GAB Decision 208
August 28, 1981 Virginia Department of Health; Docket No. 81-16-VA-HC
Ford, Cecilia; Teitz, Alexander Settle, Norval
The State of Virginia Department of Health (State) appealed from an
estimated penalty disallowance of $19,022.14 made by the Health Care
Financing Administration (Agency) pursuant to Section 1903(g) of the
Social Security Act (the Act) for the quarter ending March 31, 1980.
The Agency determined that the records for three Medicaid patients in
two facilities did not meet the utilization control requirements for
physician recertification and updating of the plans of care under
Sections 1903(g)(1)(A) and (B) of the Act. We conclude that the
disallowance must be upheld.
This decision is based on the State's application for review, the
Agency's response, an Order to Show Cause issued by this Board on June
17, 1981, and the parties' responses to that Order. We have determined
that there are no material facts in dispute, and that a conference or
hearing would not assist the development of the issues.
Pertinent Statutes and Regulations
Section 1903(g) of the Act requires that the State agency responsible
for the administration of the State's Medicaid plan under Title XIX of
the Act show to the satisfaction of the Secretary that there is an
"effective program of control over utilization of" long-term inpatient
services in certain types of facilities, for each quarter that federal
medical assistance is requested for such services, or the federal
medical assistance percentage (FMAP) must be decreased by an amount
determined pursuant to the formula set out in Section 1903(g)(5). The
State "must" show that --
(A) in each case for which payment is made under the State plan, a
physician certifies . . . (and recertifies, where such services are
furnished over a period of time, in such cases, at least every 60 days,
. . . ) that such services are or were required to be given on an
inpatient basis because the individual needs or needed such services;
and
(B) in each such case, such services were furnished under a plan
established and periodically reviewed and evaluated by a physician.
(Sections 1903(g)(1)(A) and (B))
(2) The Agency has implemented these statutory provisions for skilled
nursing facilities (SNFs) at 42 CFR 456.260 and 456.280. Section
456.260(c) requires that recertification "must be made at least every 60
days after certification." Section 456.280(c) requires that "the
attending or staff physician and other personnel involved in the
recipient's care must review each plan of care at least every 60 days."
An Agency Action Transmittal, SRS-AT-75-122, dated November 13, 1975,
defined "what is required in order for States to be considered in
adherence" with these statutory and regulatory requirements. The
recertification must occur at least every 60 days. The basic elements
of the recertification were that it must be in writing, signed by a
physician, and dated at the time of signature.
Discussion
Federal reviewers conducted a validation survey in July 1980 of ten
SNFs to verify that the requirements of Sections 1903(g)(1)(A) and (B)
were met. The Agency determined that one patient in one facility
(Patient A) did not have a plan of care which had been updated in a
timely fashion and that two patients in another facility (Patients B and
C) did not have physician recertifications and plans of care which had
been updated in a timely fashion.
The State concurred in the finding that Patient A's plan of care was
not updated within the required time; however, the State submitted
documentation allegedly representing an acceptable recertification and
plan of care for Patient B and argued that, since the documentation
submitted for Patient C showed that the patient was recertified within
63 days, the Agency should reasonably find that, for Patients B and C,
the State had complied with the requirements.
The Agency refused to evaluate the documentation submitted by the
State for Patient B because a reversal of the finding for that patient
would not change the penalty computation under the formula set out in
Section 1903(g)(5) as long as another violation was present in the same
facility. The Agency maintained that the State clearly violated the
requirements for Patient C because the physician did not recertify
within 60 days.
It appears to this Board that, on its face, the documentation for
Patient B meets the Agency's requirements for a valid and timely
recertification and plan of care. We agree, however, with the Agency's
assertion that such a finding would not affect the amount of the
disallowance if the State violated the requirements with regard to
Patient C.
