DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State Department DATE: May 23, 1989 Social Services
Docket No. 88-220 Decision No. 1051
DECISION
The New York State Department of Social Services (State) appealed the
disallowance by the Health Care Financing Administration (HCFA or
Agency) of $754,410 in federal financial participation (FFP) claimed
under Title XIX (Medicaid) of the Social Security Act (Act). The Agency
determined that the State was not entitled to reimbursement under the
Medicaid program for services provided by the Buffalo Psychiatric Center
for the period October 1, 1987 to December 19, 1987. The Agency's
determination was based on a proposed Medicare termination action that
was to have been effective October 1, 1987 but which was delayed from
going into effect until November 19, 1987 by a temporary restraining
order. The Agency concluded that even though the Center's Medicare
agreement was not terminated until November 19, its Medicaid agreement
could be considered to have terminated on October 1, 1987, based on the
Medicare survey findings of noncompliance. The Agency argued that the
Medicaid program relied entirely on Medicare qualifying conditions for
this type of provider and that the court order had no effect on any
Medicaid termination action. The Agency also questioned the State's
authority to continue Medicaid funding for 30 days beyond November 19
(until December 19) since the Agency argued that the 30-day grace period
provided by regulation would only be available from the date of the
termination of the Medicaid agreement, which the Agency here alleged to
take place effective October 1.
The State on appeal chose to contest only that part of the disallowance
equalling $754,410 that represented claims for the facility from October
1, 1987 to the date the restraining order was lifted--November 19, 1987.
The State argued that under the applicable regulation, Medicaid funding
for a facility was contingent on when HCFA's termination of the Medicare
provider agreement became effective and that in this instance HCFA's
Medicare termination became effective on November 19, 1987. The State
concluded that it was entitled to Medicaid funding through November 19,
1987.
For reasons discussed below, we find that the State was entitled to
Medicaid funding for this facility until November 19, 1987, and
therefore reverse that part of the disallowance ($754,410) that the
State here appealed. The remaining part of the disallowance that was
not appealed (equalling $349,922) is upheld.
Background
The Buffalo Psychiatric Center ("Center") is an inpatient psychiatric
hospital operated by the New York State Office of Mental Health. On
July 30, 1987, HCFA, as the administrator of the Medicare program,
notified the Center that it no longer met the requirements for
participation as a provider of services in the Medicare program. Agency
Exhibit (Ex.) R-1. The Agency stated in its letter that, based upon a
federal survey completed on July 1, 1987, it found that the Center
failed to comply with the two "special" conditions applicable to
psychiatric hospitals that concern special medical record requirements
(42 C.F.R. 482.61) and special staff requirements (42 C.F.R. 482.62) for
psychiatric hospitals. The Agency specified that the date on which the
Medicare provider agreement would terminate was October 1, 1987. The
Agency also stated that it was sending a copy of its letter to the New
York State Department of Social Services so that "they may take the
appropriate action pursuant to the Medicaid requirements found at 42
C.F.R. 440.140, and 42 C.F.R. 482.60."
In reliance on this notice, the State notified its Office of Mental
Health on September 11, 1987 that pursuant to 42 C.F.R. 441.11(b)(1),
federal Medicaid funding could be continued for no more than 30 days
after the effective termination date of the Center's Medicare provider
agreement. The letter concluded that in view of the Agency's
termination of the Medicare provider agreement effective October 1,
1987, no Medicaid funding would be available for patients at the Center
on or after November 1, 1987.
Thereafter, the Office of Mental Health on behalf of the State of New
York brought suit in the U.S. District Court for the Western District of
New York seeking to enjoin the Agency from terminating the Center's
participation in the Medicare program. In its amended complaint, the
Office of Mental Health alleged that HCFA's termination of the Center's
participation in the Medicare program was "arbitrary and capricious,
based upon improper standards, irrational, an abuse of discretion,
violative of federal law, and not supported by substantial evidence."
Agency Ex. R-3, p. 13. On September 29, 1987, Judge Curtin issued a
temporary restraining order (order) prohibiting the Agency from
decertifying the facility from participation in the Medicare program.
State's Ex. 3. The order was lifted on November 19, 1987 and the
termination of the Center's Medicare agreement became effective on that
date. The State continued to make Medicaid payments to the Center for
30 days after November 19 apparently on the basis of 42 C.F.R. 441.11,
which provides for 30 days continued funding after the termination of a
Medicare agreement where specified conditions have been met.
