Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Massachusetts Department of Public Welfare
DATE: December 23, 1991
Docket No. 91-9
Audit Control No. A-01-89-00006
Decision No. 1288
DECISION
The Massachusetts Department of Public Welfare (State) appealed
a
determination by the Health Care Financing Administration
(HCFA)
disallowing $2,761,798 in federal funding claimed under title
XIX
(Medicaid) of the Social Security Act (Act). HCFA found that the
State
had taken custody of the fund balances of personal needs
allowances
(PNAs) from the estates of deceased Medicaid recipients and that
the
State had placed the accumulated balances into its general
revenues
account. HCFA determined that the PNA balances represented
Medicaid
program recoveries by the State and disallowed the full federal
share of
the balances.
We find, on appeal, that the PNA balances in question
represented
"recoveries" to the State within the meaning of section
1903(d)(3) and
Office of Management and Budget (OMB) Circular A-87, and that
the
federal share of the recoveries constituted an overpayment to the
State.
The record, however, does not establish definitively whether
the
disallowance amount is overstated because the State may have
returned
some of the funds to individuals with a lawful right to the funds
and
because of certain other factors identified by the State.
Accordingly,
although we generally uphold the disallowance, we provide the
parties a
further opportunity, as discussed below, to resolve these
issues
relating to the amount of the disallowance.
Background
The Medicaid program under title XIX of the Act provides
medical
assistance to certain categories of individuals whose income
and
resources are insufficient to meet the cost of necessary
medical
services. The program permits.recipients at long-term care
facilities
to have a personal needs allowance (PNA). PNAs are
essentially a
monthly amount of income that is disregarded by the program
in
determining eligibility. The purpose of the allowance is to enable
the
recipients to buy items of clothing, toilet articles and other
personal
needs items while in residence at the facilities. See 42
C.F.R.
435.725(c)(1). The Medicaid program permits the allowances
to
accumulate up to $2000 as an "excluded" resource.
The disallowance at issue concerns the State's treatment of the
PNA
balances of deceased Medicaid recipients that come into its
possession
from its long-term care facilities. The Office of the
Inspector General
of this Department performed a review of the PNA balances
in the State's
possession during the period July 1, 1986 through June 30,
1989. The
objectives of the review were:
to determine the amount of personal needs funds of
deceased
Medicaid recipients deposited in MDPW's "Deceased Recipients"
account;
and to determine whether MDPW [Massachusetts Department of
Public
Welfare] should have credited the Medicaid program for the Federal
share
of personal needs funds recovered from nursing homes.
Review Report, Attachment (Att.) B of State's Notice of Appeal, page 3.
This review and subsequent information provided by the parties during
the
pendency of this appeal disclosed that the State had devised and
used the
following procedures for handling the PNA balances of
deceased
recipients:
o The State Medicaid regulation, Code of Massachusetts
Regulations,
Part 106, chapter 456.804(C)(14), required nursing homes to
forward to
the MDPW, the Medicaid State Agency, any PNA balances for
deceased
recipients within five days of the death of the Medicaid
recipient.
o The MDPW had established a suspense trust account, referred to as
the
"Deceased Recipients" account, dating back to 1976. The purpose of
this
account was to maintain the PNA balances from deceased nursing
home
patients following the initial transfer of these funds from the
nursing
homes.
o The MDPW used this account to make disbursements for claims
from
funeral homes to cover a decedent's funeral expenses. Review
Report,
supra, p. 4. (Although the Review Report and the State's
initial brief
suggest that the MDPW also used the account to pay claims of
the
decedent's surviving relatives, it appears that any such
disbursements
were intended to cover only funeral expenses. Hearing
Transcript (Tr.),
p. 72. The State conceded that MDPW had no authority
under its probate
procedures to make any disbursements when the probate
process had not
been initiated and no estate fiduciary appointed, but argued
that since
funeral expenses had the highest priority of any claim under its
probate
procedures, such disbursements were appropriate and unlikely to
cause
objections. Tr., p. 23.
