DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New Jersey Department DATE: February 15, 1989 of Human
Services Docket No. 87-215 Decision No. 1016
DECISION
The New Jersey Department of Human Services (State) appealed the
disallowance by the Health Care Financing Administration (HCFA, Agency)
of $551,169 in federal financial participation (FFP) claimed under Title
XIX (Medicaid) of the Social Security Act (Act). The claims were for
Medicaid services provided by public residential treatment centers
during the period January 1, 1985 through March 31, 1985. The State
first claimed these services on a quarterly expenditure report which was
received by the Agency on May 26, 1987. The Agency disallowed these
claims on the basis that the claims were not filed within two years as
required by the Act and implementing regulations.
The primary issue before us is when the expenditures at issue were made.
The Board previously issued a draft decision in this appeal in which we
proposed to reverse the disallowance because we found that the
questioned expenditures were not "made" within the meaning of the
pertinent regulations (as interpreted by the Agency in the State
Medicaid Manual), at least until reimbursement rates had been
established for the treatment centers. We stated that this did not
occur until March 1986, so the costs were claimed within the two-year
limitation.
The Agency, in commenting on the draft decision, contended that the
Board misconstrued the differences between claims by private and public
providers in general, and had a basic misunderstanding of the particular
factual situation in this case. The Agency at first requested a hearing
to develop the facts it claimed were significant, but later decided a
hearing was not necessary if the State would answer certain factual
questions; the State did so.
After considering the facts developed since the draft decision, as well
as the parties' comments, we still adhere to our decision to reverse the
disallowance on the ground that the claims were filed timely. However,
in view of the Agency's arguments, we have expanded our consideration
and discussion of claiming for expenditures under a rate generally, and
the different situations which may arise for claims by a public
provider. We have also considered the particular facts of this case as
they may affect when the two-year claiming limitation would begin to
run. We now find that the time may have begun to run earlier than the
March 1986 date suggested in our draft decision, based on a final
reimbursement rate being set then. The claiming statute may have been
triggered by December 4, 1985, when an interim rate was apparently set,
as indicated in our draft decision at page 6, note 3. However, we do
not need to decide between the two dates, for even if the two-year
limitation began running in December 1985 (or actually, at the end of
the December 31, 1985 quarter), a claim filed in May 1987 was still
clearly timely.
Factual Background
The State's Division of Medical Assistance and Health Services (DMAHS)
is the single State agency which administers the New Jersey Medicaid
program. Distinct from DMAHS is the Division of Youth and Family
Services (DYFS), which exercises general supervision over children for
whom care, custody, or guardianship is provided by New Jersey. DYFS
operates several residential treatment centers which, among other
services, provide Medicaid services to eligible recipients. Prior to
January 1, 1985 the State contracted with private providers or public
non-Medicaid approved facilities for the same services now provided by
the DYFS-operated treatment centers. The DYFS treatment centers were
all approved for participation in the Medicaid program and had provider
agreements issued to them by DMAHS in April 1986, retroactive to January
1985.
The claims at issue represented expenditures for services performed at
three residential treatment centers during the period January 1, 1985
through March 31, 1985. DMAHS claimed reimbursement for the services on
its Quarterly Statement of Expenditures for the quarter ending December
31, 1986, which was received by HCFA on May 26, 1987.
The Two-Year Filing Requirement
Section 1132(a) of the Act requires that a claim by a state for FFP
"with respect to an expenditure made during any calendar quarter"
must
be filed within the two-year period which begins on the first day of the
calendar quarter immediately following such quarter. This section also
provides that no payment shall be made for expenditures not claimed
within this period.
The implementing regulations, found at 45 C.F.R. Part 95, Subpart A,
repeat the two-year filing requirement (45 C.F.R. 95.7), and provide
specific guidelines for determining when an expenditure is considered to
have been made so as to trigger the two-year filing period. Thus, a
state's expenditure for Medicaid services is considered to have been
made "in the quarter in which any State agency made a payment to the
service provider." 45 C.F.R. 95.13(b). In the definitions section of
Subpart A, "State agency" for the purposes of Medicaid expenditures
means "any agency of the State, including the State Medicaid agency, its
fiscal agents, a State health agency, or any other State or local
organization which incurs matchable expenses." 45 C.F.R. 95.4.
The State Medicaid Manual, at section 2560.4 G.1.a., further specifies
when an expenditure is made by an agency of the State to a public or
private provider:
Expenditures for services are made in the quarter in which any
State agency made a payment to the service provider (45 C.F.R.
