs
of
"educational activities" under 42 CFR 441.13(b), even though
these
services are part of a free appropriate public education and
are
included in a child's Individual Education Plan (IEP).
The Board further determined that the action transmittal clearly
implied
that "special education," as defined under EHA, is an
"educational
activity" within the meaning of 42 CFR 441.13(b). The
Board also noted
that the action transmittal set up exceptions to the general
rule that
"related services" are fundable under Medicaid, where (1) a
state
included related services within its definition of special
education;
and/or (2) a state, by state statute, extended the responsibility
for
payment of specific health services to the education agency. y 5/
In Massachusetts Department of Public Welfare, Decision No. 438, May
31,
1983, and Decision No. 638, March 29, 1985, the Board also was
faced
with the question of whether certain services provided to
ICF/MR
residents were "educational activities." In those cases,
however,
Massachusetts law defined "special education" as including
"everything
which is required to be provided to a child in need of special
education
pursuant to the IEP . . . for such child."
Massachusetts I, p. 4. The
Board concluded that these services could
not be funded under Medicaid
since state law made them part of "special
education." y 6/
Finally, in Pennsylvania Department of Public Welfare, Decision No.
777,
August 20, 1986, the Board affirmed a disallowance of costs incurred
by
a Pennsylvania ICF/MR to the extent that the costs were for
special
education or for vocational training mandated by federal programs,
but
reversed the disallowance to the extent the costs were for
services
provided to adults, qualifying as ICF/MR services under
Medicaid
regulations and not so funded.
B. The First Circuit decision
After the Board had issued its Pennsylvania decision, the First
Circuit
issued its decision in Massachusetts, supra. The First Circuit
upheld
the district court decision reversing the disallowance of costs
of
services provided by the Massachusetts Department of Education (DOE)
to
ICF/MR residents. The First Circuit concluded that (1) the
Education
for All Handicapped Children Act did not modify the Medicaid Act
to
prohibit funding of special education services; (2) HHS was incorrect
in
arguing that the Massachusetts DOE was a liable "third party" with
an
independent obligation under state law to pay for the services
in
question; and (3) the blanket exclusion of Medicaid reimbursement
for
"special education" violates the Medicaid Act because it excludes
from
reimbursement services which the Medicaid Act requires the Secretary
to
reimburse.
The First Circuit stated that the relevant question is whether
the
services are "medical assistance," which the Court said includes,
under
section 1901 of the Social Security Act, "services to help . .
.
individuals attain or retain capability for independence or self care."
The First Circuit did not invalidate the regulation at 42 CFR
441.13
prohibiting FFP in the costs of educational activities. The
First
Circuit said:
Making an inquiry into whether a particular service
is
"educational" does seem to be a fair way to
decide whether, on the
whole, it is medical
assistance. What most people think of as
education (what the district court below referred to
as
"traditional academic education") is not "medical
assistance" under
Medicaid. But the
reasonableness of this inquiry depends on the
meaning the Secretary gives to the word "education." If
the
concept of "education" is expanded to include,
for example,
teaching a severely retarded child to
control the rate at which he
is fed so that he does
not get food into his lungs (one of the
"special
education" services at issue in this case), then the
exclusion goes beyond statutory authority.
Slip op., p. 18.
Thus, the court concluded, HHS must inquire into the nature of
the
services, not just into what they are called or who provides them.
On the basis of our analysis below of the statutory language and the
facts
of this case, however, we conclude that the disallowance here does
not
constitute an overly expansive reading of the statute simply because
it
includes special education services which are not "traditional
academic
education" and which are of the same general nature as services
reimbursable
as "habilitation" when provided by living unit staff as
institutional care in
an ICF/MR.
As the First Circuit recognized, federal funding under Medicaid
is
controlled by the scope of "medical assis- tance" as defined under
the
Act. Contrary to what the court apparently thought, however,
the
specific statutory definition of "medical assistance" does not
include
all services with a goal of independence or self-care. Under
HCFA's
authorized regulations, "habilitative" services having that goal
are
covered in some circumstances, but not in others. Specifically,
they
are not covered in the circumstances here where the services are part
of
a child's "special education" provided by teachers in a
classroom
setting; this limitation is consistent with other limitations in
the
statute, which are not based on the nature of the services alone
but
also on factors such as the nature and qualifications of the
provider,
the age of the recipient, and the availability of other funding
sources.
Here, also, there was duplication of funding, a factor which we
think
was also present in Massachusetts although the court did not
appear
aware of it. Finally, we note that the court was perhaps
influenced by
a concern that HCFA's interpretation would lessen services
provided to
ICF/MR residents and require states to pay for services which
Medicaid
had previously covered -- concerns which we also share.
However, these
concerns are not warranted on the facts of this case.
The services must
be provided and the issue is solely what share the State
must pay; our
result simply requires the State to continue to pay its share
for
services for which it has received federal education funds and for
which
it previously appropriated its own education funds.
We do not base our decision here on a rejection of the First
Circuit's
conclusions that the EHA amendments did not modify the Medicaid
statute
and that DOE was not intended to be a liable "third party" under
the
Act; these conclusions are not inconsistent with our own, which
the
court apparently misunderstood.
The analysis on which we base our conclusions regarding services
to
children is more fully explained in section V. below. First,
however,
we set out the facts of this case and dispose of the issue of
services
to adults.
III. The facts here
During the period July 1, 1979 through June 30, 1983, Utah received
about
$42.9 million in federal Medicaid funding for services provided in
its one
State-owned ICF/MR, the Utah State Training School (USTS). USTS
is
operated by the Utah Department of Social Services; the Medicaid
program in
Utah is administered by the Utah Department of Health,
Division of Health
Care Financing.
USTS was reimbursed through a per diem rate, developed using
Medicare
principles of reimbursement. Auditors from the HHS Office of
Inspector
General performed an audit of the costs included by Utah in
calculating
the per diem rates for USTS for the fiscal years 1980 to 1983.
