SUBJECT: Virginia Department of Medical Assistance Services

DECISION

The Virginia Department of Medical Assistance Services (Virginia) appealed two determinations by the Centers for Medicare & Medicaid Services (CMS) disallowing a total of $74,826,663 claimed by Virginia as federal financial participation (FFP) under Title XIX (Medicaid) of the Social Security Act (Act). The claims were for enhanced disproportionate share hospital (DSH) payments made in federal fiscal years (FFYs) 1995 through 1999 to two public hospitals. Virginia first made regular quarterly DSH payments to the public hospitals that are similar to the quarterly payments received by all DSH hospitals in Virginia. Then, at a later time, Virginia made "enhanced" DSH payments to supplement the quarterly payments for prior fiscal years. Virginia delayed making the enhanced payments until it could be absolutely sure of what the hospitals' full DSH entitlement would be for the periods at issue, applying hospital-specific caps on DSH payments and the state DSH allotment pursuant to statute. CMS found that Virginia's state Medicaid plan only authorized payments on a quarterly basis, which had to be viewed as the "final" payments under the plan. CMS then concluded, based on its reading of the plan, that any delayed enhanced payments had to be imputed as having been made at the same time that Virginia made its regular quarterly payments even though Virginia actually made the enhanced payments at a substantially later time. Comparing the imputed date for the making of the payments with the dates that the claims for the payments were filed, CMS then concluded that Virginia had exceeded the two-year timely claims deadline in section 1132 of the Act.

Virginia contended that it had not violated the timely claims deadline because all of the claims in question were submitted within the applicable timely claims limit from the dates of the actual enhanced payments to the two public DSHs. Virginia argued in addition that under prior Board precedent, CMS must defer to a state's reasonable interpretation of its own state plan and that separate, enhanced payments were permissible under Virginia's reasonable interpretation of its own state plan.

For the reasons discussed below, we find that Virginia's claims for FFP were timely filed since the claims were filed within the two-year deadline based on when the enhanced DSH payments were actually made. We further find, in any event, that Virginia's interpretation of its own state plan is entitled to deference and that, under that interpretation, separate enhanced payments are permissible. Accordingly, we reverse the disallowances.

Relevant Statutory and Regulatory Provisions

Section 1132(a) of the Act prohibits the payment of FFP for any title XIX expenditure for which no claim has been filed within two years of the end of the calendar quarter in which the expenditure was incurred. The statute reads in relevant part:

[A]ny claim by a State for payment with respect to an expenditure made during any calendar quarter by the State -- (1) in carrying out a State plan approved under title . . . XIX . . . of this Act . . . shall be filed (in such form and manner as the Secretary shall by regulations prescribe) within the two-year period which begins on the first day of the calendar quarter immediately following such calendar quarter; and payment shall not be made under this Act on account of any such expenditure if the claim therefor is not made within such two-year period. . . .

Similarly, 45 C.F.R. � 95.7 provides that "we will pay a State for a State agency expenditure . . . only if the State files a claim with us for that expenditure within 2 years after the calendar quarter in which the State agency made the expenditure." In enacting the two-year filing limit, Congress addressed the Department of Health and Human Services' need to plan and administer effectively the budgets for Social Security Act programs by controlling states' ability to make delayed claims. See Connecticut v. Schweiker, 684 F.2d 979, 982 (D.C. Cir. 1982), cert. denied, 459 U.S. 1207 (1983); see also New York State Dept. of Social Services, DAB No. 521 (1984), aff'd New York v. Sullivan, No. 92 Civ. 2832 (LMM), 1993 WL 266616 (S.D. N.Y. Apr. 7, 1993).

Section 1132 of the Act and 45 C.F.R. � 95.19 provide several exceptions to the two-year limit for filing claims. The exceptions include: claims for adjustments to prior year costs; claims resulting from audit exceptions or from court-ordered retroactive payments; and any claim for which the Secretary of the Department of Health and Human Services (HHS) decides there was "good cause" for the late filing. Section 1132(b) provides that a "failure to file a claim within [the two-year] time period which is attributable to neglect or administrative inadequacies shall be deemed not to be for good cause." See also 45 C.F.R. � 95.22(c).

Definitions relating to the filing limit are set forth at 45 C.F.R. � 95.4. The regulation defines the term "claim" as "a request for Federal financial participation in the manner and format required by our program regulations, and instructions or directives issued thereunder." "Federal financial participation" in turn is defined as "the Federal government's share of an expenditure made by a State agency under any of the programs listed in � 95.1."

