Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department of Health Services
DATE: August 12, 1994
Docket No. A-94-77
Decision No. 1490
DECISION
The California Department of Health Services (California) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $4,557,921 in federal financial participation (FFP) claimed
by California under title XIX (Medicaid) of the Social Security Act
(Act). California had claimed the disallowed FFP for the quarters ending
December 31, 1990 and March 31, 1991, for costs associated with surveys
of nursing facilities. HCFA disallowed the claims based on its
determination that California failed to comply with the nursing home
reform provisions of the Omnibus Budget Reconciliation Act of 1987 (OBRA
'87) and HCFA's implementing regulations.
California primarily attacked HCFA's disallowance on procedural grounds
and did not offer any substantive arguments that challenged HCFA's basic
determination that California's survey agency had not implemented the
OBRA '87 requirements during the period in question. For the reasons
discussed below, we uphold the disallowance in principle, but remand the
case to HCFA for a recalculation of the disallowance amount under the
guidelines we set forth below.
Statutory and Regulatory Background
In section 4211 of OBRA '87, Public Law No. 100-203, Congress enacted a
comprehensive set of nursing home reforms applicable to facilities which
have provider agreements under the Medicaid program. These reforms set
minimum statutory standards that nursing facilities participating in
Medicaid must meet, provided nursing home residents with certain rights,
and established procedures for state and federal surveys and
certifications of nursing facilities. The reforms, set forth at section
1919 of the Act for the Medicaid program, became fully effective on
October 1, 1990. HCFA promulgated regulations implementing the OBRA '87
amendments in February 1989. See 42 C.F.R. Part 483.
States participating in the Medicaid program are required to establish
survey agencies whose responsibilities include surveying and certifying
nursing facilities for compliance with federal standards. Section
1919(g)(1)(A) of the Act. A state's Medicaid plan must provide for a
written agreement between the state Medicaid agency and the survey
agency that specifies that "federal requirements and the forms, methods
and procedures that the [HCFA] Administrator designates will be used to
determine provider eligibility and certification under Medicaid." 42
C.F.R. 431.610(f)(1). Payment of FFP for survey responsibilities is
conditioned on compliance with these requirements. 42 C.F.R.
431.610(h)(1).
Factual Background
As mentioned above, the provisions of OBRA '87 relating to the survey
and certification of nursing facilities became effective October 1,
1990. In its brief California alleged that a dispute arose between
California and HCFA in the summer and fall of 1990 concerning the
implementation of the OBRA '87 reforms. The California state legislature
specifically prohibited California from carrying out the provisions of
OBRA '87. Medi-Cal Long-Term Care Reimbursement Act of 1990, 14126.10,
enacted August 10, 1990. HCFA Ex. B.
Section 4211(b)(2) of OBRA '87 required each state to submit by April 1,
1990 an amendment to its Medicaid State plan for a rate adjustment for
nursing facility services to reflect the costs of meeting the new
requirements imposed by OBRA '87. California submitted such an
amendment on March 29, 1990. In submitting its amendment, California
maintained that the excessive costs of carrying out the OBRA '87 reforms
were not warranted by the negligible impact on the quality of care in
nursing homes. California indicated that it believed its current system
for surveying and certifying nursing facilities was already in
substantial compliance with the OBRA '87 requirements so that its
proposed rates did not consider the increased costs of complying with
OBRA '87.
In disapproving the amendment on September 28, 1990, HCFA stated:
The requirements of section 4211 of OBRA 87 clearly provide that
nursing facilities must meet the new Federal requirements to
participate in the Medicaid program. Further, States are required
by section 1902(a)(13)(A) of the Act to modify their Medicaid
payment systems to take these added costs into account. There is
no provision in Federal law which permits waiver of these
requirements or which allows HCFA to determine that an individual
State's system is equivalent to the new standards.
California Ex. 4, at 2. California maintained that it received an
October 10, 1990 letter from the HCFA Regional Administrator informing
it that California was out of compliance due to its failure to resubmit
an approvable state plan amendment meeting the requirements set forth in
OBRA '87. California appealed this determination of noncompliance.