The
auditors recommended and HCFA adopted a disallowance of $3,270,109
in
FFP representing reductions in the per diem rates to eliminate
costs
which the auditors found were related to prohibited
educational
activities. The auditors also found that these costs violated
the
Medicare reimbursement principles, which state that costs
attributable
to vocational, scholastic, or similarly oriented training
activities are
unallowable. (As noted above, HCFA subsequently reduced
the
disallowance for costs of "developmentalists" providing services to
deaf
and blind residents of USTS.)
Most of the disallowed costs had been allocated by USTS to a cost
center
labeled "education." y 7/ The auditors did not question costs
incurred
by "supportive services" departments at USTS for services which
the
auditors found were "related services" under federal
education
provisions, including the following: psychology, recreation
therapy,
speech and hearing, social services, physical therapy, and
occupational
therapy. Utah did not allege that any of the costs
remaining
constituted costs of related services.
The following undisputed findings are relevant to the nature of
the
remaining services at issue:
o Utah statutes require mandatory special education for all
handicapped
children aged 5 through 21. Section 53-18-2 U.C.A.
1953 (this
provision has been in effect since at least
1969). A goal statement
issued by the Utah Board of
Education specifies that children served
will include all
homebound and hospitalized children, including
severely
multiply- handicapped children. o Children participating
in the
"education program" operated by USTS attended classes taught by
instructors with college degrees in the fields of education or
liberal arts with emphasis on child development and special
education. These individuals were part of an "Education
Department"
at USTS and were referred to as "teachers," "program
instructors," or
"teachers' aides." The programs were
provided in a building known as
the "Education Building."
(Some programs were also provided in
classrooms in the
residential facilities, but these were provided by
"developmentalists," whose costs are not now included in the
disallowance. See Tr., p. 83.)
o USTS received funds for the program in question under Titles I and
IV
of the Elementary and Secondary Education Act, as well as
deaf/blind
grants. All costs of the program, minus federal
funds actually
received by USTS, were charged to Medicaid.
o Children at USTS were counted for purposes of determining the
amount
of Title I funds Utah received. In addition, Utah
received funding
under EHA for this time period.
o USTS had an "Educational Service Curriculum" guide expressing
the
philosophy of USTS that "education is a process to bring
about
positive changes in an individual's behavior." HCFA
appeal file, Ex.
IV. The goals include providing "direct
educational services" to
give each resident "an opportunity to
benefit from formalized,
structured programming appropriate to
his intellectual capacities,
but concentrated and sustained so
that the educational experiences
rendered are equivalent to that
provided by free public education to
normal children."
Id.
o The guide also explains that, to determine the appropriate
placement
of the student in one of the "basic education
programs" (pre-school,
primary, transitional class,
intermediate, multiply handicapped
school, or deaf-blind), the
teacher will administer the "Educational
Performance Profile and
Placement Screening" test and other tests to
make "educational
recommendations." These recommendations are then
considered at a meeting of the team which formulates the
Individual
Education Plan (IEP). The ultimate goal of the
programming is
placement in the Public School Education
program. (Apparently about
5 USTS residents were in local
public schools during the period in
question.)
o Prior to fiscal year 1978, school programs at USTS were funded
with
appropriations from the Uniform School Fund to local
school
districts, which then transferred funds to USTS. In
1977, however,
Utah law was changed so that funds from the
general treasury were
appropriated directly to USTS.
Utah maintained that the 1977 legislative change was based on advice
from
an HHS official that this change, as well as a change in the
definition of
"education" agreed to by various Utah Departments, would
permit funding of
the USTS program by Medicaid. We discuss our findings
on this issue in
section VI. below.
IV. Services to adults
Utah alleged that the education cost center included (for the last
two
years in question) costs from a "day activity center" (DAC), which
was
providing services primarily to adult residents of USTS. Utah
provided
an affidavit attesting that DAC services to adults represented
$303,110
of the disallowance. Utah argued that the disallowance should
at least
be reduced by this amount since services to adults were not
considered
part of "special education" and were otherwise not within the
scope of
the prohibition on funding educational activities. Utah
further
asserted that DAC services qualified as "habilitation" under the
ICF/MR
regulations.
HCFA did not contest the figure provided by the State's affiant.
HCFA
argued essentially that the regulatory prohibition on
educational
activities did not distinguish between children and adults and
that
AT-78-104 referred only to services to children because it was
limited
to discussing the relationship of the prohibition with the EHA.
We considered and rejected these arguments by HCFA in Pennsylvania.
We
concluded that habilitative services to adults were not
encompassed
within the prohibition, absent a showing that the State had
a
traditional responsibility to provide the services as education or
that
they were mandated by another federal program. y 8/ We
further
concluded that HCFA's position to the contrary is inconsistent with
its
own guidance, conflicts with the ICF/MR regulations, and is
not
necessary in order to effectuate the purposes of the prohibition.
For these reasons, as explained more fully in the Pennsylvania
decision
(which we incorporate by reference here), we reverse the
disallowance of
the $303,110 related to DAC services to adults. We
further reverse the
disallowance of administrative costs associated with
these services in
an amount to be determined by the parties on remand.
In calculating
this amount, however, we find that the appropriate method to
be used is
that used by HCFA in calculating administrative costs associated
with
the "developmentalists." Utah proposed a method which would
first
eliminate costs of specific personnel the State identified as
not
associated with the educational program. That method would
provide
inconsistent treatment of costs, however, since costs
specifically
identifiable with the categories of cost for which we uphold
the
disallowance have not been similarly removed from the pool
of
administrative costs to be allocated.
The discussion which follows applies only to the remaining
services,
provided by USTS to children.
V. Services to children
A. The statutory intent
Utah argued, and we agree, that the primary issue here is whether
the
disallowance of these costs is consistent with the Medicaid
statute.
Utah did not argue that the regulatory prohibition was invalid;
Utah
conceded that an interpretation of the regulation to simply cover
"those
services that are actually reimbursed by another federal program"
would
be consistent with the Medicaid statute. Tr., pp. 21-22. Further,
Utah
conceded that, in the context of services to the mentally retarded,
it
would be difficult to identify what services could be
considered
"traditional academic education." Tr., p. 20. y 9/
Utah contended,
however, that it was also difficult to deter- mine what
constituted
special education since special education admittedly overlapped
with
habilitation. Utah also argued that the "active treatment"
requirement
was being applied in such a way as to require states to
substantially
expand their services in the ICFs/MR and that it was
inconsistent with
the concept of grant funding to apply the "stick" of the
active
treatment requirement, without also making available the "carrot"
of
federal funding for services to meet that requirement.