o The State accumulated $3,365,775 in PNA fund balances in
the
"Deceased Recipients" account from 1976 until June 22, 1987, when
the
State made its first transfer of all accumulated fund balances to
a
general revenue account under the State Treasurer. Review
Report,
supra, p. 5. During the period in dispute the State made four
more
transfers of additional fund balances that had accumulated at the
MDPW
in the interim to the same general revenue account. The total
amount of
accumulated PNA fund balances placed in the general revenue account
from
all five transfers totalled $5,523,596.
o The transfers represented 12,873 PNA balances averaging $429
each.
State Brief (Br.), p. 3.
o The State conceded that the PNA balances became part of a
decedent's
estate upon the death of the decedent and that the Medicaid
program
could make a claim as a creditor against a decedent's estate under
State
law. Tr., p. 30. (This claim would be based on the
fact that the
Medicaid program had become a creditor because it had provided
the
individual with medical assistance during the individual's lifetime.)
o The State asserted that the MDPW had an Estate Recovery
Process,
which attempted to recover from decedents' estates. The
State
represented that it had been able to recover over $6 million of
Medicaid
benefits under its Estate Recovery Process in one fiscal year.
Sheehan
Affidavit (Aff.), para. 7, pp. 2-3. The State asserted that it
did not
use that process for PNA balances because the State believed that
it
would not be cost effective to claim these funds under those
procedures.
The State never indicated how large an estate must be for it to
apply
its Estate Recovery Process. Tr., p. 64.
o The State disavowed ever having made a claim on behalf of
the
Medicaid program against these funds under its probate procedures.
o The State asserted that after the State Treasurer took custody of
the
PNA balances, the funds were held in a general revenue account
subject
to all lawful claims, and that there was no time limit for claiming
the
funds. Sheehan Aff., para. 6, p. 2. The State further
asserted that
the State Treasurer was required to seek the rightful owner or
owners of
the funds by following its abandoned property procedures.
These
procedures included a publication in all major newspapers notifying
the
public of the Treasurer's custody of these funds. Tr., pp.
60-3.
o The State alleged that as of June 6, 1991, the State
Treasurer's
Abandoned Property Division had paid $909,027.56 of transferred
funds
(including interest) to claimants, such as the decedent's spouse,
heirs
or estate creditors. State Br., p. 23.
Arguments of the Parties
HCFA's primary position was that when the State took custody of the
PNA
balances under its procedures, the State had in fact recovered
medical
assistance benefits provided to deceased recipients. HCFA
asserted that
such recoveries constituted an "applicable credit" under OMB
Circular
A-87, C.1.g., or that, under section 1903(d)(3) of the Act, HCFA
was
entitled to recoup the federal share of the recoveries as
an
overpayment. HCFA conceded, however, that if the State Treasurer
had
paid any of the fund balances to rightful claimants under the
abandoned
property procedures, the State would be entitled to a reduction in
the
disallowance.
The State argued that the PNA funds at issue were not Medicaid
estate
recoveries and that the factual prerequisites for recovery had not
been
established. The State asserted that federal law permits, but does
not
require, the State to recover Medicaid benefits from estates,
especially
where it may not be cost-effective to do so. The State
asserted that no
overpayment determination had been made by the Secretary of
this
Department as required by section 1903 and the funds in question had
not
been recovered with respect to the Medicaid program. The State
also
argued that HCFA's claim against these funds must be made in
another
forum and in the form and manner prescribed by the applicable State
law
and that such law would grant the MDPW complete statutory
immunity
against any action or claim such as this disallowance. Finally,
the
State argued that the amount of the disallowance was in any
event
undemonstrated, unsupported and overstated.
Analysis
Section 1903(d)(3) provides that amounts "recovered . . . by the State .
.