Although participation in the Medicaid program is not mandatory, once a state chooses to participate in the program, it must follow the requirements set forth in the Act and the implementing regulations. One of the requirements is that, in order for a state to qualify for FFP, the state must submit a state plan to CMS for approval. As stated in 42 C.F.R. � 430.10, [titled "The State plan,"] "The State plan contains all information necessary for CMS to determine whether the plan can be approved to serve as the basis for Federal financial participation (FFP) in the State program."

For purposes of determining when an expenditure to a Medicaid provider occurs, section 2560.4G.1.a. of the State Medicaid Manual issued by CMS makes a distinction between non-public and public facilities, with expenditures to non-public facilities being considered made when actually paid by the state agency and expenditures to public facilities considered made when they are paid or recorded, whichever is earlier, by any state agency.

In accordance with section 1903(a) of the Act, a state with an approved Medicaid state plan may receive FFP for expenditures for "medical assistance." Various types of medical care and services that qualify as "medical assistance" are listed in section 1905(a) of the Act, including inpatient hospital services (section 1905(a)(1)).

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," referred to here as disproportionate share hospitals or DSHs. Section 1902(a)(13)(A)(iv) of the Act. Detailed requirements pertaining to DSHs are found in section 1923 of the Act, captioned "Adjustment in Payment for Inpatient Hospital Services Furnished by Disproportionate Share Hospitals." The state Medicaid plan must provide for "an appropriate increase in the rate or amount of payment" for inpatient hospital services provided by such hospitals. Section 1923(a)(1)(B) of the Act. This increase is referred to as a "payment adjustment." Section 1923(c) of the Act.

The Act provides for a national DSH limit (eliminated in 1997) and individual state allotments for total DSH payments by each state. Section 1923(f) of the Act. Section 1923(g)(1) of the Act restricts DSH payments to any DSH to the cost of uncompensated care incurred by that DSH. Section 1923(g)(1) provides in pertinent part that a payment adjustment may not exceed "the costs incurred during the year of furnishing hospital services . . . 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."

Section 447.297(d)(2) of 42 C.F.R. provides that if "HCFA determines that at any time a state has exceeded its final DSH allotment for a FFY, FFP attributable to the excess DSH expenditures will be disallowed." Section 447.297(d)(3) further provides that if a state's actual DSH expenditures are less than its final DSH allotment for the FFY, the state is permitted, to the extent allowed by its approved state Medicaid plan, to make additional DSH expenditures applicable to the FFY up to the amount of its final DSH allotment for that FFY.

Factual Background

Virginia's state Medicaid plan categorizes DSHs as either "Type I" or "Type II" hospitals. Type I hospitals are the two state-owned teaching hospitals, the Virginia Commonwealth University Health System (VCU) and the University of Virginia Health System (UVA). All other hospitals are Type II hospitals. The claims at issue are for payments Virginia made to the Type I DSHs.

The following description of the DSH funding process is taken from Virginia's brief and the declaration of its Director of Cost Settlement and Reimbursement (Fields Declaration, Virginia Ex. 38). CMS did not dispute this description. The DSH payments to VCU and UVA consist of two components, regular DSH payments and separate or "enhanced" DSH payments. The regular DSH payments are made quarterly and are similar to the quarterly payments received by all DSH hospitals in Virginia. The enhanced DSH payments are separate amounts for VCU and UVA which may not exceed a hospital-specific cap, which is determined by calculating the unreimbursed costs of serving Medicaid and uninsured individuals. This cap is subject to change based on the results of audits or identification of additional unreimbursed costs. The amount of the enhanced DSH payments may not exceed the state DSH allotment, which is the aggregate state DSH limit established by law for each state. Until FY 2001, the enhanced payment was 10 times the regular DSH formula, and for FY 2001 and subsequent years, 16 times the regular DSH formula.

The hospital-specific caps are determined primarily on the basis of annual cost reports submitted by VCU and UVA approximately 150 days after the end of the hospital's fiscal year. Virginia pays the enhanced DSH payments to VCU and UVA only after the hospitals have performed the services that entitle them to reimbursement and the hospitals have submitted their annual cost reports. Prior to making and recording the enhanced DSH payment, Virginia verifies the submitted cost data and verifies that payment of the requested amounts will exceed neither the hospital-specific DSH cap nor the state DSH allotment.