At the outset, we note that Utah has not pointed to any language in
Title
XIX or its legislative history which expressly states that
Congress intended
to fund educational activities in ICFs/MR or even that
Congress intended that
any "habilitative" services are to be
specifically funded by Medicaid. y
10/ Section 1901 of the Act states
the general purposes of the Title,
but does not define the scope of
Medicaid covered services; rather, the
relevant inquiry is whether the
services are "medical assistance." This
is so because funding is
provided under section 1903(a) of the Act only for
services which are
"medical assistance" within the definition of that term in
section
1905(a) (and for associated administrative costs).
Section 1905(a) of the Act nowhere refers to "habilitative" services,
and
certainly does not specify that "habilitative" services must always
qualify
as "medical assistance" under Medicaid. That section provides
optional
coverage for ICF services (including services in an ICF/MR if
certain
conditions are met), but leaves it to the Secretary to delineate
standards
for such services. In the regulations promulgated pursuant to
this
authority (and his general authority under section 1102 of the Act
to
promulgate rules and regulations "not inconsistent with" the Act),
the
Secretary provided that ICF/MR services should include "training
and
habilitation," but this requirement is qualified by the
regulation
prohibiting reimbursement for educational activities. This
prohibition
was interpreted in HCFA guidance, of which the states had notice,
as
meaning "special education." The expressed purposes of the
prohibition
were: to limit funding because of the non-medical nature of
the
services and to assure non- duplication of federal funding. As
we
discuss more fully below, both of these purposes are fully
consistent
with the Act in general and as applied in the circumstances of
this
case.
The key points here are that nothing in the Medicaid statute
mandates
coverage of all habilitative services and the coverage provided in
the
ICF/MR regulations is specifically limited--it is available only to
the
extent such services are not special education. Contrary to what
the
State argued, the fact that special education and habilitative
services
may "overlap" does not mean that special education costs
cannot
reasonably be distinguished from the costs of allowable habilitation;
as
we discuss below, the record here provides a sufficient basis
for
determining that the services in question here are the costs of
special
education provided to school-aged children.
Moreover, we conclude that the result here is not inconsistent with
the
statutory provision on "active treatment." The wording of the
provision
supports our conclusion that it simply establishes a condition on
which
Medicaid will provide funding otherwise unavailable for services
in
public institutions. The wording of the provision, that individuals
in
the facility must be "receiving active treatment," is significant.
If
Congress had intended to fund every element of active treatment as
a
Medicaid cost, it could have easily worded the provision to
require
active treatment as a covered ICF/MR service or to require
such
facilities to "provide" active treatment. We also note that
section
1905(d) of the Act requires that, to qualify as an ICF/MR, a
facility
must have a "primary" purpose of providing health or
rehabilitative
services. This wording suggests that Congress understood
that such an
institution might have other purposes as well.
As HCFA pointed out, this conclusion is not inconsistent with the
basic
concept of how a grant program operates. The State here received
(even
after deducting the disallowance amount) about $40 million in
Medicaid
funds during the disallowance period which it would not have
received
but for the ICF/MR provisions. This is surely a sufficient
incentive
(i.e., "carrot") for the State to meet the active treatment
requirement.
Moreover, although the State's services provided as an
educational
program may help the facility to qualify as an ICF/MR, those
services
were mandated by EHA and, indeed, by the State's own
pre-existing
education laws. y 11/
The Supreme Court has found that conditions on receipt of federal
funds
which may cause a state to expend its own funds to meet
requirements
without participation by the federal government must be clearly
stated.
Pennhurst State School and Hospital v. Halderman, 451 U.S. 1 (1981).
The
Supreme Court has not ruled such conditions invalid when clearly
stated,
however. Grant programs often state such conditions. See
1 R.
Cappalli, Federal Grants and Cooperative Agreements, section
1:09
(1982). The State's position, which is essentially that Medicaid
must
participate in all of the costs of active treatment solely
because
Medicaid requires it as a condition of federal funding, is
unsupported.
The Supreme Court's ruling in Harris v. McRae, 448 U.S. 297
(1980), on
which the State relied, simply indicates that Congress did not
intend a
state participating in Medicaid "to assume the full costs of
providing
any health services in its Medicaid plan." 448 U.S. at 100
(emphasis
added). Here, we are concerned with whether, in encompassing
some
training and habilitation within ICF/MR services, the Secretary
becomes
bound to provide Medicaid FFP for all such activities, even when
they
are required educational activities.
Moreover, we do not agree with the State that Medicaid funding
must
necessarily be provided for all active treatment simply because HCFA
has
recently taken a more aggressive stance in reviewing state facilities
to
ensure active treatment is being provided. Congress established
receipt
of active treatment as a condition for a public institution
qualifying
as an ICF/MR, and HCFA is simply enforcing the requirement.
B. The duplication of funding
Utah itself recognized that the educational activities prohibition
served
a legitimate function to the extent it prohibits FFP in services
"which are
covered and actually paid under another federal program."
Tr., pp. 84-85.
Like other states raising this issue, however, Utah felt
that it had complied
with this purpose by subtracting federal education
funds actually received by
the facility in any year from the total costs
used to calculate the Medicaid
per diem rate.
The flaw in this position is that it fails to recognize how federal
grant
programs operate in general, and specifically how the education
provisions
operate here. Federal reimbursement is not provided for 100%
of a program's
costs; the federal government generally funds only a
percentage of costs,
requiring the grantee to share in the program
costs. In addition, many
grant programs have provisions requiring that
federal funds be used solely to
supplement, not supplant, state funds or
that the state maintain its previous
effort in the program area. Title
I funds, which the State received
here based on counting USTS children,
were awarded for a percentage of the
State's costs of providing services
to these children and the program
contains a "no supplant" provision.
