GAB Decision 413
Docket No. 82-74-MA-HC
April 29, 1983
Massachusetts Department of Public Welfare;
Ford, Cecilia; Garrett, Donald Settle, Norval
The Massachusetts Department of Public Welfare appealed a
disallowance by the Health Care Financing Administration of $1,142,092
in federal financial participation, claimed by the State under Title XIX
of the Social Security Act for Medicaid payments to three nursing
facilities (Westside Corporation, Hammond House, and Terrace Manor).
Under Title XIX, covered medical assistance may not include services in
an "institution for mental diseases" (IMD), except for certain services
to individuals over age 65 (and, in some circumstances not relevant
here, for individuals under age 22). Agency regulations define an IMD
generally as an institution "primarily engaged in providing diagnosis,
treatment or care of persons with mental diseases," and state that
whether a particular facility is an IMD is determined by its "overall
character as that of a facility established and maintained primarily for
the care and treatment of individuals with mental diseases." The Agency
determined that the three facilities here were IMDs and, consequently,
disallowed federal financial participation (FFP) in payments to the
facilities for individuals under age 65.
The Agency determination was based on an audit report issued by the
HHS Office of Inspector General Audit Agency for the period October 1,
1978, to December 31, 1980. Appeal File, Exhibit G (Audit Report). The
auditors used eight Agency "criteria" as a guide for what factors
to
examine, although the Agency specifically relied only on the
regulations, not on the criteria, for its disallowance. Generally, the
auditors found that the facilities had high percentages of patients with
diagnoses classified as mental diseases under the "ICDA" (explained
below); that facility staff and referral sources regarded the
facilities as primarily serving psychiatric patients; that some
facility staff had psychiatric training or experience; that the
facilities received funding or assistance from mental health
authorities; and that there were other indicia that the facilities had
the overall character of IMDs.
Based on the parties' written submissions and a hearing, we uphold
the disallowance. Below, we first describe generally what the issues
are and how are have organized our decision to respond to them. We then
summarize our conclusions and, finally, provide a detailed analysis of
the issues.
(2) I. General Description of the Issues
The State's major argument in its briefs and at the hearing was that,
in identifying IMDs, it is not patient diagnosis which is important but
the patient's behavioral and functional characteristics since those
define the patient's need for treatment; if a patient does not need
specialized services in the nature of psychiatric intervention,
placement in the nursing home is appropriate and the nursing home should
not be considered an IMD. In support of this argument, the State
presented evidence of assessments of the behavior and functioning of
patients in Hammond House and Terrace Manor to show that these patients
exhibited characteristics different from those of patients in State
psychiatric hospitals. As discussed below, the State admitted that
Westside was an IMD under the State's criteria.
The State also argued that only state mental hospitals or their
"functional equivalent" could be IMDs under the statutory exclusion
and
its legislative history, that the regulations are inconsistent with the
statute and too vague, and that the Agency criteria are procedurally and
substantively invalid. These issues were previously addressed by the
Board in Joint Consideration: "Institutions for Mental Diseases,"
Decision No. 231, November 30, 1981. /1/ That decision has been the
subject of two court opinions (Minnesota and Connecticut, cited below),
issued while this appeal was pending. Also, the Agency recently
promulgated new guidelines for identifying IMDs. Issues arising out of
these developments are related to the State's arguments concerning the
statute, regulations, and criteria, and to the State's treatment
argument. Thus, we have organized our analysis as follows: in section
III, we examine the statutory provisions, their legislative history, and
the interpretation adopted in the Connecticut decision; in section IV,
we discuss the regulations and their relationship to the statute; in
section V, we discuss the State's argument that it is treatment, not
diagnosis, which is important and that the Minnesota decision supports
this view; and in section VI, we discuss both the old criteria used by
the Agency and the new guidelines for determining IMD status. In
section VII, we examine the audit findings and issues raised by the
State concerning their reliability and significance. Finally, in
section VIII, we discuss the State's argument that this case raised a
compliance issue rather than a disallowance issue and, therefore, was
not appropriate for resolution by the Board.
(3) II. Summary of Our Conclusions
We conclude that the Agency interpretation of the term IMD to include
private nursing homes that are primarily engaged in care and treatment
of persons with mental diseases is derived from the statute and is
supported by the statutory scheme as a whole. Moreover, the regulations
provide a longstanding administrative interpretation of the statute
which Congress has not overturned and which is not contradicted by the
legislative history. The regulations were clear enough to put the State
on notice that facilities such as these are IMDs, even if they are
nursing homes and are not providing treatment comparable to State
psychiatric hospitals.
While we agree that the nature of the services provided in a facility
is relevant in determining the overall character of a facility, we do
not think that only facilities providing "psychiatric intervention"
to
acute-care patients are IMDs. Congress contemplated that persons
needing a lower level of care might be in IMDs. Also, when referring to
IMDs qualified to receive funding for aged individuals and children, the
statute uses the term "psychiatric" to describe the facilities and
the
services, but does not use the term "psychiatric" when referring to
IMDs
generally. This implies that the term IMD includes a broader range of
institutions and that not all IMDs provide such services. In any event,
there is evidence here that patients in the facilities were receiving
(or needed) some specialized services which may be considered
psychiatric "treatment."
We find that the auditors used the Agency criteria in accumulating
evidence concerning the overall character of these facilities, but that
the Agency relied on the regulation as a basis for the disallowance.
