DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Tennessee Department of Date: August 8, 1989 Health
and Environment Docket No. 89-33
Decision No. 1082
DECISION
The Tennessee Department of Health and Environment (State) appealed a
disallowance of $1,622,426.22 by the Health Care Financing
Administration (HCFA, Agency) of federal financial participation (FFP)
in the cost of services to Medicaid recipients claimed under Title XIX
of the Social Security Act during the period of October 1, 1986 through
December 31, 1987. The amount disallowed represents reimbursement made
to intermediate care facilities, skilled nursing facilities, and
intermediate care facilities for the mentally retarded during periods
when they did not have valid provider agreements. Specifically, the
disallowance was based on 42 C.F.R. 442.105(a), which contains
provisions for certifying facilities for the Medicaid program which have
standard-level deficiencies. The Agency found that the State did not
meet the regulatory requirements for maintaining written justification
that despite standard-level deficiencies the patient's health and safety
is not in jeopardy nor is the facility's capacity to give adequate care
jeopardized.
We find HCFA's determination was correct that certain long-term care
facilities were improperly certified for Medicaid participation by the
State. We therefore uphold the disallowance.
Background
The Medicaid program is administered by the states, and partially funded
by the federal government. Long-term care facilities, such as
intermediate care facilities (ICFs), skilled nursing facilities (SNFs),
and intermediate care facilities for the mentally retarded (ICFs/MR),
must enter into a provider agreement with the "single state agency"
in
order to participate in the Medicaid program and be reimbursed from
federal funds for services provided. Section 1902(a)(27) of the Act.
The State Medicaid agency may not enter into a provider agreement unless
the state survey agency has certified the facility as meeting the
required federal standards.
If a facility is found by the survey agency to have any standard-level
deficiencies in meeting these requirements, the regulation provides as
follows:
42 C.F.R. 442.105 Certification with deficiencies:
General provisions.
If a survey agency finds a facility deficient in meeting
the standards under Subpart D, E or F of G of this part
. . . , the agency may certify the facility for Medicaid
purposes under the following conditions:
(a) The agency finds that the facility's deficiencies,
individually or in combination, do not jeopardize the
patient's health and safety, nor seriously limit the
facility's capacity to give adequate care. The agency
must maintain a written justification of these findings.
Emphasis added.
A provider agreement, however, is not valid evidence that a facility has
met the applicable requirements if the Administrator of HCFA determines
that the survey agency failed to follow the rules and procedures for
certification set forth in 42 C.F.R. 442.100 et seq. This is termed the
Administrator's procedural "look-behind" authority, and his findings
may
be based on his own on-site surveys, other federal reviews, state
certification records, or other reports required from the Medicaid or
the state survey agency. 42 C.F.R. 442.30 (b).
In February, 1988, the HCFA Regional Office initiated a Provider
Agreement Review in the Tennessee Department of Health and Environment,
Bureau of Medicaid. The review disclosed that, during the period in
dispute, the state survey agency inappropriately certified long-term
care facilities for which FFP was claimed. The review included the
provider files maintained in the Tennessee Department of Health and
Environment's Medicaid Bureau and files maintained at the State's
Division of Health Care Facilities. HCFA found that approximately 75 of
the facility files reviewed identified standard-level deficiencies.
However, none of these files contained a written justification as
required by 42 C.F.R. 442.105(a). Therefore, HCFA determined that these
facilities were improperly certified, and, under 42 C.F.R. 442.30, did
not have valid provider agreements during this time. Therefore, the
facilities were not eligible for reimbursement from the Medicaid
program. The State did not dispute that the facilities in question had
standard-level deficiencies or that the applicable regulation is 42
C.F.R. 442.105(a). Rather, the State disputed whether the regulation
required a separate "written justification" apart from the deficiencies
cited by the surveyor during the facility survey.
Analysis of Tennessee's Arguments
A. Whether the state survey agency maintained the written
justification required by 42 C.F.R. 442.105(a) in its files.
The State argued that all the documents generated during the survey
process such as the Statement of Deficiencies, the Certification and
Transmittal Forms, Post Certification Revisit Reports, and certain
letters to the facilities, when read together, satisfied the "written
justification" requirement. The State indicated that the standard-level
deficiencies were recorded on a Statement of Deficiencies (HCFA Form
2567). The State claimed that simultaneously with the deficiencies
recorded, the survey agency determined whether the deficiencies
jeopardized the patient's health and safety or seriously limited the
facility's capacity to provide adequate care, although there was no
separate written statement to that effect. The State argued that the
survey agency would not certify a facility if a patient's health or
safety was jeopardized or the facility's capacity to provide adequate
care was limited. The survey agency would certify a facility with
standard-level deficiencies when that facility submitted an acceptable
plan of correction. The State indicated that the certification was
conditioned upon the correction of deficiencies within the time
specified in the plan of correction and an automatic cancellation clause
was incorporated in the certification. If all corrections were made, a
second Certification and Transmittal was issued indicating the facility
was resurveyed and the deficiencies were corrected.
