DATE: March 16, 1998

SUBJECT: New Jersey Department of Human Services

Docket Nos. A-96-129
A-96-139
A-96-176
A-96-177

Control Nos. NJ-96-001-MAP
NJ-96-002-MAP
NJ-96-003-MAP
NJ-96-004-MAP

Decision No. 1652

DECISION

The New Jersey Department of Human Services (New Jersey) appealed four determinations by the Health Care Financing Administration (HCFA) disallowing New Jersey's claims under title XIX of the Social Security Act (Act) for federal financial participation (FFP) in certain Medicaid payments to disproportionate share hospitals (DSHs). All of the claims included DSH payment amounts that HCFA found exceeded the amounts that New Jersey was allotted for DSH payment adjustments under federal law for the relevant time periods. In addition, two of the determinations included DSH payments that HCFA concluded were unallowable because they were payments for periods prior to the effective dates of State plan amendments (SPAs) revising the DSH payment methodolgy, specifically, SPA 95-19 (relating to payments to University of Medicine and Dentistry of New Jersey) and SPA 94-20 (relating to payments to psychiatric hospitals and Vineland Special Hospital). The parties agreed that the four appeals should be consolidated since they involve related issues. The amounts at issue in each appeal are set forth below.

New Jersey did not dispute HCFA's determinations regarding claims that HCFA found exceeded New Jersy's State-specific DSH allotments for the relevant periods. New Jersey argued, however, that the excessive claims should not be disallowed, but rather "treated as allowable but not payable," so as to remain potentially claimable if other payments made within the allotment limit are disallowed in the future.

New Jersey did dispute HCFA's position that certain hospital payments made after the dates on which the respective SPAs took effect were retroactive payments based on costs incurred for uncompensated care in prior periods. New Jersey argued, instead, that these were lump-sum payments not intended as retroactive reimbursement for any specific services and that prior uncompensated care was merely used as a benchmark.

For the reasons stated below, we conclude that HCFA properly disallowed the claims in excess of New Jersey's DSH allotments. New Jersey's concern about how HCFA might handle resubmitted claims, should claims allowed under the allotments later be disallowed, is speculative and not ripe for resolution. Indeed, HCFA asserted that it does not view the disallowances as necessarily precluding resubmittal in such circumstances.

We further conclude that New Jersey's interpretation of its SPAs as authorizing lump-sum payments using prior uncompensated care as a benchmark is unreasonable. New Jersey's position that DSH payments should not be identified with any specific services is inconsistent with the statutory treatment of DSH payments as adjustments to Medicaid reimbursement rates (which do apply to specific services) and is not a reasonable interpretation of the SPAs. On the other hand, the mere fact that DSH payments were calculated using the method in these SPAs is not dispositive of whether the payments were in fact in excess of what was permitted. HCFA made no specific finding here that these payments exceeded the amounts permitted under the State plan provisions in effect when the services were provided. Moreover, the record indicates that the SPAs were intended to change New Jersey's DSH payment methods to conform them to a federal statutory amendment that restricted DSH payments generally to the cost of uncompensated care (since some states were paying higher amounts), and that New Jersey expected this change to reduce DSH payments to amounts lower than those calculated under prior State plan provisions.

Thus, we affirm the disallowance of FFP in amounts exceeding the applicable allotments, but remand this case to HCFA to provide New Jersey an opportunity to show that FFP in total DSH payments allocable to periods prior to the effective dates of the SPAs (including the payments at issue here and any prior DSH payment adjustments for services provided during those quarters) did not exceed the amounts permitted by the statutory or State plan provisions then in effect. If New Jersey makes such a showing, consistent with our instructions below, HCFA should reduce the disallowance accordingly.

Factual background

The specific disallowances were as follows:

Board Docket No. A-96-129 involved $5,788,451 in FFP for DSH payments claimed in the quarter ended March 31, 1995 and "identified as applicable to" Federal Fiscal Year (FFY) 1993 that was disallowed because New Jersey exceeded its FFY 1993 DSH allotment. N.J. Ex. 1.