Therefore, the fact that the Agency did not publish the criteria does
not provide a basis for reversing the disallowance. We also rely on the
regulation for our decision. Therefore, we do not need to apply each
new guideline here since we view the guidelines merely as a tool for
gathering evidence, rather than a rule interpreting the regulation to
require that certain factors identify a facility as an IMD. With the
new guidelines, however, the Agency did interpret the regulation in one
respect: the Agency stated that senility would not be included as a
mental disease for IMD purposes even though it is listed as one in the
ICDA (the classification system used by the auditors). Thus, we do not
include senile patients in determining IMD status here. Generally, we
think that the Agency used a conservative approach in counting patients
with mental diseases and that this approach benefited the State when
viewed in light of how the term "mental diseases" was used when the
IMD
exclusion was enacted.
(4) We conclude that the auditors' findings are reliable although we
agree with the State that some of the findings are less significant than
others. We find that there is undisputed evidence that Westside had the
overall character of an IMD under any reasonable reading of the
regulation and that there is persuasive evidence that Hammond House and
Terrace Manor met the regulatory definition as well.
Finally, we conclude that the Agency action here was a disallowance
and that, under the circumstances, the Agency was not required to use
compliance procedures rather than disallowance procedures. Accordingly,
we affirm the Board Chair's tentative ruling that the Board has
jurisdiction over this appeal, and we sustain the disallowance.
III. The Statute and Legislative History
The IMD Exclusion
Subsection (B) of the language following section 1905(a)(18) of the
Social Security (Act) states that, except for certain inpatient
psychiatric services to individuals under age 21, the term "medical
assistance" in Title XIX does not include "any such payments with
respect to care or services for any individual who has not attained 65
years of age and who is a patient in an institution for... mental
diseases." This is the basic IMD exclusion. /2/ The State cited this
language in support of the proposition that the statute required an
interpretation that the IMD exclusion should apply only to institutions
which are state mental hospitals or the functional equivalent or state
mental hospitals.
We fail to see how anything in the quoted provision supports the
State's position that the statute requires the interpretation the State
advanced. To the contrary, as we discussed in Decision No. 231,
Congress' use of the term without further definition means that Congress
gave the Secretary a certain amount of discretion in administering the
exclusion.
The Legislative History
The State also alleged that the legislative history of the statute
supported the State's position, presumably relying on the legislative
history references to "state mental hospitals" and to nursing homes
as
alternatives to IMDs. These statements were relied upon by the States
in the cases leading to Decision No. 231. In that decision, we
considered the legislative history of the exclusion and concluded that
(5) it did not conflict with the Agency interpretation that private,
proprietary nursing homes may be IMDs even if they are not part of a
larger institution. Decision No. 231, pp. 3-13. The reasons supporting
that conclusion included that --
* References in the legislative history to "mental hospitals" do
not
require an interpretation that only institutions providing hospital
level of care under the statute are IMDs because the term "hospital"
is
used differently in the legislative history than in the statute.
Moreover, the States did not clearly delineate a difference between the
nursing facilities in question and the "traditional mental hospital,"
which provided primarily custodial care.
* The legislative history refers to IMD care in "private or public"
institutions.
* The term "institution," as used in the statute and interpreted
in
longstanding, duly promulgated regulations, encompasses free-standing
skilled nursing facilites (SNFs) and intermediate care facilities
(ICFs), not only larger facilities offering various levels of care.
* Most of the legislative history relied on by the States must be
read in its context, where it relates not to the basic statutory
exclusion but to the exception Congress created for aged individuals and
to the conditions Congress placed on funding for the excepted
individuals. Thus, for example, references to nursing homes as an
alternative to institutional care must be examined in light of the
specific provision involved which placed a condition on states seeking
funding for aged individuals in IMDs and required such states to develop
alternatives to care in public IMDs. That a private nursing home is an
alternative to public care does not preclude the possibility that it
could itself be considered an IMD.
The Exception for the Aged
Much of the confusion in terms in these cases comes from the States'
failure to distinguish when Congress and the Agency are talking about
the general exclusion from coverage of services in an IMD and when they
are talking about institutions which are qualified to provide services
to aged individuals under the exception to the exclusion. Here, the
State relied on a definition from the Handbook of Public Assistance
Administration, Supplement D - Medical Assistance Programs (June 17,
1966), Section D.5141d. The State quoted the following language from
that section in support of its argument that the Agency's predecessor
had recognized that IMDs were limited to state mental hospitals or the
functional equivalent:
An "institution for mental diseases" is one that (1) meets the
requirements for a psychiatric hospital under Title XVIII, section
1861(f) of the Social Security Act....
Appeal Brief, p. 30.
(6) Not only does the State misquote the section, but the State fails
to consider the context in which this section appears. The correct
quote is as follows:
An "institution for mental diseases," qualified to carry out the
provisions of the Act in respect to the care and treatment of aged
recipients, is one that....
(emphasis added)
Thus, this definition does not support the position that only mental
hospitals providing psychiatric treatment are IMDs. Instead, it defines
the scope of the exception for aged individuals. It states that, even
for these individuals, not all IMD services are reimbursable, only those
provided in an institution which qualifies by meeting certain standards.
Thus, the definition supports the Agency position that the exclusion
does not apply only to psychiatric hospitals, but is broader.
The Connecticut Decision
At a late stage in the proceedings here, the U.S. District Court for
the District of Connecticut issued a decision reversing the Board's
determination in Decision No. 231 that a Connecticut facility
(Middletown Haven) was an IMD. Connecticut v. Schweiker, 557 F. Supp.
1077 (D. Conn. 1983). The District Court determined that the decision
was "arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law" because it was based on improper factors. Based on
its own "independent review of the statute's language and legislative
history, without deference to HHS' contrary interpretation, even though
HHS' interpretation may have been longstanding," the District Court
concluded that an IMD "means a mental hospital, which in turn means, at
the least, a facility providing total care to mental patient." 557 F.