Hospital-specific caps are increased from time to time as additional uninsured losses are identified by VCU and UVA and verified by Virginia. Costs incurred during a specific cost report year may be determined to be uncompensated after the filing of a hospital's cost report. When such losses are identified, the hospital may submit the additional uncompensated cost data entitling it to receive a separate payment of DSH funds, provided that the amount does not exceed the state plan formula amount or the amount of funds remaining in the state DSH allotment. Using an accrual method, these payments are matched to the state DSH allotment applicable to the year in which the services were performed and not the year in which the payment was made.

After Virginia has verified the expenditure data, it makes payment of the enhanced DSH amounts to VCU and UVA by electronic funds transfer or by check. The transaction is recorded on Virginia's general ledger at the time Virginia makes the funds transfer or issues the check. After the amounts representing enhanced DSH payments have been made, Virginia claims the costs by including them on a Quarterly Statement of Expenditures (HCFA-64) form submitted to CMS.

Concerning the amounts in dispute here, Virginia submitted 13 HCFA-64 forms in 2000 and 2001 which CMS determined included costs that were submitted beyond the two-year filing limit. CMS determined that $62,036,413 in FFP claimed on these forms for FFYs 1995, 1996, 1997, 1998, and the first three quarters of 1999 should be disallowed. The appeal of this disallowance was assigned Board Docket No. A-02-17.

Virginia also submitted HCFA-64 forms on July 30, 2001 and September 26, 2001 which CMS determined included costs that were submitted beyond the two-year filing limit. CMS determined that $12,790,250 in FFP claimed on these forms for the period October 1, 1998 through September 30, 1999 was unallowable. The appeal of this disallowance was assigned Board Docket No. A-02-48.

It is undisputed that all of the claims subject to both disallowances were filed within two years of the actual payments to VCU and UVA, even though they were filed beyond two years of the regular or initial DSH quarterly payment.

Discussion

CMS's rationale for the disallowances evolved during the course of the appeals. In its initial disallowance determination, CMS stated that Virginia's claims for FFP failed to meet the time limit requirements for filing claims. In faulting Virginia's DSH payment system, CMS stated:

We found that the State makes consistent and equal quarterly payments for amounts computed from the basic formula, to both the private and the two State-owned teaching hospitals, but often makes payments for the enhanced amounts to the two public hospitals in later fiscal years. In effect, the State is making partial DSH payments when the basic amount is paid and final payment when the enhanced amount is paid. The enhanced payments to the two state owned facilities are mere multipliers of the basic formula and are recorded by fiscal quarter, on records maintained by DMAS, when they are computed (which is in advance of the state fiscal year to which they apply). Therefore, for purposes of the two-year limitation, the expenditures are recorded on the books of the state at this time. In Federal fiscal year 2000 and the first, second, and third quarters of Federal fiscal year 2001, the State made current quarterly payments to both the private and State-owned hospitals for amounts calculated from the basic formula. However, many of the enhanced payments the State made during this time were more than two years after the expenditures were recorded and after the initial unenhanced payments were made.

November 16, 2001 disallowance notification at 2 (Docket No. A-02-17).

In its second disallowance determination and its consolidated brief, however, CMS no longer relied on the foregoing position and instead argued that the disallowances were necessitated because of Virginia's failure to follow the provisions of its approved state Medicaid plan on how DSH payments were to be reimbursed for services provided to Medicaid-eligible individuals. CMS contended that the Virginia state plan contains no provisions for "enhanced" payments to DSHs. CMS argued that Virginia's interpretation of its state plan is unreasonable because the state plan, according to CMS, provides for only downward adjustments to the regular quarterly DSH payments, but not for additional payments that otherwise might be due under the hospital-specific cap and the state plan. Thus, according to CMS, the enhanced payments to VCU and UVA are not authorized under the state plan and cannot be found to trigger the two-year period in which to file a claim for FFP. CMS concluded that absent a provision in the state plan providing for any upward payment adjustment, the two-year claiming limit begins to run at the time Virginia makes its quarterly payments.

Virginia argued that CMS's determination to impose the disallowances was based on a misunderstanding of the DSH payment process, particularly of the point in time when payments to VCU and UVA are made and recorded. Virginia contended that no mere bookkeeping entries were involved here, as Virginia actually made payments to VCU and UVA by either check or electronic funds transfer. As to CMS's position that enhanced DSH payments to VCU and UVA were not authorized by Virginia's state Medicaid plan, Virginia argued that CMS's contention was contrary to Virginia's consistent interpretation and application of the state plan provision at issue, an interpretation that has been in effect since 1993. Virginia rejected CMS's contention that a "recording" of the enhanced DSH payments occurs at the time that Virginia makes the regular DSH payments, arguing that CMS was drawing an implication from the language of the state plan that was wholly unmerited.

