SUBJECT: New York State Department
of Health

The New York State Department of Health (New York) appealed the determination of the Centers for Medicare & Medicaid Services (CMS) disallowing federal financial participation in the amount of $19,601,451 claimed for the period January 1, 1991 through December 31, 1999 under title XIX of the Social Security Act (Act).⁽¹⁾ The costs were claimed for medical services provided to individuals aged 22 through 64, residing in institutions for mental diseases (IMDs), who were temporarily transferred to acute care facilities to receive medical services. CMS disallowed the costs on the ground that, under section 1905(a) of the Act, FFP is not available in expenditures for services provided to individuals in that age range who are patients in IMDs. New York took the position, however, that the individuals were not patients in IMDs at the time they received the medical services.

As explained in detail below, we find that the individuals for whom the claims were made remained patients in IMDs at the time they received medical services in the acute care facilities. New York did not show any error in the rationale for prior Board decisions upholding similar disallowances or provide any valid basis for distinguishing this case from those decisions. Accordingly, we sustain the disallowance.

Relevant Legal Requirements

Title XIX of the Act established a cooperative federal-state program known as Medicaid, which provides medical assistance to certain economically disadvantaged persons. Section 1905(a) of the Act enumerates various services for which payment qualifies as "medical assistance." This section also provides that "medical assistance" does not include "payments with respect to care or services of any individual who has not attained 65 years of age and who is a patient in an institution for mental diseases." Section 1905(a).⁽²⁾ This provision, known as the general IMD exclusion, was modified as of January 1, 1973 to allow for coverage of persons in IMDs who had not yet reached the age of 21, or in some cases, age 22. Section 1905(a)(16). The IMD exclusion is also incorporated specifically into the definition of various levels of institutional service which qualify as "medical assistance." For example, "medical assistance" is defined to include "inpatient hospital services (other than services in an institution for mental diseases)." Section 1905(a)(1).⁽³⁾ Thus, throughout the disallowance period, the Act proscribed payments for persons ages 22 through 64 in an IMD.⁽⁴⁾

An IMD is defined in the Act as "a hospital, nursing facility or other institution of more than 16 beds, that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services." Section 1905(i).

Regulations governing recipient eligibility for medical assistance provide in pertinent part at 42 C.F.R. � 435.1008 (titled "Institutionalized individuals"):

(a) FFP is not available in expenditures for services provided to -

(1) Individuals who are inmates of public institutions as defined in � 435.1009; or

(2) individuals under age 65 who are patients in an institution for mental diseases unless they are under age 22 and are receiving inpatient psychiatric services under � 440.160 . . . .

* * * * *

(c) an individual on conditional release or convalescent leave from an institution for mental diseases is not considered to be a patient in that institution. However, such an individual who is under age 22 and has been receiving inpatient psychiatric services . . . is considered to be a patient in the institution until he is unconditionally released or, if earlier, the date he reaches age 22.

Factual Background

This disallowance was based on a follow-up to an Office of Inspector General review of New York's claims for the period January 1 through March 31, 1991 relating to individuals aged 22 through 64 who were temporarily transferred from State-operated psychiatric centers which were classified as IMDs to acute care facilities in order to receive medical services. Based on that audit, CMS disallowed $291,981 claimed under title XIX for services provided in medical-surgical units of the IMDs. The Board upheld the disallowance on appeal by New York. New York State Dept. of Social Services, DAB No. 1577 (1996). In 1999, the auditors advised CMS that, based on limited testing, they believed New York had continued to claim FFP for these types of costs. CMS subsequently disallowed $19,601,451 FFP, which the auditors determined was the actual unallowable amount for the period from January 1, 1991 through December 31, 1999, not including the $291,981 previously disallowed. The $19,601,451 related entirely to medical services provided in acute care facilities outside of the IMDs since New York had phased out the medical-surgical units.

CMS asserted, and New York did not dispute, that the individuals with respect to whom the disallowed payments were made were not discharged from the psychiatric centers when they were temporarily transferred to the acute care facilities. CMS Br. at 1.

The ultimate issue in this case is whether patients in IMDs who were temporarily transferred to acute care facilities to receive medical services were properly considered patients in IMDs at the time they received those services. If so, then New York may not receive FFP in the cost of the medical services as a result of the general IMD exclusion. In prior decisions addressing this issue, the Board found that the individuals in question remained patients in IMDs at the time they received the medical services. DAB No. 1577; New Jersey Dept. of Human Services, DAB No. 1549 (1995), aff'd N.J. Dep't of Human Services v. United States, No. 96-441 (AET) (D.N.J. Feb. 11, 1997). The Board stated that the Act and regulations, considered as a whole in light of their purpose, clearly require this finding since these individuals were admitted to IMDs, had not been discharged, and were not on conditional release or convalescent leave. The Board observed that "viewing the individuals in question as patients in an IMD effectuates the purpose of the IMD exclusion to ensure that Medicaid funds are not used to finance care that has traditionally been the responsibility of state governments." DAB No. 1577, at 9, quoting DAB No. 1549, at 9.