Board Docket No. A-96-139 involved $12,048,936 in FFP claimed in the quarter ended December 31, 1995 and "identified as applicable to" FFY 1995 that was disallowed because New Jersey exceeded its FFY 1995 DSH allotment. N.J. Ex. 2. (HCFA later reduced the amount of this disallowance to $268,211, because the remainder of this disallowance was included in the disallowance appealed in Board Docket No. A-96-177.)

Board Docket No. A-96-176 involved $18,969,854 in FFP claimed in the quarter ended June 30, 1995 and "identified as applicable to" FFY 1994. Of the total disallowance, $18,232,184 was attributable to DSH payments to the University of Medicine and Dentistry of New Jersey (UMDNJ) calculated under SPA 95-19 (which HCFA contended could not be effective prior to June 21, 1995 since the required public notice was not given until June 20, 1995). HCFA disallowed the entire amount because it found the claims related to a period prior to the effective date of SPA 95-19 (that is, the period July 1, 1994 through September 30, 1994). In addition, HCFA determined that $17,533,124 of the claim relating to UMDNJ exceeded New Jersey's FFY 1994 DSH allotment. The remaining part of the disallowance was attributable to FFP of $584,505 for payments to psychiatric hospitals and $153,165 for Vineland Special Hospital calculated under SPA 94-20 (which HCFA found could not be effective prior to July 16, 1994 since the required public notice was not given until July 15, 1994). HCFA disallowed the parts of the DSH payments to psychiatric hospitals or to Vineland Special Hospital found to relate to a period prior to July 15, 1994 (that is, the period July 1 through July 15, 1994). N.J. Ex. 7.

Board Docket No. A-96-177 involved $52,693,012 claimed in the quarter ended June 30, 1995 and "identified as applicable to" FFY 1995. The claims were for FFP in DSH payments to UMDNJ made under SPA 95-19 for the period October 1, 1994 through June 30, 1995 and were disallowed because HCFA found that the amendment was not effective before June 21, 1995. Even though the payment was made to the facility after that date, HCFA found that the portion related to "shortfalls" in uncompensated costs prior to June 21, 1995 was unallowable. In addition, HCFA found that New Jersey exceeded its FFY 1995 DSH allotment by $52,961,223 in FFP, which was an additional reason for disallowing these funds. (As noted above, a portion of this disallowance duplicated that appealed in Board Docket No. A-96-139, which was correspondingly reduced. The remaining $268,211 in excess DSH payments for FFY 1995 remain in dispute in that appeal.)

Legal Background

Title XIX of the Social Security Act (Act), known as Medicaid, provides for joint federal and state financing of medical assistance for certain needy persons. See also 42 C.F.R. . 430.0. States which establish a Medicaid program are required to submit a state plan meeting all federal requirements. Act, Section 1902. To receive federal financial participation (FFP), a state must claim the costs of medical assistance in accordance with its approved Medicaid state plan. Act, Section 1903(a); 42 C.F.R. . 430.10. The plan must provide that it will be amended whenever necessary to reflect changes in federal law. 42 C.F.R. 430.12(c). Under section 1903(a) of the Act, FFP is available in expenditures for "medical assistance" under the state plan. "Medical assistance" is defined in section 1905(a) of the Act to include payment for inpatient hospital services.

The state plan must specify comprehensively the methods and standards used by the state to set payment rates for inpatient hospital services and must assure HCFA that it makes payments using rates determined in accordance with those methods and standards. 42 C.F.R. .. 447.252 and 447.253(d)(1). The state must provide public notice before the proposed effective date of any "significant changes to its methods or standards for setting payment rates for inpatient hospital" services. 42 C.F.R. .. 447.205 and 447.253(h).

