GAB Decision 171
April 30, 1981 Montana Depattment of Social and Rehabilitation Services;
Docket Nos. 78-25-MT-HC, 80-119-MT-HC Ford, Cecilia; Teitz, Alexander
Settle, Norval
INTRODUCTION
These two appeals by the Montana Department of Socal and
Rehabilitation Services are being considered together because they
involve common questions of law and fact. The State appeals from
determinations by the Health Care Financing Administration (HCFA)
disallowing Federal financial participation (FFP) for payments the State
made to hospitals for inpatient hospital care in excess of "reasonable
costs" under Title XIX of the Social Security Act (Medicaid), and the
regulation at 45 CFR 250.30(d) (1969), recodified at 42 CFR 447.252(c)
(1979). The State admits that it made, and claimed FFP for payments in
excess of the allowable "reasonable costs," but argues that these
appeals should be granted on the theory of equitable estoppel.
This decision is based on the appeals filed by the State, the
Agency's responses, the parties' briefs and responses to the Board's
Order to Show Cause, the Agency Reconsideration Record (SRS Docket No.
ME-MT7401). and telephone conferences with the parties.
BACKGROUND
Beginning in 1967, the State's contracts with hospitals participating
in the Medicaid program provided that reimbursement of inpatient
hospital services would be on the basis of "reasonable costs," and
that
"in addition, the hospital will have the opportunity to negotiate with
the State Department of Public Welfare for a supplemental allowance over
and above the allowable costs permitted under Title XVIII and Title XIX
..." The contracts were entered into on a year-to-year basis until 1970,
when a provision was added making each contract effective until June 30,
1971 or "until such time as a new contract agreement is signed by both
parties." See Agency's brief, dated July 14, 1980, Exhibits A-D.
In 1972, State and Agency representatives corresponded on the issue
of whether federal law prohibited payments in excess of reasonable costs
and whether FFP was available for such payments. The Agency's position
as stated in a December 21, 1970 memorandum by the Regional Attorney,
Region VIII, (Reconsideration Record, No. 17) was that:
Under applicable Federal law, regulation and interpretation, there is
no authority for a hospital to claim or for a State agency to pay more
than the amount allowed under the applicable formulas established
pursuant to title XVIII and Title XIX of the Social Security Act.
(See Also: January 11, 1972, October 11, 1972, and May 18, 1973
letters of the Associate Regional Commissioner, and June 24, 1974 letter
of the Acting Regional Commissioner, Reconsideration Record, Nos. 12,
14, 24, and 25, respectively.)
In a suit brought against the State by Montana hospitals to determine
the State's obligations under these contracts, the State argued that
enforcement of the clause allowing payments in excess of reasonable
costs would violate the Federal regulation at 45 CFR 250.30. The
Montana Supreme Court held, however, that the contracts with the
hospitals were binding on the State through fiscal year 1975, and
required the State to pay amounts in excess of reasonable costs as
required by its contracts with the hospitals. Montana Deaconess
Hospital v. Department of (Montana) SRS, 538 P.2d 1021 (1975). The
contracts between the State and the hospitals were terminated at the end
of the fiscal year 1976.
By letter dated June 24, 1974, the Regional Commissioner, Region
VIII, disallowed $444,132 in FFP for the period from July 1, 1967
through December 31, 1972. The Administrator of HCFA affirmed that
decision by letter dated August 31, 1977, stating that FFP was not
available for State expenditures in excess of reasonable costs, and that
the Montana Supreme Court's Order does not bind the Agency to
participate in such expenditures. By letter dated March 24, 1978, the
Administrator notified the State that a clerical error had been made in
a recomputation, and the Agency was amending its August 31, 1977 letter
by revising the amount of the disallowance to $498,020. The State's
appeal of this determination, dated May 4, 1978, is docketed as
78-25-MT-HC. By letter dated June 17, 1980, the Agency issued a
disallowance when a review disclosed that the State claimed $904,393 in
FFP for payments in excess of reasonable costs allowed under 45 CFR
250.30 during fiscal years 1972-1976. The State's appeal of that
disallowance, dated July 17, 1980, is docketed as 80-119-MT-HC.
The case docketed 78-25-MT-HC raised a question of the Board's
jurisdiction in a case where, prior to the March 6, 1978 amendment to 45
CFR Part 16, the Administrator of HCFA had issued a decision on the
substantive issues which he labeled as the final administrative action
in the matter, but which instructed the Regional Commissioner to review
the computation of the amount to be disallowed. The computation of that
amount by the Regional Office was not completed until after March 6,
1978. The Board Chair ruled that the Board had jurisdiction to review
the substantive issues raised in the appeal, as well as the amount of
the recomputation, based on the Chair's interpretation of the March 6,
1978 amendments to Part 16 and Section 201.14, and the preambles which
accompany those amendments. For an analysis of this issue, see Ruling
on Jurisdiction, dated April 24, 1980.
APPLICABLE PROVISIONS
In May of 1967, the Department of Socal and Rehabilitation Services
(SRS), issued Section D-5362 of Supplement D to the Handbook of Public
Assistance Administration. This section states:
... a State plan for medical assistance must provide that: The State
agency will pay the reasonable cost of inpatient hospital services
provided under the plan.