California Ex. 5. An administrative hearing was set for February 12,
1991 on California's alleged failure to comply with the OBRA '87
requirements. California Ex. 6. California asserted that HCFA later
withdrew the compliance hearing with no resolution of the compliance
issues between the parties. California Ex. 7.
On September 28, 1990, HCFA, in issuing a survey and certification
budget approval letter for the 1991 fiscal year, specifically warned
California that the budget contained no Medicare or Medicaid funds for
survey and certification activities; these funds were to be retained in
the HCFA regional office until California decided to implement the OBRA
'87 requirements. HCFA Ex. F at 2.
On October 1, 1990, California informed its survey agency's district
administrators that its policy would be that any certification survey of
a nursing facility done on or after October 1, 1990 would be done under
the existing, i.e., pre-October 1, 1990, federal certification process.
HCFA Ex. D. On the same day, California informed nursing facilities
within the state that, in light of the enactment of the Medi-Cal
Long-Term Care Reimbursement Act of 1990, its surveyors would continue
to use the certification process and requirements for certification in
effect prior to October 1, 1990. HCFA Ex. E.
Additionally, on October 1, 1990, a class action suit on behalf of
nursing home residents in the state of California was filed against
California, alleging that California failed to implement the provisions
of OBRA '87. On January 11, 1991, the District Court issued an order
enjoining California "from failing to comply with, and failing to
implement, all provisions of the federal nursing home reform law . . .
and the regulations attendant thereto . . . ." Valdivia v. California
Department of Health Services, Civ. No. S-90-1226-EJG (E.D. Cal.
February 25, 1991), Medicare & Medicaid Guide (CCH) 39,120, at 25,801.
The court specifically rejected California's argument that its own state
laws already met the reforms mandated by OBRA '87:
[OBRA '87] is a clear, comprehensive and remarkably detailed
congressional enactment. In the face of this detailed federal
statutory and regulatory scheme, California's contention that the
law is more a change in focus than one of substance bewilders this
court. Equally inexplicable is the state's decision to rely on its
own requirements, which are in many instances, on their face, less
stringent than the requirements of the reform law.
At 25,806. California did not appeal the court's order. The injunction
was incorporated into a stipulation and order which ended the litigation
in April 1993. California Ex. 9.
California indicated that during the period October 1, 1990 through
March 24, 1991, California's surveyors conducted follow-up visits of
nursing facilities to ascertain whether the facilities had corrected
deficiencies identified in previous surveys, investigated complaints
filed against the facilities, and attended training related to OBRA '87.
During this period HCFA sent federal surveyors to inspect and certify
nursing facilities in the state using the OBRA '87 requirements. On
March 25, 1991, California began surveying nursing facilities using the
OBRA '87 requirements.
On January 21, 1994, HCFA informed California that it was disallowing
FFP claimed by California under the Medicaid program for surveys of
nursing facilities on California's amended Quarterly Expenditure Reports
(QERs) for the quarters ending December 31, 1990 and March 31, 1991. 1/
With certain limited exceptions, HCFA disallowed the costs, including
overhead costs, allocable to Medicaid for the activities of the survey
agency which did not meet OBRA '87 requirements.
Discussion
California did not assert that the activities of its survey agency
during the period in question met the new standards for nursing facility
survey and certification established by OBRA '87. Rather, California
asserted that HCFA's disallowance was unjustified on several procedural
grounds, including: the proper course of action for HCFA to have taken
under the particular circumstances of this case would have been a
compliance action rather than a disallowance; HCFA's notification of
disallowance was defective on grounds of timeliness; HCFA's recovery of
the costs claimed for the activities of the survey agency is capped by
statute at 33 percent; HCFA should not have disallowed certain
categories of costs associated with the activities of its survey agency
during the two quarters at issue; and the methodology employed by HCFA
in determining the disallowance amount was technically flawed and
unreasonable.
I. The issues raised in this appeal did not warrant a compliance
action.