Moreover, under EHA, for which the State
also receives funds, the State
must generally first spend on each covered
child what it would spend on
non-handicapped children, before receiving
federal funds. This
recognizes the State's traditional obligation to
educate its children,
including the handicapped. This obligation was
recognized in Utah at
least since 1969, and, indeed, until fiscal year 1978,
the educational
program at USTS was funded from the Uniform School Fund,
through the
local school districts.
Thus, in Utah, the educational program provided to the
school-aged
residents was in fact covered by federal education funds; the
services
were required to be provided to the children, and would have
been
provided irrespective of any requirement in the statute for
active
treatment or in the regulations for training and habilitation
services.
Because this duplication of funding occurred, we conclude that
the
disallowance here is consistent with the Medicaid statute, for
several
reasons:
o Congress stated in the legislative history of the ICF/MR
provisions
that the purpose was not to substitute federal for
state dollars.
What the State did here has that effect.
o Traditionally, Medicaid funding for services in public
institutions
was limited since these services were considered a
traditional state
obligation; it is highly unlikely that in
removing that limitation
for certain services in qualified
ICFs/MR, Congress intended to
expand Medicaid coverage to costs
previously covered by state
education funds.
o Under Medicaid, there are a number of provisions indicating
that
Congress did not intend that Medicaid would cover services
which
could be paid from other resources or which were not
necessary to
efficient operation of the program. See,
e.g., sections 1902(a)(25)
and 1903(a)(7) of the Act. y
12/ Although the Massachusetts decision
rejected HCFA's
argument that a state education agency could be a
liable third
party under section 1902(a)(25), from which the state
would be
required to seek reimbursement prior to charging Medicaid,
certainly this provision is some support for a finding that the
prohibition is consistent with the Medicaid statute. y 13/
o Since the State was required to provide these services under
the
State law and federal education programs, denial of Medicaid
funding
will not lessen services to the residents. Thus,
the result here is
consistent with the purpose statement in
section 1901 of the Act,
regarding enabling individuals to
attain a capability for
independence and self-care.
Indeed, permitting Medicaid funding for
these services might
provide a disincentive to the State to move
residents out of the
ICF/MR to a less restrictive setting where the
State would
necessarily pay a higher share of the costs of special
education.
We note, moreover, that in discussing the relationship between the EHA
and
the educational activities prohibition, AT-78-104 recognized that
some
related services were of a type which had traditionally been
covered by
Medicaid, such as occupational therapy and physical therapy
provided by
health professionals.
We also point out that the First Circuit misunderstood our
previous
decisions as interpreting the EHA as a modification of the
Medicaid
statute, which the court found was inconsistent with the
legislative
history of the EHA. The court indicated that this
legislative history
evidenced an intent that services mandated by EHA could
be funded by
other programs already providing such services, including
Medicaid. y
14/ We first note that Utah was providing an educational
program at
USTS, as required by State statute, prior to enactment of the
EHA. Utah
provided no evidence that the specific services in question
here were
previously funded by Medicaid and added to the educational program
as a
result of the EHA. Thus, in Utah at least, there is no evidence
that
HCFA's disallowance has the effect of deleting from Medicaid
coverage
services which were covered by Medicaid prior to the enactment of
EHA.
Moreover, even if Utah expanded its definition of special education as
a
result of the EHA to provide services which were training
and
habilitation services of a type previously provided only by
residential
living staff or health professionals and funded by Medicaid, the
point
is that Utah chose to receive education funds which covered
those
services when provided as part of the special education program
and
cannot also receive Medicaid funds for those services.
This interpretation simply effectuates the purpose of the
funding
prohibition, which predated EHA.
C. The nature of the services
The services at issue here are part of formalized programs for
school-aged
children, provided by teachers and their aides during normal
school hours. y
15/ The services were provided in an Educational
Building in rooms
called classrooms. Placement was based on educational
testing. In
addition, many of the programs involved skills such as
reading,
writing, and counting, which would fall within the concept of
"traditional
academic education." Other programs such as increasing
attention span,
teaching sorting skills, color recognition, and the like
typically take place
at the pre-school or kindergarten level of any
local public school.
Thus, even applying the First Circuit's standard
of "what most people think
of as education," we do not think that the
disallowance here represents an
overly expansive reading of the
educational activities prohibition.
We further conclude that the services here are not
"rehabilitative"
services. The longstanding definition of that term as
used in the
Medicaid program is "any medical or remedial services recommended
by a
physician or other licensed practitioner of the healing arts, within
the
scope of his practice under State law, for maximum reduction of
physical
or mental disability and restoration of a recipient to his best
possible
functional level." 42 CFR 440.130. While special education
teachers may
qualify as "qualified mental retardation professionals" under
ICF/MR
regulations, this does not make them "licensed practitioners of
the
healing arts."
The First Circuit appeared to have believed that section 1901 of the
Act
establishes a definition of rehabilitative services as any service
which
helps an individual to attain or retain capability for independence
or
self- care. y 16/ The wording of section 1901 clearly does not
mandate
this result, however; it simply refers to "rehabilitation and
other
services" directed at these goals. Utah argued that the services
in
question here were within the common person's understanding of what
is
meant by "rehabilitation," and thus Congress must have been thinking
of
this type of service when it enacted the provision requiring
that
ICFs/MR be primarily providing "health or rehabilitative
services." To
the contrary, where the term "rehabilitative" has a
specific meaning in
the context of the Medicaid program, that meaning should
be used.
Moreover, the "common understanding" is not necessarily what Utah
says
it is. Webster's New Collegiate Dictionary defines "rehabilitate"
as
"to restore to a condition of health or useful and
constructive
activity."
Moreover, since "rehabilitative" services are covered as a
separate
category of service under section 1905(a)(13) of the Act, even when
not
provided in an institutional setting, the effect of
equating
habilitative services with rehabilitative services would be to
expand
Medicaid funding across the board for such services. As noted
in
Pennsylvania, in connection with enacting provisions for home
and
community-based services Congress indicated that a waiver of
Medicaid
requirements would be necessary in order to provide
habilitative
services in a non- institutional setting. Pennsylvania, p.