This provision was subsequently issued in 1969 as 45 CFR 250.30,
which provides that inpatient hospital services under Title XIX be
reimbursed on a reasonable cost basis.
Section 250.30(d) limits FFP as follows:
Federal financial participation is available for payments, within the
upper limits described in paragraph (b) of this section, in accordance
with the provisions of the State plan.
Section 250.30(b) sets out:
Upper limits...such payments may be made up to the reasonable charge
under Title XVIII (Medicare).
(34 F.R. 1244, January 25, 1969, as amended at 35 F.R. 10013, June
18, 1970; 36 F.R. 12621, July 2, 1971; 36 F.R. 21591, November 11,
1971).
Reasonable cost provisions were also incorporated into the State's
Medicaid plan (Section IV (C)(4)) on June 2, 1967 and remained a part of
the state plan for the periods in question.
In 1972, the Social Security Act Sec. 1902(a)(13)(D) was amended to
permit the States to depart from the Medicare formula, but the amended
provision stated that Medicaid reimbursement for inpatient hospital
services could not exceed the Medicare-established "reasonable cost."
Public Law 92-603, Sec. 232, amending Sec. 1902(a)(13)(D) of the Social
Security Act.
STATEMENT OF THE CASE
The State does not dispute that it made payments to hospitals in
excess of reasonable costs for inpatient services and that the
applicable federal statute, regulations, and manual provisions do not
allow FFP for such costs. The State argues instead that the Agency
should be estopped from making these disallowances because the State
detrimentally relied on representations by Department of Health,
Education, and Welfare (HEW - now HHS) officials that the State could
make payments in excess of reasonable costs, and that the State would
receive FFP for such payments.
The State relies upon a statement by HEW representatives at a 1967
public meeting in Helena, Montana to substantiate its position that
Agency officials represented that payments above reasonable costs were
permissible. According to the State, the Chief, Medical Assistance
Methods Branch, Bureau of Family Services, said at the meeting that "if
the State decided to reimburse the hospitals above and beyond reasonable
costs, there was nothing in the Federal law that would prohibit such
payment." State's brief, dated July 14, 1980, p. 2. The State also
relies on a September 20, 1967, letter by the Deputy Administrator,
HCFA, stating that federal law does not prohibit payments to
participating hospitals in excess of reasonable costs. The State
further argues that approval for these costs can be implied because the
Agency paid the State's claims during the years prior to making these
disallowances. Id. The State argues that "no supplemental payments of
any amount would have been made to the participating hospitals were it
not for the HEW's representations." Id., at p. 6. The State asserts
that HEW induced these contracts and should therefore be equitably
estopped from disallowing FFP.
The Agency responds that equitable estoppel cannot be claimed against
the Government when it acts in its sovereign capacity, citing Hicks v.
Harris, 606 F.2d 65, 68 (5th Cir. 1979); Air-Sea Brokers, Inc. v.
United States, 596 F.2d 1008, 1011 (C.C.P.A. 1979), and maintains:
when the Agency administers the Medicaid program, disbursing public
funds on a non-profit basis to benefit the general public, it acts in
sovereign capacity. Therefore, the doctrine of equitable estoppel may
not be applied to the Agency in this proceeding.
Agency brief, dated July 14, 1980, p.5.
The Agency denies that HEW officials represented that the State could
receive FFP and argues that the State could not have reasonably relied
upon any promises of FFP, when the regulations make clear that FFP was
unavailable beyond reasonable costs. See Agency's July 14, 1980 brief,
p. 7. The Agency maintains that "the statute, the Agency's guidelines
in manuals and regulations, and Montana's own Medicaid plan are all to
the same effect: Medicaid payments for inpatient hospital services
cannot exceed Medicare limits." See Agency's July 14, 1980 brief, p. 4.
With respect to the case docketed 80-119-MT-HC, the Agency argues that,
as evidenced by correspondence with Agency officials on the subject, the
State had actual knowledge of the reimbursement rules and the power to
cease the excess payments to the hospitals, but that the State failed to
take the necessary actions to prevent further unallowable payments for
the periods 1972-1976. See Agency's response to appeal in 80-119-MT-HC.
DISCUSSION
The Board finds that the record does not support the State's claim
that the Agency should be estopped from enforcing the clear language in
the applicable laws, regulations, and manual provisions prohibiting FFP
for payments in excess of reasonable costs, because of representations
allegedly made by HEW officials.
We do not here reach the issue of whether equitable estoppel can be
asserted against the Agency in the administration of the Medicaid
program. Even if equitable estoppel could be asserted against the
Agency, the State has the burden to satisfy each of the following
criteria for the application of the doctrine:
Four elements must be present to establish the defense of estoppel:
(1) the party to be estopped must know the facts; (2) he must intend
that his conduct shall be acted on or must so act that the party
asserting the estoppel has a right to believe it is so intended; (3)
the latter must be ignorant of the true facts; and (4) he must rely on
the former's conduct to his injury.
