Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Oregon Department of Human Resources
DATE: January 31, 1992
Docket No. 91-92
Decision No. 1298
DECISION
The Oregon Department of Human Resources (State) appealed the
disallowance
by the Health Care Financing Administration (HCFA) of
$1,220,718 in Federal
financial participation (FFP) claimed under Title
XIX of the Social Security
Act (Medicaid) for the period September, 1983
through February, 1990.
HCFA disallowed the federal share of $2,012,706
transferred from the Oregon
Motor Vehicle Accident Fund (MVAF) to the
State Medicaid agency on the basis
that the funds were applicable
credits that reduced the costs of the State's
Medicaid program. 1/
We reverse the disallowance in full. We conclude both that the
MVAF
funds qualified as the State's share to be used in claiming FFP
under
HCFA's Medicaid-specific rule and that the funds were not
applicable
credits as described in Office of Management and Budget Circular
A-87
(OMB A-87).
Background
The MVAF reimburses certain medical providers for some of the costs
of
treating eligible indigent patients who are injured in motor
vehicle
accidents. It is funded by a fee imposed on each Oregon
driver's
license issued or renewed. The fee was fifty cents at the time
the MVAF
was established in 1941 and was raised to four dollars in 1981,
its
level at the time this appeal was filed. Payment from the MVAF is
made
directly to specified providers of services to indigent patients. 2/
Prior to the time period at issue in this appeal, the MVAF was treated
as
a prior resource for Medicaid eligible individuals injured in motor
vehicle
accidents. Medical providers billed the MVAF prior to billing
Medicaid,
and the amount of MVAF funds received on behalf of a Medicaid
recipient were
deducted from Medicaid's payment on the claim. In 1983,
Oregon changed
the operation of the MVAF and its relation to the
Medicaid program.
Legislation governing the MVAF, Oregon Revised
Statutes (Or. Rev. Stat.) Ch.
445, was amended to preclude the MVAF from
paying claims on behalf of
individuals who are eligible for Medicaid.
1983 Or. Laws Ch. 126, Sec. 3,
codified at Or. Rev. Stat. 445.270. The
MVAF was no longer available as
a prior resource, and the amounts that
it had paid on behalf of Medicaid
recipients were now paid by Medicaid.
To cover the State's share of the costs
of treating Medicaid recipients
injured in motor vehicle accidents who were
no longer eligible for MVAF
benefits, the 1983 amendments authorized the
quarterly transfer of funds
from the MVAF to AFSD. 1983 Or. Laws Ch.
126, Secs. 3(2) and 5. The
monies transferred from the MVAF to AFSD
were used as part of the
State's share of the costs of medical assistance
provided under its
State Medicaid plan. These changes resulted in the
disallowance at
issue here.
Initially, $495,675 was appropriated to AFSD out of the MVAF as
an
estimate of the State's share of the costs for treating
Medicaid
recipients injured in motor vehicle accidents for the
1983-1985
biennium. This amount was determined by applying the State's
share of
the Medicaid match rate to the percent of claims that had
previously
been paid by the MVAF for the care of Medicaid recipients.
Beginning in
1985, administration of the MVAF was transferred to AFSD, and
the amount
of money transferred from the MVAF was determined based on the
percent
of Medicaid hospital and physician trauma claims that were
attributable
to automobile accidents. Affidavit of Hersh Crawford,
State Brief
(Br.), Exhibit (Ex.) 3.
The State admitted that an aim of the change in the MVAF program was
that
State dollars would be "stretched" by the receipt of FFP in the
costs of care
of Medicaid recipients injured in motor vehicle accidents.
State Br., p.
10. The State legislature had estimated that the initial
transfer of
funds from the MVAF to the Medicaid program and the
subsequent receipt of
federal funds would improve the MVAF by
approximately $660,000, based on the
applicable federal matching rate.
State Br., Ex. 4C.
A HCFA review determined that DHR had received $2,012,706 from the
MVAF
for the period September, 1983 through February, 1990. In a letter
dated
May 20, 1991, HCFA disallowed $1,220,718, on the grounds that
this
amount was the federal share of the applicable credits represented
by
the MVAF payments to the State's Medicaid program.
Applicable law
Title XIX of the Social Security Act (Act) (42 U.S.C. 1396 et
seq.)
authorizes federal grants to states to aid in financing state
programs
which provide medical assistance and related services to
needy
individuals. Any state that wishes to participate in the
Medicaid
program must develop and submit a plan that meets certain
requirements
set forth by the Secretary for the Department of Health and
Human
Services (HHS). Section 1902(a)(2) of the Act requires
financial
participation by states in the cost of authorized services. A
state's
financial contribution, which it uses to claim FFP, is referred to
as
the state's share.