15, n. 7. y
17/ This further supports the view that the Medicaid statute does
not
contemplate that services will be reimbursed simply because they
are
habilitative in nature.
The key point of our analysis in Pennsylvania was that, in
providing
coverage of habilitative services in an ICF/MR, the regulations
permit
such coverage only to the extent that the service is not an
educational
activity. Thus, since the statute itself does not include
habilitative
services within the definition of "medical assistance" under
section
1905(a) of the Act and since coverage in ICF/MRs is limited,
a
habilitative service which is an educational activity is simply
not
"medical assistance."
In Massachusetts, the First Circuit concluded that the Board
was
unreasonable in stating in our Pennsylvania decision that the
services
at issue there were "within the scope of Title XIX" and yet
not
reimbursable. Under section 1905(a) of the Act, however, the
definition
of "medical assistance" clearly makes Medicaid coverage dependent
not
only on the nature of the service itself, but on other limiting
factors,
such as the nature and qualifications of the provider and the age of
the
recipient.
The primary limitations under section 1905(a) are that FFP is
not
generally available in services provided in non-medical
public
institutions or in institutions for mental diseases or
defects.
Moreover, most services are required to be provided by
licensed
practitioners of the healing arts, or at least under their
direction.
The statutory provision on ICF/MRs is an exception to the
first
limitation. Congress indicated in the legislative history of
that
provision that it intended to expand medical care and treatment of
the
mentally retarded and not to simply substitute federal for
state
dollars. The regulatory prohibition on funding educational
activities,
and the HCFA interpretation in its action transmittal that
this
encompassed special education, is consistent with this intent and
with
the general intent to provide funding under Medicaid for services of
the
nature specifically described in section 1905(a).
It is also important to note what the nature of ICF services
encompasses;
essentially, such services are institutional in nature, to
be provided only
to individuals who, because of their physical or mental
condition, require
health-related care and services above the level of
room and board. In
light of this, we think it is reasonable of HCFA to
find that Medicaid
funding is available for training in activities of
daily living (such as
toilet training) when provided by staff of the
living units in an ICF/MR, who
are in a care-taking role, or by health
professionals such as occupational or
physical therapists, but not to
fund such services when provided by teachers
in a classroom environment
to fulfill the State's role as special
educator. In special education,
there is a recognition that, for a
handicapped child's program to
succeed, reinforcement of basic skills must
occur in the child's living
environment as well as at school, but this does
not mean that the school
system must pay for the education that occurs in a
child's home.
Similarly, teachers in the classroom environment in an ICF/MR
may be
working on some of the same skills as other ICF/MR staff members,
but
this should not automatically result in the availability of
Medicaid
funding.
Although Utah did not here allege that it provided in its
educational
program the specific services referred to by the First Circuit,
such as
training in eating food to avoid choking, it is not out of the
question
from the State's general description of its program that it
might
provide this or an equivalent service as part of special education
if
the need arose. y 18/ Nevertheless, in the absence of a
statutory
provision which mandates the funding of this service in the context
of
an educational program, we find that HCFA's policy excluding
the
services along with others that more obviously involve
traditional
academic skills is fully reasonable. In addition to the
factors already
identified in support of the policy, we think HCFA is
entitled to
consider administrative convenience in implementing the
prohibition.
Medicaid exists in virtually every state in the country and each
state's
institutional program may vary according to the needs of the
residents
and the state's philosophy. HCFA's approach in AT-78-104 was to
carve
out a category of activities that can be readily identified as
"educa-
tional" even though they may share elements of what has otherwise
been
defined as habilitation. On the other hand, AT-78-104
authorized
funding for certain other activities which it views as
medical
assistance even though there may be a definite nexus between a
free
appropriate public education and the activities. Drawing the line
in
this way enables HCFA to implement the prohibition without onerous
and
time-consuming case-by-case evaluations in individual state programs.
Moreover, as Utah recognized, the distinction between
"traditional
academic education" and habilitation is virtually impossible to
draw in
the ICF/MR context. A program teaching "survival words" to a
resident
involves the academic skill of reading, but it has a habilitative
goal
of independence. There is unavoidably an overlap here, which HCFA
has
dealt with in a reasonable way.
VI. The equitable estoppel argument
The State's equitable estoppel argument was based on the
following
allegations:
o That in 1977 an HHS (then HEW) official had advised
the
superintendent of USTS that the State could receive Medicaid
funding
for the services which were being provided as an
educational program
to USTS residents if it changed its method
of appropriating funds and
its definition of education.
o That, as a result, the superintendent had proposed a change in
the
method of appropriating funds, which was adopted by the
State
legislature for funding beginning in fiscal year 1978, and
that the
various State agencies had agreed to a definition of
"education" at
USTS to mean "the pursuit of skills such as
reading, writing and
calculation and/or the pursuit of knowledge
in an academic discipline
or a technical area such that a
certificate, license, diploma or
degree may be obtained."
o That it had thought that its arrangement among State agencies to
use
this definition of "education" at USTS meant that the State
was
complying with federal policy in AT-78-104 since that
action
transmittal refers to interagency agreements.
o That, in 1981 when an independent audit by the firm of Main
Hurdman
questioned the allowability under Medicaid of USTS costs
related to
the educational program, the State sought guidance
from the regional
office and was told that allowability depended
on State law so that
the State Attorney General would be the one
to ultimately decide the
issue.
o That the State Attorney General's opinion concluded that all
USTS
services were "habilitative" and therefore reimbursable
under
Medicaid.
o That confusion on the part of HCFA regional officials concerning
the
educational activities prohibition caused delay in the
State
receiving clarification of the prohibition.
o That the State relied to its detriment on HHS actions
because
otherwise it could have received education funding for
its program.
The State did not dispute that under the Supreme Court case of Heckler
v.