Supp. at 1089. In a footnote of the decision, the term "total care"
is
said to mean "the very high level of care given, for example, to a
hospital inpatient or a nursing home resident. The patient is totally
dependent on the institution and is submerged in it." At note 9. The
District Court left it to administrative expertise to make "(fine)
determinations of what constitutes total care" but concluded that the
broad purpose of the statute, best determined by the Court, required
that provision of "total care" had to be considered in determining
IMD
status, and that the Court should not defer to the Agency
interpretation.
We do not think that the Connecticut decision requires reversal of
this disallowance, for the following reasons:
* The decision focuses on the legislative history of particular
provisions and ignores the statutory scheme as a whole, which, as we
discuss here, does provide support for the Agency interpretation.
(7) * The decision is internally inconsistent. The District Court
recognizes that Congress intended to exclude facilities which were
"warehousing" the mentally ill, providing only custodial care, yet
the
Court would restrict IMDs to facilities providing a "very high level of
care." Further, the Court suggests that a nursing home would be giving
this level of care, yet implies that an ICF would not, even though an
ICF is generally considered to be a nursing home. /3/
* The decision completely ignores the Agency definition of an
"institution," which was applied in reaching the result in Decision
No.
231. /4/ Since Middletown Haven qualified as an institution because it
was providing room and board, one could say that the residents were
"submerged in it" (at least to a greater extent than outpatients in
a
Community Mental Health Center, which the Court contrasted with a total
care situation). Further, since Middletown Haven was an ICF, it was
providing the level of care provided by a nursing home. Thus, although
"total care" was not explicitly examined in Decision No. 231, factors
which the Court indicates are relevant to "total care" were considered.
* The Court's standard that an IMD is a facility providing a "total
care" situation is no less vague than the statutory term IMD or the
legislative history reference to "mental hospitals," and we do not
see
how it contradicts the Agency's interpretation.
* The decision quotes from the legislative history a statement by
then Secretary Celebreeze that "institutions providing care primarily
for mental or tuberculosis patients are excluded from participation,"
but ignores how this supports the Agency definition.
* Finally, consideration of a longstanding, administrative
interpretation in discerning statutory intent is not based solely on
administrative "technical" expertise. Rather, the fact that an agency
promulgates an interpretation and Congress does not act to change it, in
spite of having the opportunity, implies that the administrative (8)
interpretation is consistent with legislative intent. The
interpretation will not be given much weight where it is directly
contradicted by legislative history. However, it should be given weight
here, where it was published contemporaneously with the statute and the
legislative history is vague. U.S. v. National Ass'n of Security
Dealers, 422 U.S. 694, 719 (1974); Red Lion Broadcasting v. FCC, 395
U.S. 367, 381 (1968).
Even if we were to agree with the Connecticut decision that "total
care" is a factor which must be considered in determining IMD status,
however, that would not provide a basis for overturning the Agency
determination here. Residents of these Massachusetts facilities were
receiving the level of care provided to a nursing home resident, and
were totally dependent on the facilities as the source of room, board,
and care. This conclusion is implicit in the Agency's determination
that these facilities were IMDs within the meaning of the regulation
and, therefore, "total care" was implicitly considered as a factor.
As discussed below, the Agency interpretation in its regulations is
also supported by the statutory scheme as a whole. In light of this,
the legislative history relied on here is not persuasive evidence that
Congress intended a different result.
IV. The Regulations
Agency regulations define an IMD generally as an institution
"primarily engaged in providing diagnosis, treatment or care of persons
with mental diseases." The regulations further state that whether a
particular facility is an IMD is determined by its "overall character as
that of a facility established and maintained primarily for the care and
treatment of individuals with mental diseases." 42 CFR 435.1009 (1978).
/5/
In its notice of appeal, the State argued that this definition was
"overbroad in that any facility providing some services or care to a
mentally ill person, irrespective of whether such services or care were
psychiatric in nature, could be classified as an IMD...." p. 1. The
State description of the definition recognizes certain points which we
made in Decision No. 231 in analyzing the regulations. That is, the
definition speaks of "treatment or care" in the alternative and does
not
use the term "psychiatric" to refer to the treatment in IMDs. Yet,
the
definition does not apply to any facility serving a mentally ill person,
as the State implied, but emphasizes "overall character" as "primarily"
for the mentally ill.
The State also asserted that the regulation was vague as applied to
SNFs and ICFs, "given the legislative history of the Act and HHS's past
practice in applying regulations only to mental hospitals and the fact
(9) that mental disease is not defined in the regulation." Notice of
Appeal, p. 2. In Decision No. 231, we considered similar arguments and
concluded that --
* The term "institution" as defined in the regulations clearly
includes private SNFs and ICFs.
* Use of the word "primarily" in the regulations clearly implies
that
the term IMD includes facilities which may also be providing care and
treatment to persons with diseases other than mental diseases. Thus, a
view that the exclusion applies solely to mental hospitals treating only
patients who are mentally ill is inconsistent with the regulation and
the States could not reasonably have relied on such an interpretation.
* The regulations were sufficiently clear to inform the States that
the facilities were IMDs and, given this, the States could not
reasonably rely on the Agency's failure to apply the definition to such
facilities previously, particularly in light of the changing
circumstances in care of the mentally ill.
Decision No. 231, pp. 19-22.
With respect to the term "mental diseases" in the regulation, we
agree that it is subject to various interpretations. However, it is the
term used by Congress, and the Agency, in applying the term, has not
been shown to have used a broader definition than Congress had in mind
in enacting the exclusion. Indeed, on the whole, the Agency approach
was conservative. The Agency used a generally recognized disease
classification system, the ICDA, and only included persons whose mental
diseases required institutional care. Thus, the Agency did not count
some persons with generally recognized mental diseases where the persons
also had physical illnesses.
