DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Oregon Department of Human Resources
Docket No. 86-218
Decision No. 874
DATE: June 5, 1987
DECISION
The Oregon Department of Human Resources (State) appealed the
disallowance
by the Health Care Financing Administration (HCFA) of
$230,996 in federal
financial participation (FFP) claimed under Title
XIX (Medicaid) of the
Social Security Act (Act). The disallowance was
based on a financial
management review by HCFA's Division of Financial
Operations which determined
that the State had made Medicaid payments to
six long-term care (LTC)
facilities with invalid provider agreements.
The provider agreements were
allegedly invalid because the facilities
had not been timely surveyed and
certified as being in compliance with
Medicaid requirements.
The major issues presented are whether HCFA was procedurally correct
in
basing its disallowance upon a financial management review rather
than
an audit, and whether time-limited surveys, certifications, and
provider
agreements are still required for LTC facilities. 1/ For the
reasons
described below, we find that HCFA may base a disallowance upon
a
financial management review and that despite provisions of the
Omnibus
Budget Reconciliation Act of 1981 concerning Medicare
provider
agreements, current regulations require that LTC
facilities
participating in the Medicaid program be surveyed and certified on
an
annual basis. Accordingly, we sustain the disallowance, except for
FFP
claimed for some beds at one facility which, as detailed below, had
been
dually certified as a Medicare/Medicaid facility.
Factual Background
HCFA conducted a financial management review which examined the records
of
all 186 LTC facilities participating in the State's Medicaid program.
The
review disclosed that six facilities had not been certified as being
in
compliance with Medicaid requirements during the period October 1,
1984
through September 30, 1985 (fiscal year 1985). The review
also
determined that the six facilities' provider agreements had not
been
extended as permitted by 42 CFR 442.16. The review determined that
the
six facilities had received payment for claims totalling
$375,359
($230,996 FFP) during periods when the facilities lacked valid
provider
agreements. These periods ran from October 1, 1985 to the day
prior to
each facility's submittal of an acceptable plan of correction, based
on
an annual survey by the State, that brought the facility into
compliance
with Medicaid requirements.
I. Is the disallowance procedurally defective because it was based on
a
financial management review rather than an audit?
The State contended that HCFA acted improperly when it used a
financial
management review as a basis to disallow FFP for a retroactive
period.
The State argued that under regulations the consequences of a
financial
management review are prospective in nature, and are usually
designed to
correct problems in a state's operation of its Medicaid program
so as to
prevent their recurrence. 45 CFR 201.13(b). The State
asserted that
the word "disallow- ance" is nowhere defined in the Act and
that the
only proper procedure for effecting a retroactive disallowance
is
through an audit performed by the Department of Health and
Human
Services (DHHS) Office of Inspector General. The State argued that
the
regulations on reviews and audits, set forth at 45 CFR Part 201,
Subpart
B, support its position.
We find this proposition novel, but totally unsupported by statute
or
regulation. While the State is correct that the Act does not
define
"disallowance," the Act does provide, at section 1116(d):
Whenever the Secretary
determines that any item or class of
items on
account of which Federal financial participation is
claimed under title I, X, XIV, XVI, or XIX, or part A of title
IV,
shall be disallowed for such participation, the
State shall be
entitled to and upon request shall
receive a reconsideration of the
disallowance.
There is no limitation imposed by the Act on the means the Secretary
may
choose to make his determination. The Secretary may choose to
employ an
OIG audit, a HCFA audit, a financial management review, or even an
audit
by an outside source to determine that a disallowance is
warranted.
Nowhere is the Secretary restricted to using only an OIG audit as
the
basis for a disallowance.
Contrary to the State's assertions, the regulations on their
face
contemplate a disallowance being based on a financial management
review.
In describing what information a disallowance letter must contain,
45
CFR 201.14(b)(2)(v) provides:
Findings of fact on which the disallowance
determination is based
or a reference to other
documents previously or contemporaneously
furnished
to the State (such as a report of a financial review
or
audit) which contain the findings of fact on
which the disallowance
determination is based.
(Emphasis added)
In a similar vein, 45 CFR 201.15(c)(10) states:
A decision to pay a deferred claim shall not
preclude a subsequent
disallowance as a result of an
audit exception or financial
management review . . .
