Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: New Mexico Human Services Department
Docket No. A-96-142
Decision No. QC103
DATE: September 16, 1996
DECISION
The New Mexico Human Services Department (New Mexico) appealed the June 5, 1996 quality control (QC) review determination of the Regional Administrator of the Administration for Children and Families (ACF) in state QC Review No. 2866 (federal QC Review No. 335). The Regional Administrator determined that the Aid to Families with Dependent Children (AFDC) assistance unit (AU) in this case was ineligible for a $336 assistance payment received for the review month of September 1995 because of income earned in the review month.
The AU, composed of two parents and one minor child, initially applied for assistance and was interviewed by the local agency on August 29, 1995. The client mother reported at that time that she was unemployed, and on September 5, the local agency authorized a payment of $336 for the review month. Subsequently, New Mexico's state QC review discovered that the mother had begun employment on August 30. New Mexico Exhibit (Ex.) 1, Attachment (Att.) 3. She had received her first paycheck on September 8, and her earnings rendered the AU ineligible for the entire payment for the review month. New Mexico Ex. 1, Att. 4.
New Mexico argued that the payment to the ineligible AU was not an error because it was made pursuant to the terms of a court order. For the reasons discussed below, we sustain ACF's determination that the AU was ineligible for the review month's payment, and that this payment was an erroneous payment.
1. Legal background
Title IV, Part A of the Social Security Act (Act) establishes the AFDC program to provide assistance to needy children and their caretakers. Under section 408(a) of the Act, the Secretary of the Department of Health and Human Services must establish a quality control system to determine the amount of any erroneous AFDC payments made by a state. Under this system, states review a sample of AFDC payments made during the review period in order to determine the level of erroneous payments. The Act then provides for federal QC re-review of a subsample of the cases reviewed by the state. See section 408(b) of the Act. Pursuant to this statutory mandate, the Secretary has issued regulations for the operation of the federal and state AFDC QC systems. 45 C.F.R. §§ 205.40 through 205.43. Those regulations provide that a state agency must operate its QC system in accordance with applicable regulations and the policies and procedures prescribed in the Quality Control Manuals issued by the Department. 45 C.F.R. § 205.40(d)(1)
QC reviews are conducted against permissible state practice (PSP). 45 C.F.R. § 205.42(b). PSP is defined as "written rules and policies relating to eligibility and payment that are in accordance with existing, approved State plan provisions or with proposed plan amendments submitted to, but not acted upon, by the Department." 45 C.F.R. § 205.40(b)(12).
Section 408(c) of the Act sets forth standards for the identification of erroneous payments, defined at section 408(m)(6) as overpayments to eligible families and payments to ineligible families. Section 408(c) of the Act provides as follows:
(1) APPLY PROVISIONS OF STATE PLAN.--Except as provided in paragraph (2), in determining whether a payment is an erroneous payment, the State and the Secretary shall apply all relevant provisions of the State plan approved under this part.
(2) TREATMENT OF PROVISIONS OF STATE PLAN THAT ARE INCONSISTENT WITH FEDERAL LAW.--
(A) IN GENERAL.--If a provision of a State plan approved under this part is inconsistent with a provision of Federal law or regulations, and the Secretary has notified the State of the inconsistency, the provision of Federal law or regulations shall control.
(B) EXCEPTION.--Subparagraph (A) shall not apply with respect to a payment of the State if--
(i) it is necessary for the State to enact a law in order to remove an inconsistency described in subparagraph (A), the Secretary has advised the State that the State will be allowed a reasonable period in which to enact such a law, and the payment was made during such period; or
(ii) the State agency made the payment in compliance with a court order.
The exception in section 408(c)(2)(B)(ii) is reflected in regulations which state that where the state makes a payment in compliance with a court order, the review shall be conducted against the provisions of the court order. 45 C.F.R. § 205.42(b)(2).
Based on these provisions, the AFDC Quality Control Manual (QCM) states:
Section 408(c)(2)(B)(ii) of the Act provides that, for error determination purposes, the QC review will be conducted against provisions of court orders. We interpret this provision to apply to all Federal, State and local court orders that affect the eligibility and payment status of QC sample cases. Therefore, a sampled case would be considered correctly paid if the AU was paid in compliance with a court order issued by a Federal, State, or local court, and all other eligibility and payment conditions not affected by the court order are correct.
QCM § 3135 (emphasis added).
The QCM also provides that certain types of QC errors, referred to as Payment Adjustment Lag (PAL) errors, are not considered in determining a state's AFDC error rate. Generally, errors occurring because of a change in circumstance which occurred in the review month or the month immediately preceding the review month are PAL errors. 45 C.F.R. § 205.42(d)(1); QCM § 3300. However, section 3300 of the QCM, as in effect at the time of the review month, provides that a regular payment discrepancy results when a change in circumstance occurred prior to authorization of the first check to a newly eligible AU. 1/ Thus, an erroneous determination at initial eligibility which results in an incorrect payment is always considered a regular payment discrepancy. Similarly, section 3420 of the QCM as in effect during the review month provides that any income-related discrepancy caused by an event occurring prior to authorization of the initial payment of assistance is classified as a regular error.
