DAB Decision 87
February 29, 1980 Delaware Department of Health and Social Services;
Docket No. 78-108-DE-HC; Decision No. 87 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 State of Delaware appealed disallowances by the Health Care
Financing Administration (HCFA) of Federal financial participation (FFP)
under Title XIX of the Social Security Act claimed for a facility for
which the provider agreement had expired and certification had not been
renewed. Under the terms of its intermediate care facility provider
agreement, the facility appealed the decision of the State, and the
State continued to reimburse the facility until a decision had been
rendered after an administrative nearing. HCFA refused to participate
in costs of the facility during the period from the expiration of the
agreement to the decision of the hearing officer.
HCFA's disallowances were upheld because its decision appeared to be
consistent with the Medicaid regulations and not in conflict with
current case law. In reaching this result, there was nevertheless the
recognition that there was no good solution to the dilemma that both
parties faced. On the one hand, the State felt obligated to afford the
facility a right to a hearing and to continue to reimburse the facility
during that period; on the other hand, HCFA has not committed itself to
continue to fund inadequate services to individuals in facilities for
which certification has not been renewed.
Matthew J. Lynch, Jr., Deputy Attorney General, Department of Justice,
for the Delaware Department of Health and Social Services. Robert A.
Dublin, HEW Office of the General Counsel, Health Care Financing and
Human Development Services Division, for the Health Care Financing
Administration.
DECISION
I. Procedural Background
This decision is the final step in the reconsideration process provided
in Section 201.14 of Title 45 of the Code of Federal Regulations,
implementing Section 1116(d) of the Social Security Act. Section 1116(
d) entitles a State to receive upon request reconsideration of
disallowances under certain titles of the Social Security Act including
Title XIX. This case arises from disallowances issued on December 20,
1976 ($2,158) and March 1, 1977 ($5,002) by the Regional Commissioner of
the Social and Rehabilitation Service (SRS) and July 18, 1977 ($810) and
September 15, 1977 ($245) by the Acting Assistant Director for Financial
Management, Health Care Financing Administration (HCFA) -a total sum of
$8,215 in Federal financial participation (FFP) claimed by the State
under Title XIX. On July 14, 1978, the Administrator, Health Care
Financing Administration issued a decision upholding the disallowances.
By letters dated August 16, 1978, addressed to the Administrator, and
November 20, 1978, addressed to the Executive Secretary of the
Departmental Grant Appeals Board, the State requested further
reconsideration by the Chairman of the Board. Although the State was
entitled under 45 CFR 201.14, as amended March 6, 1978 (45 FR 9266), to
exercise an option to have the matter considered by the Board under 45
CFR Part 16, it expressly chose not to do so but to be governed by the
Section 201.14 procedures with the Chairman substituted for the
Administrator, SRS, in accordance with the transfer of functions of
March 6, 1978 (48 FR 9266-7). A new Chairman was appointed February 25,
1980, just prior to the issuance of this decision. To remove any doubt
as to my authority to decide this matter, the new Chairman, as
authorized in the transfer of functions, has made a confirmatory
delegation to me of that responsibility.
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Although it had not asked for a conference prior to March 6, 1978, the
State indicated that it desired to have a conference with the Board
Chairman. The Agency also indicated that it desired a conference, and I
determined that one would be helpful in resolving the issues. By Notice
of Conference dated August 22, 1979, I informed the parties that such a
conference would be held and directed them to come prepared to discuss
certain questions present in the case and also the correctness of the
preliminary analysis of facts and issues set forth in the Notice. Other
States with cases before the Board posing questions similar to those
present in this case were invited to brief and discuss at the conference
the issue of whether FFP should be continued if a state is compelled by
court order, contractual agreement or state law to continue Medicaid
payments to a provider after expiration of the provider agreement. The
purpose of this was to assure that a decision on the Delaware case would
not be reached without awareness of the range of issues, and so that a
precedent not be developed improvidently without awareness of how it
might affect other cases on related but not identical facts. The
conference was held on October 9, 1979. In addition to Delaware, eight
states sent legal representatives. Because of a lack of an
appropriation, we were unable to have a professional reporter and had to
rely on amateur recording equipment and transcription. A transcript was
made however and is part of the file. Corrections will be received and
filed with the record. This decision is based on the written recorda
and on what I heard at the conference.