The state's share regulation in effect for the most of the time period
at
issue in this appeal is found at 42 C.F.R. 433.45 (1990), "Source of
State
share of financial participation," added November 12, 1985, 50
Fed. Reg.
46,652. The regulation provides in relevant portion as
follows:
(a) Public funds as the State's share. (1) Public
funds may
be considered as the State's share in claiming FFP if they
meet
the conditions specified in paragraphs (a)(2) and (3) of
this
section. (2) The public funds are appropriated
directly to the
State or local Medicaid agency, or transferred from
other public
agencies (including Indian tribes) to the State or local
agency
and under its administrative control, or certified by
the
contributing public agency as representing expenditures
eligible
for FFP under this section. (3) The public funds
are not
Federal funds, or are Federal funds authorized by Federal law
to
be used to match other Federal funds.
The cost principles of OMB A-87, made applicable to state governments
by
45 C.F.R. 74.171, require that allowable costs claimed under a
grant
program, such as Medicaid, must "(b)e net of all applicable
credits"
Att. A, C.1.g. A state that has received an applicable credit
but not
reduced its allowable costs claimed under Medicaid has received
an
overpayment of FFP. North Carolina Dept. of Human Resources, DAB
No.
361 (1982). Applicable credits are defined at OMB A-87, Att. A,
C.3.a:
Applicable credits refer to those receipts or reduction
of
expenditure-type transactions which offset or reduce
expense
items allocable to grants as direct or indirect costs.
Examples
of such transactions are: purchase discounts; rebates
or
allowances, recoveries or indemnities on losses; sale
of
publications, equipment, and scrap; income from personal
or
incidental services; and adjustments of overpayments
or
erroneous charges.
Analysis
HCFA contended that the funds received by AFSD from the MVAF
decreased
Oregon's cost of its Medicaid program and were applicable credits
as
defined in OMB A-87. HCFA reasoned that as applicable credits,
they
reduced the expenditures of Oregon's Medicaid program, and that HCFA
is
entitled to the federal share of that reduction. HCFA also argued
that
excluding Medicaid recipients from receiving MVAF payments violated
the
Medicaid program's right to third party recoveries, as well as
the
principle that Medicaid is the payor of last resort. It
characterized
the exclusion as unauthorized discrimination against
Medicaid
recipients.
Oregon argued that the MVAF funds were not recoveries of Medicaid
program
costs or applicable credits, but rather State funds that
qualified as its
share of Medicaid expenditures under 42 C.F.R. 433.45.
We address each of HCFA's arguments below.
MVAF funds as the State's share
HCFA did not dispute Oregon's position that the funds transferred
from
MVAF to AFSD, the State Medicaid agency, were public funds which met
the
conditions for use as the State's share specified at 42
C.F.R.
433.45(a)(2) and (3). Instead, HCFA contended that since the
regulation
states that public funds may be considered as a state's share, it
is
left to HCFA's discretion to determine whether funds in a given
case
will be so counted. HCFA asserted that the Board has upheld
a
disallowance of FFP in a state's claim for medical assistance,
even
though the state met the technical requirements of 42 C.F.R.
433.45,
where abusive and unauthorized practices were found. West
Virginia
Dept. of Human Services, DAB No. 956 (1988). Here, HCFA
contended that
the funds' status as applicable credits and the State's
discriminatory
practice of excluding Medicaid recipients from receiving MVAF
benefits
supported its exercise of discretion in declining to recognize the
MVAF
funds as part of Oregon's share.
HCFA's argument that the word "may" in 42 C.F.R. 433.45(a)(1) confers
the
degree of discretion claimed here is not compelling. It
appears
inconsistent with the fact that HCFA set forth specific and
rather
inclusive criteria in 433.45(a)(2) and (3). A reasonable reading
of the
regulation as a whole is that HCFA's discretion lies in
determining
compliance with those criteria. Furthermore, in reviewing
the preamble
to section 433.45, we find no mention of any intent to establish
such
sweeping discretion. On the contrary, the preamble, which
primarily
addresses the use of donations as the state's share, suggests
no
conditions on the use of public funds beyond those in (a)(2) and
(3).
50 Fed. Reg. 46,652, 46,657 (1985). While we do not reject in
toto
HCFA's argument that the word "may" in the regulation implies
some
discretion, we note that even if the argument were accepted at
face
value, it would merely beg the question of what criteria HCFA would
use
in exercising its discretion. Here, HCFA has offered as criteria
only
the circumstances found in West Virginia. As explained below, that
case
is simply inapposite.