California's initial argument in this appeal was that this case actually
represents a compliance case disguised as a disallowance. Briefly
stated, a compliance action is authorized under section 1904 of the Act
when the Secretary of the Department of Health and Human Services finds
that a state's Medicaid plan no longer complies in whole or in part with
the Medicaid provisions set forth in section 1902 of the Act; on a
prospective basis Medicaid payments for part or all of a state's program
will not be made until the Secretary determines that the state is no
longer out of compliance. A disallowance action is authorized by
section 1116(d) of the Act when the Secretary determines that a state is
not entitled to FFP for "any item or class of items"; on a retrospective
basis FFP is denied for claims only for particular unallowable
expenditures. In a disallowance action, claims for a prior period are
denied, or, if the claims were already paid, recouped.
California contended that a review of the facts of this case
demonstrates that HCFA is not disallowing discrete amounts of money on
the basis that California did not spend the money in accordance with
Medicaid program requirements. Rather, according to California, HCFA
has imposed a coercive remedy for California's Medicaid plan's
noncompliance with the provisions of OBRA '87. As such, California
argued, the disallowance is a disguised compliance action which the
Board should strike down.
In support of its position, California contended that the Secretary
first categorized the dispute between California and HCFA as a
compliance matter. As discussed above, HCFA had initiated a compliance
action against California, but subsequently withdrew the compliance
hearing once California began to implement the OBRA '87 reforms.
The Board has thoroughly examined the question of whether a particular
agency action should be considered a compliance matter or a
disallowance. See, e.g., New Jersey Dept. of Human Services, DAB No.
259 (1982); Massachusetts Dept. of Public Welfare, DAB No. 438 (1983);
New York State Dept. of Social Services, DAB No. 1246 (1991); and
Colorado Dept. of Social Services, DAB No. 1277 (1991). Without
repeating the extensive analysis set forth in those decisions, it is
sufficient to state that a disallowance differs from a compliance action
in that a disallowance is retrospective and limited in nature, with an
agency seeking the recovery of discrete sums which have been previously
paid to a state or claimed by a state in excess of the amount to which
the state was entitled. A disallowance action provides a specific and
focused remedy pursuant to which the federal government may disallow
precisely identified amounts which were not spent in accordance with
program requirements. A compliance action, on the other hand, arises
from a finding that a state is in substantial noncompliance with program
requirements, leading to a prospective withholding of part or all
funding to the state in order to give it compelling incentive to bring
its program back into compliance. New York at 6. The total or partial
withholding continues only until HCFA "is satisfied that the State's
plan and practice are, and will continue to be, in compliance with
Federal requirements." 42 C.F.R. 430.35(d)(1)(ii).
In this appeal, HCFA's determination related to costs claimed by
California during a specific period, October 1, 1990 through March 24,
1991. Thus, HCFA's determination was not prospective but retrospective
in effect, with HCFA's action limited to specific claims for a discrete
prior period. Additionally, HCFA's action related to a specific class
of items, the costs of survey and certification for Medicaid nursing
facilities not carried out in accord with OBRA '87 requirements.
Furthermore, HCFA's action was clearly not intended to give California
an incentive to comply with the OBRA '87 requirements as California has
been complying with OBRA '87 requirements since March 25, 1991, nearly
three years before the disallowance determination was issued.
The fact that HCFA had previously considered California's decision not
to implement the OBRA '87 requirements a compliance matter does not
now preclude a disallowance. An agency sometimes has the choice of
instituting a compliance action or taking a disallowance or both:
An issue that could, in one context, be considered a question of
program compliance, could, in another context, be properly
considered a basis for a disallowance.
Colorado at 9.
HCFA reasonably withdrew its compliance action once it had assurance,
through the court's injunction in Valdivia and California's subsequent
submission of an acceptable plan amendment for setting facility rates,
that California would comply with the OBRA '87 requirements. Under these
circumstances, HCFA's action here is not properly considered anything
but a disallowance, and California's assertion that it is actually a
thinly veiled compliance action has no merit.