In setting Medicaid payment rates for hospital services, states must "take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs," that is, DSHs. Act, Section 1902(a)(13)(A). Congress has, however, imposed limits of several kinds on state claims for FFP in relation to DSH payments. The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 (1991 Amendments), Public Law No. 102-234, established both an aggregate national limit on Medicaid DSH payments and individual state allotments for total DSH payments by each state. The state-specific limit is set forth, in relevant part, at section 1923(f) of the Act, as follows:

DENIAL OF FEDERAL FINANCIAL PARTICIPATION FOR PAYMENTS IN EXCESS OF CERTAIN LIMITS. --
(1) IN GENERAL
(A) APPLICATION OF STATE-SPECIFIC LIMITS.-- Except as provided in subparagraph (D)[only for quarters on or after January 1, 1996], payment under section 1903(a) of this title [which provides for payment of FFP to states] shall not be made with respect to any payment adjustment made under this section for hospitals in a State . . . to the extent that the total of such payment adjustments exceeds the State [DSH] . . . allotment for the year (as specified in paragraph (2))[which describes how the allotments are to be calculated].

HCFA publishes the national and state DSH allotments in preliminary and final form in the Federal Register each year. 42 C.F.R. . 447.297. The regulations provide that, if "HCFA determines that at any time a State has exceeded its final DSH allotment for a Federal fiscal year, FFP attributable to the excess DSH expenditures will be disallowed." 42 C.F.R. . 447.297(d)(2). Section 13621(b)(1) of the Omnibus Budget Reconciliation Act of 1993, Public Law No. 103-66 (OBRA '93) imposed a further restriction on DSH payments, restricting such payments to the cost of uncompensated care incurred by a DSH. Specifically, OBRA `93 amended section 1923 of the Act to read:

(g) LIMIT ON AMOUNT OF PAYMENT TO HOSPITAL --
(1) AMOUNT OF ADJUSTMENT SUBJECT TO UNCOMPENSATED COSTS.--
(A) IN GENERAL. -- A payment adjustment during a fiscal year shall not be considered to be consistent with subsection (c) [specifying the payment adjustment methodology requirements] with respect to a hospital if the payment adjustment exceeds the costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this title, other than this section, and by uninsured patients) by the hospital to individuals who either are eligible for medical assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year.
However, in the case of public hospitals with a high disproportionate share the Act permitted payment of up to 200% of the uncompensated costs for a transition period (for payment adjustments for a State fiscal year beginning before January 1, 1995). Act, Section 1923(g)(2).

Issues

New Jersey did not dispute that HCFA set forth the correct amounts for the State-specific limits on its DSH allotments for the FFYs in question. Nor did New Jersey deny that it had exceeded those limits by the amounts calculated by HCFA. N.J. Br. at 6. The only issue raised by New Jersey as to the amounts HCFA found exceeded the applicable allotment limits was whether disallowance was the correct procedure to handle the excess amounts, in light of the possibility that some payments made under the allotment cap might later be found unallowable. HCFA argued that it was bound by law to disallow expenditures in excess of the allotments and any concern about how the claims might be treated should "room under the cap" become available is speculative and premature. HCFA Br. at 12. As to the DSH payments disallowed based on the effective dates of SPA 95-19 and 94-20, New Jersey asserted (and HCFA did not dispute) that the actual payments were made after the effective dates of the SPAs. New Jersey contended that HCFA had misinterpreted the State plan provisions. According to New Jersey, the payments were intended to be lump sum payments not attributable to specific services provided.

Analysis

1. HCFA properly disallowed FFP in DSH payments exceeding New Jersey's allotments.

Disallowing expenditures for DSH payments that exceed a state's allotment is a matter of law not discretion, since the Act limits FFP in DSH payments to the allotment amount and the regulations mandate disallowances for excess DSH expenditures. New Jersey argued that treating the excess payments as "allowable but not payable" would better reflect the purpose of the DSH provisions by ensuring that a state would be able to claim its full DSH allotment; New Jersey said this treatment would preserve a state's ability to again activate its claim for amounts determined to exceed the allotment amount should other claims counted against the allotment be later disallowed on other grounds. N.J. Br. at 6. New Jersey suggested that the method it proposed would be analogous to the treatment of allotments in block grant programs governed by 45 C.F.R. Part 96, in which dollar caps are used rather than FFP percentage matches as in Medicaid and in which "there are not disallowance procedures, only decisions relating to the amounts payable." N.J. Br. at 8. New Jersey characterized HCFA's position as implying that a state would be "deprived of its entitlement to the full DSH allotment established by statute," in the event that claims previously counted against the allotment were later disallowed. Id.