Parties' Positions
It is undisputed that the Agency has the responsibility under the
Medicare program for determining whether a Medicare provider agreement
should be terminated because the provider fails to meet the qualifying
conditions. It is also undisputed that the Medicaid program requires
the same qualifying conditions for this type of provider as Medicare.
The Agency argued that its Medicare determination of non-compliance
should be binding on the Medicaid program as of October 1 since the
underlying findings concerned Medicaid conditions of participation as
well as Medicare conditions and since the court order prevented only the
termination of the Medicare provider agreement. "In the present case,
once the federal survey established that [the Center] failed to meet the
two special conditions of participation for psychiatric hospitals, it
automatically became ineligible for [Medicaid funding], as it could not
satisfy the basic prerequisites for a Medicaid provider agreement."
(Footnote deleted) Agency Brief (Br.), pp. 16-17. The Agency added
that the court order did not prevent the State Medicaid agency from
proceeding with the termination of the facility's Medicaid provider
agreement effective October 1 nor from establishing November 1, 1987 as
the date after which no Medicaid funding would be available. The Agency
then summarized its position as follows:
The copy of the July 30, 1987 letter from HCFA and the statement
of deficiencies that was sent to the State gave it unambiguous
notice that [the Center] no longer met the Medicare conditions
of participation for a psychiatric hospital. As a result, the
State did not have the discretion to decide whether or not to
terminate [the Center's] provider agreement; . . . the State had
to terminate [the Center's] provider agreement.
Agency Br., pp. 17-18.
The State argued in response that 42 C.F.R. 441.11 makes continued
Medicaid funding contingent on the effective date of the termination or
nonrenewal of the facility's provider agreement. The State submitted
that since the Center's Medicare agreement was not terminated until
November 19, 1987, its Medicaid funding should continue at least until
that date.
Analysis
We find that the Medicaid regulation cited by the State expressly
recognizes that Medicaid funding for the Center would continue until the
date the Center's Medicare termination became effective (which was
November 19, 1987, the date the restraining order was lifted). Although
the State relied entirely on this regulation in support of its appeal,
the Agency neither addressed the specific requirements of the
regulation, nor referred to its language, its underlying purpose or its
history under the program.
Section 441.11 of 42 C.F.R., effective September 28, 1987 (52 Fed. Reg.
32550), provides as follows:
(a) Basic conditions for continuation of FFP. FFP may be
continued for up to 30 days after the effective date of
termination or expiration of a provider agreement, or after an
administrative hearing decision that upholds the agency's
termination or nonrenewal action, if the following conditions
are met: (1) The Medicaid payments are for recipients
admitted to the facility before the effective date of
termination or expiration. (2) The Medicaid agency is making
reasonable efforts to transfer those recipients to other
facilities or to alternate care. (b) When the 30-day period
begins. The 30-day period begins on either of the following:
(1) The effective date of termination or nonrenewal of the
facility's Medicare provider agreement by HCFA, or of its
Medicaid provider agreement as instructed by HCFA. (2) The
later of-- (i) The effective date of termination or
nonrenewal of the facility's Medicaid provider agreement by
the Medicaid agency on its own volition; or (ii) The date of
issuance of an administrative hearing decision that upholds
the agency's termination or nonrenewal action.
(Emphasis supplied.)
While the focus of this regulation is on the continuation of FFP beyond
the termination of the provider agreement, the regulation clearly
recognizes that states are entitled to FFP at least for the period that
a provider agreement remains in effect. The regulation limits the
continuation of FFP only for the period after the effective date of the
termination. The regulation assumes that FFP will be available for the
period the provider agreement remains in effect. The preamble to the
final regulation restates this rule as follows:
As a basic rule, FFP is not available in State Medicaid payments
made to a facility after its [provider agreement] has been
terminated or has expired and not been renewed.
52 Fed. Reg. 32550, 32544 (Aug. 28, 1987).
This interpretation of the effect of section 441.11, based on the clear
implication of its wording, is consistent with basic program rules that
apply in other contexts. It is a basic Medicaid rule that funding will
continue until the effective date of the termination of the provider
agreement. Thus, section 442.40(c) provides that FFP in payments to a
skilled nursing facility (SNF) or an intermediate care facility (ICF)
ends on the "effective date of termination of the facility's provider
agreement" except where conditions for continuation of FFP apply.