Community Health Services of Crawford County, 467 U.S. 51 (1984), it
is clear
that for estoppel to apply against the federal government, the
private party
must at least demonstrate that the traditional elements of
estoppel are
present. These elements are that (1) the estopped party
must have made
a definite misrepresentation of fact to any other person
having reason to
believe that the other will rely upon it, (2) the party
asserting the
estoppel must have reasonably relied upon it and (3) must
have changed his
position in reliance upon the misrepresentation, and
(4) must have suffered a
detriment as a result. The State argued,
however, that this case was
distinguishable from Community Health
Services because in that case the
Supreme Court found no detrimental
reliance, but here the State changed its
position in reliance on HHS
advice so that it could claim funds under
Medicaid and, by doing so,
"lost the opportunity to claim available education
funds." State's
reply brief, p. 9.
The State's evidence shows that the superintendent received oral
advice
from an individual who was not in the program division responsible
for
administering the federal Medicaid program, but who worked for
the
Developmental Disabilities (DD) Program. This individual did have
a
role of assisting states in obtaining federal funding for their
programs
for the developmentally disabled, including the mentally retarded,
and
acknowledged that he had suggested to the superintendent that he
explore
the possibility of obtaining increased Medicaid fundng at USTS.
The DD
official testified, however, that he had warned the superintendent
that
the services must be health-oriented, not education-oriented, and
that
his advice should not be relied on as far as Medicaid funding
was
concerned, since he had no authority to speak for the Medicaid
program.
The superintendent did not remember receiving any warning.
He
acknowledged, however, that he had consulted with an individual
within
the State's division of Health Care Financing and that this person
was
the one responsible for consulting with regional office
officials
administering the Medicaid program. Deposition of Paul S.
Sagers, pp.
24-26. The State did not present any testimony from this
individual, or
from any Medicaid officials, about whether this individual in
fact had
sought advice on the proposed changes.
The record here is inconclusive on the issue of whether the advice the
DD
official gave misrepresented the effect changes in state
appropriations and
the definition of "education" would have on the
availability of Medicaid
funding. But in any event the State has not
met its burden of
establishing that its reliance on that advice was
reasonable. The
advice was oral, not written. The Supreme Court
indicated in Community
Health Services that oral advice could not form a
basis for estoppel.
Moreover, even if the superintendent was not
explicitly warned about the
limits of the DD official's authority, the
fact that the superintendent
consulted with the appropriate state
official indicates that the superin-
tendent was aware that the
responsibilities for Medicaid funding lay
elsewhere. The
unreasonableness of the State's reliance is also pointed
up by the
nature of the changes which were undertaken. The funding
was
appropriated from the general treasury rather than the Uniform
School
Fund due to the changes made, but the amended section still refers to
an
"educational program" at USTS. State's appeal file, Ex. D.
The
definition of "education" adopted by USTS (apparently only through
some
informal, unwritten agreement between State agencies) appears to
have
had no functional purpose other than to be an attempt to qualify
the
services for Medicaid funding; USTS continued to refer to the
services
provided as "educational" even though they did not lead to
a
certificate, license, diploma, or degree. y 19/
Another consideration is that, even if the State's reliance on the
DD
official's advice were reasonable in 1977, continued reliance after
the
issuance of AT-78-104 is questionable. The superintendent
testified
that he thought that the action transmittal confirmed that funding
would
be available for the USTS program because the action
transmittal
suggests that State agencies should enter into arrangements
about
funding services in ICFs/MR. As we have noted in previous
decisions, we
read the transmittal as suggesting such arrangements only with
respect
to services which meet the requirements of more than one program,
such
as related services. But even if the transmittal is read as
permitting
such arrangements with respect to the services in question here,
the
arrangement here is insufficient to qualify under the transmittal,
which
contemplates a written statement supporting the arrangement,
including
methodology and reasons used. As HCFA pointed out, the
transmittal also
lists criteria to be considered in such an arrangement, and
the services
here would be considered an appropriate educational
responsibility under
those criteria. y 20/
During the period after the Main Hurdman audit questioned the costs,
the
State did seek some guidance from HCFA regional officials and had
some
difficulty receiving definitive advice. The State alleged that
HCFA
should be estopped because its officials were confused, and the
State
did not receive a timely answer to its questions. As HCFA pointed
out,
reliance on confusion is hardly reasonable. Moreover, the record
simply
does not support the allegation that the State was told that a
State
Attorney General's decision would conclusively resolve the issue.
The
letter from the regional HCFA office to the State (following a
meeting
where the issue was briefly discussed and reference was made to
State
law) explains that the prohibition on Medicaid funding was included
in
the regulations to assure non-duplication of federal funds; the
letter
then refers to the fact that require- ments for a free
appropriate
public education are addressed in each state through
implementing
statute. The letter then states:
The basic question is whether these services are
required to be
provided to all children . . .
without charge. If the answer is
no, payment
may be made from Title XIX funds if there are no
other
available funds. Your State Attorney
General would be the
appropriate entity to interpret
the State statute. . . . We must
await your
State Attorney General's decision before we can
determine if Federal financial participation is available. . . .
State's appeal file, Ex. G. y 21/
In spite of this statement, the question which the State posed to
the
Attorney General was a different one. The Attorney General's
opinion
(not issued until a year after it was requested) stated the issue
as
"whether under Utah law certain activities at the Training School
are
educational or vocational in nature rather than habilitative."
The
Attorney General's opinion answered this question solely by reference
to
laws governing USTS and the author's view of the services
provided,
without any discussion of State laws or standards on education of
the
handicapped or how they were implemented at USTS. The
opinion's
conclusion was based in part on the allegedly severe nature of
the
retardation of USTS residents at that time and provisions in
other
states' laws exempting such children from education. The Utah
education
provision at 53-18-2 U.C.A. 1953, which appears to require
special
education for all handicapped children no matter what their
abilities,
is not discussed. y 22/
The State could not reasonably rely on the opinion's conclusion,
given
that the issue addressed was not the one suggested by the
regional
office and given that the regional office letter indicated that
the
opinion did not preclude further HCFA review (which is in fact
what
occurred).
Finally, we find that the State did not establish detrimental
reliance.