II. HCFA's disallowance determination was not untimely.
California argued that HCFA's notice of disallowance was procedurally
defective because HCFA failed to issue the disallowance in a timely
fashion as required by the regulations. California contended that 42
C.F.R. 430.42 requires HCFA, when it determines a claim or part of a
claim is not allowable, to "promptly" send a state a disallowance
letter.
California noted that HCFA did not issue its disallowance determination
until January 21, 1994, approximately three years after the disallowed
costs were incurred. California argued that HCFA offered no explanation
of why it delayed so long in issuing a disallowance. California argued
that there is a reasonable basis in the regulatory requirement for
prompt notification of a disallowance as the passage of time could
compromise California's ability to contest the disallowance: the
discovery of the underlying data on which the disallowance is based may
prove difficult; personnel with knowledge of the issue may have left the
agency; and documents may not be able to be found.
In examining the merits of California's arguments, we note at the outset
that the Act does not specify any time limit for the issuance of a
disallowance. Section 1116(d) of the Act only declares, "Whenever the
Secretary determines that any item or class of items . . . shall be
disallowed . . . ." (Emphasis added.) Thus, there is no period of time
in which a disallowance must be issued.
Moreover, California's assertion that HCFA delayed, without explanation,
issuing a disallowance for nearly three years is simply not supported by
the record. Before costs are paid or disallowed, a state must submit a
QER. California here did not submit amended QERs for the quarters which
included the costs at issue until April 1, 1993. HCFA Ex. L. On May 5,
1993, HCFA informed California by letter that it would "soon" be
initiating formal disallowance actions for improper charges claimed in
the amended QERs. HCFA Ex. M. The January 21, 1994 disallowance was
based on the amended QERs. Thus, there was only an interval of about
nine months, not three years as claimed by California, before HCFA
issued its disallowance.
Furthermore, it is difficult to see how California can assert that it
was prejudiced by a "delay" in the issuance of a disallowance
notification. Indeed, California did not specify here any way in which
the alleged delay in fact compromised California's ability to contest
this particular disallowance. The Board has held that generally a
disallowance may be considered untimely only if a grantee can prove
prejudice which is "attributable to the loss of records resulting from
their innocent loss or destruction after expiration of the record
retention period." California Dept. of Social Services, DAB No. 855, at
3 (1987). The regulations provide that a grantee's financial and
programmatic records generally must be retained for a period of three
years. See 45 C.F.R. Part 74, Subpart D.
If a grantee, however, is given notice of "any litigation, claim,
negotiation, audit or other action" involving the records that has begun
before the end of the three-year period, the grantee is required to
retain the records until the completion of the action. 45 C.F.R.
74.21(b). California knew even before the OBRA '87 provisions became
effective on October 1, 1990, that its decision not to adhere to the
survey provisions established in OBRA '87 and subsequent regulations and
guidelines would eventually result in some type of adverse action by
HCFA. As early as September 28, 1990, HCFA advised California that
Medicare and Medicaid funds for nursing facility survey and
certification activities would be retained until such time California
decided to implement the OBRA '87 requirements. HCFA Ex. F at 2.
Therefore California cannot reasonably claim that it was surprised by
HCFA's issuance of a disallowance here or that it was unaware of the
need to retain all relevant documents for both quarters.
III. There is no statutory cap to HCFA's disallowance in this appeal.
California argued that any reduction imposed by HCFA in regard to survey
agency performance is capped by statute. California contended that
Congress created a formula in section 1919(g)(3)(C) of the Act for
reducing the federal match for substandard survey and certification
performance. Under this formula, California continued, the maximum
reduction in FFP for its state survey expenditures, assuming a total or
100 percent substandard performance by the survey agency, would be 33
percent of the survey agency expenditures claimed on the two QERs rather
than the 81 percent of expenditures that HCFA disallowed.
