GAB Decision 390
February 28, 1983
New York State Department of Social Services;
Garrett, Donald; Settle, Norval Teitz, Alexander
The New York State Department of Social Services (State) appealed
from the determination of the Regional Administrator, Health Care
Financing Administration (Agency), dated August 30, 1982, disallowing
federal financial participation in the amount of $973,647 claimed under
title XIX of the Social Security Act. The disallowed amount represented
allocation to the Medicaid program of expenses of the family court,
district attorney, sheriff, and probation department in four counties in
the State for the period January 1970 through June 1974. The August 30,
1982 disallowance was taken on the ground that the State's claim
duplicated a claim for the same expenditures which was submitted in
August 1977 and disallowed on November 16, 1977 by the Acting Director,
Medicaid Bureau, Health Care Financing Administration.
At the State's request, the Board postponed written briefing in this
case and held a telephone conference to clarify the basis for the
disallowance. At that time, the Agency took the position that the State
was barred from raising the same claim as was submitted in 1977 because
it failed to seek reconsideration of the earlier disallowance. The
Board thereupon requested written briefing by the parties on this issue.
/1/ Based on this briefing, the Board has determined that the
disallowance should be sustained without reaching the substantive merits
of the State's claim on the ground that a final determination regarding
the allowability of the costs had already been made.
At the telephone conference, the Board framed the question to be
briefed in terms of whether the Board had jurisdiction to hear the
appeal. However, we think it is clear that the matter is within the
Board's jurisdiction (2) since there was a timely appeal to the Board
from a decision of the type specified in 45 CFR Part 16, Appendix A,
B.(a)(1). The question presented in this case is instead whether the
State properly claimed costs which were previously disallowed. /2/ In
our view, the State's claim was not proper because the 1977 disallowance
was final.
The Social Security Act provides, at section 1116(d), that --
Whenever the Secretary determines that any item or class of items on
account of which Federal financial participation is claimed under title
. . . XIX . . ., shall be disallowed for such participation, the State
shall be entitled to and upon request shall receive a reconsideration of
the disallowance.
In 1977, the regulations implementing this section were found at 45
CFR 201.14. These regulations provided that when the Regional
Commissioner of the Social and Rehabilitation Service --
determines that a State claim for FFP in expenditures for a
particular item or class of items is not allowable, the Regional
Commissioner shall promptly issue a disallowance letter to the State.
45 CFR 201.14(b)(1). The regulations further required that the
disallowance letter include, inter alia --
notice of the State's right to request reconsideration of the
disallowance under this section and the time within which such request
must be made.
45 CFR 201.14(b)(2)(vii). In addition, the regulations stated that
--
To obtain reconsideration of a disallowance of an item or class of
items for FFP, a State shall, within 30 days of the date of the
disallowance letter, request reconsideration by the Administrator (of
the Social and Rehabilitation Service) . . . .
45 CFR 201.14(c)(1). Finally, the regulations stated that the
decision of the Administrator "shall constitute final administrative
action on the matter. . . ." 45 CFR 201.14(d)(11).
(3) Under the express terms of the regulations, a decision by the
Administrator affirming the Regional Commissioner's disallowance after
reconsideration requested by a state is final. There is no provision
for review by the Administrator where reconsideration is not requested.
The clear implication is thus that the decision of the Regional
Commissioner is final where reconsideration is not requested. /3/
The State argued that there was no basis in 45 CFR 201.14 for
attributing res judicata effect to its failure to respond to the notice
of disallowance. (State's brief dated December 13, 1982, pp. 6-7)
However, the State completely overlooked the provisions above, which we
believe are dispositive.
The State also argued, however, that the 1977 notice of disallowance
was defective. This is in effect an argument that there was no
disallowance in 1977. The first alleged defect was the failure of the
notice to cite 45 CFR 201.14 as the regulation under which
reconsideration could be requested. (State's brief dated December 13,
1982, p. 2) Section 201.14(b)(2)(vii) requires "notice of the State's
right to request reconsideration under this section. . . ." It is not
clear that this requires that the disallowance letter actually cite 45
CFR 201.14; arguably, a description of the terms of section 201.14
might suffice. In any event, we do not consider the omission of such a
citation to be a material defect since the notice does advise the State
of its right to request reconsideration, of the time and place for
submission of such a request, and of the required format for such a
request. We note also that it is clear that the State was familiar with
section 201.14 from its dealings in other cases and recognized that that
section was applicable to the 1977 disallowance. (State's brief dated
December 13, 1982, attached Affidavit, pp. 1-2) Moreover, the State did
not allege that it failed ever to request reconsideration as a result of
the omission of the relevant citation, but only that, because of the
omission, the disallowance did not come to the attention of the State's
attorney responsible for the matter until two months after its issuance.