The treatment of costs under block grant programs is simply irrelevant to this dispute. Medicaid, as New Jersey recognized, is a cooperative federal-state program in which the federal government participates through paying as FFP a percentage of expenditures for specific categories of allowable costs. Act, Section 1903. Consequently, Medicaid is governed by different rules and procedures than block grant programs. See 42 C.F.R. Part 430. The Act expressly states that FFP for Medicaid expenditures shall not be paid in relation to any DSH payment adjustments exceeding the applicable allotments. Act, Section 1923(f). The regulations, as quoted above, specifically mandate that FFP attributable to excess DSH payments be disallowed "at any time" that HCFA determines the allotment has been exceeded. 42 C.F.R. . 447.297(d)(2). There is no specific provision for an interim determination of "allowable but not payable" until all possible allowability issues relating to other DSH payments (included under the allotment) have been finally resolved. Once the determination is made that a claim is not allowable, regulations provide for prompt notification of the resultant disallowance to the state. 42 C.F.R. . 430.42(a).

Furthermore, New Jersey's authority to appeal to this Board is dependent upon the existence of a final disallowance determination by HCFA. 42 C.F.R. . 430.42(b)(1); 42 C.F.R. Part 16. In the preamble to the regulations implementing the 1991 amendments, HCFA clearly stated that these normal disallowance and appeal provisions apply to DSH claims exceeding State-specific allotments:
Those States that have overspent their final DSH allotment will have those expenditures in excess of that allotment disallowed. The expenditures that are disallowed will be subject to the normal disallowance procedures. Thus, the States may appeal to the Departmental Appeals Board and have the option to retain the funds during the appeal process.

57 Fed. Reg. 55,118, 55,133 (November 24, 1992).
Moreover, treating New Jersey's claims as "allowable but not payable" would suggest an affirmative determination that all federal requirements were met. Here, HCFA found that some of the payments are unallowable based on the effective dates of the SPAs, and made no determination about whether other payments meet all other federal requirements.

The underlying reason for New Jersey's position is evident in the alternative New Jersey offered to disallowing the excess DSH claims. That alternative relates to the requirement in section 1128 of the Act for timely submission of claims. Specifically, New Jersey proposed that HCFA be barred from asserting the two-year timely claims limitation against New Jersey if New Jersey seeks to use these claims as "replacement" for any later disallowed DSH payments previously counted against its allotment. N.J. Br. at 8. New Jersey argued that HCFA should be required either to treat such replacements as adjustments to prior year costs or to accept refiling because the lateness was due to circumstances beyond the State's control as a result of federal action. Id. HCFA responded that these requests were premature since HCFA had not denied any replacement claims on the basis that they were not timely filed. HCFA Br. at 12-13.

The timely claims provision limits payment to states under Medicaid to expenditures for which a state files a claim "within 2 years after the calendar quarter" in which the state made the expenditure. 45 C.F.R. . 95.7. Exceptions are permitted, among other reasons, for adjustments to prior year costs and for claims for which the Secretary finds good cause for late filing. 45 C.F.R. . 95.19(a) and (d). Adjustments to prior year costs are defined as adjustments to cost items "previously claimed under an interim rate concept" and later determined to be different in amount. 45 C.F.R. . 95.4. Good cause is not defined further in this context.