Analysis
The client's employment which produced the income that rendered the AU ineligible commenced after the application interview and before authorization of the initial AFDC payment. The review month's payment was thus classified as a regular error countable for QC purposes. QCM §§ 3300, 3420.
New Mexico argued that, even if the AU was ineligible for the review month payment under federal standards, the payment was not an error under Section 408(c)(2)(B)(ii) of the Act because it was made in compliance with a court order. New Mexico cited the court-approved settlement agreement in the case of Debra Hatten-Gonzales v. Valdez, No. CIV 88-0385JC, a class-action suit alleging, among other causes, that New Mexico failed to timely process applications for AFDC, Food Stamps, and Medicaid. New Mexico relied on a portion of the settlement agreement providing that New Mexico's eligibility workers may not require an applicant to provide verification of a negative statement (a statement that something does not exist or occur, such as a statement that the household has no income) unless that statement is or becomes questionable. 2/ New Mexico Ex. 1, Att. 17, at 11. New Mexico argued that its eligibility workers were required to accept the applicant mother's statement that she was unemployed and had no earnings and thus computed the payment for the review month based on the AU having no earned income.
ACF argued that the payment did not fall within the exception for erroneous payments made in compliance with court orders because the Hatten-Gonzales settlement agreement concerned New Mexico's AFDC application processing practices and did not affect the eligibility or payment status of a case under federal AFDC standards. ACF's argument reflected the Regional Administrator's reasoning that QC error determinations are limited by court orders only where the court orders affect substantive eligibility requirements and not where they only concern a state's procedures for establishing eligibility. New Mexico Ex. 2, at 2. New Mexico argued in response that the exception for court-ordered payments in the law and regulations makes no distinction between those orders that affect procedures and those that affect substantive eligibility requirements.
Where a federal statue is subject to more than one interpretation, the administering federal agency's interpretation is entitled to deference if that interpretation is reasonable and appropriate notice of the interpretation has been given to the state. Pennsylvania Dept. of Public Welfare v. United States Dept. of Health and Human Services, 928 F.2d 1378 (3rd Cir. 1991). For the following reasons, the panel concludes that ACF's interpretation of section 408(c)(2)(B)(ii) is reasonable and that New Mexico had prior notice of that interpretation and is bound by it. Specifically:
o Section 408(c)(1) provides that, in determining whether a payment is an erroneous payment, the state and the Secretary are to apply the relevant provisions of a state plan. Section 408(c)(2)(A) creates an exception to this general rule and provides that federal law should be used in determining whether a payment is erroneous where a state plan provision is inconsistent with federal law and the Secretary has notified the state of the inconsistency.
Section 408(c)(2)(B) creates exceptions to the section 408(c)(2)(A) exception by defining circumstances under which a state plan provision or a judicial construction of a state plan provision, while inconsistent with federal law, would still control the QC review process. State plan provisions typically concern eligibility and payment standards for a state's AFDC program rather than procedural mechanisms for determining payment. Therefore, ACF's construction of section 408(c)(2)(B)(ii) and section 3135 of the QCM as applying only to court orders concerning substantive standards is consistent with section 408(c)(1) and (2).
o ACF's construction of section 408(c)(2)(B)(ii) is also consistent with the design of the QC review process. As a general rule, QC review concerns the accuracy of the payment in the review month, without regard to a state's procedural standards for determining payment and eligibility. As the Regional Administrator's decision noted, this distinction is clearly set forth in section 3410 of the QCM. 3/ Therefore, ACF's limitation of section 408(c)(2)(B)(ii) to court orders involving substantive standards is consistent with QC's focus on determining erroneous payments pursuant to the eligibility and payment provisions of state plans while disregarding a state's procedural methods for determining eligibility and payment.
o New Mexico was given actual notice of ACF's interpretation of section 408(c)(2)(B)(ii) of the Act as it applied to the Hatten-Gonzales settlement agreement in a letter from the Regional Administrator dated November 27, 1990, which was provided by ACF at the request of the Panel. The letter stated that the Hatten-Gonzales settlement agreement simply prescribed the steps that New Mexico must take in processing applications and did not relate to either federal eligibility requirements or factors governing assistance payment computations. The letter advised New Mexico that QC is not bound by the settlement agreement, and that it would be inappropriate for the agreement to be monitored under the QC system.
New Mexico also argued that ACF's distinction between substantive eligibility and procedural requirements was unworkable and did not apply here, because the settlement agreement substantively affected the eligibility and payment status of the case, as it required New Mexico to accept the recipient mother's negative allegation regarding employment income. New Mexico further argued that ACF recognized the difficulty in applying the substantive-versus-procedural distinction when it revised section 3300 of the QCM, effective with the October 1995 review month, to now provide that a regular error results when a change in circumstances (such as employment) occurs on or before the application interview date, and that a PAL error results when the change occurs after the application interview.