Moreover, as we noted in Decision No. 231 based on expert testimony,
disease is a diagnostic concept. Thus, the Agency use of diagnoses is
more consistent with the term Congress used than the measurement the
State proposed ("behavioral and functional assessments").
Finally, the State argued that the regulation was inconsistent with
the statute. According to the State, "there is nothing in Title XIX
which leads to the conclusion that the definition of IMD's are
determined by the percentage of people with mental diseases in such
institutions." Appellant's Brief, p. 31. According to the State, the
words "primarily engaged in" make such patient counts necessary, but
are
beyond the regulatory authority of the Agency. Appellant's Brief, p.
31. /6/ The (10) State also contended that the regulatory definition of
an IMD conflicts with regulations governing SNF services and making them
available where required by the "patient's physical or mental
condition." 42 CFR 405.127. According to the State, the Agency's
regulation and criteria "rewrites and conflicts with this provision to
mean that SNF services may be provided to persons who need them because
of their mental condition, so long as the state requires each facility
providing such services to limit its census of mentally disabled persons
to less than half its capacity." Appellant's Brief, p. 32.
There are a number of reasons why we do not agree with the State:
* The statute itself provides a basis for use in the regulation of
the term "primarily engaged in." Section 1861(j) of the Act defines
the
term "skilled nursing facility" to mean "an institution (or a
distinct
part of an institution) which... (1) is primarily engaged in providing
to inpatients (A) skilled nursing care and related services for patients
who require medical or nursing care, or (B) rehabilitation services for
the rehabilitation of injured, disabled or sick persons;... except that
such term shall not (other than for purposes of subsection (a)(2))
include any institution which is primarily for the care and treatment of
mental diseases...." Section 1902(a)(28) of the Act requires a state
plan under Medicaid to "provide that any skilled nursing facility
receiving payments under such plan must satisfy all of the requirements
contained in section 1861(j), except that the exclusion contained
therein with respect to institutions which are primarily for the care
and treatment of mental diseases... shall not apply for purposes of this
title;..." See, Pub L. 92-603, section 246( a) (1972).
* While the term "primarily engaged in" may suggest the counting
of
patients (as the State itself appeared to recognize), the Agency has not
made patient count the sole basis for characterization of a facility as
an IMD. Instead, the Agency has in its regulations, and in practice,
determined IMD status by looking at the "overall character" of the
facility. Patient count is one aspect of this, but the Agency has not
applied it in the rigid way the State implied.
We fail to see how the regulations can be said to conflict merely
because persons with mental conditions can be treated in SNFs (or ICFs)
generally, but services are excluded to such persons when they are in
IMDs. This is the precise result required by the statute. See
discussion at page 12 of Decision No. 231. To the extent this causes
difficulties when a nursing facility admits more and more patients for
the care and treatment of mental diseases and ultimately changes its
overall character to that of an IMD, it is a result caused by the
statutory scheme.
Thus, we conclude that the regulation is consistent with the statute
and that the regulation is not "overbroad" or vague as applied here.
11 V. The Treatment Issue
The State's Argument
The major argument relied on by the State in its briefs and at the
hearing may be summarized as follows: a nursing home should not be
considered an IMD based on the percentage of patients with a diagnosis
of mental disease. It is not the diagnosis which is important but
rather an assessment of the patient's behavioral and functional
characteristics since those define the patient's need for care and/or
treatment. If a behavioral and functional assessment shows that the
patient needs no more than the level of services provided by a standard
nursing home and, therefore, does not need specialized services in the
nature of psychiatric intervention, /7/ placement in the nursing home is
appropriate and the nursing home should not be considered an IMD based
on the number of patients with a diagnosis of mental disease in the
facility. In support of this argument, the State presented evidence of
assessments of the behavior and functioning of patients in Hammond House
and Terrace Manor to show that patients in these facilities exhibited
characteristics different from those of patients in State psychiatric
hospitals. The State also relied, in its post-hearing briefing, on the
case of Minnesota v. Schweiker, Civ. No. 4-82-155 (D. Minn., Aug. 25,
1982), in which the U.S. District Court for the District of Minnesota
sustained an appeal by the State of Minnesota from Board Decision No.
231, primarily on the basis that the nature of the treatment provided
must be considered in determining whether a facility is an IMD.
Below, we explain why we reject the State's position that only
institutions providing specialized services in the nature of psychiatric
intervention are IMDs. We then examine the State's evidence on whether
the patients in Hammond House and Terrace Manor were patients who
needed, and were receiving, "standard nursing home care."
Not All IMDs Provide Active Psychiatric Treatment
In order to understand the weakness in the State's arguments, it is
necessary to examine the overall scheme which Congress developed.
Originally, Congress excluded federal funding for all services in an
institution for mental diseases. Two exceptions to the exclusion were
later added: one for aged individuals and one for individuals under age
21 (or, in certain circumstances, under age 22). These exceptions did
not, however, automatically apply to any individual meeting one of the
age requirements who was a patient in an IMD.Rather, federal funding
(12) for the excepted individuals was limited to those who were patients
in facilities meeting certain standards. When referring to these
qualifying institutions, the statute and regulations use the term
"psychiatric hospital" (or, in some instances, "psychiatric facility"),
and, when referring to the services to excepted individuals, the terms
"active psychiatric treatment" and "inpatient psychiatric hospital
services." See, e.g., sections 1905(a)(16), 1905(h), and 1861(f) of the
Act; 42 CFR Part 441, Subpart D (1978).
