Louisiana Department of Health and Huamn Resources, DAB No. 126 (1980)

GAB Decision 126

October 31, 1980

Louisiana Department of Health and Human Resources;
Docket No. 79-134-LA-HC Coster, Clarence; Przyblinski, Donald Settle,
Norval


This case involves an appeal by the Louisiana Department of Health
and Human Resources (State) from a determination by the Director,
Medicaid Bureau, Health Care Financing Administration (HCFA, Agency)
disallowing Federal financial participation (FFP) in the amount of
$4,314,856 claimed under Title XIX of the Social Security Act (ACT).
The costs in question were claimed for the period July 1, 1973 through
December 31, 1974 for intermediate care facility services for the
mentally retarded (ICF/MR services) provided in six facilities in
Louisiana. The disallowance was taken on the ground that the State
failed to comply with a regulation intended to assure that state
expenditures for such services are not reduced when Federal funding
becomes available. We find that the State failed to meet the applicable
"maintenance of effort" requirement, and, accordingly, we sustain the
disallowance.

This decision is based on the State's application for review, the
Agency's response to the appeal, a submission by the State commenting on
the Agency's response to the appeal, the parties' responses to an Order
to Develop Record issued by the Board Chairman, and the State's response
to a letter from the Board's Executive Secretary raising additional
issues.

The regulation in question, 45 CFR 249.10(c)(3), limits FFP in
expenditures for ICF/MR services made prior to January 1, 1975 to the
amount by which the total cost of the services in an institution during
the quarter for which FFP is claimed exceeds a state's average quarterly
expenditures for the services in a base year. The base year is defined
as the four quarters immediately preceding the quarter in which the
state elected to make the services available under its Title XIX plan.
The regulation provides, in pertinent part, that --

Federal financial participation will be at 100 percent of the cost
increase (between the base year and the quarter in question) except that
such Federal financial participation may not exceed the Federal medical
assistance percentage times the cost of intermediate care facility
services for eligible individuals in the institution.

The Federal medical assistance percentage (FMAP) as defined in
Section 1905(b) of the Act is a percentage based on a state's relative
per capita income, with a floor of 50 percent and a ceiling of 83
percent. The term is used in the Act at Section 1903(a)(1), which
provides for payment to a state of an amount equal to its FMAP times the
total amount expended by the state during a quarter as medical
assistance.

The meaning of 45 CFR 249.10(c)(3) is not disputed by the parties.
The State argues, however, that it was not bound by the regulation with
respect to the FFP claimed for the period July 1, 1973 through March 31,
1974, half of the time covered by th disallowance, since the regulation
was not published in the Federal Register until January 17, 1974 (39 FR
2220, 2222) and was by its own terms (39 FR 2235) not effective until
March 18, 1974. The State takes the position that it was bound during
that time only by what it finds to be the more general terms of Section
1905(d) of the Act. That section provices that a state may claim FFP
for services in a public institution for the mentally retarded if, among
other things --

(3) The State or political subdivision responsible for the operation
of such institution has agreed that the non-Federal expenditures in any
calendar quarter prior to January 1, 1975, with respect to services
furnished to patients in such institution . . . in the State will not,
because of payments made under this title, be reduced below the average
amount expended for such services in such institution in the four
quarters immediately preceding the quarter in which the State in which
such institution is located elected to make such services available
under its plan approved under this title.

In support of its position that it is bound for most of the period in
question only by the Act, which it finds less restrictive than the
regulation, the State cites a March 11, 1974 letter to state agencies
from the Region VI office of the Social and Rehabilitation Service,
HCFA's predecessor agency.This letter stated that the regulation would
be applied only with respect to services purchased during the last three
quarters of calendar year 1974, and that "(other) reasonable methods of
establishing documentation to show 'maintenance of effort' for the
period prior to the effective date of the regulations will be
acceptable" in the event that a state chooses not to use the methodology
specified in 45 CFR 249.10(c)(3). (Dallas Regional Medical Services
Letter No. 74-8, States's application for review, Exh. 5.) The State
contends that it complied with Section 1905(d) of the Act since the
State's outlays for the institutions in question were maintained at the
same level and in fact increased during the period involved.

The Agency argues that the regulation was properly applied in
determining the allowability of the State's claim for the entire period
because the method provided in the regulation for determining allowable
costs is required by the Act.

We conclude that the Agency's analysis is correct. The validity of
its position is best shown by an example. Assume that a state with a
FMAP of 50 percent spent an average of $100 per quarter for ICF/MR
services in institution "X" during the base year and $150 during a
quarter for which FFP is claimed. Under 45 CFR 249.10(c)(3), the state
would receive 100 percent of the $50 cost increase, or $50 (which falls
below the upper limit of 50 percent (FMAP) of $150), leaving $100 of
costs to be paid by state funds.

