DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Oklahoma Department DATE: April 27, 1989 of Human
Services Docket No. 88-54 Decision No. 1043
DECISION
The Oklahoma Department of Human Services (Oklahoma) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $1,197,016 in federal financial participation (FFP) claimed
under Title XIX (Medicaid) of the Social Security Act (Act) for fiscal
years 1985 and 1986. HCFA exercised its authority under 42 C.F.R.
442.30 to "look behind" the provider agreements for 94 long-term care
facilities. HCFA determined that the provider agreements were invalid,
for short periods of several days or weeks, because the State did not
follow the required procedure for certifying a facility that does not
fully meet health and safety standards. Specifically, HCFA determined
that the State had miscalculated the 60-day period used to set an
"automatic cancellation date" (ACD) for each facility's certification,
and, as a result, did not timely verify that the facilities had
completed, or made substantial progress on, correcting the deficiencies.
As we discuss below, we find that the regulatory requirements for timing
ACDs were ambiguous and did not clearly inform Oklahoma that its
practice in setting ACDs for facilities in the circumstances here might
be incorrect. Moreover, we find that Oklahoma's consistent practice for
setting ACDs had a reasonable basis in the survey and certification
requirements as a whole and that Oklahoma had no notice of a contrary
Agency interpretation. Therefore, we reverse the disallowance.
Each of the facilities here had previously been certified for
participation in the program and had been surveyed by the State well
before the end of their existing 12-month certification periods.
Shortly after the survey, each facility submitted a plan for correcting
its deficiencies before the start of a new certification period. For
each facility, the State set an ACD for the 60th day of the new
certification period. The reason there is a dispute here is that
HCFA's regulations simply do not specifically address the unique
situation which arises when a plan of correction proposes to correct
deficiencies before the new certification period begins. In fact, the
regulations make no sense when applied to many of these facilities.
HCFA acknowledged this, yet argued that the intent of the regulations
was to require ACDs to be set at 60 days after the date for completing
corrections or the first day of the new certification period, whichever
was later.
HCFA's solution is not unreasonable; however, the State had no notice of
this interpretation and had meanwhile implemented its own reasonable
approach. In the overall context of the 12-month survey and
certification process, it was reasonable for Oklahoma to read HCFA's
regulations to permit setting ACDs so that the entire 60-day period for
the ACD would run within the new certification period. Such a reading
does not interfere with the prior certification period, and, in essence,
recognizes that the prior certification is valid for its full period
notwithstanding a facility's obligation to correct deficiencies found as
part of a subsequent certification action. While HCFA asserted that the
State should have set the ACDs differently, to overlap the prior
certification periods, this is not obvious from the plain language of
the regulation or from its overall context. Thus, we conclude that the
State's method of setting the ACDs did not render the facilities'
provider agreements invalid.
Legal Background
Under applicable statutes and regulations, states must enter into a
provider agreement with every provider of services under Medicaid.
Section 1902(a)(27). Generally, before entering into a provider
agreement with a nursing facility, a state must certify, on the basis of
a survey, that the facility meets all Medicaid requirements for
participation or, if the facility has deficiencies, is taking steps to
correct those deficiencies through a plan of correction (POC). See 42
C.F.R. 442.12(a) and 442.101. When a state certifies a facility with
deficiencies, the state may either certify the facility for a period
that ends no later than 60 days after the last date specified in the POC
for corrective measures, or may certify the facility for a longer period
but provide for an automatic cancellation date (ACD) on which the
certification will automatically expire if the state survey agency does
not find either that the facility has corrected all deficiencies by that
date, or that the facility has made substantial progress in correcting
the deficiencies and has submitted a new acceptable POC. 42 C.F.R.
442.111.
HCFA based the disallowance on the regulatory language of 42 C.F.R.
442.111, which states:
The survey agency may certify a facility for up to 12 months with a
condition that the certification will be automatically canceled on
a specified date within the certification period unless--
(1) The survey agency finds that all deficiencies have been
satisfactorily corrected; or
(2) The survey agency finds and notifies the Medicaid agency that
the facility has made substantial progress in correcting the
deficiencies and has a new plan for correction that is acceptable.
The automatic cancellation date must be no later than 60 days after
the last day specified in the plan for correction of deficiencies
under 442.105.
