GAB Decision 203
July 31, 1981 California Department of Health Services, San Francisco
Center; Docket Nos. 79-49-CA-HC, 79-55-CA-HC Settle, Norval; Garrett,
Donald Ford, Cecilia
By letters dated February 5 and 8, 1979, the Health Care Financing
Administration (HCFA Agency) disallowed $88,041 and $42,238,
respectively, in Federal financial participation (FFP) in payments for
skilled nursing facility (SNF) services provided at the San Franciscan
Center (formerly Post Street Convalescent Hospital), claimed by
California (State) on its quarterly expenditure reports for the quarters
ended June 30, and September 30, 1978. The disallowances were based on
the grounds that the facility did not have a valid provider agreement in
effect after March 2, 1978 as required by Title XIX of The Social
Security Act. The Board docketed the State's appeakl of the February 5
disallowance as 79-49-CA-HC and of the february 8 disallowance as
79-55-CA-HC.
This decision is based on the State's appeals and the Agency's
responses, this Board's March 17, 1981 Order to Show Cause and the
parties' responses to that Order, a June 3, 1981 conference call, and
briefs, submitted by the paties in response to question raised during
that conference call.
Facts
On November 6-18, 1977 and January 4-6, 1978, the State inspected the
San Franciscan Center and documented numerous deficiencies. (See
Agency's May 16, 1979 response to the State's appeal, hereafter referred
to as "Agency Response", Exhibit A.) Based on those surveys the State,
by letter dated February 6, 1978, notified the facility's operator,
Quality Care Convalescent Hospital Centers, Inc. (Quality Care), that
since the facility had been found to be out of compliance with Medicare
and Medciad conditions, the facility's provider agreement was not
renewed when it expired on January 31, 1978. That letter also stated
that the agreement would be extended to March 2, 1978 in order to allow
time for proper notice to the facility and the public, and that Medi-Cal
payments (payments under the State's Medicaid program) to the facility
would not be available after April 1, 1978. (See Agency Response,
Exhibit B.) (2) On or about March 2, 1978, Public Advocates, Inc. filed
suit in the United States District Court for the Northern District of
California, on behalf of patients in the facility, against the Director
of the California Department of Health (now the California Department of
Health Services), to compel the State "to operate the San Franciscan
Center at the expense of the State . . . until such time as an
acceptable plan has been implemented either to continue operation of the
facility or to transfer the residents in an orderly and humane manner to
an approved facility in San Francisco." (See Agency Response, Exhibit C,
p. 16) Subsequently, on March 29, 1978, the Court in Bracco v. Lackner,
462 F.Supp. 436, 459 (1978), issued a preliminary injunction enjoining
the State:
1. From removing any residents or patients from said Center until
after notice and opportunity for hearing has been given to them in
compliance with 45 CFR Sec.205.10 and its subsections and with the
requirements of due process . . .;
2. From failing to maintain the Center and to provide for all
residents and patients there substantially the same quantity and quality
of services as they were provided immediately prior to the filing of
this lawsuit, including payment or effective provision for payment of
the actual cost thereof.
While the preliminary injuction was still in effect and prior to any
hearing, the Public Advocates and the State entered into settlement
negotiations. At the request of the parties, the Court on May 12, 1978
issued an order requiring the State to pay certain amounts consisting of
Medi-Cal payments plus certain legislatively authorized supplements.
The May 12 order also stated that the legislatively authorized
supplements would be provided for the period from May 5 through June 20,
1978, and that funding would be at the standard Medical rate for the
period June 21 through June 27, 1978. The order also provided that by
June 27 all patients would be transfered to other SNF's, that on June 27
the San Franciscan would be closed, and that, no later than July 1,
1978, the preliminary injunction in Bracco v. Lackner would be vacated
and the court action dismissed.