West Virginia involved application of 42 C.F.R. 433.45(b), which
addresses
the use of funds donated from private sources as the state's
share; like 42
C.F.R. 433.45(a), the regulation provides that private
donations may be
considered as the state's share in claiming FFP.
However, contrary to HCFA's
assertion, the Board's decision upholding
the disallowance in West Virginia
was not predicated on deference to any
HCFA discretion implied by the use of
the word "may." Rather, the Board
found that the funds in question,
which were contributed by provider
hospitals, were not donated because they
were not given voluntarily but
were coerced or resulted from inducements by
the State. The Board also
found that the transfers resulted from
abusive and unauthorized
practices, including reimbursements in violation of
the State Medicaid
plan. As the funds were not "donated," they did not
qualify as the
State's share under the language of the regulation. 3/
Other factors
distinguish West Virginia. As noted above, the Board
found in West
Virginia that the State's reimbursement practices applied as
part of its
donation scheme violated the state plan; here, no such violation
is
alleged. The Board also noted that West Virginia, by its
donation
program, effectively substituted the hospitals for itself as the
federal
government's partner in the Medicaid program. As explained more
fully
in our subsequent discussion of applicable credits and
third-party
recoveries, Oregon uses what are unquestionably State funds for
its
share of Medicaid expenditures and has not substituted any third
party.
We do not agree that our holding in West Virginia stands for
the
proposition that HCFA may look behind the receipt of funds by a state
to
disallow them as the state's share when they meet the plain language
of
42 C.F.R. 433.45. However, we need not address further HCFA's
position
that it may decline to credit funds as a state's share where there
are
unauthorized or abusive practices, as we find no evidence of
such
practices by Oregon in this appeal.
We are also not persuaded by HCFA's assertion, in an affidavit from
the
Branch Chief of its Region X Division of Medicaid Financial
Management,
that Oregon's practice of using MVAF funds as part of its share
of
Medicaid expenditures is not related to 42 C.F.R. 433.45 because
it
predated the regulation, published in November, 1985. HCFA Br., Ex.
B.
The affidavit notes that prior to 42 C.F.R. 433.45, there was
no
regulation to allow transfers of funds to the State Medicaid agency.
Prior to the promulgation of 42 C.F.R. 433.45, the only
provision
governing the state's share was section 1902(a)(2) of the Act,
which
requires state Medicaid plans to provide for state
financial
participation in the non-federal share of Medicaid expenditures, in
such
amounts as to assure that lack of funds from local government
sources
will not adversely affect the provision of services. This
section
contains no limitations or restrictions that would have barred
Oregon
from using as its share the MVAF funds, which are raised through a
fee
applied to all driver's licenses.
When HCFA adopted the current state share regulation, it acknowledged
that
"(t)he definition of "State funds" generally used by States means
funds over
which the State legislature has an unrestricted power
of
appropriations." 50 Fed. Reg. 46,657 (1985). This
interpretation of
"state funds" as those over which the state legislature has
an
unrestricted power of appropriation is the same as that advanced by
HCFA
in Texas Dept. of Human Services, Amended DAB No. 381 (1986), where
HCFA
cited nearly identical language in a 1974 opinion from its
General
Counsel. Texas, p. 5.
It is not contested that the MVAF was established by Oregon statute,
and
that the transfer of MVAF monies to the Medicaid program was
authorized
by an act of the State legislature. State Br., Ex. 5,
6. HCFA did not
take issue with Oregon's assertion that its legislature
could instead
have transferred money from the MVAF to its general fund, and
then
increased the Medicaid program's appropriation by the same
amount.
State Br., Ex. 3, p. 3. It is reasonable to conclude that the
Oregon
legislature had unrestricted power of appropriation over the MVAF
funds,
and that they qualify as State funds eligible to be used as
Oregon's
share of its Medicaid expenditures under section 1902(a)(2) of the
Act
and the longstanding interpretation of state funds presented by HCFA
in
Texas and in the preamble to 42 C.F.R. 433.45.
In Texas, the Board also noted that prior to the promulgation of 42
C.F.R.
433.45, HCFA had never articulated a policy on the use of public
or private
donations as the state's share of Medicaid expenditures, and
there was thus a
"policy vacuum" on this question. Texas, pp. 4-6.