Hampton v. Paramount Pictures, Corp., 279 F.2d 100, 104 (9th Cir.
1960), United States v. Georgia Pacific Co., 421 F2d 92, 96 (9th Cir.
1970), and see, Choat v. Rome Industries, Inc., 462 F. Supp. 728, 730
(N.D. Ga. 1978).
The Board concludes that the State has not satisfied this burden of
proof because the State has not shown that it relied on any
representations or was ignorant of the true facts pertaining to the
availability of FFP in excess of reasonable costs.
The State's argument that estoppel should be applied because HEW
officials represented that FFP would be available for payments made in
excess of reasonable costs is not supported by the record. The State
presents as evidence of such representations the following statement in
an affidavit by a State employee who was present at the public meeting
in Montana:
I remember that (the HEW officials) made representations to the
effect that the state of Montana could make supplemental payments to
hospitals in excess of reasonable costs I do not remember any
representations that this supplement would have to be made from state
dollars.
See Attachment to State's Letter of July 27, 1981.
This less than definite statement about whether the HEW officials did
state that FFP would be available is not persuasive in light of the
affidavits from the HEW officials and the admissions by the State in
earlier proceedings that the HEW officials said payments in excess of
reasonable costs would come from State Funds. * The affidavit of an HEW
official who attended the meetings states:
During the course of the meeting I stated that Federal financial
participation would not be available for Medicaid payments for hospital
inpatient services in excess of the "reasonable cost" limits established
under the Medicare program, but that the State of Montana could make
payment in excess of those limits solely from State funds if it wished
to do so.
See affidavit of the Director, Division of Program Operations,
Medicaid Bureau, HCFA, submitted March 6, 1981, and see also, affidavit
of the Acting Director, Office of Intergovernmental Affairs, HCFA,
submitted March 9, 1981.
In addition, in a submission to the Acting Administrator of SRS,
dated June 23, 1976, the Special Assistant Attorney General for the
State of Montana wrote:
In ...1967, personnel from HEW appeared at a public meeting in
Helena, Montana... and categorically stated that the hospitals could
accept reasonable costs from the Federal government and, in addition,
could negotiate with the State for additional costs purely out of State
funds. (emphasis added.)
Agency Reconsideration Record, No. 38, p. 2.
The State originally argued that, despite this prohibition, estoppel
should be applied against the Agency because the State was induced into
entering into contracts which allowed the State to make payments in
excess of reasonable costs because of HEW assertions that the State was
not prohibited from making such payments, and argued that HEW helped
write the contracts. See State's Response to Order to Show Cause, p.
2. The State has not shown, however, that the Agency was a party to the
contracts or that the Agency approved the terms of the contracts. To
the contrary, in a letter dated June 27, 1974 the State writes that when
its program was first implemented, the State requested assistance from
the regional office on the terms and form of the proposed contracts, but
none was provided. See Reconsideration Record, No. 26. Even the
statements on which the State relies to show that it was induced into
entering into these contracts with the hospitals inform the State that
FFP would not be available for such payments.
CONCLUSION
For the reasons stated above, these appeals are denied. * The
Board's Order to Show Cause referred to a statement by an HEW official,
which appeared as a quote from a "transcript" of the meeting in Montana,
to the effect that "there can be federal participation only to the
extent of the calculation of reasonable costs under the Social Security
formula under Title XVIII. If a state chooses to go beyond that, there
is nothing in the federal law that would prohibit this, but of course,
the state would be bearing 100% of the differential. . . ." In its
response to the Order, the State said that it had not submitted the
materials which contained the quote from the "transcript" as evidence
of
the truth of the statement. The State objected to reliance on this
quote as evidence of the fact that HEW officials had said there would be
no FFP for these costs because the entire "transcript" was not available
and the statement was taken out of context. When a complete copy of the
"transcript" was located, the State objected to its use, claiming
it was
not a verbatim transcript, and there is no indication of who authored
the transcript. The Agency argues for the admission of the "transcript"
into the record because previous submissions showed that it was the
State, not the Agency, which had control over it. The Agency agrees
that the "transcript" is not a verbatim transcript, but argues that
fact
does not necessarily diminish its substantive accuracy. Relative to its
author, the Agency submitted affidavits of Agency officials to the
effect that the Agency was not the author. The Agency maintains that,
by process of elimination, the "transcript" must have been made by
either the State or by representatives of the Montana hospital industry
-- neither of which has an interest in editing it so as to favor the
Agency and disadvantage the State. Therefore, the Agency argues, the
lack of actual knowledge of the author's identity does not disqualify it
as evidence in this proceeding. Moreover, the Agency notes that the
"transcript" was considered by Montana State courts to be admissible
evidence, and argues that if its authenticity was sufficient for the
State courts, it should not be excluded as evidence in this proceeding.
We have admitted the "transcript" of the public meeting into the record
of these proceedings because the Board has the ability to weigh and
evaluate evidence before it. In any event, there is sufficient evidence
of what transpired at the meeting to support our decision, even without
this "transcript."
OCTOBER 04, 1983