. with respect to medical assistance furnished under the State plan
shall be
considered to be an overpayment" to the State. Moreover, OMB
Circular
A-87, C.1.g. provides that a state's program costs must be
reduced by
all "applicable credits," and includes "recoveries" as an
example of an
applicable credit. 1/
We find that the State's procedures for taking custody of the PNA funds
at
issue were "recoveries" of medical assistance provided to deceased
recipients
within the meaning of section 1903(d)(3) and OMB Circular
A-87. Our
reasons are as follows:
o The reference to "recoveries" in the statute and the OMB Circular
is
not qualified in any way and therefore reasonably encompasses
the
State's actions here when it takes custody of the PNA funds by
placing
them initially in an account with MDPW and then by placing them in
a
general revenue account for unrestricted use by the State under
its
abandoned property procedures. 2/ All of the funds were
initially
transferred to MDPW under the State's own regulations because of
MDPW's
basic responsibility to oversee the proper administration of
these
funds. All of the decedents in question had in fact received
Medicaid
benefits and all had been permitted to have a personal needs
allowance
by virtue of special income and resource exemptions in the
Medicaid
program. The State indisputably had the authority under its
laws to
claim and recover these funds as medical assistance furnished by
the
Medicaid program under its State plan. The State,
however,
intentionally chose not to make a claim on the program's behalf
under
the probate procedures for any of the PNA balances. The State
chose
instead to rely on its abandoned property procedures in order to
take
custody of these funds and to gain unrestricted use of the funds. 3/
Although the State ostensibly treated the funds as "abandoned," it
clearly
was aware at all times of the Medicaid program's potential
ownership claim
for the funds under its probate procedures. Moreover,
the State
intentionally, indeed aggressively, invoked the abandoned
property procedures
to gain use of these funds. The procedures generally
viewed property to be
abandoned when the property remained unclaimed for
a period of five
years. Tr., pp. 45-6; 60-3. Here, the MDPW
transferred at least a
portion of the PNA funds to the State Treasurer
after the passage of less
than a year after the Medicaid recipient had
died. Tr., p. 72.
Under these circumstances, the State's abandoned property procedures
can
reasonably be viewed as an alternative recovery method applied by
the
State to recover the payments for medical assistance provided to
these
decedents. The State's use of these procedures should not be a
basis
for ignoring the Medicaid program's underlying claim for these funds
and
cannot serve as a basis of depriving HCFA of its rightful pro rata
share
of these funds.
o Under the abandoned property procedures, the State placed the
PNA
funds in its general revenues account and gained unrestricted use of
the
funds. Although the State argued that it never acquired
an
unconditional title (since the funds were always held subject to
claims
from potential creditors and estate heirs), the reality of the
situation
was that the State has unrestricted use in perpetuity of any funds
that
remain unclaimed. HCFA, moreover, agreed to give the State a
credit for
any portion of the disallowed funds the State did in fact pay back
to
claimants through the abandoned property or probate procedures.
The
disallowance amount purports to represent only those funds that
the
State in fact retains for its unrestricted use. Thus, we conclude
that
the State may not hide behind the abandoned property procedures
and
argue that no recovery has been made when the reality of the matter
is
that the State has taken custody of these funds for its own
unrestricted
use.
This Board has held under different but essentially
comparable
circumstances that where a State takes custody of funds under
its
abandoned property procedures, such custody is tantamount to
acquiring
title, and the funds in question could reasonably be viewed as
program
income. See Maryland Dept. of Human Resources, DAB No. 1247
(1991).
o While the State ostensibly used the abandoned property procedures
so
that it could avoid the administrative expenses related to the
recovery
of the PNA balances under the probate procedures, the abandoned
property
procedures themselves involved considerable administrative
expenses,
including publications in all .major newspapers and a
comprehensive
claiming and appeals process. Tr., pp. 60-2. Further, the
State
indicated that it had no authority under the abandoned
property
procedures simply to turn over estate funds to a claimant if the
probate
process had not already been invoked. Tr., p. 73.