. (Emphasis added)
The Board has previously recognized that HCFA may employ either
a
financial management review or an audit as a basis for a disallowance:
[W]here the Agency itself determines, through an
audit or review,
that FFP has been claimed by a
State for improper provider
payments, the policy is
to disallow the costs and to require the
State to
adjust immediately (or on an install- ment plan) when
the
disallowance decision is final.
Florida Department of Health and Rehabilitative
Services, Decision
No. 296, May 14, 1984, p. 12.
Many, if not the majority, of the appeals that have come to the
Board
involving issues relating to the survey and certification of
Medicaid
providers, such as the one at issue here, have arisen not from
audits,
but from a HCFA review of a state's Quarterly Expenditure
Report. To
require, as the State suggests, that HCFA would have to
delay issuance
of a disallowance until an OIG audit in effect duplicated the
findings
of a review would place form over substance. As HCFA has
pointed out,
the State has not contested the amount or the substance of
the
disallowance, only the procedure HCFA used in disallowing FFP. If
the
Board were to ignore the regulations cited above and find, as the
State
would have it, that the disallowance was defective procedurally,
HCFA
could simply request the OIG auditors to confirm the review's
findings
and then issue another disallowance. We do not believe that
judicial
economy would be benefitted by such a hollow exercise. In
conclusion,
then, we find that HCFA's use of a financial management review as
a
basis for this disallowance was permissible under the Act and
the
regulations.
II. Were the facilities' certification periods and provider
agreements
time-limited to 12 months?
Applicable Statutes and Regulations
Section 1866(a)(1) of the Act, concerning the provision of
Medicare
services, originally provided, in part:
An agreement under this paragraph with a skilled
nursing facility
shall be for a term of not
exceeding 12 months. . . . 2/
A skilled nursing facility's (SNF) provider agreement for participation
in
the Medicare program thus could not exceed 12 months. In order to
have
uniform procedures for both the Medicare and Medicaid programs,
DHHS
promulgated regulations setting forth requirements for time-limited
provider
agreements in the Medicaid program. Thus, provider agreements
for SNFs
and ICFs can not exceed 12 months. 42 CFR 442.15(a). Before
a
provider agreement can be executed by a state Medicaid agency with
an
SNF or ICF and Medicaid payments made to the facility, the
facility
first had to be certified as meeting Medicaid requirements. 42
CFR
442.12. The length of a provider agreement must be for the
same
duration as the facility's certification (42 CFR 442.15(b)), with
the
maximum period being 12 months (42 CFR 442.110(a)).
The Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub. L. 95-35,
at
section 2153, repealed section 1866(a)(1) of the Act, thereby
removing
the 12-month limit on provider agreements for SNFs participating in
the
Medicare program.
Discussion
The State contended that HCFA's use of 42 CFR 442.15 and its
accompanying
regulations as grounds for denying the State's claim for
FFP was unjustified
because that regulation had effectively been
invalidated by OBRA's repeal of
section 1866(a)(1). The State reasoned
that, since the Secretary had
promulgated 42 CFR 442.15 in response to
section 1866(a)(1) in order to
conform Medicaid requirements with those
of Medicare, the abolition by
Congress of section 1866(a)(1) had also
invalidated the rationale for the
regulations. The State argued that
OBRA's repeal created great
confusion, both in HCFA and among the
states, as to the status of time-
limited certification periods and
provider agreements. According to the
State, HCFA initially proposed to
change its regulations on time-limited
provider agreements to conform
with OBRA and its own studies on the subject.
This Notice of Proposed
Rulemaking (NPRM), set forth at 47 Fed Reg. 23404
(May 27, 1982), would
have removed time- limited agreements for SNFs and ICFs
in the Medicaid
program. HCFA stated that "elimination of the uniform
time restriction
will allow the flexibility needed to manage the survey and
certification
process more effectively, to better ensure compliance, and to
relieve
states of a substantial paper-work burden." 47 Fed. Reg.
23404, at
23405. HCFA's stated intent was "to establish a more
reasonable survey
cycle of facilities based upon the facility's compliance
history." Id.,
at 23406. HCFA proposed a flexible survey cycle
whereby facilities with
a history of poor compliance would be surveyed more
often than the
existing regulations required, while LTC facilities with a
good
compliance record would have to be surveyed only every two years.
Id.