95.13(b)):
(1) Public Facility or Provider -- the expenditure is made when
it is paid or recorded, whichever is earlier, by any State
agency. Public providers are those that are owned or operated by
a State, county, city or other local government agency or
instrumentality.
(2) Non-public Facility or Provider -- the expenditure is
incurred when paid by any State Agency.
Analysis
I. Claims for expenditures under a rate
The Agency's position is simple and straightforward. The Agency
reasoned as follows: the costs of the individual items in providing the
services, such as salaries and vendor payments, were incurred by the
residential treatment centers during the period from January 1, 1985
through March 31, 1985. Under 45 C.F.R. 95.13(b), the two-year period
begins to run when "expenditures" are made by "any State agency."
The
term "State agency" by definition includes any state organization
"which
incurs matchable expenses." Therefore, argued the Agency, the
expenditures were made by a state agency as soon as any treatment center
began incurring costs. On this theory, the claim filed in May 1987 for
costs in the quarter ending March 31, 1985 was clearly untimely.
The flaw in the Agency's reasoning is that it does not take into
consideration just what a state files a claim for when it seeks FFP
under its Medicaid program for services at an institution. While the
claim is for "expenditures," it is not for expenditures in the sense
the
Agency uses the term. The state does not file for each item of cost
incurred by each facility. It does not file a claim for 90 days'
salaries paid employees in a quarter, or so much for light, heat, and
water paid utility companies, or for so many dollars paid vendors for
food supplies. Technically, each of these items is an expenditure, in
the sense that somebody paid out a sum of money to a person or company
for particular goods or services. That is not, however, what a state
lists when it files a claim for FFP. It may, for example, file a claim
for $270,000 for medical assistance for a facility for a quarter, for
100 patients at a rate of $30.00 per day for 90 days. This is not
likely to be the same as the total amount of the various individual
items of salaries, maintenance, and food. Not all the costs which the
facility incurs are automatically entitled to be reimbursed under
Medicaid and included in a claim for FFP. Many of the costs may not be
allowable costs under the state Medicaid plan method for determining the
reimbursement rate eligible for FFP, or may be subject to a limit or a
cap barring total reimbursement, or may not even be related to care
provided to Medicaid patients. The claim a state makes is for an amount
equal to the federal medical assistance percentage of the total amount
expended as medical assistance under the state plan. Section 1903(a) of
the Act. An amount paid a maintenance person as salary at a treatment
center, or the amount paid a dairy for milk delivered to the center, is
not as such an amount "expended as medical assistance."
Similarly, in the regulations FFP is available "for Medicaid services"
for all recipients whose coverage is required or allowed under Medicaid
regulations. 42 C.F.R. 435.1002. The words "Medicaid services" do
not
refer to the individual items of salary and vendor payments paid by the
state treasury. The reference to "services" means the charge that
is
made by a facility with a Medicaid provider agreement for the care and
treatment that is given to its patients. This, in the case of inpatient
facilities, can only be what is determined to be the rate per day for a
patient multiplied by the number of eligible patients in the quarter for
which FFP is claimed.
The Agency recognized the difficulty in treating each individual item of
cost incurred as an "expenditure" which starts the two-year statute
running:
Although, technically speaking, the expenditures could be said to
consist of the actual cost of employee salaries and other goods and
services supplied to the providers, each of which could be incurred
on a different date, as a practical matter the date on which the
medical services were provided to the Medicaid beneficiary by the
public facility is a much more convenient way of conceptualizing
the actual date of the expenditure. . . .
Agency comment on draft decision, n.1.
So, the Agency admitted that:
Obviously a rate of reimbursement must be established, at least on
an interim basis, before a state can submit a claim for FFP;
otherwise the state would have no means of quantifying its claim. .
. .
Agency comment, p. 3.
Having established that claims for expenditures at a facility must be
filed based on a rate, we next consider whether there are any
differences between claims for private and public providers.
II. Public and private providers
We have determined that claims for FFP for expenditures for inpatient
medical services at a facility are filed based on a per diem rate. We
proceed next to consider the factual differences in payments and claims
for a privately-owned provider of services and a public or state-owned
provider. We consider first the general differences, and then proceed
to the specifics of the residential treatment centers in the appeal
before us.
Payment under a rate is easily visualized in the case of a private
Medicaid facility because neither state nor federal funds come into play
until the facility is actually paid for medical services rendered to its
patients. The facility pays its employees and suppliers on a regular
basis, using initially whatever funds it has of its own. When it has a
rate approved by the state Medicaid agency based on cost reports it has
filed, it then submits a bill to the state Medicaid agency for x number
of days for y patients at z dollars per day per patient. If everything
is in order, the state pays the provider and then files a claim for FFP
in the payments based on the federal medical assistance percentage
(FMAP) for the particular state at that time.
