Gab Decision 030
December 9, 1979 United Progress, Inc. (UPI), Health Services
Administration Project Grant Grant No. 02-H-0,00071-03 Docket No. 75-8
Dukes, David; DeGeorge, Francis Hiller, Manuel Panel Chairman
This is an appeal from the recommendation made by the HEW Audit
Agency, and concurred in by the HSA Review Committee, that appellant be
required to recover the sum of $16,849 representing fees received by
physician-employees for treating Medicaid patients in violation of their
agreement with the grantee's delegate, the Trenton Neighborhood Family
Health Center, Inc. (TNFHC). The Review Committee has advised the
appellant to return the $16,849 as unauthorized expenditure of grant
funds.
United Progress, Inc., was first funded in April, 1969, by HSA of PHS
under Section 314(e) of the Public Health Services Act. The award
contemplated the operation of a family health center in the impacted
area of Trenton.
A new corporation, Trenton Neighborhood Family Health Center, Inc.
(TNFHC) was organized in 1969 for the purpose of conducting the
operations of the center as a subcontractor of the Grantee or delegate
agency. However, organizational problems and disputes between the
Grantee and TNFHC delayed the subcontracting until the Summer of 1971.
TNFHC provides general medical and specialized health services
(pediatrics, obstetrics, gynecology, and psychiatry) for about 16,000
eligible individuals. For the fiscal grant period June 1, 1975 to May
31, 1972, the health center expended $1.7 million for these services, of
which $1,563,329 was provided from Federal funds. A staff of 106
employees, including physicians, nurses, and other administrative and
maintenance personnel are responsible for the operation of the health
center.
The DHEW Audit Agency made an audit of the Grantee's operational
costs for the fiscal year ended May 31, 1972, and issued an audit report
(Control No. 50023-02) on July 19, 1974.
The report states: "Although we found no discrepancies or
questionable items during our review of TNFHC grant expenditures, we did
find that physician-employees instead of the health center had received
the Medicaid payments of $16,849 for treatments provided to TNFHC
patients."
The auditors recommended that TNFHC attempt to recover the Medicaid
fees collected by the physicians; determine whether similar conditions
existed during the 1973 calendar year; and institute procedures to
assure collection of all Medicaid fees.
TNFHC entered into contracts with each of its physician-employees
providing for their compensation by TNFHC, one provision of which
contract states as follows:
"The Contractor agrees to allow the Agency to collect all fees for
all Medicaid patients or all patients under the jurisdiction of the
Agency, (or another third party insurance plan) seen by him while he is
in the employment of the Agency. In no event, shall the Contractor
demand additional payment from the patient for his services."
(Underlining Supplied.)
Despite this provision the auditors found that at least four of the
physician-employees had billed and received payments from Medicaid. The
review by the auditors, on a statistical sampling basis for each of the
four physicians is shown below.
*2*Total *3*Health Billings Center
Patients *2*Under *3*Billed
Medicaid Under Medicaid Percent of No.
of Total No. of Patients
Payments Patients Patients
1.Obstetrician 134 $13,494 33% 44 $5
2. Obstetrician 493 42,801 10 48 5
3. Pediatrician 333 9,087 28 94 3
4. Psychiatrist 30 3,617 37 11 2
990 $68,999 20 197 $16
The examples selected by the auditors and set out in the audit report
(p. 4) identify dates of patient visits and amounts for which Medicaid
was billed. These services were performed both during the period the
appellant -- TNFHC delegate contract was in effect and subsequent
thereto.
The delegate contract between appellant and TNFHC was terminated by
appellant for cause; the effective date of such termination was
December 17, 1971. /1/ Subsequent to that date, and until June 1, 1973
when the City of Trenton was substituted as grantee, UPI provided the
services. The auditors' sample review thus reflects that the improper
practices of the physicians in collecting Medicaid fees occurred both
when TNFHC was the delegate providing the services and subsequently when
UPI provided them. In response to this Board's inquiry, UPI advised
that upon termination of its contract with TNFHC UPI continued the
employment of the identified physicians under the same terms which were
provided at TNFHC. /2/
The sole issue in this appeal, then, is the extent of appellant's
responsibility for the misdeeds of the physicians both during the time
they were employed by appellant's subcontractor and when directly
employed by UPI.
Decision
For the reasons stated below, the Board concludes that the appeal be
sustained for we decide that appellant should not be required to refund
the $16,849.
In its appeal, appellant concedes the impropriety of the physicians
being paid twice for the same services, and the fact that the Medicaid
authorities were kept ignorant of the contract agreement prohibiting the
physicians from billing Mediciad. There is no dispute concerning the
amount of the fees improperly collected by the physicians.
UPI bases its appeal on four grounds:
1. There was no mismanagement of grant funds;
2. The audit record does not support the exception even if lost
third party claims be assumed;
3. The grantee was under no obligation to save HEW harmless from the
wrongful acts of the doctors; and
4. There was, at the time of the grant, no practical way the grantee
could have saved HEW harmless.
We now consider these arguments seriatim.
1. We agree that there is absent in this case any element of
mismanagement or improper expenditure of grant funds. However, there
are involved two aspects of grantee responsibility; namely, the
managerial obligations of appellant in respect to overseeing the
performance of the delegate TNFHC and, in turn, its oversight of its own
employees' compliance with the terms of the employment contract; and
UPI's obligations respecting its physician-employees during the period
subsequent to termination of the TNFHC contract.