That Oregon's funding
system predates 42 C.F.R. 433.45 does not limit
its ability to utilize the
MVAF funds to claim FFP, as HCFA has shown no
prior policy limiting a state's
use of its own funds as its matching
share. If anything, 42 C.F.R.
433.45 is more restrictive than section
1902(a)(2) of the Act and its general
provisions on state funding, as it
imposed specific criteria which funds must
meet to qualify as the
state's share.
We thus conclude that the transfer of the MVAF funds to AFSD complied
with
the plain language of 42 C.F.R. 433.45(a) and the prior
interpretation of
state's share under section 1902(a)(2) of the Act, and
that these funds
qualified as Oregon's share for claiming FFP. These
monies were clearly
state or public funds transferred from another state
agency within the
meaning of the regulation. The character of the MVAF
funds as state
funds was not destroyed by the fact that the amount
transferred from the MVAF
to the Medicaid program was an "estimate of
medical costs related to motor
vehicle accidents" (HCFA Br., Att. B, p.
3), or that "the transfers were
definitely made in contemplation of
receiving payment on claims." HCFA
Br., p. 6. Any state's annual
appropriation to its Medicaid agency may
be said to be an estimate of
medical costs, made in contemplation of
receiving payment on the state's
claim for FFP. What HCFA assailed
appears to be nothing more than a
state's normal process of appropriating to
its Medicaid program
sufficient state funds to cover the non-federal share of
costs related
to the provision of medical assistance under Medicaid.
Applicable credits
HCFA also contended that the MVAF funds transferred to the State
Medicaid
agency and used as part of the State's share for claiming FFP
in medical
assistance payments were applicable credits because they
effectively reduced
the State's but not the federal share of Medicaid
expenditures. HCFA
reasoned that since the net effect of the transfers
was to decrease the cost
to the State for its Medicaid program, the
federal government is entitled to
share in the savings.
HCFA argued that Oregon's legislation and its brief in this
appeal
described the MVAF with terminology consistent with OMB
A-87's
definition and examples of applicable credits. Or. Rev. Stat.
445.270
describes the MVAF funds as "reimbursing" AFSD, the State
Medicaid
agency, for the costs of patient care, and the State admitted that
the
purpose of the transfer of MVAF monies was to cover the State match
of
the costs of treating Medicaid recipients injured in motor
vehicle
accidents. 4/ State Br., Ex. 3. HCFA asserted that as the
State has
taken funds from one source to repay costs paid out of its
Medicaid
fund, the MVAF funds are a "recovery" as used in the list of
examples of
applicable credits provided in OMB A-87, Att. A, C.1.a.
HCFA further
maintained that even accepting the State's argument that the
MVAF funds
were not truly recoveries and thus not included in the examples,
they
still constituted applicable credits, as the Board has held that
the
examples provided in OMB A-87 are not an exclusive list of
applicable
credits, but merely examples. Pennsylvania Office of the
Budget, DAB
No. 1234 (1991).
The determination of whether funds received by a grantee
constitute
applicable credits should not turn on whether the grantee, in
describing
the funds, has or has not utilized words in the list of examples
of
applicable credits provided at OMB A-87, Att. A, C.3.a. Instead,
the
inquiry must focus on whether the questioned payments have
the
characteristics of applicable credits as given in OMB A-87's
definition
and examples. 5/ The Board has held to be applicable credits
payments
which were not explicitly cited in the list of examples, but were
within
the "broad categories" created by the other examples. North
Carolina,
supra.
Sources of funds that the Board has found to be applicable
credits
comprise several general categories. They include:
o Interest received by a state on federal
funds (e.g., North
Carolina, supra, and New York State Department of Social
Services, DAB
No. 588 (1984), interest on recoveries of overpayments to
Medicaid
providers; Utah Dept. of Social Services, DAB No. 750 (1986),
and
Tennessee Dept. of Human Services, DAB No. 1054 (1989), interest
earned
on child support collections; and Pennsylvania, supra, interest
on
federal funds provided for self-insurance accounts).
o Fees or income generated by
federally-funded activities (e.g.,
Maryland Dept. of Human Resources, DAB No.
412 (1983), and Tennessee
Dept. of Human Services, DAB No. 689 (1985), court
fees imposed for
processing child support orders).
o Discounts and refunds received by a
grantee as a result of the
expenditure of federal funds (e.g., Maryland Dept.
of Health and Mental
Hygiene, DAB No. 400 (1983), discounts on claims from
hospitals to which
the state had provided working-capital advances; Area IX
Oakland-Macomb
PSRO, DAB No. 528 (1984), and Area IV PSRO of Michigan, DAB
No. 651
(1985), refunds of FICA taxes).
o Unused or excessive federal funds
received by a grantee (e.g.,
Montana Dept. of Social and Rehabilitative
Services, DAB No. 309 (1982),
uncashed and canceled warrants).
o Reimbursement for one cost received
from two federal programs.