Thus, while a "psychiatric hospital" qualifying for federal funding
is an "institution for mental diseases," Congress used the latter
term
to refer to a broader range of institutions. Federal funding was denied
for any individual in a non-qualifying IMD, and was denied for
individuals not meeting the age requirements, even when in qualifying
institutions. Moreover, Congress excluded not only inpatient hospital
services in an IMD, but also SNF and ICF services in an IMD. These
services are described in the statute and in the regulations generally
as services provided to persons needing long-term institutional care
greater than mere room and board but less than acute (hospital) care.
Other provisions in the Act relate level of care to patient need. Thus,
Congress contemplated that patients needing a lower level of care might
be in IMDs. /8/
Although Congress referred specifically to "psychiatric services"
in
providing the exception for children, nowhere in the statute does
Congress use that term to describe the type of institution it intended
to exclude from coverage generally. Indeed, it is reasonable to infer
from the conditions which Congress placed on the covered services to
aged individuals and children that Congress did not presume that all
IMDs were providing these services.
Further, for their conclusion that Congress was focusing on
institutions providing specialized psychiatric treatment, Massachusetts
and the Minnesota Court rely on the reference in the legislative history
of the exclusion to "long-term care in such institutions." We think
this
reliance is misplaced. The term "care" is used generally in the
Medicaid program (and in Massachusetts' own law cited on page 43 of its
appeal brief) to mean something different from treatment. The State has
(13) not denied that the facilities here were providing care to their
patients. Moreover, it is nursing homes, not hospitals, which are
referred to as "long-term" care institutions. Thus, if Congress was
referring to institutions providing long-term care primarily for the
mentally ill, it was more apt to be referring to institutions such as
these nursing homes than to psychiatric facilities providing short-term,
intensive treatment for the acute mentally ill.
We also note that, in reaching its decision, the Minnesota Court
focused on the Agency criteria and declared the application of those
criteria arbitrary and capricious. What the Court ignored was that the
Board had not reached its decision by applying the criteria, but had
instead examined the evidence to determine whether the regulatory
standard was met. In so doing, the Board did consider it significant
with respect to most of the facilities that there was evidence that some
type of psychiatric services were being provided, even though those
services may not have amounted to active psychiatric treatment or
intervention. /9/
The underlying rationale for the Court's decision appears to be its
conclusion that the Minnesota "facilities are a more efficient and
effective means of caring for the mentally ill than the warehousing of
such individuals in mental hospitals." p. 15. /10/ This appears to
contradict the idea that only facilities providing active treatment are
IMDs. Moreover, the Agency has explained its reluctance to make IMD
status contingent on whether a facility is actually providing
psychiatric services. The purpose is to avoid the (14) anomolous result
of funding facilities which are providing only custodial care where the
patients should be receiving some form of psychiatric treatment. Even
Massachusetts in its proposed criteria for an IMD recognized that there
should be a differentiation according to whether or not patients
actually need a level of treatment above what the "standard nursing
home" would provide. This is consistent with the intent behind the
exclusion.
Thus, we conclude that to be an IMD a facility need not provide
active psychiatric treatment. Further, while we agree with
Massachusetts and the Minnesota Court that the diagnoses of the
individuals in an institution should not be the sole factor and that
treatment should be considered in determining the character of a
facility as an IMD, we differ on what constitutes such treatment and the
extent to which one focuses on what the facility is actually providing
as opposed to what it appears the facility should be providing.
These Facilities Provided Some Specialized Services
Even if we were to adopt the State's view that the nature of the
facility is determined by whether it is providing specialized
psychiatric services, we would determine that these facilities are IMDs
since we conclude that the patients in these facilities were receiving
such services. The State contended that State law conflicted with the
Agency interpretation of what constituted treatment for mental diseases.
Yet, even under the State definition, "treatment" consists of
professional services provided by qualified personnel, including "the
dispensing or administering of oral medication." Appellant's Brief, p.
43. Also, the State's draft guide for what it calls a "service-based"
definition of a "nursing home - IMD" includes as specialized treatment
"Somatic therapies such as medication, etc." Appeal file, Exhibit
J.
It is undisputed here that most of the patients in Hammond House and
Terrace Manor were receiving psychotropic drugs. Although there is
evidence that many nursing homes misuse such drugs, administering them
even to patients with no diagnosis of mental illness, Tr., p. 161, there
is no specific evidence of such misuse here. In addition, there is
evidence that the Agency psychiatrist examined specific dosages of
medication given to Terrace Manor patients with diagnoses of both
physical and mental illness and based his evaluation of why they needed
institutional care on this examination.
(15) The State itself acknowledged that psychotropic drugs may be
used primarily to modify patient behavior since they have a calming
effect. Tr., p. 162, see, also, Tr., p. 164. /11/ This factor renders
the State's evidence concerning the symptomatology of patients in
Hammond House and Terrace Manor very inconclusive. We do not know
whether these patients on the whole exhibit less disruptive behavior
than patients in State mental hospitals because their illnesses are less
severe or because they are controlled by the medication. Moreover, there
are other possible explanations for the differences in behavior between
patients in the State mental hospitals and the two nursing facilities.
The admission policy for the State hospitals is now limited by State law
to persons with "acute mental disorders." /12/ Thus, one would expect
residents of a hospital to exhibit more disruptive characteristics than
residents of a facility not so limited. Even without this restriction,
one would expect more behavioral problems in an institution providing a
hospital level of care than in one providing only intermediate care.