Therefore, even
where a potential claimant for the funds appeared under the
abandoned
property procedures, that claimant would still have to use the
very
probate procedures the State ostensibly wished to avoid in order to
take
possession of the funds. Consequently, the State's approach
is
potentially more costly than the probate process alone, since it
could
involve both the abandoned property procedures and the
probate
procedures.
o The State argued that its actions should not be viewed as
a
"recovery" because the Medicaid program nowhere requires it
to
effectuate recoveries in every instance. This argument, however,
misses
the point. The State conceded that it has authorized itself
under its
plan to recover Medicaid benefits from the estates of
deceased
recipients. The issue here is not whether the State may forego
making a
recovery in a particular instance but whether the actions the State
in
fact took constituted a recovery. (Moreover, while a State may
have
discretion to forego recoveries in particular instances under
its
program rules, the State must still exercise that discretion
reasonably
and in a manner consistent with its basic responsibility to
administer
the program properly.)
While this Board might ordinarily be inclined to defer to a
state's
characterization of the meaning and effect of its own procedures,
we
would not normally defer in instances where the characterization
is
itself unreasonable. 4/
o The State argued that the funds in question should not be
considered
estate "recoveries" because the State never considered whether any
of
the funds came from estates which are protected from Medicaid
recoveries
by virtue of section 1917. Section 1917 protects the estates of
deceased
Medicaid recipients from recoveries of medical assistance correctly
paid
on behalf of the decedent in three circumstances: the benefits
being
recovered were received before the decedent attained age 65;
the
decedent has a surviving spouse; and the decedent has surviving
children
under age 21 or surviving children who are blind or permanently
or
totally disabled. The State indicated that in taking custody of the
PNA
balances, it intentionally does not develop whether the
deceased
recipient has a surviving relative that would preclude a
Medicaid
recoupment under section 1917, and that its actions under its
abandoned
property procedures cannot therefore be viewed as a Medicaid
recovery.
We disagree. The State's custody of the PNA funds under its
abandoned
property procedure is conditional and the ultimate ownership status
of
the funds is left in perpetual suspense. Any heir (including
heirs
protected by section 1917) may make a claim against these funds at
any
time, and HCFA has agreed to simultaneously relinquish its claim if
the
State in fact pays any of the funds to a protected heir. We should
also
note that the State's efforts to locate the rightful owners of the
PNA
funds while the MDPW has control of the funds or as part of the
State's
implementation of its abandoned property procedures serve at least
in
part as an effort to locate the surviving relatives protected by
section
1917. The fact that no such relatives step forward to make a
claim
would seem to suggest that the relatives either do not .exist or are
not
inclined to pursue a claim. 5/ Their potential claims,
nevertheless,
would be protected in perpetuity by the State's abandoned
property
procedures. Ultimately, the State's failure to take any
additional
affirmative efforts to locate protected heirs and to ensure that
they
receive the PNA balances results from the State's own decision
and
clearly does not justify the State's position that the
procedures
actually used were not "recoveries." 6/
In any event, contrary to State's arguments here, section 1917
clearly
does not limit a state to the use of probate procedures in carrying
out
estate recoveries. The case cited by the State on behalf of such
an
interpretation of section 1917 held only that Medicaid recoveries
were
restricted to assets that could pass through the decedent's
probated
estate and not to assets that would pass outside the estate to a
joint
tenant. See, Citizens .Action League v. Kizor, 887 F.2d 1003 (9th
Cir.