(3) The record shows, and the State does not deny, that the records
for Patient C were not recertified and updated until 63 days after the
previous recertification and update. The State argued, in its response
to the Order to Show Cause (pages 3 and 4) that the physician "probably"
was attempting to comply with the 60-day requirement by equating it with
two months, since one review had been conducted on December 3 and the
next had been conducted on February 4, the first business day after
February 3. The State argued that a strict interpretation of the "at
least every 60 days" language does not need to be made to carry out the
purpose of the law, which in the State's words "is to insure that a plan
of care for Medicaid patients is periodically reviewed" (page 5). The
State argued that construing the language of the statute to mean "every
two months" is reasonable and that the Agency should not find the State
out of compliance.
The legislative history of Section 1903(g) does not suggest that the
statutory language should be construed in any way except as the plain
words provide, i.e., "at least every 60 days." The Agency has
consistently interpreted the statute in this strict fashion and, in
fact, the legislative history of the 1977 amendments to Section 1903(g)
shows that Congress intended the Agency to strictly enforce utilization
control requirements, saying, "The committee is encouraged that the
Department has begun to aggressively implement the Congressional
mandate." (H. Rep. 95-393, Part II, page 84, July 12, 1977.) This Board
gives deference to the Agency's interpretation of a statute administered
by the Agency, in accordance with principles established by the courts.
New York Department of Social Services, Decision No. 101, May 23, 1980,
page 6; California Department of Health Services, Decision No. 158,
March 31, 1981, page 7. The primary rationale for this practice is the
deference accorded to agency expertise. Southern Mutual Help Assoc.,
Inc. v. Califano, 574 F.2d 518, 526 (D.C. Cir. 1977). The statute
expressly states several requirements in terms of exact numbers. The
entire tenor of the statute, and of the legislative history, connotes
strictness. The Agency has not unreasonably interpreted its duty under
the statute, even though such a strict interpretation may burden the
States.
The State argued that such a strict interpretation of the statute is
arbitrary and capricious, and referred to the U.S. District Court's
decision in Maryland v. Mathews, 415 F. Supp. 1206 (D.D.C. 1976). The
State argued (Response, page 8) that the court required the agency to
define a tolerance level, and further, that the tolerance level set must
be reasonable, supported by a factual basis, and not established in an
arbitrary and capricious manner. The State has misinterpreted the
discussion in Maryland to some degree, however. The court recognized
that "under the existing administrative structure, the elimination of
all erroneous payments is totally unrealistic" and that "a regulation
establishing a withholding of federal financial participation in a
specified amount set by a tolerance level is consistent (4) with the
Act" (415 F. Supp. at 1212) under the Secretary's rulemaking power to
assure the efficient administration of the Act. However, the court did
not require the Agency to set a tolerance level. The court's holding
indicated that, where the Agency determined to set a tolerance level,
the level must be supported by a factual basis. The court held that the
figures set by the Agency in its regulation had been established
arbitrarily because the Agency did not perform an empirical study and
failed to articulate factors and findings pointing to the substantive
basis for the selected tolerance levels (415 F. Supp. 1213-1214).
We do not view the situation presented in Maryland as analogous to
the Agency's implementation of Section 1903(g). In Maryland, the
statute was much more general in its language, and did not set a
specific standard. In Section 1903(g), Congress specifically provided a
standard of 60 days.
In a recent case before the U.S. Court of Appeals for the District of
Columbia, the Secretary of Interior's rejection of an entry card for an
oil and gas lease lottery was challenged as arbitrary and capricious
(Brick v. Andrus, 628 F.2d 213, D.C. Cir. 1980). The court stated:
(The) Secretary can properly adopt per se rules if he deems them
useful in the administration of the program -- even rules the
application of which may at times yield results that appear
unnecessarily harsh. 628 F. 2d at 216.
The court indicated that an agency must give notice of its intention
to strictly enforce a requirement and must be consistent in its
enforcement; otherwise, a court would find an agency action arbitrary
and capricious. Other factors which the courts have found to make
agency action arbitrary and capricious are: willful exercise of power,
erroneous and extraneous considerations, erroneous legal or factual
foundations, failure to consider relevant factors, or a decision
otherwise lacking in a rational basis. Citizens to Preserve Overton
Park v. Volpe, 401 U.S. 402 (1971); First National Bank of Fayetteville
v. Smith, 508 F.2d 1371 (8th Cir. 1974); Bowman Transportation Inc. v.