Moreover, we do not agree with the State's conclusion that none of
the patients in these facilities needed specialized services. The
State's own evidence shows that some of the patients in the facilities
were exhibiting behavioral characteristics (high psychotic behavior)
which the State itself admitted would require "treatment." Appeal
file,
Exhibit L and Exhibit I, page 13 of unnumbered pages. When Terrace
Manor was terminated as a Medicaid provider (which the State said was
for reasons unrelated to this appeal), six of the patients were returned
to State psychiatric hospitals. While this may indicate that only a
small percentage of the patients had acute disorders requiring (16)
active psychiatric treatment, it is sufficient to contradict the State's
assertion that none of the patients needed such services. The State's
own documents also indicate that the State used an index (called the
ADL) to determine whether patients in the State psychiatric hospitals
needed therapy in daily living skills. Although it appears that the
State gathered information concerning how the patients in Hammond House
and Terrace Manor functioned in this regard, the State did not provide
us with the results of this measurement. Thus, although there is some
evidence that most of the patients did not need more intensive types of
psychiatric intervention, it is possible that the patients did need
specialized services designed to overcome lesser deficiencies in
functioning caused by their mental illnesses.
In summary, we conclude that, under the statutory scheme,
institutions not providing active psychiatric treatment may be IMDs, and
that the facilities here were providing some specialized psychiatric
treatment.
VI. The Agency Criteria and Guidelines
The Agency Use of the Old Criteria
In examining the Massachusetts facilities, the auditors used
"criteria" which had never been published by the Agency, but had been
set out in internal Agency documents. /13/ The Agency did not cite
these criteria as a basis for the disallowance, but, relied instead on
the regulatory definition of an IMD. In its notice of appeal, the State
alleged generally that the criteria were "improper because it (sic) does
not conform to the provision of the Social Security Act and it was not
promulgated pursuant to the requirements of the Administrative
Procedures Act (5 USC Sec. 552(a)(1)) which requires that substantive
rules or interpretations of general applicability be published in the
Federal Register." In addition, the State charged that "use of the
criteria is arbitrary, capricious, abuse of discretion, and
impermissably vague." The State did not deny the auditors' assertion
that the documents setting out the criteria were in the State's files at
the time of the audit, but stated that "there is no evidence to conclude
(the documents were) available to Massachusetts at the time it filed its
claim for reimbursement for Medicaid for these facilities in question."
Notice of Appeal, p. 3.
The State did not pursue these arguments in its briefing, presumably
because the Board had addressed numerous arguments concerning the (17)
procedural and substantive validity of the criteria in Decision No.
231, at pages 26-35. There, we concluded that lack of publication of
the criteria did not provide a basis for reversing the disallowances
since the facilities in question were IMDs under any reasonable reading
of the regulations, which had been published. Further, we concluded
that, although some of the Agency's findings developed by using the
criteria carried less weight or represented some inconsistency in
applying the criteria, these defects did not invalidate the Agency's
findings as a whole.
Massachusetts presented no argument which would challenge these legal
conclusions other than its assertion that behavioral and functional
assessment of patients should be used rather than diagnoses. We have
addressed this argument above. Further, we do not think this case is
distinguishable on the facts from Decision No. 231. In Decision No.
231, we recognized that there might be some question of the Agency use
of the criteria to identify borderline facilities as IMDs if, for
example, the sole basis for determining that a facility was an IMD was
that 51% of the patients had diagnoses of mental illness. However, here
as there, we find strong evidence to show that the facilities were IMDs
under any reasonable reading of the regulations.
The Effect of the New Guidelines
In December 1982, while this case was pending, the Agency issued new
guidelines for determining IMD status. The new guidelines were
transmitted to the states as part of the State Medicaid Manual, Part 4 -
Services, Section 4390. The transmittal notice stated: "This manual
section consolidates and clarifies the previous instructions and makes
them obsolete." Massachusetts moved to have the Board dismiss the appeal
here and remand it to the Agency to examine the Massachusetts facilities
in light of the new guidelines. The State argued that the new
guidelines were substantially different from the old criteria,
emphasizing the nature of services offered by an IMD.
In response to the motion and to some specific questions directed to
it by the Board, the Agency opposed the State's request. The Agency
took the position that the guidelines, in general, do not constitute an
interpretation of the regulatory definition of an IMD but, rather, they
advise surveyors and auditors what evidence to gather so that a
determination can be made about the overall character of a facility.
Taking this view, the Agency contended that, in this case, the purpose
of the guidelines had already been met since the auditors had already
gathered evidence.
The Board questioned the Agency about differences between the old
criteria and the new guidelines, particularly, the use of comparative
terms like "significantly," "preponderance," and "unusually
large
proportion" in the new guidelines. The Agency acknowledged that the
(18) new guidelines appear to be more strictly worded than the old
criteria but explained that it would be possible for the Agency to
determine that a facility was an IMD if the evidence was strong enough
in only a few categories. According to the Agency, failure to meet any
single guideline would not be dispositive, nor would evidence partially
meeting any single guideline, but such evidence could be significant
when considered with evidence relating to other guidelines.
The Agency position is supported by the language of the manual
section containing the guidelines. This section states that the
guidelines will be used "by the State survey agency and HCFA in
establishing the overall character of a facility under the Medicaid
statute and regulations" and that a determination of whether a facility
meets the regulatory test rests on a "cumulative weighing" of the
guidelines which are found to apply. Section 4390 B. Since we already
have before us evidence which we can weigh to determine whether the
Massachusetts facilities meet the regulatory defintion of an IMD, we see
no need to analyze how each specific guideline applies. This is
consistent with our approach in Decision No. 231, where we viewed the
issue as a question of whether the regulations applied, not as a matter
of applying the criteria.