(Louisiana Dept. of Health and Human Resources,
DAB No. 327 (1982)).
A common theme in the applicable credit cases (and in the examples
of
applicable credits in OMB A-87) is the receipt of monies (or
reductions
of expenditures) by a state related to its federally funded
program
which, if unaccounted for in the program, would result in a savings
or
gain to the state alone. This characteristic springs from
the
description of applicable credits in OMB A-87 as funds or savings
which
"offset or reduce expense items allocable to grants. . ." If a
state
has receipts or reductions in expense items allocable to
a
federally-funded grant but fails to credit the grant for the receipts
or
reductions accordingly, then the state experiences savings which it
does
not pass on to the federal funding source as well.
In determining whether there is a nexus between the questioned
receipts
and the federally funded program, the applicable credits
provision
requires that the character of the receipts must be assessed at
the
point that they are received by the state, and not when
eventually
credited to the state Medicaid agency, as receipts by a state may
be
applicable credits even if never credited to the state Medicaid
agency.
North Carolina, supra. 6/
The Board discussed OMB A-87's examples of applicable credits in
Hawaii
Dept. of Social Services and Housing, DAB No. 779 (1986), where
HCFA
disallowed FFP in the cost of State excise taxes paid by
Medicaid
providers; among other arguments, HCFA maintained that the tax
receipts
from the providers should have been considered applicable
credits
against Hawaii's reimbursements to them. The Board noted that
in the
examples of applicable credits:
There is a direct link, or nexus, between the credit
in those
situations and the amount to which it must
be applied. For
example, if the State received
a discount or rebate on the purchase
of a desk for
its Medicaid program it could not seek FFP on the
full retail price. Similarly, the State would have to
subtract
from its Medicaid expenditures amounts it
recovered from a provider
where it originally paid
the provider in error. Hawaii, p. 6.
The relationship between the credits (the tax receipts) and the amounts
to
which they were to be applied (Hawaii's payments to providers and
claim for
FFP) was more remote than in the examples in OMB A-87. The
Board noted
that the taxes were not claimed directly by providers but
were included in
calculating their Medicaid reimbursement rates, as were
other payments the
providers made to the State as costs of doing
business, irrespective of
whether they were rendering any services to
Medicaid recipients. Unlike
the examples in the applicable credits
provision, the right of the State to
receive excise taxes from providers
did not arise out of the transaction of
the State paying the providers.
The Board held that the applicable credits
provision of OMB A-87 did not
clearly inform Hawaii that it had to treat the
excise tax as an
applicable credit. 7/
The MVAF funds that HCFA claims were applicable credits were raised by
the
imposition of a flat fee on all driver's licenses issued or renewed
by the
State. They did not result from the receipt of federal funds by
the
State, nor did they arise out of the operation of the Medicaid
program.
As in Hawaii, the right of Oregon to receive fees from its
citizens who apply
for and renew driver's licenses did not arise out of
the transaction of the
State paying Medicaid providers or claiming FFP
in those payments.
Thus, as in Hawaii, the relationship between the
revenues raised by this fee
and the amounts to which HCFA seeks to apply
the revenues is simply too
remote. 8/
Even if the MVAF funds are examined not when initially received by
the
State, but when transferred to AFSD, the relationship between the
funds
and Oregon's claim for FFP (or payments to providers) is no
different
than that which generally exists between a state's appropriation to
its
Medicaid program and its claim for FFP. The appropriation must
be
sufficient to cover the state's share of program expenditures
in
compliance with section 1902(a)(2) of the Act. As Oregon's MVAF
funds
were not attributable to, did not arise out of, and were not
generated
by the Medicaid program, they do not qualify as applicable
credits.
HCFA stated that Oregon received applicable credits because it had
taken
funds from one source to recover or repay costs paid out of its
Medicaid
fund for Medicaid clients injured in motor vehicle accidents.
HCFA Br.,
pp. 7-8. We do not agree with this analysis. The
"source" that Oregon
has taken these funds from is nothing other than the
State itself. The
ensuing analysis of third-party recoveries further
reinforces our
conclusion that the MVAF monies were state funds.