The State contended that the regulation does not expressly require a
separate written statement of justification "in addition to the written
justification inherent in the survey findings and related documentation
contained in the files." Emphasis added. The State cited the court in
Mississippi Medicaid Commission v United States Department of Health and
Human Services, 633 F.Supp. 78 (S.D. Miss. 1985), as holding that the
survey agency's written survey results "addressed the 'written
justification' required by 42 C.F.R. 442.105(a)," and "a surveyor's
personal notes would constitute 'written justification' if made
available to HCFA." State's Brief, p. 16, citing Mississippi at 85.
We cannot agree with the State that the all the documents generated
during the survey process, when read together, satisfy the "written
justification" requirement. Rather, we agree with the Agency that these
documents record observations, made during the survey, which support the
conclusion that a deficiency exists, and also record the actions taken
by the survey agency. The documents, thus, contain evidence which would
be considered by the survey agency in making the finding required by the
regulation, and the documents record actions which would follow the
finding required by the regulation. They do not, however, address
whether the finding was actually made that the deficiencies,
individually or in combination, do not jeopardize the patient's health
and safety, nor limit the facility's capacity to provide adequate care.
The State is asking the Board to infer that the finding was made since
the survey agency issued a certification and transmittal form; thus, we
should conclude that the written justification was inherent in the
survey findings. The regulation does not allow us to presume, infer or
assume that the requisite finding was made. The regulation requires not
only that the finding be made, but that the survey agency "maintain a
written justification of these findings." The good-faith belief that
the facilities met the requirement of 42 C.F.R. 442.105(a) is not
enough. The regulation, therefore requires the surveyor to review the
deficiencies and make an independent determination which must be stated
clearly in writing that the deficiencies do not jeopardize the health
and safety of the patients or the facility's ability to provide adequate
care. As we stated in New York Dept. of Social Services, DAB No. 616
(1984), "there can be no argument about the reasonableness of such a
condition; the health and safety of the patients is the primary
concern." Id., p. 10.
Furthermore, the State misinterpreted the holding of the Mississippi
case. In that case, the court upheld the Board's ruling that "the
determination by the state survey agency as to whether the health and
safety of the patients is or is not threatened must be supported by
written justification as required by 42 C.F.R. 442.105(a) (1984)." Id.,
at 85. The court agreed that survey findings showing the facility is
not in compliance with certain conditions of participation is not the
equivalent of the written justification required.
The State also argued that just because there is no separate written
justification does not negate the fact that the State had written
evidence of the facilities' compliance with the requirements for
Medicaid participation. The State indicated that the omission of such a
justification is a procedural violation which should not effect the
State's substantive compliance with the regulations. The State's
arguments, however, overlook the purpose of the written justification.
The surveyor is required to give such a justification to provide
contemporaneous evidence at the time of the survey that the health and
safety of the patients are not in jeopardy even though standard-level
deficiencies exist. Furthermore, whether or not the State may have
complied with the other requirements is irrelevant to the question of
whether the requirements of 42 C.F.R. 442.105(a) were met. The fact
remains that in order to validly certify a facility with standard-level
deficiencies, the surveyor must make a determination and the State must
maintain the written justification of that determination as required by
the regulation.
We reviewed the documents presented by the State and found no evidence
of any written justification required by the regulation. State's Appeal
File, Exhibits D, D-1, D-2, and D-3. Therefore, we uphold the Agency's
determination that the certification of the facilities here was invalid
under 42 C.F.R. 442.105(a).
B. Whether HCFA's disallowance denying FFP for failure to
include a written justification was arbitrary and capricious.
Essentially, the State argued that the Board should overturn HCFA's
determination as arbitrary and capricious because Tennessee's survey
agency had never been apprised either verbally or in writing by HCFA
that a separate written statement of justification in addition to the
survey findings was necessary to satisfy the written justification
requirement of 42 C.F.R. 442.105(a). The State indicated it was well
aware that the provision for written justification had been included in
the regulation since 1978, but HCFA had never before taken any action
against the State on the basis of this provision even though HCFA
annually conducted a State Agency Evaluation Program as well as
exercising its "look-behind" authority on two other occasions.