There is one area, however, where the Agency admitted that the new
issuance interpreted the IMD exclusion. In describing the procedure for
assessing patient population, the new manual section states that,
although they are included as mental disorders under the ICDA, certain
senile psychotic conditions will not be considered mental diseases for
purposes of IMD identification. Below, we discuss the effect of
excluding patients with senile conditions in determining IMD status of
the Massachusetts facilities.
VII. The Evidence Concerning the Three Massachusetts Facilities
In this section, we discuss the auditors' findings on the three
Massachusetts facilities and the State's arguments and evidence
concerning the reliability of the audit findings, the counting of senile
patients, and the significance and validity of specific findings.
The Auditors' Findings
The auditors chose these three facilities to review because patient
population statistics, compiled by the State Department of Public Health
(DPH) and confirmed by Independent Professional Reviews (IPRs) performed
by DPH surveyors who visited the facilities, indicated that over 50% of
of the Medicaid patients were mentally ill.
In determining which patients in the facilities had mental diseases
which required institutional care, the auditors used a classification
(19) system called the "ICDA," /14/ and guidelines set out in Exhibit
I
to the Audit Report. All of the classifications were reviewed and
confirmed by a DPH Registered Nurse and by an Agency psychiatrist. /15/
Specific findings for the three nursing homes included the following:
Westside Corporation (Nursing Home A in the Audit Report):
* This skilled nursing facility applied for a psychiatric license in
1975 but was told by DPH that this was not required.
* The facility publicly advertised as a psychiatric institution and
was known to referral sources as a psychiatric facility.
* Ninety-two percent of all patients treated from October 1, 1978 to
December 31, 1980 and 94% of the patients in the facility at the time of
the audit were receiving care because of mental diseases.
* The professional staff at the facility included a psychiatrist, a
psychologist, psychiatric nurses and a psychiatric social worker.
* Professional staff agreed that the facility primarily cares for
mentally ill patients.
* Of the patients in the facility, 58% were admitted from State
hospitals.
* The facility had an agreement with the State Department of Mental
Health (DMH) under which DMH funded some staff, services and training
for the facility.
* The patient population was uncharacteristically young compared to
most nursing homes.
* Of the individuals under age 65 in the facility for whom Medicaid
eligibility records were available, 89% were eligible for Medicaid on
the basis of a mental disability.
Hammond House (Nursing Home B in the Audit Report):
* Although this intermediate care facility did not advertise as a
psychiatric institution, referral sources knew that psychiatric patients
could be referred to this facility.
* Eighty-one percent of all patients treated between October 1, 1978
and December 31, 1980 and 85% of patients in the facility at the time of
the audit were receiving care because of mental illness.
* The administrator of this facility requires professional staff to
have experience in "treating mentally ill patients."
* The facility had an agreement with a local college to provide
psychiatric training for student nurses.
(20) * The facility had a referral agreement with a State psychiatric
hospital and 48% of all patients were admitted from psychiatric
institutions.
* Of the individuals under age 65 in the facility for whom Medicaid
eligibility records were available, 69% were eligible for Medicaid on
the basis of a mental disability.
Terrace Manor (Nursing Home C in the Audit Report):
* Sixty percent of all patients treated between October 1, 1978 and
December 31, 1980 and 77% of patients in the facility at the time of the
audit were receiving care because of mental illness.
* The State's IPR records showed that 70% of all patients on August
30, 1980 were mentally ill.
* The facility had a referral agreement with DMH and 56% of all
patients were transferred from State hospitals.
* Of the individuals under age 65 in the facility, 65% were eligible
for Medicaid on the basis of a mental disability.
One of the auditors testified at the hearing. Reading from the audit
workpapers, he testified to the following additional findings: /16/
Hammond House:
* The administrator of Hammond House described this facility as a
"psychiatric setting." Tr., pp. 114-115.
* The facility advertised for a "psychiatric nurse" as supervisor
of
nurses. Tr. p. 115.
Terrace Manor:
* The administrator of Terrace Manor stated that "DMH provides
necessary in-service treatment resources to Terrace Manor." Tr., p.
119.
(21) * The registered pharmacist at this facility stated that most of
the patients were receiving psychotropic drugs.
* The medical director stated that he conferred about psychiatric
patient care at Terrace Manor with psychiatric authorities. Tr., p.
121.
* Nusing aides at the facility receive training in how to deal with
psychiatric patients.
With respect to the Westside facility, the State did not challenge
the audit findings, admitting that Westside was a facility which would
be classified as an IMD under any criteria. Tr., p. 24; see, also,
Appeal Brief, p. 40. /17/ With respect to Hammond House and Terrace
Manor, the State presented no evidence which contradicted the auditors'
findings concerning how facility staff and referral sources regarded the
facilities. The State challenged the reliability of the audit findings
concerning patient population on several grounds and argued that
patients with a diagnosis of senility should have been excluded from the
count of patients with mental diseases. In addition, the State raised
questions concerning the significance or validity of some of the
findings. These issues are discussed below.
The Audit Findings Were Reliable
In addition to the State survey of patient behavior and functioning
discussed in section V above, the State performed its own survey of
Hammond House and Terrace Manor using the Agency criteria as the State
(22) understood them. /18/ In its appeal brief (p. 38), the State
claimed generally that its survey findings "contradicted" the auditors'
findings on a number of items, citing to Exhibits K and L in the appeal
file. Exhibit K contains the results of the State's behavioral and
functional assessment of patients. Exhibit L indicates that the State
survey using IMD criteria gave some results which were different from
the auditors' findings on patient population. However, since the State
survey was taken at a different time than the audit, it does not
directly contradict the audit findings.