The Agency relied on the parts of this regulation that provide that
ACDs are to be set: (a) within the new certification period, and (b) no
later than 60 days after the last date in the POC. The dispute arises
because, in the circumstances of this case, these two provisions could
not be applied in a meaningful way to set ACDs for all facilities which
promised to correct deficiencies before the start of the new 12-month
certification period.
In issuing this disallowance, HCFA exercised its authority under 42
C.F.R. 442.30(a)(2) to "look behind" these facilities' provider
agreements and determine if the State followed the "rules and procedures
for certification set forth in Subpart C" of 42 C.F.R. Subpart C
includes 42 C.F.R. 442.111. Here, based on a financial review report
issued on July 30, 1987, HCFA found a procedural defect in the State's
practices in setting ACDs. Oklahoma Ex. 5.
Discussion
1. The proper timing for an ACD is ambiguous for these facilities.
The basic facts are undisputed. The State survey agency (the Oklahoma
Department of Health) conducted surveys of each of these facilities well
in advance of the scheduled expiration date of the previous
certification and provider agreements and found deficiencies. Each
facility submitted an acceptable POC which stated that correction of
deficiencies would be completed within a short period of time which was
before the start of the new certification period (with the exception of
one facility no longer at issue here). HCFA did not argue that this
survey and certification process was improper.
For all these facilities, which promised to correct deficiencies prior
to the start of the new certification period, Oklahoma consistently set
the ACDs so that the entire 60-day period was within the new
certification period. Oklahoma characterized its practice as
recognizing that what is significant here is a facility's commitment to
correcting all its deficiencies by the start of the new certification
period. Oklahoma Brief, p. 9. Thus, Oklahoma set the 60-day ACD period
to run as of the start of the new certification period. As we discuss
below, the State believed that it was consistent with the overall
context of the regulation for the entire 60-day period to fall within
the new certification period. Moreover, Oklahoma argued that the ACD
could not both be 60 days after the last date in the POC and during the
new certification period for many of the facilities (those promising to
correct deficiencies more than 60 days before the start of the new
certification period).
HCFA conceded that it was not always possible to set an ACD which
literally was both 60 days after the last day for correction of
deficiencies and within the new certification period for all facilities
promising to correct deficiencies before the start of the new
certification period. But HCFA argued that the regulation nevertheless
contained clear directives which its proposed method of calculating the
ACD came closest to fulfilling. HCFA's proposed method was to set the
ACD at the later of 60 days after the last date in the POC or the first
day of the new certification period (for facilities where the 60-day ACD
period would end before the end of the old certification period). The
ACDs set as HCFA asserted was proper would then fall during the first
days or weeks that the new certifications and provider agreements were
in effect. In fact, for many facilities the ACD would be on the first
day of the new certification period. HCFA did not provide any relevant
guidance documents or legislative materials to support its position.
Neither HCFA's proposed method nor Oklahoma's practice for setting ACDs
could be termed a literal application of the regulatory requirements.
(Even under HCFA's proposed method, ACDs were sometimes set more than 60
days from the last date in the POC). Certainly HCFA's proposed method
could not be called obvious from the regulatory language; HCFA would
essentially extend the 60-day requirement until the start of the new
certification period when the 60 days would otherwise run out before the
new certification period had begun. The regulation did not expressly
provide for such an extension. Furthermore, the regulation does not, by
its terms, indicate that some of these facilities should be treated
differently from other facilities. Thus, Oklahoma could not rely solely
on the plain language of the regulation in determining how to set ACDs
for these facilities.
We find, then, that the timing requirements in the ACD regulation
contradicted one another and were ambiguous when applied generally to
facilities which promised to correct deficiencies before the start of
the new certification period.
2. Oklahoma's consistent practice for setting ACDs had a reasonable
basis in the regulatory survey and certification requirements.
Oklahoma argued that the survey and certification regulations, which
provided that the new certification period would start on the date an
acceptable POC was submitted, did not contemplate the fact pattern at
issue, and could not be applied here as HCFA argued. Oklahoma asserted
that the regulations contemplated that the last date in the POC always
would fall within the 12-month new certification period and, thus, the
deadline for a 60-day ACD could not fall earlier than the sixtieth day
of the new certification period. Furthermore, Oklahoma alleged that its
practice provided more flexibility in scheduling surprise revisits and
in processing survey results and POCs and prevented a disincentive to
surveying in advance and accepting POCs with a short schedule for
completion.