Neither party pointed to any specific legal authority governing the hypothetical situation New Jersey posits, where DSH expenditures counted against the allotment cap are disallowed and other claims would (in theory) have been otherwise allowable but have already been disallowed as exceeding the allotment. The regulations permit a state with "actual DSH expenditures" in a FFY that are less that its final allotment, "to the extent allowed by its approved State plan, to make additional DSH expenditures applicable" to that FFY up to the allotment amount. 42 C.F.R. . 447.297(d)(3). Arguably, the situation is analogous where actual DSH expenditures are reduced below the allotment due to disallowance of some claims and additional expenditures already made and previously disallowed as excessive are resubmitted. HCFA stated that nothing precludes New Jersey "from resubmitting claims for DSH payments in the event room under the cap does become available." HCFA Br. at 12.

Given HCFA's position and the absence of any actual resubmitted replacement claims, the rulings which New Jersey seeks would be essentially advisory and based on speculation. Board process does not provide for deciding hypothetical disputes in advance. Further, since we are not in a position to review whether each of these claims is, in fact, allowable in all other respects apart from exceeding the allotment, we would have to decide allowability here in the abstract. The Board has jurisdiction over Medicaid disallowances only after a final determination by HCFA.
We thus conclude that HCFA correctly disallowed the excess DSH claims. Furthermore, the requested relief relating to possible replacement DSH claims is denied because it would be premature and based on mere speculation.
2. HCFA correctly interpreted New Jersey's SPAs, but this does not conclusively show that the DSH payments at issue were unallowable.

As noted above, New Jersey claimed a total of $18,232,184 in FFP in DSH payments to UMDNJ. HCFA found that the entire amount was calculated using the methodology in SPA 95-19, using costs of uncompensated care during the period July 1, 1994 through September 30, 1994, prior to the June 21, 1995 effective date of SPA 95-19. Of the total disallowed amount, $17,533,124 was also found to be in excess of the FFY 1994 allotment. Thus, $699,060 in FFP in DSH payments to UMDNJ allocated to FFY 1994 was not in excess of the allotment amount for that year.

In addition, New Jersey claimed FFP of $584,505 in DSH payments for psychiatric hospitals and FFP of $153,165 in DSH payments for Vineland Special Hospital. HCFA found that these amounts were calculated using the methodology in SPA 94-20, but reflected costs of uncompensated care for the period July 1, 1994 through July 15, 1994, prior to the effective date of SPA 94-20. HCFA did not find that these amounts were in excess of the allotment for FFY 1994.
SPA 94-20 addressed reimbursement for governmental hospitals providing long-term psychiatric care or acute care services to developmentally disabled clients and qualifying for DSH payment adjustments. SPA 95-19 addressed reimburement for hospitals operating under N.J.S.A. 18A-64 G-1 et seq. and qualifying for DSH payment adjustments. Each of the amendments provided in substance that the qualifying hospitals would receive an additional payment calculated as follows:

With the exception of high disproportionate share hospitals in state fiscal year (SFY) 1995, the payment adjustment will not exceed the cost of services furnished to Medicaid patients, less the amount paid under the non-DSH payment, added to the cost of services provided to patients who are uninsured for services provided during the year, less the amount of payments made by those patients.

N.J. Exs. 4 (SPA 95-19) and 11 (SPA 94-20). (For high-DSH hospitals, the payment adjustment could not exceed 200 percent of the costs of hospital services furnished Medicaid-eligible or uninsured individuals. Id.)

HCFA argued that these provisions describe a plan for ongoing payment adjustment reimbursing the hospitals for uncompensated care costs during the year based on the shortfall actually incurred, not one-time lump sum payments disconnected from services provided during a particular period. HCFA Br. at 15. Further, HCFA argued that the SPAs do not state an intention to make payment adjustments for uncompensated care costs incurred prior to the effective date of the amendments. Id. HCFA pointed out that a state plan must comprehensively describe how the state will administer its Medicaid program, must specify the methods used to set payment rates, and must convey all the information needed for HCFA to determine if it may serve as a basis for FFP. HCFA Br. at 3; 42 C.F.R. .. 430.10 and 447.252. Thus, HCFA argued, New Jersey cannot now seek to make payments retroactive to the periods before the SPAs became effective since it did not disclose any such intention.