Arkansas-Best Freight System, Inc., 419 U.S. 281, 285 (1974); Texaco,
Inc. v. FEA, 531 F.2d 1071, 1076-1077 (Temp. Emer. Ct. App., 1976),
cert. denied, 96 S. Ct. 2662 (1976). We have no evidence of the
existence of any of these factors. In fact, this Board notes that
several appeals are before it where the Agency has issued disalloances
for violations based on the Agency's apparently consistent
interpretation of the 60-day requirement. The Agency's position, that
it is merely enforcing the standard set forth in the statute and that
the legislative history of the 1977 amendments indicates (5)
Congressional intention that the Agency strictly enforce the statutory
requirements, certainly has a rational basis. We cannot conclude that
the Agency has acted in an arbitrary and capricious manner by
consistently enforcing the plain language of the statute, implemented by
equally clear language in regulations, and interpreted in an Agency
Action Transmittal. Therefore, we cannot conclude that recertification
on the 63rd day is sufficient to meet the requirements of Section 1903(
g), as interpreted by the Agency.
The State alleged that such a low percentage of noncompliance is not
an indication that the State does not have an effective program of
utilization control. This Board has previously concluded, on the basis
of the statutory language and the legislative history, that the
Secretary does not have discretion to waive or reduce a penalty if there
is a finding that violations of Section 1903(g) occurred (Tennessee
Department of Social Services, and Colorado Department of Social
Services, Decisions No. 167 and No. 169, April 30, 1981). An Opinion of
the Comptroller General (#B-164031(3).154, March 4, 1980) also supports
this conclusion.
This Board has before it at the present time a number of appeals from
penalty disallowances taken pursuant to Section 1903(g). The States
have alleged that the Agency's strict interpretation of the standards
set forth in the statute produces some counterproductive results and
that the Agency's requirements create practical problems and
administrative burdens on the States. Since the Agency, for the most
part, is implementing the plain language of the statute in a manner
which the legislative history shows was urged by the Congress at the
time of the 1977 amendments to Section 1903(g), it seems that the
statute itself is a source of the burdens the States bear.
Since this Board concludes that the violation for Patient C is clear,
the Board must uphold the disallowance of $19,022.14, on the basis of a
violation of Section 1903(g)(1)(A) and (B) in each of two facilities.
The State raised issues with regard to the penalty calculation in its
Application for Review (page 3). The Board addressed those issues in
its Order to Show Cause dated June 17, 1981. The first issue was that
the formula for computing the penalty was not based on a valid
statistical sample. The Board found that the formula is not based on a
sample and that further amplification by the State of its allegation
would be necessary in order for the Board to address such an issue. The
State did not amplify the arguments in its response to the Order;
therefore, we conclude that the State has presented no basis for Board
modification of the penalty amount.
(6) The State also argued that the Agency must use exact patient data
to calculate the penalty. The Board concluded preliminarily that the
Agency regulation (42 CFR 456.647(b)) implementing the penalty provision
of the Act (Section 1903(g)(5)) allowed the Agency to use facility data
for calculating the penalty in the absence of exact data acceptable to
the Agency. Furthermore, the Board has previously hedl that such a
policy is reasonable (Ohio Department of Public Welfare, Decisions No.
66, October 10, 1979, and No. 191, June 24, 1981). Therefore, in the
absence of any further evidence or arguments made by the State, we find
that the Agency's position with regard to the calculation of the
disallowance is reasonable and we sustain the amount of the
disallowance.
Conclusion
We conclude that this disallowance must be upheld on the basis of
violations of the requirements of Sections 1903(g)(1)(A) and (B) in the
records of one patient in each of two facilities (Patients A and C). We
conclude that the Agency did not act in an arbitrary and capricious
manner by interpreting and enforcing the statutory language regarding
recertifications "at least every 60 days" in a strict fashion.
Furthermore, we conclude that the Secretary has no discretion to waive
the penalty for a small number of violations. Therefore, we sustain the
disallowance in the amount of $19,022.14.
OCTOBER 22, 1983