The State argues that it would be entitled under Section 1905(d) of
the Act to receive its FMAP times the full $150 expended during the
quarter in question, or $75. The receipt of $75 in Federal funds,
however, would free up $75 in state funds which would otherwise have to
be devoted to ICF/MR costs incurred by institution "X". Thus, the
state's share of the ICF/MR costs for the quarter in question would
actually be only $75 ($150 - $75). Since that falls below the state's
base year average expenditure of $100, the state fails to comply with
the requirement in Section 1905(d) of the Act that non-Federal
expenditures not be reduced. In order to maintain its base year level
of effort, the state could receive at most $50 in Federal funds. As
indicated above, that is the amount it would receive under 45 CFR
249.10(c)(3).

We do not find persuasive the State's argument that the Act is
unclear regarding how compliance with the maintenance of effort
provision must be determined. The Act provides specifically that
non-Federal expenditures will not, because of Federal payments, be
reduced below a base level. This clearly requires that total
expenditures less Federal funds received be equal to or greater than the
base level. The State has claimed only that its total expenditures for
ICF/MR services in each quarter increased over its average quarterly
base year expenditures. This is not responsive to the Act's express
concern with non-Federal expenditures.

The regulation in question, therefore, does not impose any
restrictions on the receipt of FFP for ICF/MR services which are not
already present in the Act. It merely provides a means for assuring
compliance with the Act's maintenance of effort requirement by adjusting
the amount of FFP allowable for ICF/MR services. Thus, we conclude
that, although the regulation itself was not retroactive, the
interpretation of the Act in 45 CFR 249.10(c)(3) was properly applied in
determining the allowability of the State's claim for the period prior
to as well as after the regulation's stated effective date.

The State argues, however, that the Federal funding received by it
did not in this particular case free up an equivalent amount of state
funds which would otherwise have been devoted to ICF/MR costs.
According to the State, the Federal funding was specifically applied to
the costs of construction and renovation of the State's ICF/MR
facilities, which are not allowable costs under Title XIX of the Act.

The State is correct that the construction and renovation costs are
not properly considered ICF/MR costs. The State loses sight, however,
of the fact that money is fungible, and that, although it claims to be
able to trace the Federal funds received to construction and renovation
expenditures, an equivalent amount still became available to support
ICF/MR services.

The State also argues that it complied with the maintenance of effort
requirement even if its ICF/MR expenditures for some facilities in some
quarters decreased from the base year level, contending that the
decrease was due "to the vagaries of the budget/expenditure process"
such as "the way in which payrolls fall, the manner of purchasing
supplies and the random dates by which other obligations become due,"
rather than attributable to the availability of Federal funding. The
State calls attention to the language in Section 1905(d) of the Act
prohibiting the reduction of non-Federal expenditures "because of
payments made under this title."

Although the State was given an opportunity to specifically document
any instances in which "vagaries of the budget/expenditure process" were
responsible for a decrease in its ICF/MR costs, no evidence was offered
on that point. We note, moreover, that under both Section 1905(d) of
the Act and 45 CFR 249.10(c)(3), the determination whether a state has
complied with the maintenance of effort requirement in a particular
quarter for which FFP is claimed is made by comparing the ICF/MR costs
in that quarter to the average of its ICF/MR costs in the four quarters
of the base year. We find that, in the absence of a specific showing
that the State's expenditures were reduced because of factors other than
the availability of Federal funding, the use of the average quarterly
ICF/MR costs for the base year adequately accounted for any payments not
made on a regular basis.

This decision does not discount entirely the March 11, 1974 letter
from SRS, relied on by the State, which stated that reasonable methods
of showing maintenance of effort other than those specified in 45 CFR
249.10(c)(3) would be acceptable for periods prior to the publication of
the regulation. We believe, however, that the letter refers to
provisions of the regulation other than the central provision in
question here. One such provison might be the requirement that a state
use a per capita (rather than per diem) method to calculate the costs
for each institution during the base year and in each quarter for which
FFP is claimed. In the instant case, consistent with the SRS letter,
HCFA has accepted the State's computations made on a per diem basis.
(Agency response to appeal, dated 11/27/79, p. 6, fr. 2.)

Conclusion

We find that the State failed to comply with the "maintenance of
effort" requirement in Section 1905(d) of the Act. The disallowance
taken by the Agency is therefore upheld.

OCTOBER 04, 1983