GAB Decision 155
March 20, 1981 Massachusetts Department of Public Welfare; Docket No.
79-243-MA-HC Ford, Cecilia; Teitz, Alexander Settle, Norval
By letter dated December 21, 1979, the Massachusetts Department of
Public Welfare (Massachusetts) appealed a November 21, 1979 disallowance
by the Director, Bureau of Program Operations, Health Care Financing
Administratiom (HCFA) of $157,972 in Federal financial participation
(FFP). The amount disallowed by HCFA was estimated by a statistical
sample of payments to providers of physician services for aged and
disabled Medicaid recipients during the period from February through
November 1976. This decision is based on the appeal, HCFA's response,
responses by Massachusetts to the Board's questions and to an Order to
Show Cause, and the Order itself.
Backgroun
Under the federal Medicaid regulations and the Massachusetts State
Plan FFP is available for physician services paid according to the fee
schedule set by the Massachusetts Rate Setting Commission. This dispute
arises as a result of claims by Massachusetts for payment of physician
fees at 100 percent of the rate established by the Commission (prior to
January 1976) after the Massachusetts legislature passed a law (in
January 1976) requiring a 30 percent reduction in physician fees paid by
the Department of Public Welfare. The Rate Setting Commission issued
regulations in January 1976 to implement the cut immediately, but the
Department of Public Welfare directed Blue Cross-Blue Shield, the fiscal
agent for the processing of claims on behalf of aged and disabled
recipients, not to apply the reduction. HCFA Response, Exhibit H.
Only after the (then) Department of Health, Education, and Welfare
Audit Agency began an audit did Massachusetts instruct Blue Cross-Blue
Shield to apply the 30 percent reduction. HCFA Response, Exhibit A.,
pp. 5, 11. The primary objective of the audit was to determine whether
Medicare liability was identified and applied prior to Medicaid payments
on behalf of aged and disabled patients.
On December 29, 1976, shortly after being advised by the auditors
that physicians had been overpaid, Massachusetts informed the auditors
that the State would perform its own audit of 100 per cent of the
claims. Upon learning such an audit would cost $20,000, the State
decided against it. HCFA Response, p. 3; Exhibits C, G.
The HEW auditors drew a sample of physician claims when they
discovered that available fiscal agent payment reports, on which
reimbursement was based, did not separately identify physician payments
based on the Medicaid Fee Schedule. As a result, they were unable to
determine readily the exact amount of these payments during any given
period of time. However, they did estimate the amount of these payments
and test whether the thirty percent fee reduction was applied for the
period February through November 1976. HCFA Exhibit A, pp. 11-12.
Blue Cross-Blue Shield groups claims in batches for its own
processing purposes as they are received. The number of claims in the
chosen batches ranged from 8 to 50. The auditors randomly selected one
batch of claims from each of the ten months (the physician fee reduction
commenced in February 1976 under State law and the sample frame
consisted of all batches processed through the payment system from
February through November 1976 by the fiscal agent). Each line item on
each claim in each selected batch was reviewed to see if the service
date of the line item was before or after February 1, 1976. The auditors
then calculated the average dollar amount of claims in each selected
batch and the percentage of line items after February 2, 1976. HCFA
Response, p. 4.
A two-part calculation was necessary because some claims were filed
on State forms whereas others were filed on Medicare forms, but then
determined to be reimbursable as State Medicaid claims. The auditors
took the State form dollar average and applied it to the claims filed on
State forms; then they took the Medicare form item dollar average and
applied it to the items filed on Medicare forms. Ibid.
Discussion
Massachusetts argues that HCFA's estimate of the amount overpaid is
invalid because HEW auditors used a defective sample and improper
statistical methodology. In support of its assertion that the
statistical sampling and methodology employed was contrary to HHS
policy, Massachusetts submitted a letter from the Assistant Inspector
General for Auditing, HHS, which states: "it is essential that a valid
statistical sample (every item has an equal or known chance of
selection) be selected for examination and that valid statistical
methods be used in projecting the results of the examination." Response
to Order to Show Cause, Exhibit 10.
HCFA admits that the amount of the overpayment is not precise and
that there are defects in the procedures used by the auditors, but
contends that the data was generated on a random selection basis and is
representative of the universe of claims in question. It uses this same
data to demonstrate that the amount disallowed should have been greater,
not less, and suggests that the Board consider revising it upward. HCFA
Response, pp. 5, 9-11.
Massachusetts has requested that the Board direct HCFA to answer six
questions posed by the State on the subject of the reliability of the
statistical sample and methodology used by the HHS auditors and to
conduct a hearing to consider the testimony of a statistician employed
by the Department of Public Welfare on this same subject. We deny these
requests because our resolution of this dispute does not depend on a
finding that the HCFA estimate is based on a 100 percent valid sample
and methodology. We do hold that in the narrow circumstances of this
case, Massachusetts is bound to pay the amount of the disallowance
because it has not demonstrated the allowability of its claim.