On June 6, 1978, Quality Care filed a motion in the District Court
for enforcement of the language in the preliminary injunction calling
for payment of "actual costs" for the period from March 29 through
May
5, 1978. Quality Care maintained that during that period the State paid
only the Medicaid rate of $27.77 per patient per day while the actual
cost based on occupancy by 145 patients was $43.53 per day. The
District Court denied the facility's motion by order dated June 15,
1978. (3) In accordance with provisions of The May 12 settlement
agreement, the State moved all patients from the facility by June 27,
1978. By order dated July 16, 1978, the Court dismissed the March 29
preliminary injunction in Bracco v. Lackner.
Submsequently, the State submitted claims for FFP in payments for
services provided at the facility after March 2, 1978. Finding that
efforts had been made to move patients to other facilities during the 30
days following the expiration of the provider agreement on March 2,
1978, the Agency in accordance with 42 CFR 441.11, allowed the State's
claim for FFP for services provided during the period March 2, 1978
through April 1, 1978. (See Agency disallowance letter dated December
58 1979.) Finding that no provider agreement was in effect, the Agency
disallowed the State's claims for services provided during the period
April 1, 1978 through June 27, 1978. (See Agency disallowance letters
dated September 5 and 8, 1975.) /1/
Issue
The issues in dispute are (1) whether the Agency must provide FFP to
the State on grounds that, although the facility's provider agreement
had expired, a Federal district court order requireed the State to
continue making payments to the facility; and (2) whether a subsequent
court approved settlement agreement which altered certain terms of the
court order operated to preclude such payments.
Discussion
The case is one in a series of cases the Board has considered
involving the question of the availability of FFP pending a court
ordered hearing on the termination or non-renewal of a provider
agreement. In Ohio Department of Public Welfare, Decision No. 173,
April 30, 1981, the Board held that pursuant to MSA-PRG-11 and 45 CFR
Sec.205.10(b)(3), FFP is available in the cost of covered services to
Medicaid recipients in nursing homes with provider agreements that have
been terminated or not renewed, where a facility appeals the adverse
determination and a State or Federal court orders the State to continue
payments because of that appeal, thereby effectively continuing the
provider agreement. Subseuqently, in New York Department of Social
Services, Decision No. 181, May 29, 1981, the Board extended Ohio to
appeals brought by (4) recipients. The Board based this extension on an
analysis of Section 205.10(b)(3) alone, finding that MSA-PG-11 applied
only to provider appeals. Section 205.10(b)(3) makes FFP avaialble for:
Payments of assistance within the scope of Federally aided public
assistance programs made in accordance with a court order.
During a telephone conference on June 3, 1981, the Board requested
that both parties show cause in writing why, based on the Board's
analysis of Section 205.10(b)(3) in Ohio and New York, the Board should
not find in favor of the State in this case.
March 29 -- May 5
The Agency argued in response that Section 205.10(b)(3) does not
apply to this case since the March 29, 1978, preliminary injunction
cannot reasonably be construed as ordering payments of assistance
"within the scope" of the Medicaid program. The Agency argued that
this
is so both because the preliminary injunction makes no mention of the
Medicaid program and because the preliminary injunction ordered the
State to pay on an "actual cost" basis rather than the "reasonable
cost
basis" of the Medicaid program.
The Board concludes that the absence per se of a reference to
Medicaid in the court order is not dispositive of whether payments were
"within the scope" of the Medicaid proram. The use of lack of the
word
Medicaid would not alone be sufficient to either include or exclude
payments from "within the scope." What is important in detemining
scope
is not so much the language of the court order as the effect. (See
Generally, Ohio, and New York. The effect here was to continue the
status quo at the facility.