New Jersey argued that the SPAs were not "service reimbursement" and did not "provide payment as reimbursement for the provision of any specific service or for service provided during a particular period of time." N.J. Br. at 11. Instead, New Jersey argued, these DSH payments should be seen as lump-sum payments not "linked to dates of service" and not retroactive to services provided in a time frame prior to the actual date the payments were made. Id. New Jersey argued that these lump sum payments were to be made at the end of state fiscal year (SFY) 1995, which overlapped with FFY 1994, so that it was logical for New Jersey to attribute them in part to FFY 1994 for purposes of allotment.

We conclude that New Jersey's proposed interpretation is unreasonable. Most important, New Jersey's interpretation is inconsistent with the treatment of DSH payments under the Act. Under section 1923(c)(1) of the Act, FFP is available for "amounts paid under the State plan to a hospital for operating costs of inpatient hospital services." Hospital services are compensated through the use of rates determined according to methods and standards in the State plan. Act, Section 1902(a)(13)(A). These payment rates are then applied to services provided during a particular period. DSH payments are "adjustments to those rates." District of Columbia Dept. of Human Services, DAB No. 1617, at 25 (1997). This reflects the requirement of the Act that the reimbursement rates "take into account the situation" of DSH hospitals. Act, Section 1902(a)(13)(A); see also 42 C.F.R. . 447.253(b)(1)(ii)(A). While DSH payment adjustments are intended as supplemental payments to reflect the excess burden on some hospitals of the costs of providing uncompensated care, the payment adjustments are structured as part of the reimbursement for Medicaid inpatient hospital services provided by those hospitals.

Given this overall scheme, the language of the SPAs cited by New Jersey cannot reasonably be read to intend DSH payments to be disconnected from the periods in which the hospitals provided Medicaid services subject to the reimbursement rates being adjusted.

Moreover, the language of both SPAs is couched in terms of reimbursement tied to the cost of services provided without compensation. In addition, SPA 94-20 states that the DSH payment adjustments "will be calculated on a quarterly bases for uncompensated care/charity care for that quarter." N.J. Ex. 11, at 2 (emphasis added). Thus, New Jersey's contention before us that SPA 94-20 contemplated an annual lump sum simply using prior costs as a benchmark or ceiling is not reflected in the language of that amendment, which plainly states that quarterly costs of services will be the basis for the payment adjustment. (New Jersey did not provide a corresponding section of SPA 95-19, but did not suggest that the two amendments differed in their methodology.)

Thus, the SPAs on their face do not support New Jersey's interpretation that it was simply using costs of uncompensated care/charity in prior quarters to calculate lump sum payments allocable to periods after the effective dates of the SPAs.
In light of the language of the SPAs, we find no merit to New Jersey's assertion that HCFA arbitrarily divided lump sum payments to allocate them to particular time periods or dates of service. New Jersey contended that this approach was inconsistent with the deference owed to New Jersey's interpretation of its own State plan. However, the Board case on which New Jersey relied for the proposition that its own interpretation of its plan is entitled to deference cautions that such deference is appropriate only "so long as that interpretation is an official interpretation and is reasonable in light of the language of the plan as a whole and the applicable federal requirements." California Dept. of Health Services, DAB No. 1474, at 3 (1994). In this case, New Jersey offered nothing to indicate that the interpretation it now offers of its SPAs was the contemporaneous official understanding of its meaning, as opposed to an after-the-fact construct developed in response to the disallowance. See Connecticut Dept. of Income Maintenance, DAB No. 1435, at 6 (1993).

Contrary to what New Jersey argued, HCFA's method here is not analogous to the allocation of Pennsylvania's DSH payments by HCFA that was found to be arbitrary in Commonwealth of Pennsylvania v. Shalala, CCH Med.& Med.42,696 (E.D.Pa. 1994). In our view, the facts in the Pennsylvania case are not analogous. There, HCFA provided no explanation of why it had allocated certain payments to particular quarters for purposes of determining Pennsylvania's base year allotment amount, including no response to Pennsylvania's assertions about why the allocation was wrong. Here, as HCFA argued, the fact that New Jersey allocated part of the payments to UMDNJ to FFY 1994 for allotment purposes (rather than to FFY 1995) undercuts New Jersey's position that these were lump-sum payments authorized by SPA 95-19 that should not be allocated to specific periods. Second, SPA 94-20 specifically provides for allocation on a quarterly basis, and it was New Jersey's delay in providing notice of SPA 94-20 that led HCFA to allocate the payments to pre- and post-amendment periods.