I. The claims at issue were timely filed because the payments were made for purposes of the timely claims requirements when Virginia paid the hospitals.

As discussed above, for purposes of determining when an expenditure to a Medicaid provider occurs, section 2560.4G.1.a. of the State Medicaid Manual makes a distinction between non-public and public facilities, with expenditures to non-public facilities being considered made when actually paid by the state agency. For public facilities like VCU and UVA, however, the expenditure is made when it is paid or recorded, whichever is earlier, by any state agency.

In a number of decisions, most notably South Carolina State Health and Human Services Finance Commission, DAB No. 943 (1988), and New Jersey Dept. of Human Services, DAB No. 1016 (1989), the Board examined the question of what events triggered the two-year requirement for filing a claim for FFP. In South Carolina, the Board explained that the recording of an expenditure, rather than the actual payment, was sufficient to trigger the two-year claiming requirement in order "to take care of the situation where a state does not actually pay out any funds to a public provider, but merely makes a bookkeeping entry." At 4. If this interpretation of the State Medicaid Manual were not followed, a state could indefinitely delay the start of the claiming period by refraining from actually transferring funds to the public facility.

It is uncontested that the services at issue here were provided in FFYs as long ago as five years before the claims for FFP for the services were submitted to CMS. For example, over $8 million in payments for FFY 1995 were not claimed by Virginia until July 31, 2000. CMS, however, did not point to any evidence or documentation that establishes that Virginia paid VCU and UVA for the services or made a bookkeeping entry recording the amount due to these hospitals for enhanced DSH payments prior to the time Virginia said it did. Virginia, on the contrary, submitted a schedule of when the disallowed payments were made to VCU and UVA. Fields Declaration, Virginia Ex. 2. Continuing the example of the $8 million plus claim for FFY 1995 services noted above, this schedule indicates that Virginia paid this claim on June 14, 2000 and submitted a HCFA-64 form for the payment on July 31, 2000. While this schedule was likely prepared for purposes of these appeals and thus is not a contemporaneous recording of any payments, Virginia further supplied additional contemporaneous documentation in the form of authorizations for the release of funds and copies of cancelled checks for payments to VCU and UVA, all of which were dated within two years of Virginia's claims for FFP for the payments. See, e.g., Virginia Exs. 21, 22, 23, 26, 28, and 31. In its brief, CMS did not question the validity of this documentation or offer any documentation of its own that would establish that the payments were either made or recorded earlier than contended by Virginia.

What CMS did here was impute that Virginia made the enhanced DSH payments in the particular FFYs when the publicly-owned hospitals rendered the services and received their regular DSH payments, which was years before Virginia actually made the enhanced DSH payments and subsequently submitted claims for FFP for the services represented by the enhanced payments. We find, however, that there is no authority in the timely claims provisions to impute an expenditure that did not occur either through actual payment or by the recording of the expenditure. Moreover, while Virginia would know at the time of making the regular DSH payments what the maximum amount of the enhanced DSH payments would be, this does not mean that Virginia could at that time calculate the actual amount due the hospitals, given the limits in the state plan.

The timely claims requirements are specifically tied to the "making" of a program expenditure. Here, Virginia asserted that it made expenditures in the form of enhanced DSH payments when it actually paid the hospitals, and that CMS failed to establish with any persuasive evidence that the expenditures actually were made at a different time.⁽¹⁾

CMS's reliance on its own interpretation of the state plan provisions addressing the timing of DSH payments does not establish that Virginia actually made an enhanced payment or recorded an enhanced expenditure in conformity with that interpretation. Indeed, if Virginia had filed a claim for federal funding for enhanced DSH payments in advance of making those payments based solely on CMS's interpretation of the plan provisions, CMS surely would have disallowed those claims, arguing that Virginia had not demonstrated that a payment had actually been made or an expenditure recorded. Likewise, the two affected public hospitals would question how they could be viewed as receiving the benefit of the enhanced DSH payments authorized by Congress if no enhanced payment had actually been made to them and no enhanced expenditure recorded on their behalf. Moreover, contrary to what CMS argued, the Board has never held in DAB No. 1016 or elsewhere that a state's knowledge of the maximum payment potential under its plan or a state's mere knowledge of its plan payment formula (without the state having applied the formula to calculate the actual amount due) is the equivalent of the recording of an expenditure.

