GAB Decision 198
July 27, 1981 South Dakota Department of Social Services; Docket No.
79-135-SD-HC Garrett, Donald; Teitz, Alexander Settle, Norval
The State sought review of a June 5, 1979 decision by the Director,
Medicaid Bureau, Health Care Financing Administration (Agency),
disallowing $16,720 in Federal financial participation claimed under
Title XIX (Medicaid) of the Social Security Act for quarters ending
September 30, 1978 and December 31, 1978. Later, negotiations between
the State and the Agency resulted in agreement that the disallowance
amount should be reduced to $14,954. Agency Pesponse, p. 1.
The disallowance was based on any Agency finding that the State had
paid a professional dispensing fee of $2.50 for prescription drugs
provided to Medicaid Seneficiaries, although the State plan provided for
a fee of $2.25.
By letter dated June 2, 1981, the Board sent to the State an Order to
Show Cause why the Board should not uphold the decision of the Agency,
based on tentative findings and analysis set forth in the Order. The
State was required to respond within 30 days from receipt of the Order.
A U.S. Postal Service Return Receipt showed delivery to the State on
June 5, 1981. Since the Board received no response, the Board Chair
spoke to counsel for the State by telephone on July 21, 1981 and
inquired about the response. Counsel informed the Chair that she had
forwarded the Order to program personnel, and that she would check to
see what happened to it. The Chair advised counsel that unless the
Board heard from the State within two days, the Board would assume that
there would be no submission in response to the Order, and proceed to
issue a decision. The Board has received no written or oral response.
Based on the foregoing, the Board adopts the findings, analysis and
conclusions set forth in the attached Order.
Conclusion
For the reasons stated above and in the attached Order, we uphold the
disallowance in the amount of $14,954.
(2) DATE: June 2, 1981
ORDER TO SHOW CANSE
INTRODUCTION
The State is seeking review of a June 5, 1979 decision by the
Director, Medicaid Bureau, Health Care Financing Administration
(Agency), disallowing $16,720 in Federal financial participation (FFP)
claimed under Title XIX (Medicaid) of the Social Security Act for
quarters ending September 30, 1978 and December 31, 1978. Negotiations
between the State and the Agency resulted in the agreement that the
correct disallowance amount should be $14,954, rather than $16,720.
The disallowance was taken because, effective July 20, 1978, the
State began paying a professional dispensing fee in the amount of $2.50
for any prescription drugs provided to a Medicaid beneficiary, although
the State plan provided for a fee of $2.25.
This Order is designed to identify the issues in the appeal and to
provide an opportunity for additional briefing by the State before the
Board proceeds to decision. The Order is based on the State's
application for review, the Agency response, and documentation submitted
by the State in response to an Invitation to Brief issued by the Board
on January 21, 1981.
APPLICABLE PROVISIONS OF LAW AND REGULATIONS
Section 1903(a)(1) of the Social Security Act provides that FFP is
only available in expenditures in accordance with the approved State
plan.
As in effect during periods relevant to this appeal, 45 CFR 205.5
provided:
a) State plan requirements.... the plan will be amended whenever
necessary to reflect new or revised Federal statutes or regulations, or
material change in any phase of State law, organization, policy or State
agency operation.
b) Federal financial participation.... Except where otherwise
provided, Federal financial participation is available in the additional
expenditures resulting from (3) an amended provision of the State plan
as of the first date of the calendar quarter in which an approvable
amendment is submitted or the date on which the amended provision
becomes effective in the State, whichever is later.
STATEMENT OF THE CASE
In its application for review, the State admits that due to an
oversight on its part, it did not make the necessary changes in its
State plan. See application for review, p. 1. However, the State
claims that "on every visit made by the Regional HCFA staff to our
State, we have continuously asked whether our State plan was up to date.
We have always been assured that if was up to date." See application for
review, p. 1. The State maintains that a representative of the Agency,
Charlie Bright, Medicaid Program Specialist, led the State to believe
that an amendment to the State plan was not necessary. Also, the State
contends that it gave notice to the Regional Office of the increase in
the drug dispensing fee.
As discussed below, the State alleges that it submitted documents
which put the Agency on notice of the fee increase. The State maintains
that the first time it was aware of the discrepancy between its plan and
the fee it was paying was when it received the notification of
disallowance in June 1979. The State contends that "after the
disallowance notice, Charlie Bright informed the State that the
dispensing fee amount did not have to be included in the State plan.
The amount of the fee was dropped from the State plan effective in
January 1979." See State's brief, February 19, 1981, p. 2.