Moreover, where the Medicaid program relies on the Medicare status of a
SNF as the basis for the facility's participation under Medicaid (a
situation that parallels the one raised here), the regulations expressly
provide that the Medicare termination action is controlling and that the
Medicaid termination is effective on the same date as the Medicare
termination. 42 C.F.R. 442.20(b). Essentially the same approach is
taken in 42 C.F.R. 441.11, although the rule there focuses on the
continuation of FFP after the effective date of the termination of a
facility's Medicare provider agreement by HCFA. Thus, the State's
position here is consistent not only with the wording of section 441.11,
but also with basic program rules that apply in other contexts.
HCFA here seems to be arguing that a facility's Medicaid funding may
terminate solely on the basis of the Medicare survey findings of
non-compliance. It is of course undisputed that, in order to receive
Medicaid funding, facilities such as the Center must be in compliance
with the Medicare requirements for a psychiatric hospital. The survey
findings are not self-executing, however, and there is no basis in the
statute or regulations for concluding that funding terminates on the
basis of the survey findings alone. The course contemplated by section
441.11 and by other regulations for other types of facilities is that
funding will terminate once the termination of the facility's provider
agreement has become effective. Ordinarily a hospital's agreement would
terminate when HCFA, as the administrator of the Medicare program, had
notified the facility of its decision, and had exercised its discretion
to set a specific effective date for the termination. While the
effective date of the termination was further delayed in the present
instance by the court order, that factor cannot change the program's
reliance on the effective date of the Medicare termination as the
underlying basis for terminating Medicaid funding. Moreover, while HCFA
argued, and the State did not dispute, that the court order expressly
concerned only the Medicare termination, the Medicare termination is the
triggering mechanism under the regulation for the discontinuation of
Medicaid funding. Thus, although the order did not directly address
Medicaid funding, it effectively extended Medicaid funding by its delay
of the effective date of the Medicare termination.
HCFA also seemed to be arguing that the State itself terminated the
Center's Medicaid provider agreement by virtue of its notice to the
Center of September 11. The State's notice by its terms did not have
this effect, however. The State merely notified the Center of the
effect on Medicaid funding of HCFA's decision to terminate the Medicare
agreement. The State's September 11 notice clearly did not have the
effect of independently terminating the Center's Medicaid provider
agreement. Thus, there is no evidence to suggest that the State was
attempting to terminate the Medicaid agreement "on its own volition"
as
contemplated in section 441.11(b)(2)(i). Nor does it appear that the
State was required by regulation to take independent decertification
action on the basis of the Medicare survey findings. There is nothing
in section 441.11 (or in any regulation cited by the Agency) which
requires the State to take independent action on the Medicaid agreement
following the Medicare survey. Section 441.11 recognizes that the
effective date of the Medicare termination will be conclusive for both
programs. HCFA's initial survey and its Medicare termination decision
serves as the triggering action for the Medicaid program as well and
involves precisely the same compliance issues.
Apparently, the Agency's underlying concern here is that a state should
not be in the position to delay the Medicaid termination of a
state-owned facility beyond the period of time that HCFA, within its
discretion, had determined to be appropriate under the Medicare program.
HCFA's termination action, however, did not become effective until the
court order was lifted. The court action delayed the effective date of
termination until issues concerning the propriety of that action had
been resolved by the court. Our decision here merely concludes that
section 441.11, consistent with Agency regulations in other contexts,
recognizes the actual effective date of the Medicare termination as the
binding date for the Medicaid termination. The Agency of course is free
to consider whether a change in policy or regulations is necessary in
view of the clear effect of its regulations in recognizing the same
termination dates for both programs under these circumstances.
We note that the resolution of the litigation here does not suggest
that states could in the future routinely delay termination under either
program by procuring restraining orders. The order here was ultimately
lifted because the court concluded that the hospital had to exhaust its
administrative remedies prior to receiving judicial review of the
decision terminating it from the Medicare program. Oulton v. Bowen, 674
F.Supp. 429 (W.D.N.Y. 1987). The facility's administrative appeal had
been pending at the time the restraining order was in effect. Thus, the
Oulton decision suggests that a temporary restraining order would not be
justified in the future under the circumstances raised by that case,
since a state hospital should properly pursue its administrative appeal
before initiating judicial review.
Conclusion.
On the basis of the foregoing analysis, we conclude that the State was
authorized by 42 C.F.R. 441.11 to receive Medicaid funding for the
Center for the period under appeal since the effective date of the
provider's Medicare termination was delayed by the restraining order
until November 19, 1987. We therefore reverse $754,410 of the
disallowance and uphold the remaining amount, which was not appealed by
the State.
_____________________________ Judith A. Ballard
_____________________________ Norval D. (John) Settle
_____________________________ Donald F. Garrett Presiding Board