DAB Decision 64
August 16, 1979 Michigan Department of Social Services; Docket No.
78-15-MI-ME; Decision No. 64 Dukes, David V.; Kelly, Bernard E. Mason,
Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Chairman. Similar official summaries of earlier cases
appear in 45 CFR Part 16 Appendix.)
The Federal financial participation (FFP) was claimed by the State under
Title XIX of the Social Security Act (Medicaid) at 100% for expenses of
a Regulation and Review Unit (RRU) which performed activities related to
surveys of long term care providers, but did not directly provide
inspections. The Administrator of the Health Care Financing
Administration (HCFA) was sustained by the Panel, reviewing under 45 CFR
Part 16, as amended, in holding that 100% reimbursement is available
only for activities more directly related to inspection and training of
inspection personnel.
In a procedural note (pp. 1-2), the Panel emphasized that the Board's
objective is never merely formal compliance with procedural
requirements, but rather elimination of formalities wherever possible,
getting as directly as possible to the substance of the issue.
DECISION
The Michigan Department of Social Services, by letter dated and
postmarked May 4, 1978 filed an application for review of disallowances
of $33,361.94 of Federal financial participation (FFP) under the
Medicaid Program, Title XIX of the Social Security Act, made by former
Region V Commissioner, SRS, Clyde Downing, and affirmed in a letter
dated April 5, 1978, by Robert A. Derzon, then Administrator of the
Health Care Financing Administration (HCFA).
I. Procedural Background
In a letter dated May 17, 1978, the Executive Secretary of the
Departmental Grant Appeals Board requested that the State, which was
entitled to make an election between proceeding under 45 CFR Part 16 and
45 CFR 201.14, make a clearer statement of the procedures under which it
was seeking review. In a letter dated May 26, 1978, the State expressed
its intent to proceed under 45 CFR Part 16.
On June 12, 197? the Executive Secretary of the Departmental Grant
Appeals Board notified HCFA of the State of Michigan's appeal and
requested a response within thirty days. The Agency requested and was
granted an extension of time until August 31, 1978 in which to respond.
The Agency submitted on August 31, 1978 a "Response of the Health Care
Financing Administration to the Application for Review of the State of
Michigan," accompanied by a "Memorandum in Support of Respondent's
Response to Petitioner's Application for Review and in Support of
Respondent's Motion for Decision on the Record."
On 'lay 1, 1979 the Chairman issued an Order to Show Cause to the
parties requesting a response within 30 days. The Agency on May 8, 1979
filed a "Response of the Health Care Financing Administration to the
Grant Appeals Board's May 1, 1979 Order to Show Cause." In a letter
dated May 14, 1979 the Executive Secretary advised the Agency that its
May 8, 1979 submission failed to respond to the questions raised in the
Order and that the panel might proceed to decision drawing whatever
inferences may appear appropriate from the Agency's failure to respond.
On May 15, 1979 the Agency filed a "Further response of the Health Care
Financing Administration to the Grant Appeals Board's May 1, 1979 Order
to Show Cause and to the Executive Secretary's May 14, 1979 letter."
'(Page 02 - 64 - 08/16/79)'
Counsel's filing of May IS, 1979 does constitute a formally correct
response to the question and a formally correct response is clearly
better than none. We had hoped to make clear however at the May 3
conference on Board procedures in reconsideration cases that our
objective is never merely formal compliance. It is a basic principle of
the Board's approach to eliminate mere formalities wherever possible and
to get as directly as we are able to the substance of the issue. If we
had felt that mere formal compliance was sufficient, we would not have
asked the question at all and would thus have eliminated an unnecessary
formal step. The expression "other related costs incurred as a direct
result of survey or survey related activity" occurs (in an Agency
Information Memorandum IM-17 discussed below) in a way that can be read
broadly as including a wide range of survey related activity as the
State contends or narrowly as controlled by its context: "travel and
per diem allowances and other related costs..." The reason we asked the
question was that, while tentatively the position of the agency appeared
persuasive on the question of the interpretation of the term "survey
related" and other similar expressions, there appeared to be enough
doubt as to its correctness to require serious consideration of the
possibility of a contrary view, especially in the light of the obvious
principle that an ambiguity may properly be resolved against the
draftsman. Faced with this doubt, it would have been helpful to the
Board in reaching an informed conclusion to have the benefit of
counsel's assistance in a more than merely formal compliance. This is
why the question was asked and why the answer was disappointing.
Deprived of counsel'' assistance, we have examined the question further,
relying principally on the statute itself and its legislative history
rather than on the Agency interpretation, but we would have welcomed a
fuller response from the Agency.
The State filed its response in a letter dated May 31, 1979.
Statement of the Case
Section 1903(a)(4) of the Social Security Act (55A) authorizes 100%
reimbursement of costs incurred by a State for compensation or training
of personnel responsible for inspecting public or private institutions
to determine whether they comply with health or safety standards. Other
provisions of the 55A authorize various lower levels of reimbursement.
