GAB Decision 261
February 26, 1982 New York Department of Social Services; Docket No.
80-51-NY-HC Ford, Cecilia; Teitz, Alexander Settle, Norval
The New York Department of Social Services (State) requested review
of a Health Care Financing Administration (HCFA, Agency) disallowance of
$1,595,362 in federal financial participation (FFP) claimed under Title
XIX of the Social Security Act as payments to providers of Medicaid
services. The disallowance followed recommendations contained in a
Government Accounting Office (GAO) letter and a GAO audit report
entitled "States Should Intensify Efforts To Promptly Identify and
Recover Medicaid Overpayments And Return The Federal Share." (HRD-80-77)
The disallowance consisted of two parts. One part involved funds due
from providers who had signed stipulation agreements acknowledging
receipt of overpayments ($122,256). The other part involved payments
withheld from providers as suspected overpayments ($1,473,106). With
respect to the disallowance of $122,256, the State withdrew its appeal.
(See, State response to Order to Show Cause, p. 1) Only the second issue
remains in dispute.
This decision is based on the State's appeal, the Agency's response
to the appeal, materials submitted in response to a request by the
Board, the Order to Show Cause, and the State's response to the Order to
Show Cause. Based on our analysis, we uphold the disallowance in
principle, but not in amount.
I. Payments Withheld from Providers as Suspected Overpayments
($1,473,106)
Section 1903(a)(1) of the Social Security Act (Act) provides that the
State is entitled to payment of --
an amount equal to the Federal medical assistance percentage . . .
of the total amount expended during such quarter as medical assistance
under the State plan. . . . (emphasis added)
The issue in this case turns on the interpretation of the word
"expended" in the statute. The State withheld payment on claims from
providers of medical services because the State suspected, although it
had not finally determined, that payment of the claims would be
improper. The issue is whether the State's request for FFP, based on
these claims from providers, was a claim for an amount "expended."
(2)
When the State determined that a payment to a provider might constitute
an overpayment, the State, after completing the processing of the claim
and the printing of the check, would hold the check until a
determination could be made as to the proper disposition of the funds.
The State nevertheless included these held funds in its claim for
reimbursement from the Agency for expenditures made under Title XIX of
the Social Security Act. The Agency disallowed the claims for the funds
that had been held based on its view that these funds had not been
"expended" by the state. /1/
The State asserted that these funds were indeed expenditures because
these payments --
. . . represent monies which have been expended under our approved
State plan and are being held on behalf of the provider by the State
pending the resolution of possible disallowances. Both the accounting
and physical transfer had taken place, and the monies, both State and
Federal, have actually been paid, "expended", to the provider . .
. .
(Application for review, p. 2)
The State asserted that, because the claims for held funds were
treated indentically to all other claims (all claims were processed by
the printing of vendor statements with checks on the bottom) until the
point where the checks for held funds were detached and not sent to the
providers, these held funds were expended even though the providers
neither received the checks nor any assurance that payment would be
made.
(3) The State argued, in effect, that while the provider had not
actually received the money it sought, every step short of actual
transfer of funds had been taken by the State, leaving this step a mere
concluding ministerial act; thus, argued the State, the funds were for
all practical purposes "paid" to the provider and "expended"
under the
Act.
The State asserted that the Federal government should not recover the
federal share of these held funds until the overpayments had been
recovered by the State (or at least until a final determination had been
made by the State as to the existence of overpayments). The State
asserted that recovery by the Agency before a final determination had
been made would result in administrative chaos and possible double
recovery by the Agency.
We do not find the State's arguments persuasive. The held funds were
not "expended" or "paid" by the State under the plain meaning
of those
words.
The State did not release the checks to the providers, the providers
did not in any other way receive any funds, and the record contains no
evidence that the providers had any legal entitlement, by agreement or
otherwise, to the funds before resolution of the overpayment questions.
Furthermore, in simple fact, the State retained the funds and
apprarently even earned interest on them. The funds remained in the
custody and legal control of the State. Apparently, there was no way
for the providers to compel payment by the State. Since the providers
could not use the funds held by the State, these funds could not be
considered expenditures by the State because the State retained all
indicia of ownership pertaining to the held funds.