A more analogous situation may be found in Connecticut, DAB No. 1435, in which the Board found that state's interpretation of its state plan amendment to be unreasonable. Connecticut claimed FFP in DSH payments made after the effective date of a state plan amendment using patient days prior to the effective date in calculating the payments. Id. at 1. The Board concluded that Connecticut's effort to treat its DSH payments as unconnected to specific service periods would be inconsistent with the intention of the Act in establishing these adjustments to rates for Medicaid services to reflect added costs in a period in which a hospital was serving a disproportionate number of low-income patients. The legislative history supported this in recognizing that certain kinds of hospitals were "particularly dependent on Medicaid reimbursement" and expressing concern that "a State take into account the special situation that exists in these institutions in developing their rates." H.R. Rep. No. 97-208, 97th Cong., 1st Sess. 962 (1981)(emphasis added).

While we reject New Jersey's lump-sum payment argument, we note nonetheless that this does not completely resolve the issue of whether HCFA properly disallowed the payments at issue (to the extent that they did not exceed the applicable allotment amounts). Here, HCFA apparently disallowed the entire amount of the DSH payments that HCFA determined related to periods before the effective dates of the SPAs. Some DSH payments would have been permitted for those periods, however, under the prior State plan provisions superseded by the SPAs. Yet, the record does not indicate that HCFA compared what was in fact paid to the hospitals to what could have been paid under the prior State plan provisions, or that HCFA specifically determined that the amounts paid exceeded those permitted under the prior plan provision. Moreover, the record indicates that (at least with respect to the payments to the psychiatric hospitals and Vineland Special Hospital) DSH payments calculated under the SPAs would be less than DSH payments calculated under the prior State plan provisions. HCFA Ex. 1, last page.

Indeed, it appears that the SPAs at issue here were intended to conform the State plan to the requirements of OBRA '93. The legislative history of section 13621(b)(1) of OBRA '93 indicates that it was intended to restrict FFP in some DSH payments which Congress found to be excessive since they reimbursed public hospitals more than their total costs. H.R. Rep. No. 111, 103d Cong. 1st Sess. 435-36 (1993). As of the effective dates of the OBRA '93 provisions, states could not claim FFP in payments in excess of what was permitted under OBRA '93. Thus, the fact that the DSH payments here were calculated using the method adopted in the SPAs could merely mean that New Jersey was applying the OBRA `93 limits to its claims. It does not necessarily mean that New Jersey claimed FFP in excess of the amount to which New Jersey was entitled.

If the payments here were retrospective adjustments to the payments for services provided in the quarters to which they were allocated, the relevant question is whether the total DSH payments for those quarters exceeded what was permitted under OBRA '93 (or any State plan provision then in effect which authorized a lesser amount than OBRA '93). Neither HCFA's determinations nor the parties' briefs addressed these questions.

Thus, our decision permits New Jersey to make a showing to HCFA within 30 days after receiving this decision (or such longer period as HCFA may allow) demonstrating what part, if any, of the disallowed amounts is allowable on this basis.

Conclusion

For the reasons stated above, we uphold the disallowance of DSH payments to the extent those payments were in excess of the applicable DSH allotment amounts. With respect to DSH payments not in excess of the applicable allotment amounts, we remand to HCFA to permit New Jersey to make a showing, consistent with our decision above, of what part, if any, of those DSH payments is allowable. If the parties cannot agree on this, HCFA should issue a new determination, and New Jersey may appeal that determination to the Board pursuant to 45 C.F.R. Part 16.

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Cecilia Sparks Ford
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Donald F. Garrett
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Judith A. Ballard
Presiding Board Member