There is no good solution to the dilemma which the parties, Delaware and
HCFA, face. Residents of the facilities participating in the Medicaid
program should be protected against substandard conditions but also have
an interest not to be removed unnecessarily from facilities they have
chosen. The State in good faith may feel that it must extend due
process to a facility which has had its participation in the Medicaid
program suspended or cancelled and that if the State does not provide a
hearing, it may be required by a court to do so. If it is forced to
continue reimbursing the facility for its Medicaid costs, it naturally
looks to the Federal government for participation in the costs. On the
other hand, the Federal government has not committed itself to continue
to fund poor, inadequate, even harmful services to individuals while
review proceedings, possibly protracted, possibly deliberately stalled,
are conducted. HEW's decision not to participate appears to me
consistent with the Medicaid regulations and not in conflict with
current case law.
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II. Statement of the Case
On April 6, 1976, the Delaware Department of Health and Social Services
entered into a written agreement (a "provider agreement") with the
Scott
Nursing Home for intermediate care facility participation in the
Medicaid program. In the printed terms of the agreement, paragraph B on
page 6 provides:
"B. That the term of this Agreement shall be for a period of 12
months, or until the Federal and/or State Government cease to
participate in the program, or by mutual consent of the Department
and the Intermediate Care Facility or, if not by such mutual
consent, either party to this agreement may consider it cancelled
by giving notice in writing to the other party. If the
Intermediate Care Facility wishes to continue its participation in
the program, it shall file a reapplication at least 60 days before
the expiration date."
Paragraph H, on page 7 provides:
"H. This Agreement shall be effective from 3/1/76 to 6/30/76, but
is subject to cancellation if such action is recommended by the
certification agency." (The dates are typed in the blanks
provided.)
The State Agency also agreed (paragraph G on page 5):
"G. To provide a fair hearing to the Intermediate Care Facility
in the event the Department suspends or cancels the Intermediate
Care Facility's participation in the Title XIX program;"
The state continued to make payments to the Scott Nursing Home for a
period after June 30, 1976, although the Delaware Office of Health
Facilities, Licensing, and Certification determined that the nursing
home did not meet the intermediate care facility (ICF) certification
standards. A hearing was held on August 11, 1976. According to the date,
a decision by the State's Hearing Officer was rendered four months
later, and the facility was terminated from the Medicaid program. The
Agency disallowed FFP to the State for the post-June 30 payments making,
however, an allowance for an additional 30 day period pursuant to 45 CFR
449.10(b)(15)(v), because the Agency contended that the provider
agreement expired on June 30, 1976.
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In a letter dated December 24, 1975, the Regional Attorney (Region III)
had advised the State that:
It is the present policy of the Department of HEW to continue
Federal financial participation to Title XIX-only skilled nursing
facilities which are terminated from continued participation in
the Medicaid program during the period of appeal of the
termination action if "State law provides for the continued
validity of the provider agreement pending appeal, or if the
facility is upheld on appeal and State law provides for
retroactive reinstatement of the agreement... " MSA-PRG-11, 12/
30/71.
In a letter to the Regional Attorney (Region III) dated March 9, 1979,
an Assistant Attorney General of the State of Delaware stated that he
could find no statutory or case references which would provide for the
continued validity of the provider agreement pending appeal.
III. Threshold Question
An initial question must be answered as to whether the facility's
provider agreement had expired on June 30, 1976 (Paragraph G on page 5
of the agreement) or continued to run for twelve months (Paragraph B on
page 6 of the agreement).