Although this case raises essentially the same issues as DAB Nos. 1577 and 1549, New York did not agree that the Board should issue a summary decision upholding the disallowance. As discussed below, however, nothing in New York's briefing persuades us that the rationale for the prior decisions was wrong or that this case is distinguishable.⁽⁵⁾ Accordingly, we conclude that the costs in question here fell within the general IMD exclusion and were properly disallowed.

1. The Board correctly held in DAB Nos. 1577 and 1549 that institutional status, not physical location, is determinative of whether the general IMD exclusion applies.

New York argued that the dictionary definition of the term "in" connotes location and that the plain meaning of section 1905(a) of the Act is therefore that only services rendered to individuals while they are physically present in the IMD are excluded.

The Board addressed the identical issue in its prior decisions, holding that the institutional status of the individual, not the individual's physical location, is determinative of whether the general IMD exclusion applies. DAB No. 1577, quoting DAB No. 1549, stated:

Section 435.1009 of 42 C.F.R. defines the phrase "[i]n an institution" as referring "to an individual who is admitted to live there and receive treatment or services provided there that are appropriate to his requirements." The individuals in question were clearly admitted to live in the IMDs and receive appropriate treatment or services provided there. Further, the individuals were never discharged from the IMDs, nor did New Jersey allege that any other steps were taken to alter the legal status of these individuals as IMD patients. . . . New Jersey pointed to nothing that showed that their institutional status actually changed when they were temporarily moved to acute care facilities to receive medical services. Since their status remained that of patients in an IMD, FFP was not available for any services provided to them . . . even though they were not physically present in an IMD when the services were provided.

DAB No. 1577, at 7-8. DAB No. 1577 continued:

The Board also noted in DAB No. 1549 that various provisions of the Act and regulations treat the IMD exclusion as a general limit on Medicaid eligibility of individuals, by virtue of their institutional status, as well as a limit on particular covered services. [footnote omitted] Thus, absent a change in status, a patient in an IMD is ineligible for Medicaid regardless of where the patient receives medical services.

The Board further noted in DAB No. 1549 that this conclusion is consistent with the regulatory exception to the IMD exclusion for "an individual on conditional release or convalescent leave from an IMD," which permits reimbursement of the cost of services outside an IMD to certain individuals who have not been discharged from the IMD. The Board viewed the existence of this exception as indicating that, as a general rule, all individuals who receive services outside of an IMD to which they have been admitted and from which they have not been discharged continue to be considered patients in the IMD. New York did not argue that the individuals in question here were either conditionally released or on convalescent leave within the meaning of the exception. . . .

Id. at 8; see also California Dept. of Health Services, DAB No. 1338, at 3 (1992) (and cases cited therein), and Pennsylvania Dept. of Public Welfare, DAB No. 1042 (1989).

New York did not specifically address the analysis quoted above. Instead, New York noted that section 1905(a) of the Act also contains an exclusion for medical services to "inmates of a public institution" followed by the language "except as a patient in a medical institution." New York argued that since "in" as used in this provision refers to location, "in" as used in the general IMD exclusion must also refer to location. We see no reason why the word "in" necessarily has the same meaning regardless of context, however. In this case, the two phrases--the IMD exclusion and the exception to the inmate exclusion--are not parallel.

New York also noted that, prior to the period covered by the audit on which the disallowance was based, Medicaid consistently paid for the types of services in question here. New York argued that this evidenced a contrary interpretation by CMS. New York acknowledged that, in response to the identical argument in DAB No. 1577, the Board stated that it cannot "read into an omission of HCFA, i.e., its failure to take a disallowance at the earliest opportunity, a representation that all the expenditures in the [quarterly expenditure reports] were acceptable as charged." DAB No. 1577, at 10, quoting Mississippi Division of Medicaid, DAB No. 1305, at 4 (1992). New York asserted, however, that "the situation presented here, where an entire category of service was routinely treated as reimbursable by the Medicaid program, is completely different from one in which a non-allowable cost is overlooked in the cost report of an individual provider." New York Br. at 14. This argument has no merit. First, New York did not show that CMS knowingly reimbursed this type of cost. New York did not even assert that it had specifically identified the services as provided to individuals who had not been discharged from IMDs. Second, even if there are circumstances in which the agency's consistent payment of a particular category of costs is some evidence that the agency viewed the costs as allowable, that cannot be the case where, as here, the Act and regulations on their face clearly proscribe payments for persons ages 22 through 64 who are patients in an IMD.