1989). The court's position was based on the reference in section
1917
to a "recovery" from an individual's "estate." This decision does
not
address the issue raised here, which is whether a state must
always
recover estate assets through its formal probate procedures. The
State
here, moreover, has never disputed that the accounts in question are
in
fact part of a decedent's estate and could have passed through
a
probated estate if the State had chosen to institute the
probate
process.
o The same analysis would also apply to the State's argument that
the
abandoned property procedures should not be viewed as estate
recoveries
because they do not ensure that all potential estate creditors and
heirs
receive what is due them under the probate rules. All potential
probate
claimants are fully protected by the abandoned property
procedures
because they may at any time make a claim under those procedures
by
invoking the probate process. Thus, if claimants with higher
priority
than the Medicaid program wished to step forward and make a claim
under
the probate process, they could still do so and receive payment of
their
claim. HCFA moreover conceded that the State is entitled to
an
adjustment for any claim it ultimately pays. The record in any
event
suggests that with the passage of time, the possibility of any
claims
from these other sources becomes extremely unlikely.
Again, however, the State's intentional decision to forego
further
development of the existence of potential claimants under the
probate
process does not justify the position that the procedures used were
not
recoveries.
o The inherent irony of the State's decision to use its
abandoned
property procedures here is that when the State follows the
procedures
and, for example, publishes its lists of abandoned PNA accounts in
major
newspapers, it is to a large extent searching for itself as the
estate
creditor with a priority claim for these PNA funds by virtue of
the
Medicaid benefits it paid to the decedent. In other words, while
one
organ of the State is searching for the rightful owner of
"abandoned"
funds, another organ of the State is declining to step forward
with its
rightful ownership claims. The State intentionally chooses not to
step
forward as a claimant and willingly leaves ownership status of the
funds
in suspense even though it expects and encourages other claimants
to
step forward when it becomes aware of those claimants. 7/
o Contrary to what the State argued, HCFA has properly made
an
overpayment determination under section 1903(d)(3) and does have
the
authority to recoup that overpayment from the State under section
1903
of the Act. 8/ The State argued that HCFA had not established
that
anyone was overpaid and that in any event only the Secretary of
this
Department may determine whether there has been an overpayment
as
required by section 1903. Finally, the State argued that the MDPW
has
complete statutory immunity against HCFA's disallowance and that
HCFA's
claim against these funds must be made in the form, manner, and
forum
prescribed by State law. We disagree on all counts.
We have already discussed at length why the PNA funds may reasonably
be
viewed as "recoveries" with respect to medical assistance
furnished
under the State plan and have concluded that the State was the
entity
that was overpaid under the program by virtue of its recovery of
the
medical assistance that had been furnished without having paid HCFA
its
pro rata share of the recovery. The Secretary of this Department
has
delegated to HCFA the responsibility to administer the Medicaid
program
on his behalf and this responsibility necessarily includes the
authority
to make the determination of overpayment that is at issue
here.
Furthermore, the Secretary has delegated to this Board
the
responsibility to review on his behalf any disallowance
decision
resulting from such a determination by HCFA.
Finally, we conclude that HCFA's disallowance here is not a
specific
attempt to recoup from MDPW any of the funds that were
literally
transferred to the State Treasurer, but rather is a recognition
that
since the State has made a recovery of the PNA funds by virtue of
its
transfer of these funds to its Treasurer for unrestricted use by
the
State, an adjustment should be made in the amount of the ongoing
federal
funding due the State in accordance with section 1903(d) of the
Act.
See, e.g., North Carolina, supra. We should also add that the
State as
an entity receives funding for the Medicaid program under the
Social
Security Act, and the State as an entity is held accountable
under
section 1903 when the Secretary determines that an overpayment has
been
made under section 1903. This disallowance has been issued in the
name
of MDPW only because that Department is the agency designated by
the
State to administer the Medicaid program on its behalf. 9/ Thus,
the
State cannot here reasonably argue that it or the MDPW has immunity
from
this disallowance or that HCFA's claim must be made in a
manner
consistent with State law.