The state has argued that the agreement remained in effect until the
hearing decided the facility's status. It has asserted that the conduct
of the parties leads to this conclusion. The facility continued to
provide services to Medicaid patients and bill the State, the State
continued to accept the bills and reimbursed the facility until the
results of the hearing were obtained and the facility's participation in
the Medicaid program was terminated. The State has also contended that
if the contract was no longer in effect after June 30, 1976, then there
would be no contractual obligation on the part of the state to give the
facility a fair hearing.
The wording of Paragraph G on page 5, however, does not indicate that
certification was to continue pending a decision after a hearing. The
paragraph states simply that if the State suspends or cancels, then the
facility receives a fair hearing. (It is not clear that the State has
obligated to provide a hearing in this case under the terms of the
agreement since it did not "cancel" or "suspend" but refused
to
recertify; this issue was not explored in detail in the record, and I
am assuming that the State in good faith intended the provision to apply
to the situation in this case.) Part of the
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contract is printed, and part is typed. It is the latter which prevails.
See, e.g. Williston On Contracts, Section 622 93d Ed., 1961). The June
30, 1976 date specifically typed into the agreement is the controlling
termination date of the agreement as against the 12 month period of the
printed form. At no time prior to the State's Reply to the Response of
HCFA did the State dispute the fact that the agreement terminated on
June 30, 1976. For example, the State included a letter in its Reply
from the Nursing Home Coordinator, Division of Social Services, State of
Delaware, to the Associate Regional Commissioner, Medical Services, HEW,
which states:
The Scott Nursing Home. . . has not been recertified to Title XIX
by the Certification Agency; their Provider Agreement expired on
June 39, 1976. . .
The attorney for the Delaware Department also has stated in a letter
dated August 8, 1978 to the Director, Division of Business
Administration and General Services, State of Delaware, that this was a
case of nonrenewal. It appears that both the survey and the single State
agencies considered the provider agreement ended on June 30, 1976.
Thus, the specific issue in this case is the effect that an
administrative hearing process afforded by the State under an ICF
provider agreement has on the availability of FFP, otherwise precluded
because the provider agreement has expired and certification has not
been renewed.
IV. Regulations
The provider agreement between Scott Nursing Home and the State's
Division of Social Services was for intermediate care facility (ICF)
participation in the Title XIX program. Part 449 of 42 CFR outlines the
"services and payment in medical assistance programs." Although the
time
period in question includes part of 1976, we cite, for convenience, the
1977 edition of the Code of Federal Regulations, which recodifies but
does not appear to make any material change in substance in the
regulations effective during the period in question. To obtain FFP for
payments made to an ICF, the State must comply with the requirements in
42 CFR 449.10(b)(15)(i)(e) requiring the single state agency and the
provider facility to execute an agreement which the single state agency
determines is in accordance with 42 CFR 449.33 and meets all of the
conditions of 42 CFR 449.10(b)(15)(i). The regulations, with certain
exceptions which do not appear applicable here, require that prior to
the execution of the provider agreement and the making of payments, the
agency designated pursuant to Sec, 450.100( c) (the "survey agency")
must certify that the facility meets the statutory definition in 1861(j)
of the Social Security Act and is in full compliance with standards
prescribed in the regulations (See 42 CFR 449.33(a)(i)).
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Upon certification by the survey agency, the single State agency then
executes a provider agreement with the facility in accordance with the
Federal regulations. Sec. 449.33(a)(6). Facilities which are determined
to have deficiencies requiring decertification or termination may enter
into a plan of correction with the State agency pursuant to 42 CFR
449.33(a)(4). This agreement may be for 60 days (449.33(a)(4) (iii)(A))
or a conditional term of 12 full months, subject to an automatic
cancellation clause that the certification will expire at the close of a
predetermined date unless the corrections have been satisfactorily
completed or the facility has made substantial progress in correcting
the deficiencies (449.33(a)(4)(iii)(B)). A two-month extension is also
permitted by 42 CFR 449.33(A)(6) when the State survey agency notifies
the State agency in writing prior to the expiration of the provider
agreement that certain conditions noted below exist within the facility.