As in Hawaii, we conclude that OMB A-87 is simply not definitive and
does
not compel the treatment of the MVAF funds as applicable
credits,
particularly in light of the more specifically relevant state's
share
regulation, the provisions of section 1902(a)(2) of the Act, and
HCFA's
prior interpretation of state funds. Indeed, HCFA has conceded
in prior
Board cases that if funds qualify as the state's share, then they
are
not subject to the applicable credit cost principle requirements.
See,
e.g., Texas, supra, p. 4. 9/
The MVAF funds as third party recoveries
HCFA also argued that Oregon, "acting as a third party itself," (HCFA
Br.,
p. 11) is denying Medicaid recipients their right to receive MVAF
benefits
directly under section 1912 of the Act, which requires Medicaid
recipients to
assign to the state any right they may have to payment or
recovery by third
parties.
However, the MVAF, as a component of the State, cannot be a third party
to
the State, as the Board has confirmed that a state as a whole must be
viewed
as a single unit responsible for the administration of grant
funds.
Louisiana Dept. of Health and Hospitals, DAB No. 1176 (1990), p.
10.
This is apparent from the use of the word "State" in Section
1903(a)(1) of
the Act, and from the definition of "grantee" at 45 C.F.R.
74.3. 10/
This position is supported by the holding of the First
Circuit in
Massachusetts v. Secretary of HHS, 816 F.2d 796, (1st Cir.
1987), aff'd in
part and rev'd in part, Bowen v. Massachusetts, 487 U.S.
879, 108 S.Ct. 2722
(1988), cited by Oregon in its Brief, that a
component of the State, its
Department of Education, was not a "third
party" to the State Medicaid
agency. The Court stated that the fact
that the two departments
appeared to be third parties to each other was
an artifact of the State's
internal organization, which the State could
have altered to place both
components in one agency. 11/ The portion of
the decision quoted by
Oregon, that Medicaid reimbursement decisions
should not turn on how a state
subdivides its social welfare functions
and authority, is particularly
applicable here.
As the MVAF is not a third party but a component of the State, the
"third
party" that contributes the MVAF funds can only be the residents
of Oregon
who receive and renew driver's licenses. The notion that
state funds
raised through a fee or tax of general applicability are
third party
recoveries and applicable credits contravenes the state's
share regulation at
42 C.F.R. 433.45 and would render meaningless a
state's ability to raise
revenues, as all monies received by a state
from its populace through the
power of taxation would potentially be
"applicable credits."
Since the MVAF is not a third party for the purposes of
Medicaid
reimbursement, HCFA's argument that Oregon's funding mechanism
violated
section 1912 of the Act is unavailing. Additionally, section
1912 of
the Act requires the assignment to the state of any "rights" to
payment
for medical care; here, Medicaid eligible individuals were excluded
from
receiving MVAF benefits by Or. Rev. Stat. 445.270 and had no right
to
payment from the MVAF.
HCFA also asserted that the net effect of Oregon's action was to
decrease
the cost to the State for its Medicaid program. HCFA Br., p.
7.
Simple logic points to the opposite conclusion. If the State's
Medicaid
program now pays for medical services that were previously paid
for by the
State-funded MVAF, then the total costs paid by the Medicaid
program have
increased. HCFA's contention that the cost to Oregon for
its Medicaid
program has decreased is untenable as the MVAF is not a
third party, and the
monies transferred to AFSD did not constitute a net
gain to the State.
Finally, this Board has recently held that the definition of
"resources"
which must be considered in determining the amount of Medicaid
benefits
to be awarded an eligible individual does not encompass the receipt
of
state-funded services. California Dept. of Health Services, DAB
No.
1285 (1991), pp. 29-33. 12/
Accordingly, we conclude that the MVAF funds were not a third
party
recovery by Oregon's Medicaid program.
Section 1903(o) of the Act, Medicaid as the payor of last resort,
and
discrimination against Medicaid recipients
HCFA also compared Oregon's exclusion of Medicaid recipients from the
MVAF
program to behavior prohibited by section 1903(o) of the Act, which
bars
Medicaid payments for services that would have been covered by a
private
insurer but for a provision in the insurance contract excluding
coverage for
services provided by Medicaid. The short answer to this
comparison, as
Oregon noted, is that the State is not a private insurer
as defined at 42
C.F.R. 433.136(1). More importantly, private insurance
companies,
unlike components of a state, may be third parties from which
payment for
medical services may be sought pursuant to section 1912 of
the Act and
regulations governing third party liability at 42 C.F.R.
Part 433, Subpart
D.