The State alleged that it lost other education funds which it could
have
obtained but for claiming these costs under Medicaid. The
State
provided no evidence to support this assertion, however, and the
record
shows that the State did receive federal funds under three
education
programs. Moreover, as discussed above, the fact that the
State counted
the USTS children under Title I precluded it from also counting
them for
EHA purposes. With respect to State funding, we see no real
detriment
to the State if it simply pays its share of education costs at USTS
from
its general treasury rather than the Uniform School Fund. Indeed,
it is
arguable that the State benefitted here by having the use of
federal
Medicaid funds to which it simply was not entitled.
Thus, we find that the State did not meet its burden of establishing
the
traditional elements of estoppel. We note, moreover, that Supreme
Court
decisions on estoppel suggest that, if estoppel applies at all to
the
federal government, at the very least it requires a showing
of
"affirmative misconduct" on the part of federal officials. See,
e.g.,
Schweiker v. Hansen, 450 U.S. 785 (1981); INS v. Miranda, 459 U.S.
14
(1982). The State's evidence falls far short of this standard.
VII. The inconsistent treatment argument
We also reject the State's argument that it was arbitrary and
capricious
of HCFA to proceed with this disallowance in light of a letter
from the
Inspector General of HHS to a U.S. Senator, Chairman of
the
Labor/HHS/Education Subcommittee. The State pointed to part of
this
letter in which the Inspector General stated that he had asked
his
auditors to discontinue auditing of educational activities
"until
applicable regulations are clarified" and that "except in the case
of
fraud or gross and intentional abuse, we will not audit
Medicaid
reimbursement of ICF/MR . . . education services for any period
prior to
clarifi- cation of the regulations." State's appeal file, Ex.
A. The
State argued that states such as Utah, which had already been
audited,
should receive equal treatment from HHS with states which have not
as
yet been audited. In its reply brief, the State further argued that
the
Inspector General had acted on his letter since a publica- tion
entitled
"All About Medicaid" had reported that an Inspector General audit
report
of the State of Missouri had shown that that State had
improperly
claimed $6.8 million for the cost of vocational and
educational
activities, but that the Inspector General did not recommend
a
disallowance. Utah noted that the audit period was the same in Utah
as
in Missouri, arguing that HCFA should not be able to erect a
distinction
between states on the sole basis that one state received its
audit prior
to another.
In Pennsylvania, we considered the effect of the Inspector
General's
letter. We discussed the fact that the Inspector General is
not
responsible for administering the Medicaid program and that his
letter
does not represent HCFA policy. A HCFA policy issuance, HCFA
Program
Memorandum No. 85-2 (August 1985), provides that disallowances under
42
CFR 441.13(b) which have been appealed (and are pending in either
an
administrative or judicial forum) are being pursued because HCFA
had
issued a final determination in those instances. The Memorandum
does
not imply that HCFA will never take similar disal- lowances for
those
cases in which no final determination had been issued. Rather,
the
Memorandum states that those cases simply will be suspended
until
further notice.
The State argued that, since the Inspector General and HCFA were part
of
the same department, under the direction of the Secretary, we
should
reject HCFA's argument that the Inspector General is not under
HCFA's
control. We disagree. The Inspector General is statutorily
given
independence because of his special role in the depart- ment. But
he is
not given authority to establish program or disallowance
policy.
Moreover, his action in not ."recommending" a disallowance in
Missouri
does not, as the State alleged, contradict HCFA's policy to
simply
suspend action on cases where there is no final determination.
Audit
findings are just that--recommendations. HCFA may accept or
reject them
and indeed may disallow without an audit if there is other
evidence to
support a disallowance.
The State's evidence about Missouri is insufficient to establish that
HCFA
is applying its program policy in a substantially different way in
the two
states; HCFA is not unreasonable in waiting to pursue some
potential
disallowances pending final resolution of litigation
concerning its
policy. This does not mean that a difference in
treatment between two
states which are identically situated could never
be a basis for reversing a
disallowance. But the record here is
insufficient to establish that
this has, in fact, occurred.
Conclusion
For the reasons stated above, we reverse the disallowance of costs of
the
"developmentalists" (which HCFA conceded) and of costs of DAC
services to
adults, as well as associated administrative costs to be
determined in
accordance with our discussion at page 13 above. We
uphold the
disallowance of the remaining costs.
________________________________ Donald
F.
Garrett
________________________________ Norval
D.
(John) Settle
________________________________ Judith
A.
Ballard Presiding Board Member
1. "Active treatment" is defined in 42 CFR 435.1009
(1979) as
requiring an individual's participation, in accordance with
an
individual plan of care, in professionally designed and
supervised
activities, experiences, or therapies.
2. The original prohibition on funding under Medicaid
educational
activities and vocational training in ICFs/MR was found at 45
CFR
249.10(c)(2) (1974). This regulation essentially was unchanged when
it
was recodified at 42 CFR 449.10(c)(2) and then at 42 CFR
441.13(b)
(1978).
3. The first case, Pennsylvania Association for
Retarded Children v.
Commonwealth, 334 F. Supp. 1257 (E. D. Pa. 1971)
and 343 F. Supp. 279
(1972) (PARC), was a suit on behalf of retarded children
challenging the
con- stitutionality of Pennsylvania statutes which excluded
such
children from programs of education and training in public
schools.
This case resulted in a consent agreement which enjoined
Pennsylvania
from denying to any mentally retarded child access to a free
public
program of education and training.
The second case was Mills v. Board of Education of District of
Columbia,
348 F. Supp. 866 (D.C. 1972), in which the District of Columbia
had
excluded handicapped children from its public schools. The Court
held
that a handicapped child, eligible for public education, may not
be
excluded from a regular school assignment unless the child is
provided
adequate alternative educational services suited to the child's
needs.
4. We cite here to the EHA regulations as codified at
the time
AT-78-104 was issued. The regulations are currently codified
at 34 CFR
Part 300.
5. The first exception refers to the situation where
a state may
wish to include a specific related service in its definition of
special
education so that a child, who would not normally be
considered
handicapped solely because he or she needed this service, would
be
considered handicapped under EHA. (See the comment to 45
CFR
121a.13(a).) The second exception refers to the situation where
the
state has provided, for example, that the state education agency
will
provide and pay for a school vaccination program or for eye tests.