We agree that HCFA's proposed application of the ACD requirements is
inconsistent with the flexible survey and certification timing that was
accepted as proper under the regulations by both parties even though
different from the literal wording of the regulations. Under 42 C.F.R.
442.13(c)(2), when a facility has deficiencies on the date of the
survey, a provider agreement must be effective on "the date on which the
provider submits a correction plan acceptable to the State survey
agency, or an approvable waiver request, or both." Literally, the new
certification period and provider agreement would start on the date the
acceptable POC was submitted, the last date in the POC for correction of
deficiencies would always be within the new certification period, and
the deadline for the ACD would never fall before the 60th day of the new
certification period. (A state may choose, however, to set a shorter
ACD time period than the regulation permits. See Arkansas Dept. of
Human Services, DAB No. 984 (1988), where shorter dates were set.) In
sum, the entire 60-day ACD period would run within the new certification
period.
In spite of what the regulations would literally require, HCFA did not
object to the State's practice of making the new certification and
provider agreement effective only after the expiration of the prior
agreement, as long as this was after an acceptable POC was submitted.
Otherwise, as Oklahoma pointed out, certifications would be set at
irregular intervals depending on when a survey was conducted or
depending on when an acceptable POC was submitted. The parties here
accepted that the timing requirements for the starting date for the new
certification and provider agreement could be read only as a limit on
how early a certification could begin--no earlier than the date an
acceptable POC is submitted. This reading permitted Oklahoma to start
the new certification period for a facility certified with deficiencies
at the end of the current 12-month certification period.
In part, the dispute here arose because HCFA took the two ACD timing
rules out of context. The accepted application of the starting date for
the new certification and provider agreement causes an ambiguity in how
to apply the ACD rules: consistent with the actual starting date for a
new certification and provider agreement, or as if the starting date had
been set earlier. Nevertheless, HCFA contended that there was no
ambiguity and that its proposed method was the only reasonable reading
of the regulation because it gave full effect to the requirement that
the ACD must be within the certification period, and it used the closest
date possible to the 60-day time limitation.
HCFA argued that Oklahoma's practice was arbitrary because it
transformed the 60-day limit into a general extension period, without
relation to the last date in the POC, when that date was before the
start of the new certification period. In contrast, HCFA argued, its
method gave greater effect to the regulation's purpose to put a time
limit on the period before a state verified the performance of a
facility which had promised to correct identified deficiencies. Thus,
HCFA argued, its method protected Medicaid recipients by requiring
faster action if a facility failed to comply with its POC. Moreover,
HCFA asserted that only its method literally applied the timing
requirements to facilities which promised correction less than 60 days
before the start of the new certification period.
We do not find HCFA's arguments persuasive here. Oklahoma's practice
was not a general extension period for the deadline on ACDs; it affected
only a limited number of facilities where the deficiencies were
generally minor and the facilities could promise to correct the
deficiencies within a very short time frame. But, more importantly,
there is nothing on the face of the regulations which would inform
Oklahoma that while it could properly certify these facilities as it
did, it must also set ACD periods which would end virtually immediately.
We recognize that for some facilities it is possible to take the parts
of the ACD regulation that HCFA considers dispositive in isolation and
set an ACD in the early days or weeks of the new certification period.
We do not, however, find this to be a "literal" reading of the meaning
of the ACD regulation when its terms are read in context. While this
reading may be reasonable, as we discuss below, we find that HCFA cannot
take a disallowance on the basis of this reading here since there was no
reason for Oklahoma to know that it was wrong to set ACDs as it did and
to treat all these similarly situated facilities consistently.
Apart from these reasons, we also note that there is no evidence here
that Oklahoma sought to circumvent any overall program policies or to
gain any particular advantage from its consistently applied practice for
setting ACDs in this circumstance. Nor is there any evidence that
Oklahoma acted improperly in its general survey and certification
procedures, or that the facilities at issue posed any particular threat
to patients or to program integrity.