New York nevertheless asserted that, even if the Act and regulations prohibit Medicaid funding for services provided on the grounds of an IMD, the preamble to the 1985 final rule amending section 435.1008 indicated that CMS did not interpret the general IMD exclusion to refer to medical services provided outside of an IMD. The preamble language on which New York relied stated:

Aside from the exceptions specified in section 1905(a) of the Act, FFP has never been available for institutional services provided to patients in public institutions or under age 65 in institutions for mental diseases or tuberculosis. (For purposes of this preamble, we refer to institutional services as inpatient psychiatric or tuberculosis services provided to the individual who is a patient or inmate. We refer to noninstitutional services as all other services covered under the State plan).

48 Fed. Reg. 13196 (Apr. 3, 1985) (emphasis added). New York read this as meaning that the general IMD exclusion prohibited Medicaid reimbursement solely for inpatient psychiatric services. New York's reliance on this provision is misplaced, however. The quoted language is part of CMS's explanation of its decision to change the regulation which permitted paying for noninstitutional services during the months of admission or discharge as inconsistent with the statute. Nothing in the preamble indicates that the general IMD exclusion was intended to be limited to inpatient psychiatric services. Indeed, the Board has previously held that the general IMD exclusion in effect renders patients in an IMD ineligible for all Medicaid care or services by reason of their institutional status, and does not itself distinguish between types of services. Joint Consideration: Admission/Discharge Issue, DAB No. 436, at 7 (1983); Petition for Clarification of Decision No. 436, DAB No. 535 (1984).⁽⁶⁾

2. The Board correctly held in DAB No. 1549 that CMS's policy on funding for medical services to inmates of a public institution is not inconsistent with CMS's interpretation of the general IMD exclusion.

New York took the position that the disallowance should be reversed because CMS's policy on FFP for medical services to inmates of a public institution was inconsistent with CMS's position that FFP is not available for medical services provided to patients in IMDs who were temporarily transferred to acute care facilities. This argument has no merit. New York pointed to a December 12, 1997 memorandum from the Director, Disabled and Elderly Health Programs Group, Center for Medicaid State Operations, to all Associate Regional Administrators which purported to clarify Medicaid coverage policy for inmates of a public institution, defined as individuals serving time for a criminal offense or confined involuntarily in State or Federal prisons, jails, detention facilities, or other penal facilities. The memorandum referred to the exclusion for services to inmates except when the inmate is a patient in a medical institution, and stated:

As noted in the above cited statute, an exception to the prohibition of FFP is permitted when an inmate becomes a patient in a medical institution. This occurs when the inmate is admitted as an inpatient in a hospital, nursing facility, juvenile psychiatric facility, or intermediate care facility. Accordingly, FFP is available for any Medicaid covered services provided to an 'inmate' while an inpatient in these facilities . . . .

New York Br., Ex. D at 1-2 (emphasis in original). New York argued that it was inconsistent to interpret the Act to allow FFP in medical services provided to inmates of public institutions who are temporarily transferred to a medical facility but not to patients in an IMD who are temporarily transferred to a medical facility. This argument has no merit.

In DAB No. 1549, New Jersey argued that it relied on a similar policy regarding inmates issued in 1976. The Board stated that "there is no reason to accord [patients in an IMD] the same treatment as 'inmates' since the exception to the general IMD exclusion in section 435.1008(c) applies solely to individuals on conditional release or leave from an IMD." DAB No. 1549, at 14 (emphasis in original). The same reasoning applies here. As noted above, it can be inferred from the fact that the Act and regulations authorize Medicaid payment for an individual who is on conditional release or convalescent leave from an IMD that there are no other circumstances in which Medicaid may pay for medical services furnished to someone who remained a patient in an IMD. In contrast, the Act expressly provides for Medicaid payments when an inmate is a patient in a medical institution. Indeed, the fact that the Act contains a specific exception for inmates of a public institution when they are transferred to a medical institution, but contains no such exception for IMD patients transferred to another institution for medical services, supports CMS's interpretation of the Act. Thus, CMS did not act inconsistently in clarifying when an inmate is a patient in a medical institution.

In support of its claim that CMS's policy was inconsistent, New York also cited the statement in DAB No. 1577 (at n.9) that "New York did not point to any evidence that Congress intended the [IMD and inmate] exclusions to operate differently by virtue of its use of the different prepositions . . ," i.e., patient in an IMD versus inmate of an institution. New York's argument overlooks the fact that the Board made this statement only to address New York's argument that the use of "in" as opposed to "of" made the general IMD exclusion narrower than the exclusion for inmates of public institutions, however. The Board did not consider the effect of the express exception for an inmate who is a patient in a medical institution, which was the basis for the December 12, 1997 memorandum on which New York relied here.