There is no problem in deciding for such providers when the expenditure
for medical assistance occurred which triggers the running of the
two-year limitation on filing claims by the state. That time began to
run when the state Medicaid agency paid the facility; this was the first
time any state agency made an expenditure for medical assistance at the
facility.
The situation is not as clear-cut if the facility is owned by the state,
rather than by a private provider. In theory, the state could
appropriate funds to the facility and actually advance it the money to
pay its employees and vendors directly, the same as a private facility
does. The facility would then file for its services, based on a rate,
with the state Medicaid agency. That agency would pay the facility, the
same as if it were privately-owned, and then claim FFP in its payment.
That is not, however, the normal way the finances of public facilities
are handled. A state does not ordinarily pay itself; one state agency
does not actually pay another.
The answers provided by the State to the Agency's questions showed that
in this case the public providers themselves made no actual payments
whatsoever to their employees, vendors, or to anyone else in conjunction
with the services in question. These expenditures were in fact paid by
the State treasury, and soon after the expenses were incurred. For
example, the State treasury paid the provider employees shortly after
their work was done. In this respect, these expenses would usually be
paid by the State during the same quarter in which the expenses were
incurred. These expenditures would be recorded by the State treasury
when they were made. The State Medicaid agency (DMAHS) did not in fact
make any payments to the treatment centers or to DYFS for the services
in question in March 1986 or at any other time.
Based on these facts, it was the Agency's contention that the
"expenditures" for which FFP would be claimed were the payments by
the
State treasury to the employees and vendors of the treatment centers.
These "expenditures" by a "State agency" would have to be
claimed within
two years after the quarter in which they were made, and that was
clearly not the case here. But we have already pointed out that a claim
for FFP is made based on a rate times the number of Medicaid patient
days of services provided and not on the underlying costs incurred by
the provider. We must consider the remainder of the State's answers to
determine how payment under a rate is actually accomplished for a public
facility in New Jersey.
The Agency in its questions to the State (November 16, 1988) stated its
understanding that "no payments are ever made to the service providers
by the state Medicaid agency." As far as cash is concerned, the State
admitted this was true at the time of the claims before us.
The State did not, however, agree with the Agency's next analytical
step. The Agency said it understood that in New Jersey "[n]ot only is
no cash ever transferred, but there is not even any accounting
transaction which could fairly be construed as constituting payment to
these service providers." Id., p. 2. The State disagreed, and
explained that the total funding necessary to operate a State health
care facility is in fact appropriated to that facility, and payments by
the State treasury to employees and suppliers are charged to the
facility's appropriation. The facility submits claims to DMAHS, the
State Medicaid agency, which identify the eligible recipient, the
service delivered, and the allowable cost of the service. State's
answers, January 4, 1989. While the recording of approved claims on the
claim payment system would result in the issuance of a payment to a
private provider, in the case of the public facility "the amount of
claims approved by DMAHS is reported as revenue to the facility to
offset the appropriations initially provided to the facility." Id., p.
4.
So, contrary to the Agency's assumption, claims by State-owned
facilities in New Jersey follow the same general claiming and payment
process as private facilities except that the claiming and payment is in
the form of an accounting transaction on paper.
The Agency certainly recognized this difference when in its Medicaid
Manual it provided that an expenditure for services in the case of a
public provider is made "when it is paid or recorded, whichever is
earlier, by any State agency." (Emphasis added) For a non-public
facility or provider, "the expenditure is incurred when paid by any
State agency." Section 2560.4 G.1.a. Since a state Medicaid agency
might never actually pay a public provider, as discussed above, a state
might argue that the two-year claiming period never began to run. The
Medicaid provision insured a starting point for the two-year period by
providing that the expenditure was made on the date the state recorded
the payment on its books as credited to the facility's appropriation.
We discussed this same issue in South Carolina State Health and Human
Services Finance Commission, DAB No. 943 (1988), relied on by the State.
We stated in that case:
It is clear that when the State Medicaid agency paid DMH [the State
agency operating the facility] for x number of patients at CFSH
[the State-owned hospital] at an interim daily rate of y dollars
per day, that was the expenditure which began the running of the
time for filing a claim for FFP in that expenditure. . . .
at p. 4.