We disagree. Here, this AU was ineligible for the review month payment due to earned income which was not considered in determining the review month payment. The fact that the local agency supposedly failed to discover the income because of the Hatten-Gonzales standards goes to New Mexico's "methods for establishing eligibility and payment," and "these procedures are not part of the QC review." QCM § 3140. Thus, if the Hatten-Gonzales standards were solely set forth in New Mexico's policy manuals, we would consider them to be procedural standards which, under section 3140 of the QCM, would not be used in determining the correctness of payment. The fact that the standards are also set forth in a court- approved settlement agreement does make them substantive standards.
We also disagree that the October 1995 revision to section 3300 demonstrates that the application of a procedural/substantive distinction is inapplicable in this case. While under the October 1995 revision this error would have been classified as a PAL error, the AU would still be ineligible for this payment and the payment would have been an error (although not included in determining the error rate). In contrast, the section 408(c)(2)(B)(ii) exception makes a payment which is nevertheless inconsistent with federal standards a correct payment for QC purposes. Therefore, the modification of section 3300 merely expanded the PAL classification for payments which are still incorrect, while the application of section 408(c)(2)(B)(ii) results in a payment being classified as correct.
In this case, the Hatten-Gonzales standards concerning application processing did not make this a correct payment. In arguing that the Hatten-Gonzales decree affects eligibility standards, New Mexico inappropriately gives it broad effect. The lawsuit was brought because New Mexico was allegedly failing to process AFDC, Food Stamp, and Medicaid applications on a timely basis and requiring inconsistent and excessive verification from applicants. 4/ Ex. 1, Att. 17 at 2. In accepting the terms of the settlement agreement, the court wrote:
The benefits of the Agreement run to the class as a whole and serve the legitimate purpose of providing a uniform, fair and simple means by which a family in New Mexico may apply for AFDC, Food Stamp or Medicaid benefits and receive a prompt, informative eligibility decision based on its need for assistance.
Order, New Mexico Ex. 1, Att. 16, at 2.
Plainly, the decree and settlement concern the process by which eligibility is determined, not substantive standards for eligibility. The settlement agreement does not reference or include specific federal eligibility standards. The verification standards and processing standards set forth in the settlement do not make ineligible applicants eligible simply because the local agency failed to ascertain information. For example, if an applicant failed to report excess resources, the fact that the local agency did not know about the resources when it approved the application would not make that applicant eligible under Hatten-Gonzales. Similarly, the fact that the local agency could not require verification of a negative statement does not change the fact that the payment here was an error because the client actually had earned income which made her ineligible.
Moreover, we question whether the Hatten-Gonzales settlement agreement had any actual impact on this case at all. Neither party disputes that the client's representation during the intake interview that she had no income was true at that time. New Mexico has not asserted that it would have made a different eligibility determination in the absence of Hatten-Gonzales, and failed to show that the settlement agreement affected the eligibility and payment status of this case, as required by section 3135 of the QCM. In fact, changes occurring between the time a local agency gathers information and the time it authorizes payment have proven difficult to detect and a contentious source of QC errors. See South Carolina Dept. of Social Services, QC98-R (1996); South Carolina Dept. of Social Services, QC95 (1996); Texas Dept. of Human Services, QC66 (1994); New Mexico Human Services Dept., QC64 (1994); Missouri Dept. of Social Services, QC46-R (1993); Missouri Dept. of Social Services, QC30 (1992). Rather, this is a type of circumstance that, under the QCM in effect prior to October 1995, simply resulted in a regular error.
Conclusion
For the reasons discussed above, we sustain ACF's determination that the assistance unit was ineligible for the assistance payment received for the review month of September 1995.
Sara Anderson
Andrea M. Selzer
Jeffrey A. Sacks
* * * Footnotes * * *
1. This provision was changed effective beginning with the October 1995 review month by ACF Action Transmittal AT-95-7. Current section 3300(C)(10) of the QCM provides that an error resulting from changes in circumstances which occur on or before the application interview date are classified as regular. Example "b" illustrating this provision indicates that an error due to a change which occurred after the application interview but before payment authorization is now classified as PAL. New Mexico Ex. 1, Att 9; ACF Att. 1.
2. New Mexico's AFDC regulations set forth criteria for determining when information is deemed questionable. ISD Regulation 135, New Mexico Ex. 1, Att. 18.
3. Section 3140 of the QCM, "Procedural requirements vs. eligibility requirements," states that:
Procedural requirements are the methods used to determine eligibility and payment. While the local agencies have their own methods for establishing eligibility and payment, these procedures are not part of the QC review though, local agency and QC procedures may be identical for some elements. Instead, QC will independently determine accuracy of payment as of the review date using its own verification procedures. QC's decision will be based on whether or not eligibility and payment for the review month are factually correct, notwithstanding any procedural differences.
4. The settlement agreement states that the plaintiff class charged that New Mexico violated their right to received a prompt eligibility decision (and benefits if eligible) by: failing to inform applicants adequately of eligibility factors which must be verified (and other methods of obtaining verification); imposing inconsistent and excessive verification requirements which discouraged applicants from completing the application process; delaying issuance of eligibility decisions beyond federal time standards; failing to screen Food Stamp applicants for emergency assistance and expedited benefits; and by failing to supply adequate written notice of eligibility decisions. New Mexico Ex. 1, Att. 17, at 2.
(..continued)