In this context, to consider the State's preliminary claim processing
as tantamount to actual payment would require an attenuated and
unreasonable reading of the term "expended."
Because we find that the payment of these funds had never been made,
some of the State's collateral arguments need not be addressed in
detail. /2/ The State was concerned about "administrative chaos" and
(4)
double recovery. The State's allegation of administrative inconvenience
is not a sufficient reason for the Agency to make payments not otherwise
in accordance with its reasonable interpretation of section 1903(a)(1)
of the Act. Concerning double recovery, it is clear that the Agency has
an obligation to avoid this potential consequence: for example, we note
that the State alleged that there was a second account, a prepaid audit
payment account (PAP). The State alleged that it would be recouping the
balance due in the PAP account from providers in the hold account. The
State argued that a double recovery by HCFA would result if HCFA
collected these funds from the hold account. The Agency should ensure
that no such double recovery results from this decision when it
recomputes the amount of the disallowance as discussed below.
The State also argued that some of the funds involved were subject to
liens (such as tax liens involving providers) and that these funds
should be exluded from the disallowance. We do not agree. These funds
have not been disallowed because of their characterization as "holds"
or
"liens", but rather because the State in holding these funds for
whatever reason has not expended them. Therefore, the distinction
argued by the State is immaterial. /3/
II. The Amount of the Disallowance
Although we uphold the disallowance in principle, we cannot uphold
the amount, for reasons discussed below.
The State asserted that the disallowance in this appeal should be
reduced by the amounts which have been disposed of since the making of
the disallowance (i.e., some amounts have been paid to providers, and
some amounts have been repaid to the Agency). The State also asserted
that the disallowance should be further reduced because the disallowance
was based on a 50% rate of federal sharing rather than the 46% agreed to
by the Agency. The Agency did not contest either of these positions.
To the extent that the questioned claims have been adjusted since the
disallowance, the Agency should reduce the amount of the disallowance if
the State provides satisfactory proof that the disposed funds have (5)
either been expended through payment to the provider or recovered and
credited to the Agency for the federal share. We return the case to the
Agency to make this determination.
The State has not provided documentation of the alleged argreement
with the Agency on the 46% rate claimed by the State, so the Board has
no basis to make any finding on this issue. The Agency should take into
account any such agreement, if there was one, in recalculating the
disallowance.
Based on the foregoing, we conclude that the Agency must recompute
the actual amount of the disallowance. We urge the Agency and the State
to cooperate in establishing the amount. If the State cannot agree with
the Agency's final determination of the amount, the State may appeal
that matter to the Board within 30 days after receiving the
detemination.
III. Conclusion
For the reasons stated above, we uphold the disallowance of FFP in
funds not yet expended by the State, but return it to the Agency to
recompute the amount. /1/ It is not entirely clear, from the State's
use of the word "overpayments" in its submissions, whether the
suspected overpayments were in the claims for services for which the
"held" checks were issued, or in prior claims for which payment had
previously been made. It appears from the State's references to
"adjudicating" the providers' claims and making decisions as to
"allowability" that when the State issued a check it had, in fact,
detemined that the claim for these particular services was properly
payable. The check was not sent to the provider because the State
suspected, based apparently on patient treatment profiles for the
particular provider, that this provider had, in the past, been overpaid
for other services. The State "held" the provider's check so that
it
could exercise its common law right of offset if it was eventually
determined that such prior overpayment had, in fact, occurred. It makes
no difference in this case whether the suspected overpmayment was in the
current or prior claim because under our reasoning the funds being
"held" were, in either event, not "expended." /2/ The State
has
requested a hearing or informal conference in this appeal because HCFA
disagreed with the State's description of how the hold account operated.
However, the Board has determined not to hold a conference or hearing
because, even assuming the State's description is correct, the Board
would not reverese the Agency's disallowance on that basis. The
operation of the hold account is immaterial to the disallowance. The
disallowance is upheld because the funds in the hold account have not
been expended by the State regardless of how the hold account operated.
/3/ The procedure for dealing with liens was apparently the same as for
suspected overpayments. The amount due a provider was determined, a
check was drawn, and the money was held, pending a determination of the
validity and amount of the lien. Until the money was actually paid,
whether to the IRS or another lien holder, the funds were not expended.
OCTOBER 22, 1983