6. The Board's holding, however, was not that
anything included in a
child's IEP and provided as part of a free appropriate
public education
is always an "educational activity" within 42 CFR
441.13(b). Indeed, in
Oklahoma, the Board specifically rejected this
position when taken by
HCFA because it was inconsistent with the statement in
AT-78-104 that
Medicaid funding was available for "related services."
7. The disallowance also included some costs
allocated to "Habit
Training" and "Deaf and Blind" cost centers. The auditors
included these
cost centers because USTS had received federal grant funds
specifically
designated for the services charged to these centers. An
affidavit by a
USTS accounting officer explained the audit figure used for
"Habit
Training" as "a percentage figure based on on-site HHS interviews
with
staff to determine the proportion of time spent in 'day treatment,'
as
opposed to non-educational residential care." Clay Affidavit, p.
2.
8. Our decision does not preclude HCFA from examining
these
questions further, nor from examining whether the services in fact
met
the standards for "training and habilitation" services in the
ICF/MR
regulations.
9. For example, an ICF/MR resident might have a
program to learn
"survival" words. The skill taught -- reading --is
academic, but the
goal is to enable the resident to be independent, i.e., it
is
habilitative.
10. Utah mentioned a statement by Senator Bellmon
regarding the
ICF/MR provisions and mentioning "education." We
discussed that
statement in Oklahoma, at pp. 5-8, rejecting that State's
position that
the statement was evidence of congressional intent to fund
education in
ICFs/MR.
11. While one State witness testified that, in the
late 70s and
early 80s, USTS was shifting to a "developmental" model of
services,
USTS provided no evidence that the school program was
substantially
different than it had been for individuals with comparable
abilities
prior to USTS becoming an ICF/MR or that this change was
specifically to
meet the "active treatment" requirement and would not have
been required
by the State's own education laws. Indeed, the
explanation appears to
be at least in part simply that the less severely
retarded were moving
out of the institution into community placements.
See Deposition of
Paul S. Sager, pp. 9-11.
12. This general principle is also reflected in rules
governing
reimbursement for institutional services, including the
Medicare
reimbursement principle cited by the auditors.
13. As recently as March 6, 1987, the principal
Medicaid oversight
committee affirmed that "Medicaid is intended to be the
payor of last
resort. Other available sources, including the legal
liability of third
parties to pay, must be used before Medicaid begins
payment." Committee
Print WMCP 100-4, Background Material and Data on
Programs within the
Jurisdiction of the Committee on Ways and Means, House
Committee on Ways
and Means, 100th Cong. 1st Sess., 1987 at 302.
14. HCFA pointed out that the legislative history of
the EHA lists
several other programs from which funding would be available
for
EHA-mandated services, but does not mention Medicaid.
15. The Educational Services Curriculum guide
indicates that the
hours of educational programming ranged from 6 hours a day
to 2 hours
per week. The record also indicates that the programs
occurred during
the day. It also appears that the programs did not run
for the full
year but only for the number of days equivalent to a school
year. A
"Teacher Contract" at USTS referred to a school year of 182
days. HCFA
appeal file, Ex. 1, p. 10.
16. In construing the provisions at issue, the First
Circuit invoked
"the general principle that the Social Security Act should be
broadly
construed, so as to carry out Congress' intent to provide
medical
expense coverage for all qualifying individuals." Slip op., p.
10,
quoting Mayburg v. Secretary of Health and Human Services, 740 F.2d
100,
103 (1st Cir. 1984). The issue here does not affect whether or not
the
ICF/MR residents receive the services in question, however; the
services
are mandated by the EHA and by the "active treatment" requirement.
The
issue here is solely one of how the expenses will be allocated
between
State funds and federal Medicaid funds. One reason why we do not
think
that Congress intended that Medicaid would pay for these services
is
precisely because it would deplete Medicaid funds without
increasing
services to recipients beyond what they would otherwise
receive.
17. Public Law 99-272, April 7, 1986, added to
the home and
community based waiver provisions a definition of
"habilitation
services," for individuals discharged from an ICF, as "services
designed
to assist individuals in acquiring, retaining, and improving
the
self-help, socialization, and adaptive skills necessary to reside
in
home and community based settings," including educational services
only
if they are not special education and related services
otherwise
available through a local educational agency.
18. The deposition of the superintendent of USTS
referred to
teaching such things as sucking on a straw, walking, crawling,
speech,
and feeding, but he was referring to what professionals such
as
occupational therapists, physical therapists, and speech
therapists
would do at USTS because of the "developmental" model which
was
followed. Deposition of Paul S. Sager, pp. 12- 13. The costs
of these
professionals was allowed here, as were the costs of
the
"developmentalists" working with the residents in the living units.
19. Indeed, there is some evidence in the record that
an arrangement
with the education authorities provided for attainment of a
diploma by
USTS students if they progressed to that point. HCFA appeal
file, Ex.
III, p. 8. The fact that this may have rarely, if ever,
actually
occurred does not change the nature of the services as being ones
which
may lead to such a diploma.
20. There are other reasons for questioning the
State's position on
this point. The mere fact that the superintendent
of USTS considered
the action transmittal to support his view does not
establish that the
State officials responsible for operating the Medicaid
program read the
transmittal the same way. The opinion by the State
Attorney General's
office, produced after the Main Hurdman audit, states that
the audit was
performed because questions concerning the costs were raised
"as early
as 1978." State's appeal file, Ex. D, p. 1. This
suggests that the
action transmittal at least raised questions in some
minds.
21. This position is broader than the interpretation
in the action
transmittal, which permits Medicaid funding for related
services when
not part of special education, but it is sufficient certainly
to inform
the state that no FFP would be available for special education.
22. This provision appears to permit an exception
only when there is
a certificate of exemption, issued by an evaluation team,
after a
determination that the child is "unstable to the extent he
constitutes a
potential hazard to the safety of himself or to others."
53-18-6 U.C.A.