The State's Arguments concerning the Amount of the Disallowance
The State also argued that even if the Board finds that the PNA funds
were
Medicaid recoveries, the amount is overstated as follows:
(i) $909,027.57, including interest, which has been
paid by the
State Treasurer as of June 6, 1991 to individuals having a lawful
right
to the funds, such as the decedent's spouse or estate creditors;
(ii) HCFA's proportional share of the expenses
relating to the
custody, transfer and subsequent administration of the funds;
and,
(iii) an amount representing funds which are not
Medicaid
recoveries, but which the auditors admit are being
"inadvertently
recovered."
State Br., pp. 23-4.
In response to this argument, HCFA stated that it is willing to make
an
adjustment in the disallowance to the extent that any
alleged
overstatement "can be audited or otherwise properly verified."
HCFA
Br., p. 9. HCFA did not clarify whether it would be willing to
make
adjustments in response to all three categories, however.
In view of the foregoing positions of the parties, we find that
HCFA
should provide the State with a reasonable amount of time to
demonstrate
that the disallowance amount was overstated. If the parties
are still
unable to reach agreement on whether the disallowance was
overstated,
the State may return to the Board on this issue alone, by filing
a
notice of appeal within 30 days of receiving HCFA's decision.
Conclusion
On the basis of the foregoing, we uphold the disallowance in full,
subject
only to an adjustment in amount in accordance with the
procedures described
above.
___________________________ Judith A. Ballard
___________________________ Alexander G. Teitz
___________________________ Donald F.
Garrett
Presiding Board Member
1. 45 C.F.R. 74.171 provides that the principles to be used
in
determining the allowable costs of activities conducted by
governments
in the administration of Department programs such as Medicaid
are
contained in OMB Circular A-87.
2. This Board has considered the effect of section 1903(d) in
numerous
previous decisions and has specifically held that section
1903(d)(3)
applies in instances, as here, where a State has recouped benefits
that
have been correctly paid to recipients. See New York Dept. of
Social
Services, DAB No. 311 (1982) and Massachusetts Dept. of Public
Welfare,
DAB No. 262 (1982). We have also held that where a State has
earned
interest on recoveries from Medicaid providers that had been placed in
a
holding account pending their return to HCFA, that interest
was
attributable to the Medicaid program and should have been
credited
against program expenditures even though the State argued the
interest
was attributable solely to its investment activities. North
Carolina
Dept. of Human Resources, DAB No. 361 (1982). In North
Carolina, the
Board concluded that the interest constituted an applicable
credit under
OMB Circular A-87, C.1.g., resulting in an overpayment under
section
1903(d) of the Act.
3. The State admitted that the only reason it did not rely on
its
probate procedures forthese recoveries was because it believed
that
those procedures "take administrative resources away from more
lucrative
recoveries and often cost more than they recoup."
State's Brief (Br.),
p. 4 citing Sheehan Affidavit (Aff.), Exhibit (Ex.) A,
Para. 8. The PNA
funds in question here total $5,523,596, including a
federal share of
$2,761,798 and a State share of the same amount from 12,873
PNA
accounts. The State did not deny that it could have used modified
or
abbreviated probate procedures and that it might have been able
to
effect cost savings by consolidating its recovery efforts against
these
balances, many of which had been pending for several years. Any
such
effort would also have been aided by the fact that claims from
other
sources would have been unlikely in many instances because of the age
of
the balances.
On the other hand, the approach actually taken by the State clearly
was
the most efficacious for it under the circumstances. As HCFA stated:
[I]t appears superfluous for the State to file a
claim when it has
already collected the PNA funds
and knows that the funds will
remain with the State
except in those few instances when another
claimant
can prevail. HCFA Br., p. 7.
4. HCFA referred to possible incentives behind the characterization
as
follows:
[The State] argues that it is not cost effective for
it to file a
formal claim against the many small
estates represented by the
funds in the PNA
account. . . . [I]t is, instead, lucrative for
the State to decline to bear the expense of filing claims
because
it knows that it will keep almost all of the
funds anyway. If the
State's failure to file
claims is designed to prevent the federal
Medicaid
program from being credited with an equitable share
of
the State recoveries, then the policy is even
more lucrative.