Thus, we conclude that the two-year filing deadline may not be triggered merely by relying on the existence of state plan provisions addressing the timing of DSH payments by the state. Even if CMS could demonstrate that its reading of the plan was the only permissible interpretation of the plan and that its interpretation absolutely required Virginia to make its enhanced payments at the times CMS here alleged, we would still not be able to impute the making of these payments by Virginia at those times in the absence of evidence that Virginia had actually made the expenditures.⁽²⁾

Furthermore, contrary to CMS's argument, this application of the timely claims requirement does not conflict with its legislative history. As discussed above, the history indicates that the two-year filing limit is necessary to enable HHS to plan and administer its budget in the face of possible open-ended claims by states for FFP arising under the Act. It is debatable, however, whether this concern is even present for Virginia or any other state with DSH claims because DSH claims already have a finite limit under the state DSH allotment. Thus, this is not a situation where HHS would be caught completely off guard by a state's unforeseen retroactive claims. Moreover, supplementary enhanced DSH payments are expressly contemplated by the Medicaid program. Thus, where a state's actual DSH expenditures are less than its final state DSH allotment for that FFY, the regulations expressly allow the state to make additional DSH payments, to the extent allowable under its state plan, applicable to that FFY up to the amount of its final DSH allotment for that year. 42 C.F.R � 447.297(d)(3). The regulations set no deadline for making these additional DSH payments.

Since there is no evidence in the record that the enhanced DSH payments were actually made to VCU and UVA or that expenditures were recorded on Virginia's ledgers as due to the hospitals in question at a time more than two years prior to Virginia's filing claims for the expenditures, we conclude that Virginia did not violate the timely claims provision of the Act.

II. The claims at issue were not untimely on the ground that Virginia's state plan did not authorize enhanced payments.

As mentioned above, CMS alleged in its brief that the disallowances were also justified because Virginia's practice of making enhanced DSH payments to VCU and UVA was not authorized under its state Medicaid plan.

The provision of Virginia's state plan on which CMS relied to support its position states that DSH payments "shall be made on a quarterly basis, shall be final, and shall not be subject to settlement except when necessary due to the limit in subsection D." 12 VAC 30-70-301.A. Subsection D, in turn, provides, "No DSH payment shall exceed any applicable limitations upon such payments established by federal law and regulations and [the Omnibus Budget Reconciliation Act of] 1993 � 13621." 12 VAC 30-70-301.D.

CMS interpreted this language from Virginia's state plan as permitting only one quarterly DSH payment, labeling that payment as "final," thus leaving no opportunity for further or enhanced DSH payments. While acknowledging that its general policy is to give states wide latitude in administering their state Medicaid plans and defer to a state's reasonable interpretation of its own state plan, CMS stated that Virginia's interpretation of its state plan as permitting enhanced DSH payments was unreasonable.

Virginia countered that the language in its state plan,"except when necessary due to the limit in subsection D," can reasonably be interpreted as requiring Virginia to administer the DSH process so that no violations occur regarding either the hospital-specific cap or the state DSH allotment. Virginia stated that since 1993 it has interpreted and implemented its state plan by making initial quarterly payments, similar to those received by all DSHs, to VCU and UVA that represent only a fraction of what those two public hospitals will be entitled to after they have demonstrated sufficient losses consistent with the hospital-specific cap. After VCU and UVA make this showing, according to Virginia, they then are entitled to the enhanced DSH payments. Virginia emphasized that its state plan nowhere declares that the requirement to comply with the hospital-specific cap and state DSH allotment may only be accomplished through downward adjustments.

The question then is whether Virginia's interpretation of the Virginia state plan conforms with the purposes of DSH funding and the Medicaid program as a whole. The Board has taken the position that it "will generally defer to a state's interpretation of ambiguous language in its own plan, provided the interpretation is reasonable and does not conflict with federal requirements." Louisiana Dept. of Health and Hospitals, DAB No. 1542, at 2 (1995). In making this evaluation,

[f]irst the Board looks to the language of the plan. If the language is ambiguous, it looks to whether the state's interpretation gives reasonable effect to the language of the plan as a whole. In considering the state's explanation of intent, the Board considers whether it is reasonable in light of the purpose of the provision and program requirements. The Board may also consider consistent administrative practice as evidence of intent.