Although the State has not challenged the use of a sample per se, we
note here that this method of calculating the amount of a disallowance
has been upheld in court and before the Board. In Georgia v. Califano,
446 F. Supp. 404, 409 (N.D. Ga. 1977), upholding a disallowance of
excess physician fees based on a statistical sample, the Court found the
statistical method to be "reliable and acceptable" but pointed out
that
this "is not to say that the statistical model will always be
conclusive." Noting that "the state is ultimately charged with the
duty
of proving the allowability of deferred claims," the Court held that it
was not arbitrary and capricious to determine the amount of overpayment
by use of a sample, particularly where the state did not challenge the
sample during the disallowance reconsideration. In California State
Department of Health, Decision No. 55, May 14, 1979, the Board extended
the Georgia v. Califano rule on the state's duty to claims that are
directly disallowed without being preliminarily deferred.
This does not mean that in general the Board would uphold a
disallowance based on a statistical sample or statistical sampling
methods that are not shown to be valid. The principle which would
govern in most cases is that set out in University of California --
General Purpose Equipment, Decision No. 118, September 30, 1980, at p.
5:
If an agency disallows an amount determined through use of this audit
technique (statistical sampling), however, that agency must accept
responsibility for explaining the technique and defending its validity
as used in a particular case.
The appeal before us now is not the usual case where a disallowance
results from errors in processing a large number of claims: payments
may be made for ineligible recipients; providers may be overpaid
through careless processing of their bills; or duplicate payments may
be made for the same service. Such errors are bound to creep in where
large numbers of claims are processed. The situation in this appeal is
entirely different. Here the State made a conscious and deliberate
choice not to apply the 30 per cent reduction.
In a letter dated December 27, 1976, to the Manager of Blue Shield
Medex/Medicaid Department, the Project Director of the State makes it
clear that failure to apply the reduction was deliberate (HCFA Exhibit
H):
As you know, I had told you not to apply this reduction in February
when it was first announced. . . .
The resulting disallowance by HCFA was clearly within the scope of
that agency's responsibility to pay FFP only for valid claims.
Even though the State could have and should have developed its own
figures instead of continuing to highlight the problems with HCFA's,
this decision provides the State yet another and final opportunity to
submit a more accurate basis for the disallowance. Whether the State
produces its estimate by correcting the alleged defects in HCFA's sample
and methodology, or by some other acceptable means (such as the promised
100 per cent review), HCFA should use the new figure. If the State
again fails to come forward, then it cannot complain that the
reimbursement is based on HCFA's estimate.
Massachusetts also argues that:
(1) HCFA failed to join the physicians as necessary parties to the
disallowance; and
(2) HCFA is estopped from making this disallowance because HCFA
encouraged the Department of Public Welfare not to implement the
reduction and did not alert Massachusetts to the possibility of
disallowance prior to the letter of November 21, 1979.
We agree with HCFA that Massachusetts lacks standing to argue that
HCFA should have provided notice and a hearing to the physicians, and
that HCFA's relationship is with Massachusetts, not the physicians.
We also note that despite its announced concern, Massachusetts
apparently has not undertaken to advise the physicians of the pendency
of this matter. If it did, none of the physicians were interested
enough to attempt to intervene or even file an amicus brief. See 45 CFR
Sec. 16.58.
The estoppel argument also is without merit. HCFA did not advise
Massachusetts that FFP would be available if the State failed to enforce
the 30 percent reduction. HCFA merely called to the State's attention
that if the reduction caused a shortage of physicians -- mostly
pediatricians -- to screen and test children, the State might be liable
for a penalty under the program for the Early and Periodic Screening,
Diagnosis, and Treatment of persons up to age 21. The State does not
explain how its failure to reduce fees paid to physician providers
serving the elderly was done to ensure the continued services of
pediatricians. The State was aware of the requirement that the reduced
fee schedule had to be followed and it has not established that its
failure to impose the reduction was due solely to the threatened
penalty. Moreover, it did implement the fee reduction generally,
failing to do so only with respect to claims on behalf of the elderly
and disabled.
We do not agree with the implication in the May 1, 1980 "Further
Response" by Massachusetts that the audit report does not contain a
recommendation that the State reimburse the federal government for its
matching share of the overpayments. The auditors did find that "claims
for Medicaid recipients . . . should be subjected to the thirty percent
fee reduction." HCFA Exhibit A, p. 11. The decision to disallow is
HCFA's.
Conclusion
Although we uphold the disallowance, the effect of this decision is
suspended for sixty days to permit Massachusetts to provide HCFA with a
more acceptable basis for calculating the amount properly disallowed as
a result of the State's failure to implement the required 30 percent fee
reduction. Should Massachusetts choose to submit an alternate
calculation of the disallowed amount with supporting rationale, the
effect of this decision will remain suspended until HCFA accepts or
rejects it. If HCFA does not accept the State's proposed disallowance
amount, HCFA must be prepared to show why the HEW audit estimate is
better. Should HCFA decide to reject the State's proposed disallowance
amount, Massachusetts may appeal that decision to this Board.
OCTOBER 04, 1983