(State's brief dated December 13, 1982, attached Affidavit, pp. 3-4)
(Had the State requested reconsideration at that point, there might have
been some basis for waiving the applicable time limit.)
The second defect alleged by the State was the failure of the notice
of disallowance to state a rationale for the Agency's action that was
consistent (4) with either the problems noted by the Agency in an
earlier letter to the State or the position taken by the Agency with
respect to a similar claim ultimately adjudicated by this Board.
(Docket No. 79-34-NY-HC, Decision No. 249, January 29, 1982, reversing
the disallowance) The State argued that the notice thus failed to state
the basis for the disallowance in accordance with 45 CFR 201.14(b)(2)(
v). (State's brief dated December 13, 1982, pp. 3-4; State's
supplemental brief, dated January 20, 1983, p. 2) However, the purpose
of the section 201.14 reconsideration process was precisely to give a
state the opportunity to persuade the Agency that its disallowance did
not have a rational basis. The fact that a disallowance may not have a
rational basis does not render the disallowance a nullity where the
State fails to avail itself of procedures established for review of the
disallowance.
The State also argued that, because of the special circumstances of
this case, the State should be entitled to a hearing on the merits of
its 1977 claim. It asserted that, even after the 1977 disallowance was
taken, there were continuing discussions with federal officials about
how to properly allocate the types of expenses in question in this case.
Although the State had made several discrete claims for the same types
of expenses, the State asserted that it was the belief of both State and
federal officials involved in those discussions that a resolution of all
the State's claims might be possible based on the discussions. The
State cited as a basis for its position a January 12, 1979 letter from
the Director, Division of Cost Allocation, Region II, and the State's
response dated May 30, 1979. (State's brief dated December 13, 1982, p.
8, and attached Affidavit, p. 4) However, it is not clear from either of
these documents that the discussions included the claims at issue in
this case. An attachment to the Agency's letter refers to "claims
covering fiscal year 1973, 1974 and 1975. . ." and indicates that a
meeting was held "in the latter part of calendar year 1977 with
representatives from HEW and DSS. . ." to discuss the treatment of such
costs. However, the claims in question in the instant case cover the
period January 1970 through June 1974, so that the claims discussed were
not necessarily the same as those covered by the 1977 disallowance.
Moreover, the State's response states that "the issue of claiming
operating costs is now in the reconsideration process as a result of a
disallowance taken against Westchester County. . . ." One reading of
this response is that the State had requested reconsideration of all
claims which were the subject of the discussions. Thus, the claims
covered by the 1977 disallowance would not, under this reading, have
been included in the claims under discussion.
The State also identified as a special circumstance justifying a
review on the merits of the 1977 disallowance the fact that a subsequent
(5) disallowance (Docket No. 79-34-NY-HC) was pending before the
Departmental Grant Appeals Board and "seemed reasonably likely to be
dispositive. . ." of the issue presented in the 1977 claim as well.
(State's brief dated December 13, 1982, p. 2) We are not persuaded by
this argument. It should be noted first that the deadline for filing an
appeal of the 1977 disallowance passed before the disallowance in Docket
No. 79-34-NY-HC was even taken. In any event, the Board's jurisdiction
extends only to the amount specified in the disallowance that is
appealed; thus, the mere fact that the Board was considering the same
issue as was presented in the 1977 disallowance should not excuse the
State from appealing the disallowance of an entirely different amount in
order to preserve its rights with respect to that amount.
Finally, the State asserted that, although the 1977 claims were
disallowed as a charge to title XIX, Agency officials "recognized the
right of the State to reclaim the expenditures under Title IV-A of the
Social Security Act. . . ." The State argued that since a subsequent
amendment to the Social Security Act precluded the State from making its
IV-A claim, the costs should be allowed under title XIX. (State's brief
dated December 13, 1982, p. 9) However, we see no reason why the State's
delay in filing a claim for reimbursement under title IV-A (assuming
that it was entitled to such reimbursement) should excuse the State's
failure to request reconsideration of the disallowance under title XIX.