We maintain that the general principle announced in South Carolina is
sound, even if it was not necessary for the decision in that case, as
the Agency argued. We pointed out the provision in the Medicaid Manual
that states that for public providers an expenditure, as far as timely
claiming is concerned, is made when the state agency actually pays the
provider or records the transaction on its books. We explained that
this was done "to take care of the situation where a state does not
actually pay out any funds to a public provider, but merely makes a
bookkeeping entry." Id. We stated that it did not appear in South
Carolina that there was only a bookkeeping entry rather than outright
payment to the state hospital; the principle is clear, however, whatever
the actual factual situation. This was by no means the first time that
the Board has dealt with payments to public providers under a rate. The
complexities of the accounting procedures involved in financing
state-owned facilities in large states was explored in some depth in New
York State Dept. of Social Services, DAB No. 452 (1982). Under the
heading, "How the State Pays its Facilities," we examined certain
facts
listed at page 8 which seem similar to those in New Jersey:
o Public facilities report their costs to the State Medicaid
agency, which examines the costs and calculates per diem rates
based on the costs reported.
o Those rates are applied to the number of Medicaid days for
which the facilities expect to incur costs during a quarter and
that amount is claimed on the State's report of projected
expenditures for the subsequent quarter.
o The public facilities' current operating costs for both
Medicaid and non-Medicaid patients are paid by the State from a
general fund containing State funds.
o The facilities bill the Medicaid agency, on a monthly basis,
for an amount which is the total of the number of days of care
rendered to Medicaid patients times the per diem rate. No
individual costs are claimed in these bills.
The actual issue in New York was not the method of rate calculation for
public facilities and claims for FFP for them, but reimbursement claimed
for accrued vacation leave earned by employees at the public facilities.
The Agency claimed that New York had not made an "expenditure" under
section 1903(a)(1) of the Act until it had made the appropriate
accounting transaction on its books when the leave was actually taken.
We concluded that on the facts of the particular case New York did not
have to make an actual cash disbursement for the accrued vacation
charges before it could claim FFP for Medicaid reimbursement of its
public facilities. There seemed to be no doubt that FFP was properly
claimed for services at the per diem rate established for the
facilities, even though the facilities actually paid no expenditures and
received no funds themselves.
In Missouri Dept. of Social Services, DAB No. 630 (1985), the dispute
centered on a cost allocation question. However, in a section of the
decision entitled "Public and Private Reimbursement Generally," we
stated the same principles set out above:
o When a state Medicaid agency submits a claim for FFP in
expenditures for services provided by institutions (public or
private), the claim is based on the applicable per diem rate for
each patient day of service provided to a Medicaid recipient. .
.
o When a private provider is reimbursed for services provided
under Medicaid, there is no question that the state Medicaid
agency's cost in which it claims FFP is the payment made based
on the per diem rate calculated for that provider. . .
o When the provider is a public institution, the claim is also
for payment for services, in the amount of the rate. However,
the process of paying for services provided by a public
institution is more complex than when the state pays a private
provider because the state is in effect paying itself. . .
(pp. 7-8)
We reference these earlier Board decisions involving public providers
not for the authority of their holdings but to show that the Board has
treated the problem of public providers claiming under a rate
consistently, and the language in South Carolina does not represent an
aberration but is consistent with our earlier cases.
Despite the Agency's argument, the language in the regulations and in
the Medicaid Manual supports our rationale. The regulations say that a
state agency's expenditure for services under Title XIX is considered to
be made in the quarter in which any state agency made a payment to the
service provider. 45 C.F.R. 95.13(b). The service provider cannot be
the employees or vendors of the facility. It must be the facility which
provides services to its patients. It houses them, feeds them, and
gives them whatever treatment and care may be appropriate for the type
of facility. For this service it (or the state organization which
operates it) bills the state Medicaid agency on the basis of a rate per
patient per day. When the state Medicaid agency pays the facility,
either in cash or in a bookkeeping entry, it is making a payment to the
service provider, based on a reimbursement rate which is either
provisionally or finally determined at that time.
If there were any doubt, it is resolved by the language of the Medicaid
Manual. A "provider" is defined as any individual facility or entity
"furnishing Title XIX services under a provider agreement with the
Medicaid agency." Section 2560.4 G.3. Therefore, by definition, a
state agency's expenditure for services under Title XIX is considered to
be made in the quarter in which any state agency made a payment to any
individual facility or entity furnishing Title XIX services under a
provider agreement with the Medicaid agency. Therefore, the
expenditures for services cannot be considered to be made in the quarter
in which the New Jersey state treasury paid the employees or vendors of
the treatment centers. Only the treatment centers have provider
agreements with the Medicaid agency; the employees and suppliers of the
facility do not, nor in fact does DYFS, which operates the treatment
centers.
