GAB Decision 127
October 31, 1980
Docket No. 78-129-TX-HC
Texas Department of Human Resources;
Coster, Clarence; Przybylinski, Donald Settle, Norval
I Introduction
This case involves the September 21, 1978 decision by the
Administrator of the Health Care Financing Administration (HCFA), to
uphold the August 6, 1973 disallowance by the Acting Regional
Commissioner, Region VI, of $8,457,423.88 in Federal financial
participation (FFP) for Title XIX skilled nursing services provided by
the Texas State schools for the mentally retarded (State schools) during
the period July 1, 1970 through June 30, 1972. The disallowance was
based on the findings that the State had violated 45 CFR 249.10(b)(
4)(i)(m) by not applying the same Title XIX skilled nursing home
standards and requirements to the State schools as it did to proprietary
facilities and that the facilities were not certifiable as Title XIX
skilled nursing facilities (SNF's).
An analysis of the arguments presented by the parties was set forth
in an Order to Show Cause, and the parties were provided an opportunity
to respond. The Order directed Texas to show cause why the
$8,457,423.88 disallowance should not be upheld. The State's response
questioned HCFA's calculation of the amount disallowed, and subsequently
the parties agreed on the amount of $8,356,528.72.
Inasmuch as the State's response raised no additional substantive
arguments, the Board has adopted a decision based on the Order to Show
Cause. The Order discusses in more detail the arguments set forth
below.
II Jurisdiction
Texas submits that the Board has no jurisdiction over this case in
that the substance of the dispute involves a "conformity" question
which
should be dealt with pursuant to the proceedings of 42 USC Sec.
1396(c). Under 42 USC Sec. 1396(c) the State is entitled to (1)
reasonable notice that further payments will not be made, (2) the
opportunity for a hearing, and (3) review of the Secretary's final
determination, pursuant to 42 USC Sec. 1316(a)(3), by the appropriate
United States Court of Appeals.
HCFA contends that the Board does have jurisdiction in that the
substance of the case involves a disallowance, properly reviewable
pursuant to 42 USC Sec. 1316(d).
The statutory provision at 42 USC Sec. 1316(d) refers to
reconsideration of a determination that "any item or class of items on
account of which Federal financial participation is claimed. . . shall
be disallowed." No definition of the term "disallow" is given
in the
statute, and the legislative history of the disallowance provision
provides little guidance as to the meaning except in a reference to
"audit exceptions" (as distinguished from certain determinations for
which a statutory right to judicial review is available). The board has
consistently interpreted the term "disallowance" in Subpart C of 45
CFR
Part 16, which confers on the Board the reconsideration function
pursuant to Section 1316(d), as basically parallel to a determination
under 45 CFR Sec. 16.5(a)(5) that an expenditure not allowable under a
grant has been charged to the grant. Such a determination generally
results from an auditor's exception but may also result from other types
of reviews, federal or nonfederal. This interpretation is consistent
with the general use of the term "allowable" under cost principles
applicable to grant programs, originally promulgated by the U.S. Office
of Management and Budget and adopted for HEW (now HHS) grant programs at
45 CFR Part 74, Subpart Q. The determination here is a disallowance
because it is a determination that the State has claimed FFP for
specific cost items, i.e., services provided at Texas State schools, and
that those costs are not allowable as charges to Title XIX funds.
Accordingly, the Board has jurisdiction pursuant to 42 USC Sec. 1316(d)
and 45 CFR Part 16, Subpart, C, to review the determination.
III Background
Title XIX was added to the Social Security Act in 1965. The
authority for administering the field activities of the Medicaid Program
was delegated to the Regional Commissioners of the then Social and
Rehabilitation Service (SRS). The Title XIX program was implemented in
Texas on September 1, 1967. (Report on Audit of Skilled Nursing Homes
under Medicaid -- State of Texas, October 17, 1972 (hereafter referred
to as Audit Report), page 2.)
Administration of the Title XIX program in Texas was the
responsibility of the State Department of Public Welfare (DPW). DPW
contracted with the Texas State Department of Health (TSDH) in January
1969 for the survey of all nursing home facilities which were applying
for participation in the Medicaid Assistance Program. These surveys
were to be conducted using the SNF standards for participation developed
by DPW in January 1969, approved by SRS, and incorporated into the State
Plan.