California's interpretation of section 1919(g)(3)(C) is unreasonable on
its face. The purpose of this section is to give HCFA an additional
means of enforcing compliance with the provisions of OBRA '87 through
the reduction of FFP based on federal validation surveys. It allows for
a reduction of the payment a state would otherwise be entitled to under
section 1903(a)(2)(D) of the Act, i.e., reimbursement for amounts
"attributable to State activities under section 1919(g)" and found
necessary "for the proper and efficient administration of the State
plan." The formula in section 1919(g)(3)(C) is based on the number of
nursing facility residents surveyed by federal validation surveyors.
There is no way to apply this formula in a meaningful manner under the
circumstances of this case where there was no federal validation survey.
Furthermore, it is highly unlikely that Congress intended that a state
whose survey agency wholly failed to implement the OBRA '87 reforms
should at most suffer a 33 percent reduction in the amount of FFP
claimed for that survey agency's activities. Clearly, if a survey
agency does not even attempt to perform the required federal surveys
using mandated procedures, it cannot reasonably expect to merely have
its FFP reduced by a percentage intended to reflect failure to fully
meet federal survey requirements. In our view, Congress did not
contemplate that the reduction formula set forth in section
1919(g)(3)(C) would apply to circumstances where a state refused to
implement OBRA '87, and therefore was claiming amounts not "attributable
to State activities under section 1919(g)" but instead to a superseded
survey and certification process. Furthermore, as HCFA correctly
pointed out, costs incurred by California's survey agency for survey
activities using the pre-OBRA '87 standards were neither "proper"
nor
"efficient."
Therefore, we conclude that the reduction in FFP contemplated in section
1919(g)(3)(C) is not applicable to the circumstances of this appeal.
IV. HCFA must reassess the accuracy of its disallowance calculation.
California disputed the methodology employed by HCFA in calculating the
disallowance. California asserted both that the disallowance letter
lacked sufficient information about HCFA's methodology and that the
methodology was flawed in certain respects. California also argued that
HCFA's calculation improperly included some allowable types of costs.
Next, California argued that the disallowance amount was overstated and
included costs, for example office rental costs of the survey agency,
which should not have been disallowed during the two quarters
irrespective of the failure to abide by the OBRA '87 requirements.
We discuss California's arguments below.
A. California had sufficient information regarding the basis and
methodology for the disallowance.
California relied on 42 C.F.R. 430.42, which requires HCFA, in
addition to sending a disallowance "promptly," to include in the
disallowance letter:
(4) A statement of the amount of FFP claimed, allowed, and
disallowed and the manner in which these amounts were computed.
(5) Findings of fact on which the disallowance determination is
based or a reference to other documents previously furnished . . .
which contains the findings of fact on which the disallowance
determination is based.
(Emphasis added by California.)
California contended that HCFA's January 21, 1994 disallowance letter
contained no such findings of fact or any statement on how the
disallowance amount was calculated. The lack of such information,
California contended, made the disallowance letter procedurally
defective and hindered California's ability to appeal the disallowance.
Contrary to California's assertion, however, HCFA's disallowance
determination contained a factual background, the applicable law, and
the basis for the disallowance with supporting legal authority.
Despite its protestations to the contrary, California also cannot now
claim ignorance of the factual basis for this disallowance. As noted
previously, there was extensive communication between California and
HCFA concerning the implications of California's failure to implement
the surveying provisions of OBRA '87. Thus, HCFA's disallowance
notification cannot be viewed as lacking sufficient information so as to
deprive California of an understanding of the basis for HCFA's
disallowance. In addition, as discussed below, California understood
the methodology used by HCFA to compute the disallowance enough to
challenge its validity before us. Therefore, we find that the
disallowance determination was not procedurally defective and that
California had sufficient information to pursue an appeal.
B. California is not entitled to FFP for nursing facility survey costs
that did not relate to the OBRA '87 standards.