The Agency has denied the State's factual allegations and submitted
an extensive brief on the legal issue of whether the Agency can be
estopped from taking this disallowance. HCFA maintains that the
application of the equitable estoppel doctrine would not be appropriate
in this case, and even if the doctrine did apply, the State still could
not maintain an action. The Agency further contends that the State's
question, asked of the Medicaid Program Specialist, "Is our State plan
up to date? is so broad and vague that an effective verbal reply to the
question is virtually impossible." See Agency response, p. 7. The
Agency asserts that the State could not have reasonably relied on an
affirmative reply to such a broad, vague question. See Agency response,
p. 8. The Agency maintains that "It is the grantee's absolute
responsibility to administer its Medicaid program so that State plan
amendments regarding Medicaid expenditures are submitted to the
Constituent Agency." See Agency response, p. 9. Furthermore, the Agency
maintains that "even if the Constituent Agency has a duty to
continuously warn the states when Medicaid State plan amendments were
required, such a duty never arose in this case, because the materials
sent to the Constituent Agency did not clearly set forth that the
Crantee had increased the dispensing fee." See Agency response, p. 9.
(4) DISCUSSION
It appears that the State could not reasonably rely on a very general
representation made by an agent of the Agency that the State's plan was
"up to date." It would seem unlikely that the State could in good
faith
rely on a general statement made by an Agency representative when the
State itself has the responsibility of knowing the particulars of its
plan and actions of the State Legislature which affect the plan.
Furthermore, the State has constructive knowledge of the federal
requirements under 45 CFR 205.5(a) and (b) for amending the State plan
to reflect a material change in State law. It is the State's
responsibility to insure that its State plan meets the requirements of
the federal regulations.
In the State's application for review, dated July 23, 1979, the State
claims that it submitted documents that put the Regional Office on
notice of the increase in the drug dispensing fee. However, it appears
that the documents submitted to the Regional Office did no more than
indicate that the State was proposing a fee increase. On page 9 of both
Exhibits A and B the drug dispensing fee is mentioned. The documents
describe the increase as follows: "It is proposed that the dispensing
fee for prescribed drugs be increased from $2.25 to $2.50...." In both
cases the document states that the increase in the drug dispensing fee
is "proposed." Exhibit C also fails to explicitly state that the drug
dispensing will increase. Exhibit D does provide: "The drug dispensing
fee for prescription drugs will increase from $2.25 to $2.50...." Even
though Exhibit D does specifically refer to the increase in the drug
dispensing fee, however, it does not state when the increase will take
effect.
The State further claims that since it does not have to include the
amount of the dispensing few in the State plan, FFP should not be
disallowed for failure to do so. See State's brief, February 19, 1981,
p. 2. Although federal regulations do not require that the State plan
include an exact amount for the dispensing fee, the State originally
chose to specify the amount of the fee in its State plan during the
relevant time period in question, and the Agency quite reasonably, under
applicable law and regulations, limits FFP to amounts in the State plan.
Furthermore, it seems unclear when the State became aware that its
plan should be amended. The State asserts it received notice of the
discrepancy between the plan and the increased fee when it received the
notice of disallowance in June 1979. It appears, however, that the
State must have been aware of the discrepancy before June 1979, since
the State also claims that the amount of the fee was dropped from the
State plan effective January 1979. Whenever the State actually became
aware of the discrepancy, it appears that the State should be considered
responsible for resolving a conflict between its own plan and State law.
(5) Thus, even if the Board were to find that the equitable estoppel
doctrine was applicable, there would still be the question whether the
State has satisfied the 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. United States v. Georgia Pacific Co.,
421 F.2d 92, 96 (9th Cir. 1970); Hampton v. Puramount Pictures Corp.,
279 F.2d 100, 104 (9th Cir. 1960). The State has not met the
requirements of this formula. Moreover, the State admits that it did
not make the necessary charges in its State plan. It appears that the
Agency was under no affirmative duty to warn the State that Medicaid
State plan amendments were required in order to increase the drug
dispensing fee. Under 45 CFR 205.5 the State assumes the responsibility
to see that its Medicaid State plan is up to date. It seems that the
State's reliance on alleged Agency misrepresentations is not reasonable
in view of the vagueness of the State's inquiry as to whether its State
plan was up to date. Furthermore, it appears that the Agency was not
put on notice of the increase in the drug dispensing fee until the
Regional Office review disclosed that the State agency had been paying
the $2.50 dispensing fee, when the State plan only provided for a
dispensing fee of $2.25.
Order
It does not appear likely that an evidentiary hearing will be
required or that an informal conference will be useful. It appears
tentatively that this case should be decided on written record and
argument.
Therefore, the State is directed to show cause, in writing, within 30
days of receipt of this Order, why the the Agency decision disallowing
$14,954 in FFP should not be upheld on the grounds discussed above. The
State should identify in what, if any, respects the foregoing statement
of the case is inaccurate or incomplete. The response may include a
discussion of any other issues considered relevant.The Agency may, but
is not required, to submit briefing. The Agency will be afforded an
opportunity to respond if the State raises any issue that appears to
require further consideration by the Board.
The Agency may wish to consider whether it has the discretion to
resolve the dispute here informally. The provision at 45 CFR 205.5 for
effective dates of State plan amendments could be viewed as a technical
provision for administrative convenience. Since the State was not
required in the first instance to include a specific amount in its plan,
since the increase was paid pursuant to State law, and since there
appears to be no question (6) as to the allowability of the increase if
covered by the State plan, the Agency should consider whether there is
any way to creatively accommodate a common sense solution.
SEPTEMBER 22, 1983