3. The Board correctly held in DAB No. 1577 that the general IMD exclusion does not discriminate against individuals on the basis of disability.

New York argued that an interpretation of the term "patients in an IMD" to include patients in IMDs who were temporarily transferred to acute care facilities discriminated against individuals on the basis of disability. The Board addressed this argument in DAB No. 1577 as follows:

New York argued that HCFA's determination denied the individuals in question access to medical services in violation of section 504 of the Rehabilitation Act and its implementing regulations, the Americans with Disabilities Act, and the Fifth and Fourteenth Amendments of the United States Constitution. HCFA took the position that this argument raises issues which are beyond the scope of the Board's review. . . . We do not need to reach the issue here of the scope of Board review if the program statute or the program regulations are in conflict with other laws or regulations because no such conflict exists here. In [Schweiker v. Wilson, 450 U.S. 221 (1980)], the Supreme Court held that a provision in title XVI of the Act which made SSI benefits unavailable to IMD patients who were not receiving Medicaid (i.e., IMD patients aged 22 through 64) "made a distinction not between the mentally ill and a group composed of non-mentally ill, but between residents in public institutions receiving Medicaid funds and . . . residents in such institutions not receiving Medicaid funds." Schweiker at 232. Since the general IMD exclusion has the same effect as the provision considered by the Court in Schweiker, there is no basis for New York's argument that the general IMD exclusion unlawfully discriminates against the individuals in question here on the basis of their mental illness.

DAB No. 1577, at 11.

New York nevertheless argued that the Board should re-examine its holding in DAB No. 1577 in light of the decision of the Supreme Court in Olmstead v. L.C., 527 U.S. 581 (1999), which New York stated held that unnecessary institutionalization of persons with mental illness who could be served in the community constituted impermissible discrimination on the basis of handicap. New York asserted that the effect of the Board's holding would be to deny individuals with a serious mental illness the opportunity to receive medical services (apart from treatment for their mental illness) in a community setting, contrary to Olmstead.⁽⁷⁾ Olmstead does not compel a different result in this case, however. The effect of the general IMD exclusion is to deny funding to states for medical services furnished to all individuals aged 22 through 64 who are patients in an IMD. The costs of medical services provided to individuals with a mental illness who have not been admitted to an IMD are still eligible for FFP. Thus, the general IMD exclusion differentiates between individuals based on whether they are patients in an IMD, not based on whether they have a mental illness. Moreover, the general IMD exclusion affects only federal funding for medical services. It does not preclude an individual who is a patient in an IMD from receiving medical services outside the IMD.

Conclusion

We sustain the disallowance based on the analysis above and on the analysis in DAB Nos. 1577 and 1549, which we incorporate by reference.

Marc R. Hillson

M. Terry Johnson

Judith A. Ballard
Presiding Board Member

1. CMS was previously named the Health Care Financing Administration (HCFA). See 66 Fed. Reg. 35,437 (July 5, 2001). We use "CMS" in this decision unless we are quoting documents that refer to HCFA.

2. This provision appears in the current version of the Act after section 1905(a)(27).

3. Other definitions which include the parenthetical exclusion of services "in an institution for mental diseases" are in sections 1905(a)(4)(A) and 1905(a)(15).

4. For ease of reference, we refer to the general IMD exclusion as covering individuals aged 22 through 64 even though, in some circumstances, the exclusion also covers individuals between ages 21 and 22.

5. The one factual distinction identified by New York was that the medical services in DAB No. 1577 were provided in medical units on the grounds of the IMDs, while here the medical services were provided in acute care facilities outside of the IMDs. However, DAB No. 1577 was based in large part on the analysis in DAB No. 1549, which, like this case, involved medical services provided in outside facilities.

6. New York also challenged State Medicaid Manual (SMM) � 4390, issued in 1990, and State Medicaid Operations Letter 91-1, issued in 1991, as invalid rulemaking issued in violation of the Administrative Procedure Act. Both documents stated that a patient who is temporarily released from an IMD for the purpose of obtaining medical treatment is still considered an IMD patient. We need not consider whether these issuances were validly promulgated, however. The Board stated in DAB No. 1549 that, even prior to the state's receipt of SMM � 4390, "it was clear from the Act and regulations that the temporary move did not cause the individuals in question to lose their status as patients in IMDs." DAB No. 1549, at 7. Thus, although CMS cited these issuances as authority for the disallowance, it is unnecessary to rely on them.

7. New York did not explain how acute care facilities would be considered community settings, under Olmstead, rather than institutions. Cf. 42 C.F.R. � 435.1009.