In addition to the NPRM, the State furnished the Board with
HCFA
correspondence from 1981 to 1984 on the subject of
time-limited
certifications. State Exs. 6-12. This
correspondence, according to the
State, demonstrates confusion and
inconsistencies on HCFA's part. On
November 20, 1981, for example,
HCFA's Associate Regional Administrator
informed the State:
For Medicaid-only cases, our advice to you is to
stop limiting
long-term care certifications to 12
months.
State Ex. 6, p. 1.
Yet by June 7, 1983, HCFA's Associate Regional Administrator wrote
the
State:
Annual inspection of all long-term care facilities
annually
continues to be a requirement under
law. As such it is to receive
the highest
priority.
State Ex. 8, p. 1.
An August 9, 1984 memorandum from the Director of HCFA's Division
of
Health Standards and Quality Bureau to all Associate
Regional
Administrators noted that HCFA's policies for flexible survey cycle
had
changed and that, following a liberal phase-in period for a return
to
full compliance, annual surveys and certifications for LTC
facilities
would be required. State Ex. 12.
The State argued that this series of correspondence, plus other letters
in
the record, made it "virtually impossible for Oregon to understand
HCFA's
policy and directions" regarding time-limited surveys,
certifications, and
provider agreements. State Appeal Brief, p. 6. In
light of HCFA's
proposed regulation and the confusion evidenced by the
cited correspondence,
the State contended that it was reasonable for the
State to rely on the
relevant statute, OBRA's explicit repeal of section
1866(a)(1), and the clear
intent of Congress to eliminate unnecessary
surveys and paperwork as having
superceded HCFA's existing regulatory
requirements. The State concluded
that, once Congress made a
substantive change in the Act, HCFA was precluded
from again enforcing
the regulatory requirement for time-limited
agreements.
In the event that the Board should find HCFA's re-implementation of
the
12-month requirement valid, the state argued alternatively, the
State
should receive a waiver of the disallowance because of its
substantial
compliance with the regulations. The State pointed out that
only six of
186 LTCs were not timely surveyed. The State claimed that
it was not
until a June 13, 1984 letter from HCFA (State Ex. 11) that it
was
officially notified that HCFA's policy was that all LTCs must
be
surveyed, and that consequently it was unreasonable for HCFA to
expect
the State could implement such a significant change in procedure
and
staffing to survey all the LTCs in the remaining four months of
fiscal
year 1984. In light of all circumstances, the State maintained
a
substantial compliance waiver was justified.
Notwithstanding the State's arguments, we find HCFA's
disallowance
justified. Section 1866(a)(1) of the Act originally
required that under
the Medicare program provider agreements were to be
limited to 12
months. The DHHS Secretary then, by regulations, applied
that standard
to the Medicaid program. OBRA eliminated the 12-month
requirement from
the Medicare program. The independent regulations for
the Medicaid
program were not affected by OBRA. As HCFA pointed out,
nothing in OBRA
prohibits regulatory requirements for time-limited provider
agreements
for SNFs and ICFs in the Medicaid program. HCFA has never revoked
42 CFR
442.15 and it remains an existing regulatory requirement under
the
Medicaid program. The Board is bound by all applicable laws
and
regulations. 45 CFR 16.14.
As to the State's confusion arising from the HCFA correspondence, we
agree
that HCFA's policy on time- limited agreements was not constant.
This
argument by the State, however, is simply not relevant to the
period of the
disallowance. It must be noted that beginning June 7,
1983 (State Ex.
8) HCFA notified the State that it expected all LTC
facilities to be
surveyed annually. All the subsequent correspondence
in the record
before us repeats HCFA's insistence that the facilities
must be surveyed
yearly. Recognizing the possible difficulties states
might have in
re-implementing the time-limited standards, HCFA allowed
the states, in an
August 9, 1984 memorandum, a liberal phase-in period
for returning to full
compliance. State Ex. 12. HCFA explained that
the "liberal
phase-in period" ended September 30, 1985. HCFA Brief, p.
9.
It should be emphasized that the disallowance here was for payments
made
to the six LTC facilities after October 1, 1985. The State had
more
than adequate notice -- 27 months from the June 7, 1983 letter --
that
it was required to survey and certify the facilities annually. In
fact,
the record contains an April 10, 1984 letter (State Ex. 10) and a
May
21, 1984 letter (HCFA Ex. 1) from the State in which the State
expressed
its intention to certify all the LTC facilities.