Therefore, both by logic and by the language of the regulation, as
interpreted by the Medicaid Manual, the expenditures for which FFP is
claimed are made in the quarter in which the state Medicaid agency pays
the treatment centers. As discussed above, in the case of a public
facility there is ordinarily no actual payment of cash to the Medicaid
facility; rather, there is an accounting entry showing a record of a
payment credited to the facility, albeit on paper.
The Agency stressed the point that in the case of a public facility the
only purpose of establishing a rate was to determine how much FFP the
state would receive in reimbursement for medical services. This is
substantially true. However, that has nothing to do with the merits of
this case. This is not a case questioning the amount of the rate, where
we have said that rate-setting for a state-owned facility is subject to
"closer scrutiny," since Medicaid rates "do not affect state
costs for
such facilities, only the extent of federal participation in those
costs." South Dakota Dept. of Social Services, DAB No. 934 (1988) at p.
5.
The Agency did not question the amount of the rates for the treatment
centers. Presumably the Agency could, after our reversal holding that
the State claims were filed timely, still disallow them on another
ground, such as the amount of the rates; however, that is not before us
in this case.
III. When the expenditures were made
We decided above that the expenditures here were made in the quarter in
which a state agency paid the resident treatment centers, or made an
accounting entry to that effect. This "payment" would ordinarily be
made by the state Medicaid agency, but could also be made by another
state agency. In our draft decision we focused on the particular facts
before us. We said it was significant that the treatment centers did
not provide Medicaid services prior to January 1, 1985; that they did
not have approved provider agreements with the State Medicaid agency
until April 1986 (although they were retroactive to January 1985); and
reimbursement rates were not finally established until March 1986. We
therefore proposed to find that the expenditures were not made within
the claiming statute until March 1986.
In our draft decision we considered the possibility that the
expenditures which started the two-year limitation running could have
occurred prior to March 1986. Draft decision, n.3. We realized that
DYFS, which operated the treatment centers, was a state agency which
might incur matchable expenses. If DYFS made a payment to a treatment
center for services under a rate, that could be an expenditure by a
state agency which would start the limitation running. If DYFS, rather
than making such a payment, recorded the number of patient-days of
service at the applicable per diem rate, that could be an expenditure
which triggered the statute.
We pointed out that the earliest this might have happened in this case
is when DYFS sent in its retroactive claim to DMAHS (the State Medicaid
agency) on December 4, 1985, stating that a quarterly per diem rate was
established for each facility. This was not a final rate, as we pointed
out, since the forwarding letter stated that capital expenditures were
not included in the methodology and the claim would be adjusted.
State's Exhibit 3. In any event, the December date was well within the
two-year claiming period in this case.
In its comment on the draft decision, the Agency said it was in complete
agreement with the Board on this point, as it demonstrated our
appreciation of the fact that actual payment is not necessary to
constitute an expenditure. Agency comment, p. 4. The Agency stated,
however, that it disagreed with our subsequent statement that such an
expenditure could not have been recorded prior to the establishment of a
per diem rate. Id. We can only repeat our conclusion, based on our
extended analysis above, that since inpatient medical services are
furnished and FFP claimed for them on the basis of a per diem rate, no
expenditure within the timely claiming statute is made before there is a
rate set.
We realize that the time elapsed here between the furnishing of the
services (January through March 1985) and the time a rate was set (no
earlier than December 1985) is greater than would normally be the case.
The Agency in fact argued that the time when a rate is set is under our
reasoning a factor under the State's control, and so the State can
therefore negate the effect of the two-year claiming statute. Agency
comment, p. 4.
The State has no inducement to delay setting a rate. It cannot receive
FFP until it has a rate and files a claim based on it. Certainly for a
retroactive claim such as the one here the State is simply doing without
federal funding as long as it does not set its rate. In the case before
us there were certain factors which made the setting of a rate subject
to delay. The facilities had never even attempted to qualify for
Medicaid eligibility prior to January 1985; the provider agreements were
not entered into until April 1986, based on accreditation by the Joint
Commission on Accreditation of Hospitals (JCAH), a date not directly
within the State's control. Under the particular circumstances here we
do not find the delay in setting a rate to be significant.
Conclusion
For these reasons we find the claims were filed timely and therefore
reverse the disallowance.
________________________________ Judith A. Ballard
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz Presiding
Board