/4/
Westchester County, in its brief, presented two additional arguments
in support of review on the merits of the 1977 claim. First, it argued
that since the 1982 disallowance does not mention the State's failure to
appeal the 1977 disallowance, the disallowance may not be sustained on
that ground. The County cited as authority for this position 45 CFR
74.304(c), which provides that a disallowance determination must contain
--
(1) A complete statement of the background and basis of the
component's decision, including reference to pertinent statutes,
regulations, or other governing documents; and
(6) (2) Enough information to enable the grantee and any reviewer to
understand the issues and the position of the HHS component.
(County's brief dated December 13, 1982, pp. 5-7)
However, while the 1982 notice of disallowance does not specifically
refer to the State's failure to appeal the 1977 disallowance, the
existence of the 1977 disallowance (which would not have been final had
the State appealed it) is the express basis for the Agency's decision.
Thus, we do not consider the ground for disallowance articulated by the
Agency at the telephone conference and in the brief submitted to the
Board to be an entirely new one. In any event, the Board has taken the
position in other cases that the Agency may advance new grounds for a
disallowance for the first time in proceedings before the Board if under
the circumstances of the case the Board can afford the grantee the same
opportunity to respond to the Agency's position that it would have had
at the time the notice of disallowance was issued.(Hawaii Department of
Social Services and Housing, Decision No. 295, May 7, 1982, pp. 4-5) We
believe that the State and the County have had an adequate opportunity
following the telephone conference in this case to brief the relevant
issue.
The County also argued that the Board should consider the merits of
the 1977 claim in accordance with its authority "to waive or modify any
procedural provision upon a determination that no party will be
prejudiced and that the ends of justice will be served," citing an
appendix to 45 CFR 201.14 published March 6, 1978 at 43 FR 9266-9267.
The County asserted that "no party will be prejudiced by the Board's
rejection of the procedural issue and determination of the substantive
issues" since the State had promised that no duplicate payment would
result from a decision in its favor. The County also asserted that the
"interests of justice" require rejection of the Agency's "procedural
objection." It pointed out in this respect that the County was unaware
in 1977 of the necessity to file an appeal to protect its interests.
(County's brief dated December 13, 1982, pp. 9-10) The provision relied
on by the County is not relevant here, however. It applied to
disallowances under various titles of the Social Security Act appealed
prior to March 6, 1978, and authorized the Chairman of the Department
Grant Appeals Board, who was substituted for the Administrator of SRS
for purposes of 45 CFR 201.14, to waive or modify procedural provisions
of section 201.14. This provision does not authorize us to waive the
finality of the 1977 disallowance pursuant to section 201.14(d)(11),
which is the ground on which we sustain the 1982 disallowance.
(7) CONCLUSION
For the foregoing reasons, we sustain the disallowance of $973,647.
/1/ By letter dated October 29, 1982, Westchester County, New
York, requested that it be permitted to appear with the State in this
case pursuant to 45 CFR 16.16 on the ground that $786,260 of the amount
disallowed is attributable to Westchester County. Neither the State nor
the Agency objected to the County's request, and the request was
granted.(Confirmation of Telephone Conference, dated November 10, 1982,
p. 2) /2/ The State did not dispute the Agency's finding that it
had claimed the same costs twice. /3/ The 1977 disallowance in
the instant case was issued by the Acting Director, Medicaid Bureau,
Health Care Financing Administration (HCFA), in lieu of the Regional
Commissioner of the Social and Rehabilitation Service (SRS), after SRS
was abolished and responsibility for the administration of the Medicaid
program was transferred to HCFA. /4/ The State also asserted at
the telephone conference that the Agency had a practice of paying
duplicate claims, and that its refusal to pay the 1982 claim was
contrary to that practice. (Confirmation of Telephone Conference dated
November 10, 1982, p. 2) Since the Agency denied that its practice was
as represented by the State, and since the State did not document its
assertion or otherwise mention this matter in its December 13, 1982
brief, we do not believe that it warrants further consideration here.
OCTOBER 22, 1983