Nor do we find the fact that HCFA once proposed regulations to
eliminate
the 12-month limitation persuasive. As the State noted, the
NPRM was
never promulgated. Proposed regulations are only administered
and
enforced after they are issued as final regulations. National
Treasury
Emp. Union v. Devine, 733 F.2d 114, 117 (D.C. Cir. 1984). The
proposed
regulation to rescind the 12-month requirement thus did not render
42
CFR 442.15 void. 3/
In conclusion, we find that the Medicaid regulations
requiring
time-limited surveys and provider agreements were never repealed,
and
that, while for a period HCFA chose not to enforce those
regulations,
during the period at issue here all LTC facilities were required
to be
surveyed and certified annually.
As to the State's alternative request that it receive a waiver of
the
disallowance because of its substantial compliance with the
time-limited
requirement, the State has not cited to any provision in the Act
or the
regulations whereby such a waiver could be granted. The
regulations at
issue require that a facility must be surveyed and certified
on an
annual basis. The State failed to meet that requirement for
six
facilities. It did not seek a two-month extension as permitted by
45
CFR 442.16 to survey and certify the facilities. We know of
no
"substantial compliance" policy in the regulations for the survey
of
SNFs and ICFs. Furthermore, the granting of waivers of Medicaid
program
requirements does not fall within the Board's
jurisdiction.
Accordingly, we are unable to grant the State's request for a
waiver.
III. The Status of Molalla Manor
One of the six facilities involved in this disallowance, Molalla
Manor,
was a dually certified Medicare/Medicaid facility. HCFA denied
FFP for
services performed at Molalla Manor from October 1, 1985 to December
31,
1985. In the course of this appeal the Board asked the parties
whether
Molalla Manor's status as a dual facility merited special
consideration
in light of 42 CFR 442.20. This regulation provides that
a state
Medicaid agency's provider agreement with an SNF also participating
in
the Medicare program must provide for the same terms and conditions
as
Medicare certification and must be for the same duration as the
Medicare
certification.
In a telephone conference the Board asked the parties if Molalla Manor
had
a valid Medicare provider agreement during the period at issue.
The
parties agreed that Molalla Manor had such an agreement for the
period
December 31, 1984 to December 31, 1985. HCFA then submitted HCFA
1539
forms which indicated that 12 beds at Molalla Manor were
dually
certified, with 80 other beds certified as ICF beds. HCFA
conceded that
the disallowed costs attributed to Medicaid SNF patients
occupying those
Medicare-certified beds should be allowed.
We conclude, therefore, that, even though a Medicaid provider
agreement
might not have been executed with Molalla Manor, the
12
Medicare/Medicaid beds were properly certified on the basis of
the
Medicare provider agreement as allowed under 42 CFR
442.20.
Accordingly, the State's claim for FFP for services represented by
those
12 beds should be upheld. That does not mean, however, that
the
remaining ICF beds were also properly certified. While the
standards
for an SNF are generally more strict than an ICF, an ICF has
distinctive
requirements that must be met before it can be certified for
Medicaid
services. See 42 CFR 442.254 and Maryland Department of Health
and
Mental Hygiene, Decision No. 229, November 30, 1981.
Conclusion
For the reasons given above, we sustain the disallowance of
$230,996,
except for the portion of FFP for claims represented by the 12 beds
at
Molalla Manor.
________________________________ Donald F. Garrett
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz Presiding
Board
Member
1. The term "long-term care facilities" includes both
intermediate
care facilities (ICFs) and skilled nursing facilities
(SNFs). ICFs are
certified only under Medicaid; SNFs can be certified
under either
Medicaid or Medicare, or under both.
2. Section 1866(a)(1) further provided that an agreement may
be
extended up to two months if the Secretary determines the extension
is
necessary to prevent irreparable harm to the facility or hardship to
the
patients, or if he finds it is impracticable to survey and certify
the
facility within 12 months; this provision is implemented in 42
CFR
442.16. This exception is not involved in this appeal.
3. The State relies on Liegl v. Webb, 802 F.2d 623 (2d Cir.
1986).
There the court said that, while HCFA's proposed rules on
spend-down
could not be construed as new policy, they might be considered
for
clarification of existing policy when other statements were
ambiguous.
This case is not in point here, since for the period of the
disallowance
HCFA's policy was not ambiguous, but was perfectly clear.
Also, in
Liegl, the NPRM was considered to interpret an Action Transmittal to
the
Medicaid Manual; here we have a valid existing
published