Because the State recovers funds
from the PNA accounts of deceased
Medicaid
recipients and has a means for keeping those funds
without
filing claims against the decedents'
estates, the funds should be
deemed to be recovered
from the estates by a means available to the
State
other than probate. Under the circumstances, it would
be
completely inequitable to the federal government
if it were
precluded from sharing in the benefit
which the State itself
obtains from not filing
formal claims. HCFA Br., p. 7, n. 2. 5.
The Review Report referred to this possibility as follows: The
MDPW
staff indicated that they estimate the chances
that a surviving
spouse would come forth or a
disabled child or child under age 21
would be
identified after the [initial] six month period to be
less
than one-half of one percent. Review Report,
supra, p. 6.
Although the State questioned the accuracy of this estimate, which
was
apparently derived from MDPW staff (Tr., p. 74), the State did
not
attempt to provide the Board with a more definitive estimate.
6. The State also argued that it never developed whether the
decedent
had been receiving Medicaid while over the age of 65 as required
by
section 1917. HCFA argued, and we agree, that the likelihood that
any
decedents here had not been receiving Medicaid over the age of 65
was
very slight. Nevertheless, as with the possibility that there
existed
protected survivors and priority claimants, the State itself must
chose
how much development is appropriate under the circumstances and
indeed
can still carry out that development at this late hour and receive
a
credit from HCFA if any such decedents can be identified.
7. The State did allege that it had paid over $900,000 of
transferred
funds to claimants, such as the decedent's spouse, heirs or
estate
creditors. The State did not clarify whether even in those
instances,
it made any affirmative effort to ensure that the Medicaid
program's
claim as an estate creditor was properly considered in conjunction
with
these other claims under the probate process, at least in
those
instances where the other claims did not involve solely
survivors
protected under section 1917. Without such effort, it is at
least
conceivable that in some instances, the State transferred funds to
heirs
or creditors with claims that were at the same level or lower
in
priority than the Medicaid program's.
8. The State also argued that HCFA may not rely on section 1903
because
it was not cited in the disallowance letter. This Board,
however,
consistently permits parties to modify and clarify their positions
when
the opposing party has been given a reasonable opportunity to
respond
during the course of the appeal. Here, HCFA discussed and
relied upon
section 1903 in its brief, and the State was given the
opportunity to
respond to that position in its reply brief and during a
hearing
conducted by telephone in this appeal. The Board also raised
questions
for the parties' benefit concerning the effect of this provision in
its
Notice of Hearing dated August 30, 1991. The Board in any event
must
consider the effect of this provision if it is applicable to the
facts
of the appeal since the Board is bound by all applicable laws under
45
C.F.R. 16.14.
We should also note that this particular ground for the disallowance
is
essentially the same as the applicable credit position cited by HCFA
in
the disallowance notice and is relied upon by HCFA as an
alternative
legal basis for the disallowance.
9. In rules applicable to the administration of grants funded by
this
Department, including formula grants for the Medicaid program, the
term
"grantee" is defined as follows:
'Grantee' means the government . . . to which a
grant is awarded
and which is accountable to the
Federal Government for the use of
the funds
provided. The grantee is the entire legal entity even
if
only a particular component of the entity is
designated in the
award document. For example,
a grant award document may name as
the grantee an
agency of a State . . . . In these cases, the
granting agency usually intends, or actually requires, that
the
named component assume primary or sole
responsibility for
administering the grant-assisted
project or program. Nevertheless,
the naming of a
component of a legal entity as the grantee in a
grant award document shall not be construed as relieving the
whole
legal entity from accountability to the
Federal Government for the
use of the funds
provided. 45 C.F.R. 74.3 (Emphasis