HCFA in the course of this appeal indicated a willingness to revise its
disallowance if California provided reliable documentation showing with
particularity the amount appropriately adjusted for certain types of
costs. 2/
California contended, however, that HCFA, while now conceding that
certain of the disallowed costs, such as training and supplies, may have
been reasonable for the proper administration of California's Medicaid
program, nevertheless continues to deny the allowability of such
overhead costs as office rentals and salaries during the period in
dispute which are no less reasonable and necessary for proper program
administration. Citing Office of Management and Budget Circular A-87,
Att. A, C.1.A., California argued that the basic criterion for the
allowability of costs under the Medicaid program is whether the costs
are "necessary and reasonable for proper administration" of the program.
California also insisted that the proper and efficient administration of
its Medicaid program required that its survey agency be kept in
readiness for the start of OBRA '87 surveying once the legal dispute
with HCFA was resolved. According to California, it would have been
patently unreasonable for the survey agency to close its offices and lay
off its personnel until the legal dispute was resolved. California
specifically challenged HCFA's assertion that the activities undertaken
by its survey agency during the two quarters in dispute were of no
benefit whatsoever to the Medicaid program. California asserted that
its surveyors during the two quarters engaged in activities of
substantial benefit to HCFA, including completing paperwork relating to
pre-OBRA '87 surveys (as noted, HCFA agreed to re-examine these costs),
follow-up visits to ascertain whether deficiencies were corrected, and
investigating 2400 complaints in nursing facilities participating in the
Medicaid program. California insisted that complaint investigation is
an integral part of the surveying process and conforms to the strong
emphasis in OBRA '87 on investigating complaints of patient abuse and
neglect.
California contended moreover that HCFA's disallowance amounted to a
punitive sanction against California that is out of proportion to its
non-compliance with the OBRA '87 requirements. According to California,
taking away FFP for OBRA '87 training, supplies, furniture, offices, and
the salaries of surveyors for a six-month period is not consistent with
the proper and efficient administration of the Medicaid program.
We are not persuaded by California's arguments that FFP is available
for: 1) all survey agency salary and overhead costs such as office
rental costs in general because California was obligated to be ready to
implement OBRA '87 requirements; and 2) complaint and follow-up visit
costs in particular because these activities benefited the Medicaid
program. California did not assert that its complaint and follow-up
visits complied with OBRA '87 as required by HCFA directives.
California attempted to gloss over the basic fact that it made a
deliberate decision not to follow the nursing home reform provisions set
forth in OBRA '87. Congress gave the states three years to put into
operation the OBRA '87 reforms. Yet California chose, for whatever
reasons, not to adhere to those provisions. California is now
attempting to escape the consequences of that decision. We do not see
how HCFA could effectively administer the Medicaid program if every
state, confronted with a congressionally mandated change in the Medicaid
program, decided not to adhere to that change, but still claimed FFP for
costs for the activities that were the subject of the change under the
guise that the Medicaid program still benefited from the now
non-complying and superseded activities.
It is uncontested that for nearly six months California's survey agency
was not surveying and certifying nursing facilities under the standards
mandated by Congress. The court in Valdivia discussed in detail how
California's surveys of nursing facilities failed to meet the stricter
standards of OBRA '87.
To reward California by paying FFP for salaries and overhead costs such
as office rental that are allocable to activities which did not conform
to the OBRA '87 requirements would contradict a basic premise of the
Medicaid program that the claimed costs be for the "proper and
efficient" for the administration of the program. Furthermore, because
of California's decision to abstain from following the directives of
OBRA '87, HCFA sent federal surveyors to survey the nursing facilities
during the two quarters. Requiring HCFA to now reimburse California FFP
for the salaries of its survey agency personnel would result in HCFA
essentially paying twice for such costs.
We therefore find that California is not entitled to FFP for
expenditures for Medicaid nursing facility survey and certification
activities, including salary and overhead costs, that did not comply
with the requirements of OBRA '87.
C. The methodology used by HCFA to calculate the disallowance needs to
be re-examined in light of HCFA's concessions that certain adjustments
may be appropriate.
California argued that the methodology on which HCFA based its
disallowance was so technically flawed and totally unreasonable that it
merits overturning the disallowance in its entirety. According to
California, HCFA's disallowance was "built on crude estimates of
unallowable costs resting on unreliable data with no supporting
documentation." California Br. at 12. California listed numerous areas
in which it felt HCFA's methodology was deficient or erroneous.