Missouri Dept. of Social Services, DAB No. 1189, at 5 (1990).

Applying these criteria, we agree with Virginia that the language of its state plan is ambiguous and that its interpretation of its state Medicaid plan is a reasonable one which it has consistently applied in practice, and therefore entitled to deference.

The language of the plan is ambiguous. Obviously, a quarterly payment which included the enhanced component of the DSH payment at the outset would not be a "final" payment if it were routinely subjected to significant subsequent adjustments, as Virginia here demonstrated it would have to be in order to conform with the two statutory caps, the hospital-specific caps and the state DSH allotment. Since, in referencing a subsequent "settlement," the plan recognizes that the complete DSH payment could not be correctly computed until a later time, it is not unreasonable of Virginia to interpret the language to allow a delay in the payment of the enhanced component until Virginia is able to make a correct and truly final computation of that component. Separate enhanced DSH payments are permissible under the regulations, and CMS never argued it would not have approved a plan that more explicitly stated Virginia would make two separate DSH payments, a regular and an enhanced payment.

Virginia's interpretation ensures that the DSH payments do not exceed the statutory caps, and also ensures that VCU and UVA will ultimately receive the amounts to which they are entitled by law and the state plan. There is, in short, nothing in Virginia's interpretation of its state plan as allowing enhanced payments to public DSHs that would conflict with either the DSH provisions or any other program requirements. Furthermore, there is nothing in the record that contradicts Virginia's assertion that it has consistently interpreted its state plan and applied the DSH payment procedures since 1993 and that CMS has been aware of this interpretation. Stanley Declaration, � 17, Virginia Ex. 2.

CMS's interpretation, on the other hand, would require Virginia to make DSH payments that it knew would have to be subject to significant downward adjustments at a later time. The hospitals would be receiving a payment, knowing that they could not plan to keep the full amount of the payment and would have to return an undisclosed amount at some point in the future. Virginia likewise would be required to claim federal funding for a DSH payment, knowing that it would have to return a significant portion of that funding at some point in the future. Such a procedure would be fiscally unsound for the federal government and the Medicaid program since the program would be routinely funding interim DSH payments that are larger than what would ultimately be found to be permissible under the plan. The Medicaid program, moreover, would be funding the DSH payments at a much earlier point in time than under Virginia's current, more fiscally conservative approach.

CMS acknowledged that its interpretation of Virginia's Medicaid plan "might not be the best or most efficient or most logical method of making DSH payments," but argued nevertheless that those ramifications should not be determinative of the outcome of these appeals. CMS Br. at 11. But it is questionable whether CMS's interpretation would conform as closely with the congressional intent that DSH payments be tied to the services performed by the hospitals and to the hospitals' actual DSH entitlement. Thus, CMS's position would have large upfront lump sum payments made to the hospitals without any showing by the hospitals that services were actually provided and losses incurred under the hospital-specific caps.

Accordingly, we find that Virginia's interpretation of its state plan is entitled to deference as it is reasonable and does not conflict with federal requirements. Consequently, we reject CMS's assertion that these claims must be viewed as being untimely because they do not comport with the state plan.

Conclusion

For the reasons discussed above, we reverse the two disallowances.

Judith A. Ballard

M. Terry Johnson

Donald F. Garrett
Presiding Board Member

1. CMS initially took the position, as reflected in its first disallowance letter, that the projected maximum DSH payments were mere "multipliers of the basic formula" and had been recorded on the "records" of Virginia prior to the state fiscal year in which the relevant services were performed. Virginia argued in response to that position that no projected or maximum payment amount is recorded on its general ledger or any other financial records until Virginia has verified that the hospitals have incurred costs sufficient to entitle them to enhanced DSH funds pursuant to the hospital-specific cap and that sufficient funds remain in the state DSH allotment. Virginia argued that if it had recorded the enhanced DSH expenditures as CMS alleged, even before the year in which the relevant services were rendered, the result would have been violations of the hospital-specific cap and the state DSH allotment. Presumably, in response to these arguments, CMS then changed its position to one of imputing the making of the enhanced payments at the same time that Virginia made its regular DSH payments.

2. If CMS's interpretation of the state plan were the only permissible one, that would raise a question of whether Virginia was complying with its state plan and thus whether a compliance action under section 1904 of the Act was warranted, rather than a disallowance based on timely claims requirements. We find, however, in Part II of our analysis that Virginia's interpretation of its plan to permit separate enhanced DSH payments was reasonable and as such entitled to deference from CMS.