The regulations permit the State to continue to claim FFP for 30 days
after the expiration of its provider agreement if the individuals in the
facility were admitted before the date of expiration and the State
agency makes a showing satisfactory to the Secretary that it has made
reasonable efforts to facilitate the orderly transfer of the individuals
to another facility. (See 42 CFR 449.10(b)(4)(i)(C) and 42 CFR 449.10
(b)(15)(v)). As indicated above, the 30 day extension of FFP was
granted to the State.
V. Discussion
There is no provision in the Social Security Act or Federal regulations
authorizing HEW to make payments to a State because it has bound itself
to make payments to a facility during a fair hearing process that
extends beyond the expiration of a valid agreement. The applicable
regulation states that FFP is only available when the facility in
question meets all the requirements of certification as evidenced by a
valid provider agreement; the provider agreement in this case expired
on June 30, 1976 and was not renewed. Only the 30 day extension
discussed in Section IV above is applicable and was utilized to extend
FFP through July 30, 1976.
The State has argued that HCFA is estopped from claiming that Delaware
cannot receive FFP for the period after June 30, 1976. The State asserts
that advice, given by the HEW Regional Office on July 27, 1976 in
response to a letter from the State on July 16, 1976, that FFP could
only be claimed until July 31, 1976 was inaccurate and misleading
because extensions of the provider agreement were possible under the
regulations. The advice from the Regional Office was correct, however.
The letter from the State was dated subsequent to the expiration date of
the provider agreement and itself stated that the agreement had expired.
The only extension available at that point, in 42 CFR 449.10( b)(15)(v),
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was given to the State. The exception set forth in 42 CFR 449.33(a)(2)
requires that a written plan of correction be accepted by the survey
agency; no plan of correction was submitted by the facility in this
case. The two month extension available pursuant to 42 CFR 449.33(a)
(6) requires that the survey agency notify the single State agency in
writing prior to the expiration of the provider agreement that the
health and safety of the patients will no be jeopardized and that the
extension is necessary to prevent irreparable harm to the facility or
hardship to the residents. The Delaware survey agency did not notify
the single State agency of such facts before the expiration of the
agreement. There was, therefore, no valid provider agreement in effect
after June 30, 1976, and HEW, under its regulations, could not reimburse
the State for its payments for services provided by the facility after
July 30, 1976.
Throughout the reconsideration process, the State has asserted that
constitutional due process mandates that a hearing must be provided
before a provider agreement is terminated and that HEW is therefore
bound to continue FFP throughout the course of the hearing. As
authority, it has cited Klein v. Matthews, 430 F. Supp. 1005 (D.H.J.
1977), aff'd sub nom, Klein v. Califano, 586 F.2d 250 (3rd Cir. 1978)
and Hathaway v. Matthews, 546 F.2d 227 (7th Cir. 1976). HEW has argued
that whether or not a State has to afford such a hearing, HEW, under its
regulations, can not continue FFP during that period.
In Hathaway, the facility had been licensed and certified by the State
of Indiana. After receiving complaints, an HEW inspection team
determined that the facility should not have been certified and notified
the State that it would cease FFP for the facility. The State then
decertified the facility, and the owner/operator went into court to
enjoin HEW from cutting off payments before notice and a hearing were
given. The court discussed the fact that Hathaway had not been given
notice of what specific areas of the facility were allegedly out of
compliance; the argument for requiring a pre-termination hearing was
thus stronger than in other situations in which a facility has been
given notice and an opportunity for a meeting with HEW officials. In
light of these facts, the court held (p. 232) that HEW could not
terminate payments until it had first given the owner notice of the
charges and conducted a hearing. In the Delaware situation, the State
acknowledged at the conference that it had been working with the
facility for a considerable time to bring it into compliance (Conference
Transcript, p. 69); the facility would, therefore, have been aware of
the areas of deficiencies, a factual difference from the situation in
the Hathaway case.