On April 29, 1970, SRS published 45 CFR 249.10(b)(4)(i)(m), effective
July 1, 1970. The regulation requires that a "facility (including a
facility operated by a governmental agency) meet all requirements which
are applied for licensure or formal approval as a nursing home to the
same type of facility in any other ownership category (i.e.
governmental, non-profit or proprietary) within the State."
In September 1970, TSDH and the Texas State Department of Mental
Health and Mental Retardation (MH-MR), the organization responsible for
administering the nursing care sections in the State schools, agreed
that TSDH would make surveys of several State schools. The surveys,
conducted in October and December of 1970, used the standards adopted in
January 1969, and disclosed between 60 and 66 deficiencies at each
school. (Audit Report, page 3 and 16; Record for Reconsideration, Tab
4.)
Subsequently DPW, TSDH, and MH-MR jointly developed proposed
standards which they believed were more appropriate for the skilled
nursing care requirements of the State schools and submitted the
proposal to SRS for approval as an amendment to the State plan. (Audit
Report, page 17.) Beginning in September 1971, surveys of the State
schools using those standards were conducted. Deficiencies were
documented. (Record for Reconsideration, Tab 2.) By letter dated
September 24, 1971, the Director, Division of Policy and Standards, SRS,
advised the Associate Regional Commissioner, Medical Services, that the
proposed standards were not acceptable since they "set up different and
lesser requirements for public institutions, particularly professional
nursing services, than were applied to private skilled nursing homes"
and, therefore, were contrary to 45 CFR 249.10(b)(4)(i)( m). On October
4, 1971 this information was furnished to the Commissioner, DPW.
Following notification that its State plan amendment had not been
approved, the State began phasing out payment for skilled nursing home
care to the State schools. (Notification of Disallowance, page 2.) As
of July 1, 1972, after certain adjustments were made, all but two of the
facilities began participating as ICF's. (Record for Reconsideration,
Tab 4.)
IV Discussion
45 CFR 249.10(b)(4)(i)(m)
HCFA contends that during the period in question the State violated
subsection (m) by applying different skilled nursng facility (SNF)
certification standards to the State schools than to all other SNF's in
the State participating in the Medicaid program. HCFA contends that
while SNF's may differ in terms of focus (e.g. mentally retarded vs.
the aged) all must meet the same certification criteria. The State
contends that there was no violation of 45 CFR 249.10(b)(4)(i)(m) since
the same standards were applied to all facilities for the mentally
retarded. In effect, the State is arguing that the regulation does not
require SNF's for the mentally retarded to meet the same standards as,
for example, SNF's for the aged. Under the State's interpretation, the
regulation would require all SNF's for the mentally retarded to meet the
same standards, but would not require those facilities to meet the the
same standards as SNF's treating other types of disorders. Under HCFA's
interpretation, SNF's for the mentally retarded would have to meet the
same standards as SNF's treating any other type of disorder.
As discussed in more detail in the Order to Show Cause, insofar as
neither the Social Security Act nor the regulations contained provisions
creating SNF's for the mentally retarded as a separate category of
facility, the State is unpersuasive in arguing that 45 CFR 249.10
(b)(4)(i)(m) should be interpreted as requiring only that all SNF's for
the mentally retarded meet the same standards. The more reasonable
interpretation of the regulation is that the same standards had to be
applied to all SNF's. The record clearly shows and the State has not
denied that State operated skilled nursing homes for the mentally
retarded did not meet SNF standards. Accordingly, FFP for the period
was properly denied.
Agency Acquiescence
The State has argued that the Agency "tacitly approved, if not
actually encouraged," its actions. However, the State does seem to
admit, in a letter dated May 27, 1977 (Record, item 11, p. 3), that
during a series of meetings conducted shortly after implementation of 45
CFR 249.10(b)(4)(i)(m) "legitimate disagreement" arose over the
interpretation of that section. Inasmuch as the State has presented no
facts in support of its contention and the record indicates that the
State was aware of the Agency's interpretation of the regulation from a
point early in the period in question, the Board has no basis for
concluding that the disallowance should be reversed on grounds that the
Agency in some way encouraged the State's action.
V Conclusion
For the reasons discussed above, the decision of the Administrator of
HCFA is sustained with respect to the disallowance of FFP claimed for
Title XIX skilled nursing services provided by Texas State schools for
the mentally retarded during the period July 1, 1970 through June 30,
1972. HCFA should recover $8,356,528.72 from the State.
OCTOBER 04, 1983