In particular, section 1900(a)(7) authorizes 50% reimbursement of costs
incurred for expenses not specifically covered in other subsections of
1903 (a).
The FFP disallowed in this case was claimed by the State for expenses of
the Regulation and Review Unit (PRU) of the Michigan Department of
Social Services. Disallowances of FFP for the expenses of the RRU were
made for the quarters ending, June 30, 1974 ($10,640); September 30,
1974 ($6,750.14); December 31, 1974 ($8,112); and March 31, 1975
($7,859). The respective disallowances represent the difference between
the 100% Federal reimbursement rate claimed by the State and 50%
reimbursement which the Agency contends is the proper rate.
'(Page 03 - 64 - 08/16/79)'
In March 1974, the Michigan Department of Social Services established
the RRU, the major purpose of which was to monitor and coordinate the
survey, certification, and also to review activities of all state
agencies involved with long-term care providers participating in the
Title XIX program to insure compliance with federal rules and
regulations. (See Record-Tab 3).
Although the RRU is described as "responsible for monitoring each
skilled nursing facility (SNF) and intermediate care facility (ICF) to
ensure compliance with Federal regulations pertaining to the Medicaid
program" (See Record - Tab 19), it did not itself conduct the on-site
inspections. The following functions are performed by the RRU in
accordance with the unit's organization chart (See Bureau of Medical
Assistance Program Description (Tab 1) and finding by then Regional
Commissioner, Clyde Downing, which were adopted by the Administrator, in
his April 5, 1978 notification letter):
"(A) Review and interpret Federal regulations pertaining to
SNF's and ICF's (B) Coordinating with the Michigan Department of
Public Health the general overall survey process, as it relates
to certification and issuance of provider agreements. (C)
Coordinating with HEW, Social and Rehabilitation Service
representatives concerning certification and issuance of provider
agreements. (D) Review and take necessary action as required on
recipient and or provider certification complaints. (E) Review
of Michigan Department of Public Health's physicians' reports
and nursing evaluations to ensure that patients are receiving the
proper level of care at all times and that accurate reports are
being made on a timely enough basis in order for the single state
agency to make proper payment. (F) Coordinating certification and
issuance of provider agreements as it pertains to the State
mental institutions and hospitals."
A February 7, 1975 letter from the then Acting Regional Commissioner,
Clyde V. Downing, disallowed for 100% reimbursement the expenses of the
RRU stating that "this department function is not on-site survey but
coordination and monitoring which is an administrative function and
therefore only matchable at 50%." A February Il, 1975 letter from Mr.
Downing gave as the reason for disallowance of expenses of the RRU that
it "does not conduct on-site inspections to determine whether
institutions comply with health and safety standards...." (See Record -
Tabs 4&5).
'(Page 04 - 64 - 08/16/79)'
The State's November 4, 1976 "Brief in Support of Michigan Department
of
Social Services Claim for Reimbursement' states that: "The Petitioner
does not quarrel with HEW's characterization of the function of the
Regulation and Review unit."
The Statute
As noted above, Section 1903(a)(4) of the 55A (enacted October 30, 1972,
effective for the period beginning October I, 1972) provides:
"an amount equal to 100 per centum of the sums expended during
such quarter (as found necessary by the Secretary for the proper
and efficient administration of the State plan) which are
attributable to compensation or training of personnel (of the
State agency or any other public agency) responsible for
inspecting public or private institutions (or portions thereof)
providing long-term care to recipients of medical assistance to
determine whether such institutions comply with health or safety
standards applicable to such institutions under this Act;"
This full reimbursement is available only through FY 1980 and apparently
is intended as an attempt to upgrade inspection activity rather than to
establish a permanent system. The described functions of the RRU, while
they have some relation to inspection do not appear to include either
inspection or responsibility for inspection. The State's position that
costs of activity which merely related in some way to on-site
inspections should be reimbursable does not appear to match the stricter
language of the statute.
Legislative History
One of the objectives of Congress in enacting section 1903(a)(4) as part
of P.L. 92-603, Section 249B was to place the Medicaid and Medicare
programs on the same footing with respect to reimbursement and survey
personnel. The Senate report states:
"At present, Federal matching funds for inspection of skilled
nursing facilities participating in the medicaid program are
limited to 75% of necessary costs while reimbursement for
inspection of medicare extended care facilities is 100 percent of
necessary costs. The President has recommended that survey and
inspection costs of nursing facilities participating in the
Medicaid program be 100% federally financed." 5. Rep. No.
92-1230, 92nd Cong. 2d Sess 319 (1972).
'(Page 06 - 64 - 08/16/79)'
The Senate Report also states that:
"Present State inspection systems for Medicaid skilled nursing
facilities and intermediate care facilities are less effective
than could be, due in part to the reduced reimbursement rate of
these inspections... Another result of this difference in
reimbursement has been an inadequate number of skilled nursing
facility and intermediate care facility inspectors... full Federal
funding of the reasonable costs of nursing facility inspections
would improve the present system of determining an institution's
qualifications to participate in medicaid and medicare and serve
to upgrade and standardize the quality of services provided by
nursing facilities." Id.