While apparently conceding that Oregon might not have committed a de
facto
violation of section 1903(o) of the Act, HCFA asserted that the
State was in
violation of the "spirit" of section 1903(o), the principle
of Medicaid as
the payor of last resort. It quoted statements in the
legislative
history of section 1903(o) that states are required to
ensure that third
parties legally liable to pay for medical care meet
their obligations.
HCFA Br., pp. 12-13. HCFA also characterized
Oregon's statutory
prohibition on paying MVAF benefits to Medicaid
recipients as unauthorized
discrimination.
We find little merit in these arguments. Rather than
discriminate
against Medicaid recipients, Oregon's MVAF as it is currently
structured
ensures that persons who are needy but fall outside the reach of
the
Medicaid program will receive a limited degree of medical care
when
injured in motor vehicle accidents. The effect of HCFA's position
would
be to preclude states from instituting any state-funded programs
to
provide services to indigents who are not eligible for Medicaid.
We
believe that this is an illogical result not required by the
principle
of Medicaid as the payor of last resort.
HCFA misconstrues the Board's holding in Utah Dept. of Health, DAB No.
893
(1987), as supporting its contention that Oregon must first bill
MVAF for
medical services to Medicaid recipients before Medicaid can pay
for those
services. In Utah the Board upheld a portion of the
disallowance
essentially on the grounds that FFP had been claimed in
services which were
not "medical assistance" under the Title XIX of the
Act but were educational
activities for which reimbursement was
prohibited. Additionally, the
State had claimed Title XIX FFP for
services which it was required to provide
and for which federal funding
was available under other federal
legislation. The State was thus
improperly claiming FFP for one service
under two federal programs.
Here, by contrast, there is no statutory
requirement that Oregon provide
benefits from its MVAF to Medicaid
recipients, and no third party
liability which must be exhausted before
Medicaid benefits may be
provided. The decision in Utah was not based
on any rejection of the
First Circuit's holding in Massachusetts v.
Secretary, supra, that a
state agency is not a liable third party under the
Act. Utah, p. 11.
HCFA characterized the exclusion of Medicaid recipients from
receiving
MVAF benefits as especially egregious in light of the fact that
they are
required to pay the same $4.00 driver's license fee as every
other
person in the State. However, persons who are ineligible for
both
Medicaid and MVAF benefits must also pay the same fee; in fact,
these
persons must pay income and other taxes which fund Medicaid
services
even though they do not receive those services. The notion
that
taxpayers must fund assistance or service programs that they may
never
have to use is hardly egregious.
Conclusion
Based on the foregoing analysis, we conclude that the funds
transferred
from the MVAF to AFSD qualified as Oregon's share of its
Medicaid
expenditures and were not applicable credits. Accordingly,
the
disallowance is reversed.
Donald F. Garrett
Norval D. (John) Settle
Cecilia Sparks Ford Presiding Board Member
1. The State's brief and exhibits indicate that on February 1,
1990,
responsibility for administration of the Medicaid program was
shifted
from the Department of Human Resources Adult and Family
Services
Division (AFSD), to the Office of Medical Assistance Programs
(OMAP),
the successor agency to the AFSD Health Services Section. For
the
purposes of this decision we will refer to AFSD as the State
Medicaid
Agency, as it was responsible for administering the Medicaid program
for
all but one month of the time period covered by this disallowance.
2. For the period of July 1, 1981 to December 31, 1982, the MVAF
paid
4,525 claims to doctors, hospitals, nurses, pharmacists,
physical
therapists, and for ambulances and prosthetic appliances. The
average
cost per claim was $516.37. State Br., Ex. 4B.
3. The Board's decision in West Virginia upholding HCFA's refusal
to
accept the hospital donations as the State's share was reversed by
the
United States District Court for the Southern District of West
Virginia
in Lipscomb v. Bowen, 750 F.Supp. 197 (S.D. W. Va. 1989), aff'd sub
nom.
Miller v. Hartman, 911 F.2d 723 (4th Cir. 1990). The court
disagreed
with the Board's finding of coercion, and also noted that 433.45
did not
require unconditional donations. The court held that by
requiring that
the donations be voluntary, the Board essentially added new
requirements
to the regulation (the court also determined that these
requirements had
been contemplated but not adopted when the regulation was
drafted).
4. HCFA assailed Oregon's citation of its legislative history to
show
that the MVAF was to be used as a source of the State's share, as
the
statute in question is unambiguous in its use of the term
"reimbursing"
in describing the purpose of the MVAF payments. HCFA
argued that
"reimbursement" must be viewed in its common meaning, and that it
was
clear that the funds were to reimburse the Medicaid agency for the
costs
of care of accident victims and were never intended as the
State's
matching share of Medicaid monies. The Agency also
characterized the
legislative history cited by Oregon as isolated floor
statements, rather
than official committee reports, and noted that these
remarks do not
squarely address the issue of the State's share, but rather
focus on the
high cost of medical care and lack of resources.