The Board is also not presuaded by the Agency's argument that
language in the injunction calling for payment of "actual costs" removes
payments pursuant to the order from the scope of the program. Section
205.10(b)(3) states that FFP is available in payments "within the scope
. . . in accordance with a court order." Payments until May 5, 1978 were
made pursuant to court order and though the order may have called for
payments of actual cost, the State's payments until May 5 were "within
the scope" since they were made at the Medicaid rate of $27.77. (See
State's brief dated June 23, 1981, p.3, and attachment B.) Moreover, the
Court never enforced the "actual cost" language and, in fact, on July
16, 1978, dismissed Quality Care's motion calling for enforcement of the
"actual cost" provision of the March 29 preliminary injunction.
(5) It is apparent that the Court's use of the term "actual cost"
was
not intended by the Court as the only method by which the State could
fulfill the gravamen of the March 29 injunction--maintaining the Center
and providing substantially the sme services until a future event.
Accordingly, it would not be reasonable to interpret the "actual cost"
language here as removing payments made until May 5 from "the scope"
of
the Medicaid program, such that FFP would not be available for payments
which were made at the Medicaid rate.
May 5 -- June 27
The Agency argues that even if the Federal court order of March 29 is
constured as ordering payments "within the scope" of the Medicaid
program, the order was superceded by the court-approved settlement
agreement of May 12, 1978 which required payment of a
legislatively-approved lump sum from May 5 through June 20, 1978 and the
Medi-cal rate for the period June 21 through June 27. The Agency argues
that Section 205.10(b)(3) does not apply because the payments from May 5
through June 27 were pursuant to voluntary settlement rather than court
order.
The March 29 preliminary injunction in effect required the State to
continue the status quo by funding the facility until the patients were
provided with notice and the opportunity for a hearing. The May 12
settlement agreement provided that:
(all) prior orders of the court, including injunctive orders, shall
remain in effect until plaintiffs dismiss this action, except as such
orders are expreslly modified by this order.
The May 12 settlement modified the March 29 preliminary injunction by
changing the payment requirement from "actual cost" to the Medicaid
rate
plus, for a portion of the period, a special legislatively appropriated
lump sum. The May 12 settlement also changed the period in which
payments must continue from "payments pending a hearing" to payments
until a specific date on which all patients would be removed from the
facility. The preliminary injunction was unchanged, however, in its
requirement that the State continue the status quo at the facility until
a future date upon which the preliminary injunction would be vacated.
It is in this sense that the case is parallel to ohio and New York and
it is for this reason that the Ohio and New York holdings must be
applied here as well. Were this agreement clearly a voluntary agreement
of the parties unassociated with continuation of Court oversight, we
would agree with the Agency's argument; but here, the (6) preliminary
injunction was continued in full force and effect except for certain
modifications which the Court allowed, as evidence by its approval of
the agreement. While it is a close question, on balance we find the
evidence more indicative of a continuing obligation imposed by the
Court, accompanied by some agreement of the parties, than of an
agreement of the parties alone.
The Agency also argues that payments pursuant to the lump sum funding
scheme were "outside the scope" of the Medicaid program. The regulation
allows FFP for payments "within the scope . . . in accordance with a
court order." As discussed above, the payments after May 5 were pursuant
to the March 29 preliminary injunction, although the amount was agreed
to by the parties; the payments are "within the scope" since the State
claimed FFP only for that portion attributable to the Medicaid rate. It
would not be reasonable to read Section 205.10(b)(3) as meaning that
payment by a State in excess of the Medicaid rate precludes FFP for the
portion of the payment which is in accordance with reasonable cost
levels. In addition, under the Ohio and New York rationale, had the
State not engaged in the May 12 settlement FFP would have been available
for the entire period in question. Thus, this result gives the State no
more than it might have received absent the settlement.
Conclusion
Based on the foregoing analysis, the Board concludes that the State
should receive FFP for payments made to the facility at the applicable
Medicaid reimbursement rate during the period April 2, 1978 through June
27, 1978. /1/ The State noted in its June 23, 1981 brief that although
claims were submitted as late as the quarter ending September 30, 1978,
the claims were for services rendered during the period April 1 through
June 27, 1978.
OCTOBER 22, 1983