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In the Klein cases, both the State of New Jersey and the patients in a
facility sought to block the termination of FFP; as in Hathaway, HEW
had determined that the facility was not a qualified provider and
terminated FFP in a situation in which the State and its surveyors
disagreed with HEW's findings. The lower court did determine that the
patients must receive a pre-termination evidentiary hearing and that FFP
must continue during the hearing period. The Court of Appeals upheld the
lower court's decision that FFP must continue until the residents were
given an opportunity to participated in the decision to decertify the
facility. The lower court emphasized a distinction between the factual
situation with which it was dealing and the one present in Hathaway -
that the patients' direct assertion of their interest not only
undermined the government's interest in a pre-hearing termination but
was a more compelling interest in postponing termination than that
asserted by the nursing home in Hathaway (p. 1012).
Numerous other cases presenting many different factual patterns were
cited at the conference and in briefs by other States having similar
appeals before the Board. Some of the courts have ordered the state to
continue providing funds to a facility until a hearing has been held,
but specifically stated that a state's obligation to provide medical
assistance is independent of Federal law and regulations with respect to
FFP; in these cases, HEW was not a party. Gardner v. Parry, 386 N.
Y.S. 2d 322, 88 Misc. 2d 154 (1976); Kane v. Parry, 371 N.Y.S. 2d 605,
82 Misc. 2d 1019 (1975). another enjoined HEW, as one of the defendants,
from terminating FFP before the process of administrative and judicial
review was completed, based on state law and MSA-PRG-11( See page 4),
both of which are not applicable in t his appeals. Maxwell v. Wyman,
478 F.2d 1326 (2nd Cir. 1973). Others, in which HEW was a defendant,
involved serious deficiencies in both Medicare and Medicaid standards,
and the courts based their decisions on Medicare review procedures. Town
Court Nursing Ctr., Inc. v. Beal, 586 F.2d 266 (3rd Cir. 1978); Case v.
Weinberger, 523 F.2d 602 (2nd Cir. 1975). One, in light of serious Life
Safety C ode deficiencies, stated that no pre-termination hearing was
necessary and that:
Presumable, should the plaintiff be successful in enjoining the
state termination of its status, the federal funds would again be
channelled to Caton Ridge. And without such a result, HEW cannot
be ordered to resume payments to beneficiaries residing in Caton
Ridge. As such, there is no relief which is or can be sought from
Califano.
Caton Ridge Nursing Home, Inc., v. Califano, 447 F. Supp. 1222, 1227 (D.
Md. 1978), aff'd 596 F.2d 608 (4th Cir. 1979). These citations, while
not exhaustive, are typical.
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In light of the legal principles enunciated in the cases dealing with
the rights of patients and providers to some sort of "process" before
a
facility's Medicaid participation is canceled or terminated, it can be
seen that the State of Delaware may have in good faith inserted a
hearing provision in its provider agreements in order for its Title XIX
program to comport with what it perceived to be the requirements of due
process.
On the other hand, the cases relied on by the State and by some of the
other states present factual situations different from the specific
situation in Delaware. There is no basis in this situation to require
HEW to continue to pay FFP for an unlimited amount of time while a
facility wends its way through an administrative appeals process that
might take years to complete, particularly when HEW's commitment to
participate in payments would continue past the expiration date of the
provider agreement. The purpose of the Medicaid program is to ensure
that qualified recipients receive health care in facilities which comply
with Federal and state standards. Its main tool of enforcement is to
deny FFP for facilities which are substandard, whether they are found to
be so by the state or by HEW itself. FFP is not available for a
facility with an expired provider agreement.
VI. Conclusion
As noted above, the statute and the regulations and the tensions
inherent in the fact situation creates a no-win problem. no easy
solution is available, and it may be that HEW will have to give serious
consideration to its regulations and possible even seek a legislative
solution better accommodating the problem. Meanwhile, under the present
regulations, with full consciousness of the difficulties, I conclude in
favor of the disallowance.
Although this decision has been reached with awareness of the arguments
made in the related appeals in other states, no conclusion is here
expressed as to the result to be reached in those appeals.
For the reasons stated above, I hereby uphold the disallowance of
$8,215. This decision constitutes the final administrative action on
this matter. D11