5. Among other arguments, the State compared the punctuation in
the
lists of examples of applicable credits provided in OMB A-87, Att.
A,
C.3.a and in OMB Circular A-21, "Costs Principles for
Educational
Institutions." State Reply Br., Affidavit of Brian K.
Evans, p. 5. We
believe that the better inquiry is to determine the
essential nature of
applicable credits and apply that determination to the
particular funds
at issue.
6. In North Carolina, the State argued that interest earned
on
recoveries from Medicaid providers did not offset or reduce
expenditures
because it was part of the State's general fund and beyond the
reach of
the State Medicaid agency. The State also maintained that the
interest
resulted from its investment activities and was not attributable to
the
Medicaid program. The Board found the interest to be an
applicable
credit as it directly resulted from Medicaid recoveries.
That the State
credited the interest to its general fund instead of the
Medicaid
program did not relieve it of the obligation to credit this income
to
the program that generated it.
7. The analysis of applicable credits was only one aspect of the
Hawaii
decision. The Board also found that Hawaii's approved State
Medicaid
plan provided for payment of excise taxes by its adoption of
Medicare
reimbursement principles, and that HCFA had never articulated a
policy
that payment of the excise taxes was improper. The Board
subsequently
upheld HCFA's ability to disallow FFP in the cost of certain
taxes paid
by Medicaid providers and recipients where HCFA had promulgated
a
specific policy concerning such taxes. Louisiana Dept. of Health
and
Hospitals, DAB No. 1109 (1989), and Louisiana Dept. of Health
and
Hospitals, DAB No. 1176 (1990). "Provider specific" taxes have
also
been the subject of considerable HCFA and Congressional attention.
See
"Medicaid Program; State Share of Financial Participation;"
Proposed
rule, 55 Fed. Reg. 4,626 (1990); Interim final rule with comment,
56
Fed. Reg. 46,380 (1991); Interim final rule with comment
canceling
interim final rule with comment, 56 Fed. Reg. 56,132 (1991); and
the
"Medicaid Voluntary Contribution and Provider-Specific Tax Amendments
of
1991," Pub.L. 102-234, 105 Stat. 1793 (December 12, 1991),
nullifying
the interim final rule promulgated at 56 Fed. Reg. 56,132
(1991).
8. The remoteness of the relationship with federal Medicaid
funds
distinguishes Oregon's fee on driver's licenses from the court fees
for
processing child support orders found to be program income
and
applicable credits in Maryland Dept. of Human Resources, DAB No.
412
(1983), and Maryland Dept. of Human Resources, DAB No. 639
(1985). In
those cases the fees derived from the very activities for
which federal
funds were claimed, and there was too great a nexus between
the
federally funded services and the fees which they generated; the
fees
clearly were associated closely with the precise activities for
which
scarce federal funds were provided.
9. Moreover, under 45 C.F.R. 74.4(a), which provides that the
cost
principles of 45 C.F.R. Part 74 apply except where inconsistent
with
federal regulations, OMB A-87's general, program-wide guidelines on
the
treatment of applicable credits must yield to the more
specific
regulation that allows the use of these funds as the State's
share.
10. In Louisiana the Board upheld the disallowance of FFP in a
sales
tax on pharmaceuticals and durable medical equipment imposed on
Medicaid
recipients but paid by the State Medicaid agency directly to the
State
department of revenue. Among other points, the Board noted that
the
State was in effect paying a tax to itself. Here, by contrast,
the
State is in effect receiving money from itself. If a state cannot
have
an expenditure in monies it pays to itself, then there cannot be a
gain
from monies it receives from itself.
11. We note that in 1985, administration of the MVAF was transferred
to
AFSD, which also administers the Medicaid program. Affidavit of
Hersh
Crawford, State Br., Ex. 3. It could thus be argued that Oregon
has
restructured its internal organization to eliminate any appearance
that
MVAF and AFSD are third parties to each other.
12. The Board noted that since there were no
post-eligibility
definitions of resources in effect, the definition included
in
regulations for determining eligibility for the different categories
of
Medicaid must be examined. These regulations did not define
"resources"
as including state-funded medical services. HCFA identified
no credible
source in which the Secretary had defined the receipt of
state-funded
services as a resource, and such a definition was contrary to
the only
existing definitions of resources