In fact, Oklahoma alleged, and HCFA did not deny, that these facilities
were among the best in Oklahoma, that the deficiencies cited were
relatively minor and that, in most cases, Oklahoma revisited the
facility long before required to by the ACD it set. We recognize that
Oklahoma may, in this circumstance, have rationally concluded that it
could allocate its scarce survey resources to facilities with more
pressing problems for as long as permitted.
For example, Greenbrier Nursing Home was cited for an unmarked dental
prosthesis, for failure to have some employees tested for tuberculosis,
for dirty patient combs, and for leaving disinfectant spray accessible
to residents. That facility indicated on its plan of correction that it
had corrected all deficiencies within 2 weeks of the survey, before the
facility had even submitted the plan of correction. Oklahoma set the
ACD at the sixtieth day of the new certification period, but resurveyed
the facility on the eleventh day and, as a result, rescinded the ACD.
For this facility, HCFA asserted the ACD should have fallen on the 1st
day of the new certification period. HCFA then disallowed FFP for days
one through ten of the new certification period.
In light of our discussion above, we find that Oklahoma's consistently
applied practice for setting ACDs was reasonable under the
circumstances. We recognize that there are policy reasons why HCFA may
favor its method for setting ACDs, such as earlier revisits to verify
corrective actions. There are, however, credible countervailing policy
considerations which Oklahoma raised for these facilities of providing
more flexibility in scheduling revisits and not creating a disincentive
to requiring the shortest possible time for correction of deficiencies.
In any event, the Board does not have discretionary authority to make
policy determinations as to what may be the best method for setting
ACDs. We make only the limited finding that Oklahoma's practice was a
reasonable reading of the contradictory language of the ACD regulation
in the circumstances of this case, in view of the reasons why Oklahoma
considered its practice to be consistent with the language of the ACD
timing requirements and faithfully implementing the underlying policies.
As we note below, this finding does not preclude HCFA from notifying
states that they must use its method prospectively.
3. Oklahoma lacked notice of a required method to set ACDs in these
circumstances.
HCFA did not contend that it had provided Oklahoma with notice that
states should apply the reviewers' method for calculating ACDs in this
circumstance, or that there was any longstanding policy explaining how
to apply the regulation to these facilities. Although HCFA argued that
notice was not necessary because the regulation plainly required that
ACDs should be set using its proposed method, we found above that the
regulation was indeed ambiguous and that HCFA's proposed method was not
obvious from the regulation. We explain below the significance of
notice in this circumstance.
The Administrative Procedure Act provides that a party may not be
adversely affected by an interpretation not published in the Federal
Register unless the party "has actual and timely notice of the terms
thereof." 5 U.S.C. 552(a)(1). Certainly, if the regulation was clear,
or if HCFA's method was the only reasonable application of the
regulation, then the regulation itself would provide notice of the
method for setting ACDs. Cf. Joint Consideration: Institutions for
Mental Diseases, DAB No. 231 (1981). But here there is no basis to find
that the State is bound by a reading which was not obvious and which had
never been communicated to it. See Illinois Dept. of Public Aid, DAB
No. 920, pp. 19-20 (1988).
Notice is necessary in this circumstance because Oklahoma alleged that
it would have readily changed its procedures if it had known of HCFA's
preferred method for setting ACDs. Oklahoma alleged that, had it known
that HCFA wanted it to use a different method to set ACDs, Oklahoma
could have revisited the facilities earlier or granted extensions of the
existing provider agreements if necessary under 42 C.F.R. 442.16 and 42
C.F.R. 442.110(b).
On the other hand, we see no reason why HCFA could not require states to
use a different method for setting ACDs in this circumstance by
providing notice that states should use that method. See Hawaii Dept.
of Social Services and Housing, DAB No. 779 (1986); Kentucky Division of
Medical Assistance, DAB No. 704 (1985).
Conclusion
For the reasons discussed above, we reverse the disallowance of
$1,197,016. In light of this conclusion, we need not address some of
the other arguments raised by Oklahoma concerning whether the
disallowance was properly calculated for certain facilities or whether
certain facilities were properly included in the disallowance action at
all because there had been a timely revisit even given HCFA's
recalculated ACD.
________________________________ Donald F. Garrett
________________________________ Norval D. (John) Settle
________________________________ Cecilia Sparks Ford Presiding
Board