As to the first, it is noted that the Public Health Service Policy
Statement of July 1, 1968, in effect during the period of this grant,
governing Health Services Development Project Grants under Sec. 314(3)
of the Public Health Service Act, states:
"The grantee assumes responsibility for fiscal, administrative, and
program management and fulfillment of all special conditions which may
be prescribed for the conduct of the grant."
We do not read such provision to impose upon the grantee an
intolerable, if not impossible, burden of that level of surveillance of
its delegate agency's activities which would have been effective in
ascertaining the physicians-employees' violation of their contractual
prohibition against receiving payment for Medicaid patient services.
The appeal record contains no information whatever as to the extent, if
at all, TNFHC did bill and receive payment from Medicaid for services
provided to such patients. /3/ If no such payments were ever received by
TNFHC, that circumstance might have alerted both it and UPI that inquiry
should be made, since it would be highly unlikely that not a single
Medicaid beneficiary would have sought and received services at the
Center. However, it would be manifestly inequitable to reach a decision
adverse to the grantee in the absence of relevant information and on the
basis of mere speculation. Consequently, we cannot ascribe to appellant
any dereliction of duty in oversight of its delegate's administration of
its employment contracts.
Nor can we reach a contrary conclusion respecting the period
following the termination of the TNFHC contract when appellant was
providing the services. Although the physicians, employment directly by
UPI was subject to the same proscriptions we find no basis to assert
that appellant had a duty to regularly inquire of its
physician-employees concerning their filing claims for Medicaid patient
services.Even if such duty can be said to have been required by the
above quoted policy statement, it is most unlikely that the employees
would have disclosed their improprieties.
2. While this point is not clearly stated, we must assume that it
argues against justification for the exception by reason of the failure
of UPI to assert and collect service charges from Medicaid. Failure to
do so, would not in our view, have exposed appellant to liability to
repay the grantor the amount due from Medicaid. Whatever other
sanctions might be available to the grantor, we can find no basis for
requiring payment to the grantor for funds uncollected but due from
other sources. In fact, PHS policies suggest the reverse. Sec. 2b of
the Policy Statement alluded to above provides, in pertinent part:
"Anticipated income from fees to be charged for the project services
may not be included in the grantee's share of project costs. However,
income from fees may be retained by the grantee and used to further the
purpose for which the grant award is made in accordance with the
policies set forth in Section 8."
And Section 8, after reiterating the quoted policy stated in Section
2 provides that:
"Fees on hand at the termination of the project period may be
retained by the grantee to further the purpose for which the grant was
made."
The foregoing policy statements negate any suggestion that grant
income must be returned to the grantor. Under these circumstances, we
can perceive no obligation upon the grantee to refund to the grantor
service fees which it might have but did not collect from Medicaid.
We are not unmindful of the provisions contained in Sec.51.405(m) of
the Public Health Service Regulations which calls for maximum
utilization of other Federal resources prior to use of project funds, or
the guidelines for projects supported by grants under Section 314(e) of
the Public Health Service Act. The latter states that projects should
"b. Seek all sources of reimbursements for medical care services, e.g.
Titles XVIII and XIX of the Social Security Act . . ." Neither of the
referenced provisions appear to impose a mandate or legal obligation,
failure to comply with which subjects the grantee to financial
liability; rather, the provisions are hortatory in nature. If it was
the intention of the grantor agency to create a clear and firm fiscal
responsibility in this regard, neither of the provisions is effective,
in our view, to accomplish such a result.
3 & 4. These arguments may be dealt with together since they are
really only two facets of a single point. Regardless of whether the
acts of the physicians were wrongful because of, or even in the absence
of, a prohibition in the employment contract, we are aware of no
provision of law or regulation which would mandate the grantee to repay
the grantor for the payments received by appellants' employees. Those
payments did not derive from the grant funds but from another source,
albeit a government instrumentality. Neither the audit report nor the
Review Committee have established that the grant funds were not expended
in a manner consistent with the requirements of the grant. What is here
involved is additional income which should have inured to the benefit of
the grant project and its beneficiaries rather than to the physicians.
We agree, as contended by the Review Committee, that the "grantee is
accountable for maintaining adequate controls to assure that only
appropriate expenditures of grant funds are made." There has been no
showing, or even an allegation, that any of the grant funds were not
"appropriately" expended. We do not agree that such accountability
reaches to the requirement for repayment of funds wrongfully obtained
without the knowledge or consent of the grantee.
In so concluding we are not unmindful of the fact that better
management controls might have prevented the dual payments here involved
and would have enlarged the capacity of the grantee to provide
additional services. However, it would appear that that objective can
no longer be attained by the recommendation made by the Review
Committee, even if legally or equitably meritorious.
Notwithstanding our decision in this case, we are constrained to
point out that appellant does not manifest that level of integrity
expected of grantees. It persists in its communication to the Board on
June 17, 1976, in denying knowledge of the identity of the physicians
involved despite the record reflecting that they were informed as to the
names of the doctors as long ago as November 28, 1975. Nor are we
impressed by the quality of the grantee's discharge of its managerial
responsibilities.
Finally, we would emphasize that the decision herein is not to be
regarded as a precedent for any future case.
The appeal is sustained. /1/ UPI letter of June 17, 1976. But see
UPI letter of 9/17/75 in which it was stated that the
subcontract was terminated in September, 1971. Minutes of UPI Board
meeting of September 19, 1971 indicate decision was made then to
terminate the contract with TNFHC. /2/ See letter from UPI dated
8/13/76 to Panel Chairman. /3/ By letter of 11/5/76, UPI
advised the Board as to the procedure followed by both TNFHC and
itself in making Medicaid claims.
OCTOBER 04, 1983