Moreover, the State contended that HCFA did not issue any "interpretive
regulations" in the State Operations Manual which discussed the effect
of the regulation under the circumstances here. Consequently, the State
argued that all communication to the state survey agency by HCFA
indicated that all requirements of the pertinent regulations were being
met. We disagree with the State that the Agency's disallowance action
was either arbitrary or capricious because the State lacked notice of
the applicable requirements. The regulation's requirements are
perfectly clear. Section 442.105(a) provides that if a survey agency
finds a facility deficient in meeting the standards of Part 442,
Subparts D, E, or F, it may still certify the facility for Medicaid
purposes, but only under certain conditions. Those conditions are:
first, the survey agency must find that the facility's deficiencies,
individually or in combination, pose no threat to the health and safety
of the patients and the facility's ability to give adequate care is not
seriously limited; and, second, the survey agency must maintain a
written justification of these findings. Not only is this requirement
plainly stated in the regulation, but also it is reiterated in the 1985
revision to the State Operations Manual. See Respondent's Appeal File,
Exhibit A. Thus, the State received notice of the requirement through
both the regulation and the State Operations Manual. The Agency clearly
did not have to provide notice to the State beyond this.
As the Agency pointed out, the State would have us find that the Agency
is estopped from enforcing this disallowance action because HCFA did not
specifically inform the State what it should do or had never indicated
to the State that it was not in compliance with the regulation. Under
the Supreme Court case of Heckler v. Community Health Services of
Crawford County, 467 U.S. 51 (1984), 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 (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, (3) the party must have changed his position in reliance
upon the misrepresentation, and (4) must have suffered a detriment as a
result. Furthermore, the Supreme Court decision in Schweiker v. Hansen,
450 U.S. 785 (1981), suggests 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.
We find that the State did not establish any of the traditional elements
of estoppel nor affirmative misconduct. In order for estoppel to apply
at all there must be a definite misrepresentation. The State
characterized HCFA's actions as "at best HCFA's conduct with respect to
its dealings with the appellant has amounted to total silence on the
issue [of the requirements of 42 C.F.R. 442.105(a)]." Emphasis added.
Total silence is not equivalent to a definite misrepresentation. Thus,
without a misrepresentation, there can be no detrimental reliance.
Moreover, even if we were to find that the traditional elements of
estoppel were to apply, the government cannot be estopped in the absence
of affirmative misconduct and mere failure to act or reply as the State
alleges here cannot constitute affirmative misconduct. See East Central
Illinois Foundation for Health Care, DAB No. 657 (1985). Thus, the
State has not made out a case for equitable estoppel.
Putting aside the doctrine of equitable estoppel, there is still no
basis for finding that HCFA's disallowance of FFP for failure of the
state survey agency to include a written justification was arbitrary or
capricious. The State cannot just choose to overlook a regulatory
provision when it is convenient by saying that the Agency owed the State
some kind of duty to explain this regulation more fully either in
writing or orally to the State. The Agency has no such duty when it
validly promulgates a regulation and the regulation is clear on its
face. The State does not dispute that the regulation was in fact
validly promulgated. Therefore, we conclude there is no basis for
finding that HCFA's disallowance was arbitrary or capricious because the
State lacked notice of the applicable requirement.
C. Whether the amount of the disallowance is excessive.
The State argued that the disallowance amount is excessive because it
includes allegations of invalid provider agreements for dates outside
the relevant time period of the financial review, October 1, 1986
through December 31, 1987. The State contended that four facilities
which were not surveyed during the time period of the Agency's review
were improperly included in the disallowance.
We disagree. The Administrator is empowered to "look-behind" a provider
agreement and determine that a facility has not met the requirements of
certification. 42 C.F.R. 442.30. This "look-behind" authority may
be
based on his own on-site survey, other federal reviews, State
certification records, or other reports required from the Medicaid or
state survey agency. 42 C.F.R. 442.30(b).
We agree with the Agency that the Administrator's "look-behind"
authority is not restricted to periods covered by just the financial
review. While the Administrator may base his findings on such a
review, the Administrator may also make such a determination on the
basis of state certification records or reports from the Medicaid or
state survey agency. Thus, the Administrator may take a disallowance
action based upon evidence of errors that comes to his attention through
a financial review or a review of other state records. Moreover, if the
facilities were improperly certified, then payment of FFP to the State
for the facilities during the period of invalid certification is
improper.
The State has not shown that these four facilities were certified in
accordance with 42 C.F.R. 442.105(a). As a result, we find that these
facilities were not properly certified and did not qualify for FFP
during the period of invalidity. Thus, the disallowance amount was not
excessive. We, therefore, find no basis for excluding the four
facilities from the disallowance.
Conclusion
For the reasons set forth above, we uphold the disallowance of
$1,622,426.22.
Norval D. (John) Settle
Alexander G. Teitz
Donald F. Garrett Presiding Board