This passage suggests a direct relationship to actual inspection costs
which the RRU does not appear to meet.
The Agency Interpretation
The Agency, in an interpretation issued shortly after the enactment of
the statute (approximately eight months), takes the view that 100%
reimbursement is available for compensation of surveyor personnel
engaged in on-site assessment and for expenses of supervisors of
surveyors, for travel and per diem allowances and other related costs
incurred as a direct result of survey or survey related activity, and
for the clerical and secretarial staff directly supporting such
activities. (Information Memorandum 17 ("IM-17") apparently transmitted
to all states, June, 19731. The term 'other related costs incurred as a
direct result of survey or survey related activity" is indeed
susceptible, standing alone, to a wide reading, but it occurs in a
context that seems to confine it to a fairly narrow area.
In this case, the Agency, consistently with the IM-17 reading of the
statute, takes the view that expenses for the activities of the RRU less
directly related to survey activities, are not covered.
That interpretation, adopted and communicated shortly after the
enactment of the statute appears to be a reasonable interpretation of
the statute in the light of its purpose.
Regulation
45 CFR 250.120(d) (39 FR 16970, May 10, 1974-effective July 24, 1974)
provides for 100% FFP for compensation and training costs of personnel
who are responsible for inspecting public or private skilled nursing or
intermediate care facilities. Subpart(e) of that section provides for
FFP at 50% for costs of all other staff employed in the administration
of the plan.
'(Page 06 - 64 - 08/16/79)'
The Agency does not rely on these provisions to support the
disallowances, recognizing that they became effective after certain of
the claim periods involved. The Agency asserts, however, that these
provisions could furnish support for the two disallowances (quarter
ending December 31, 1974 and quarter ending March 31, 1975) after their
effective date.
Issues raised by the parties
The State asserts that the RRU was established with the verbal
understanding that 100% matching federal funds were available for its
operation. (See Record-Tab 3). The Agency asserts that the allegation
of verbal understanding is unsubstantiated and if accepted it would open
the Department to great hazards. The Agency also argues that there is
no way of testing the validity of the alleged statement of assurances.
No further evidence has been offered by the State to corroborate its
contention of a verbal understanding.
The Board will not readily accept unsupported allegations of verbal
understandings, particularly when they are contrary to the Agency's
clearly stated written position. Southern University, DGAB Docket No.
29, Decision No. 24, June 29, 1976, p. 3. Cf. State of Nebraska, Title I
Audit Hearing Board Docket No. 8-(10)-74, October 16, 1975, p. 17.
The State asserts that IM-17 is unenforceable because it exceeds the
scope of Section 1903(a)(4) in that the term personnel responsible for
inspecting institutions" is improperly limited by IM-17 to surveyor
personnel only. As noted above, IM-17 appears to be consonant with the
statute and the State has apparently misread IM-17, which clearly
authorizes reimbursement not only for surveyor personnel compensation
but also for the compensation of their supervisors and certain related
support costs, but does not permit a looser application. The State's
position does not appear tenable.
The State asserts that IM-17 is also unenforceable because it was not
promulgated under rulemaking procedures prescribed in the Administrative
Procedure Act, 5 USC Sec. 551(4), 552(a)(l) and 553. The Agency
contends that IM-17 is an interpretive rule which does not have to meet
the publication and notice and comment requirements of those sections,
even though HEW has voluntarily adopted the notice and comment procedure
for substantive rules. (36 FR 2532, February 5, 1971) The State argues
however that even interpretive rules require notice and comment
procedure if they have an immediate and substantial impact on those
regulated. Morton v. Ruiz 415 US 199 (1974); Lewis-Mota v. Secretary of
Labor 469 F.2d 478 (2nd Cir. 1972); NLRB v. Wyman-Gordon, 394 US 759
(1969) This does not appear to be such a case, however. The rule stated
by IM-17 is, on the scope of reimbursable activity, merely a restatement
for the assistance of the parties of a standard we would find persuasive
under a direct application of the statute had IM-17 never been issued.
It is difficult to see how that can constitute the "substantial impact"
contemplated by the decisions.
'(Page 07 - 64 - 08/16/79)'
The Agency contends that the issue of the procedural validity of 1,1-17
and its correctness as an interpretation of the statute are questions
beyond the jurisdiction of the Board. A determination on these
questions is unnecessary under the circumstances of this appeal since we
feel that IM-17 was validly adopted and a sound reading of the statute.
Conclusion
In view of the foregoing discussion it is our opinion that the expenses
incurred by the RRU are not costs contemplated by the statute for 100%
reimbursement since they are not directly related to costs of
inspection.
Accordingly, we deny the appeal and affirm the determination of
disallowance in the sum of $33,361.94. This decision constitutes the
final administrative action on this matter. D11 May 15, 1992