California Br. at 12-16; Heuer Declaration, California Ex. 10.
In response HCFA admitted that its disallowance was an estimate of
survey and certification costs during the period in question, but
emphasized that this estimate was based on information supplied by
California. HCFA contended that it calculated the disallowance by using
information which indicated the volume of survey and certification
activity and the total amount of FFP claimed for the cost of these
activities. HCFA explained that it determined the ratio which
activities in violation of OBRA '87 bore to the universe of survey
activity and then applied that ratio to the amount of FFP claimed on the
amended QERs to arrive at the disallowance amount. HCFA added that
California never presented data which would support an alternative
methodology for the disallowance and never challenged HCFA's approach at
any time prior to the disallowance even though California had been given
details about HCFA's procedure in May 1993. HCFA concluded that
California raised this issue "far too late" in the disallowance process
to challenge the methodology now. HCFA Br. at 15.
We disagree with HCFA that California is now barred from challenging the
methodology used in the disallowance. Until HCFA actually issued its
disallowance, California had no formal notice of the scope of the
disallowance. Furthermore, in appeal proceedings before the Board an
appellant may challenge any aspect of a disallowance. See 45 C.F.R. Part
16.
Here HCFA itself called into question the validity of its methodology by
its concession that certain categories of costs for survey activities
may be allowable if adequately documented. If these items are found to
be allowable, the methodology's ratio used to determine the disallowance
amount would be affected. Moreover, we find that HCFA needs to reassess
its methodology in light of the Heuer Declaration's alternative
assessment of how to calculate expenditures associated with California's
decision not to implement OBRA '87.
We therefore are remanding this appeal to HCFA to give California the
opportunity to supply documentation both for the categories of costs
recognized by HCFA as presumably allowable and to further explain the
methodology presented in the Heuer Declaration. HCFA should recalculate
its disallowance accordingly.
Conclusion
For the reasons discussed above, we sustain in principle HCFA's
disallowance determination. California is not entitled to receive FFP
for expenditures for survey agency activities during the two quarters at
issue that did not conform to the OBRA '87 requirements. We remand this
appeal to HCFA, however, for a recalculation of the actual expenditures
appropriately disallowed due to California's failure to meet OBRA '87
requirements. California and HCFA should consult about further
documentation that would be useful. California should provide HCFA with
any information and documentation that would support its claim for
adjustments to the disallowance calculation within 60 days of receiving
this decision or such longer time as HCFA may permit. Should California
be dissatisfied with HCFA's subsequent recalculation decision, it may
file an appeal of that decision to the Board pursuant to 45 C.F.R. Part
16.
__________________________ Judith A.
Ballard
__________________________ Norval D.
(John) Settle
__________________________ Cecilia Sparks
Ford Presiding Board Member
1. On the same day, HCFA also notified California that it was
disallowing $5,044,910 in FFP claimed by California under title XVIII
(Medicare) of the Act for survey and certification activities during the
same period. California Ex. 1. The basis for this disallowance was
also California's alleged failure to have the surveys conducted in
accordance with the provisions of section 4201 of OBRA '87. California
is currently appealing this Medicare disallowance before the Armed
Services Board of Contract Appeals, ABSCA No. 47494. California Ex. 21
(erroneously designated as Ex. 16 with California's Reply Brief).
2. HCFA stated the following areas could be re- examined: the
amount allowable for certain survey activity performed at Sonoma State
Hospital (HCFA Br. at 12 n.5); the possibility that title XVIII
(Medicare) surveys may have been erroneously included in calculating the
Medicaid disallowance (HCFA Br. at 15 n.6); and California's claim for
the reimbursement of the costs of completing paperwork associated with
surveys conducted prior to October 1, 1990, the costs of training on the
implementation of OBRA '87, and the costs of supplies purchased between
October 1, 1990 and March 24, 1991 but actually used in quarters other
than those covered by the disallowance period (HCFA Br. at