Moreover, the State percentages of patients with mental diseases
under the ICDA were only 4% lower for Terrace Manor than the auditors'
findings and for Hammond House were actually.4% higher. In addition,
while the State survey showed that only 41% of the Hammond House
patients had been transferred from a State hospital as opposed to the
auditors' findings of 48%, for Terrace Manor the State survey showed
that 60% of the patients had been transferred, whereas the auditors had
only found 56%. Thus, the State's evidence contains only slight
differences from the auditors' findings and in some instances provides
more support for the Agency's determination. /19/
The other way in which the State challenged the reliability of the
audit findings was by attacking the audit method of using the cardex
files and the diagnoses shown in the records.The State presented
testimony that cardexes and record diagnoses are often wrong.
With respect to use of the cardexes, however, the State's testimony
lacked probative value since it was not related to the specific cardexes
used here. Further, the auditor testified that the cardexes were used
because nursing home personnel said that the cardexes were the best
available records for current information, on which day to day treatment
of the patients was based. Tr., p. 102.The State's testimony regarding
reliability of diagnoses of specific Terrace Manor patients was also
flawed. Although given by a qualified expert psychiatrist who, with
(23) another psychiatrist, had interviewed Terrace Manor patients and
reviewed their records, the testimony was very unspecific and was based
primarily on patient interviews of very short duration (5-15 minutes).
Tr., p. 75. Moreover, although the psychiatrist stated that his
diagnostic "impressions" differed with the record diagnoses in several
instances, it appears that he did not differ on the critical question of
whether the person had a diagnosis of some mental illness, except
possibly in two cases. Tr., p. 163. There is no evidence that these
two cases were counted as mental diseases by the auditors.
In any event, even though the reliability of cardexes and record
diagnoses may be somewhat questionable, the issue here is not whether
these sources of information are entirely accurate. Since these
documents were relied on by the State and by the facility in placing and
treating the patients, they are relevant in showing the general
character of the facility even where they might in some specific cases
be wrong. /20/
We also note here that all of the auditors' determinations
classifying patients were reviewed and confirmed by a DPH Registered
Nurse and by an Agency psychiatrist. Each facility was given an
opportunity to review the audit findings, and the lead auditor testified
that the facilities did not dispute the findings. Tr., p. 110. The
auditor's testimony showed that on the whole the auditors took a very
conservative approach, carefully verifying their results. Tr., pp.
100-112. Thus, we conclude that the audit findings have a high degree
of reliability.
The Effect on Patient Count of Excluding Senility
As mentioned above, the Agency has recently determined that certain
senile conditions should not be included as mental diseases in counting
patients as part of the process of identifying IMDs, even though these
forms of senility are mental disorders under the ICDA. The Audit Report
here does not specifically identify how many of the patients in Hammond
House and Terrace Manor were categorized as mentally ill on the basis of
senility. The Agency stated, however, that the audit workpapers showed
that 5 patients in Hammond House and 5 patients in Terrace Manor were in
this category. The State claimed that the Board should not accept these
figures, but should exclude all patients in an "other mental" category.
The State's own submission breaks down the categories, however, and
includes under a "psy-senile" category 5 out of 68 patients in Hammond
House and 5 out of 57 patients in Terrace Manor at the time of the
survey. Thus, we think the Agency presented the correct figures.
(24) Adjusting percentages to exclude senile patients results in
reducing the Agency's percentages of persons needing institutional care
because of mental diseases to approximtely 77% for Hammond House and 55%
for Terrace Manor and reducing the State survey percentages to 78% for
Hammond House and 64% for Terrace Manor.
As we stated in Decision No. 231, there were senile patients in the
institutions which Congress referred to in enacting the exclusion.
However, there are reasons, expressed by the States and apparently now
recognized by the Agency, for not using diagnoses of senility as a basis
for determining IMD status. Thus, our conclusion that the Massachusetts
facilities were IMDs is based on the patient percentages obtained by
excluding senility.
The Significance of Specific Audit Findings
The auditors found that Hammond House had a staff person who was
funded by the State Department of Mental Health (DMH). The lead auditor
testified that this person spent approximately 20 hours per week
providing psychiatric consultation to patients transferred from a State
psychiatric hospital, until some time in 1980 when this person joined
another program (called the TEC program). Her hours at the facility
were then reduced to four per week. Tr., p. 115. The State provided
some evidence that the TEC program was for the mentally retarded, but
did not dispute the finding that for most of the audit period the staff
person was aiding psychiatric patients. Moreover, the State's own
witness stated that it is "not a very usual occurrence" for a nursing
home to have DMH funded staff. Tr., p. 57. /21/ Thus, we think this
finding supports the Agency conclusion.
The State also challenged the significance of the finding that the
supervisor of nurses at Terrace Manor had worked for 9 months at a state
mental hospital in Kansas. According to the State, such limited
training would not constitute specialized psychiatric nurses' training.
Post-hearing Brief, p. 12. The State also pointed out that the medical
director for Terrace Manor did not have any psychiatric credentials.
See Tr., p. 121.
We agree with the State that there is no significant evidence for
either Hammond House or Terrace Manor that an unusually large proportion
of the staff had psychiatric training (although there was such evidence
for (25) Westside). On the other hand, there is undisputed evidence
that Hammond House advertised for a psychiatric nurse as supervisor and
sought experienced staff, and that Terrace Manor hired a supervisor of
nurses with some psychiatric experience, and trained its nurses' aides
in dealing with psychiatric patients. This evidence is not totally
insignificant. When viewed in light of the other evidence here, it
supports the Agency's determination.
Similarly, we agree with the State that the findings regarding
Hammond House's agreement with a local college to provide a training
ground in psychiatric nursing and Terrace Manor's agreement with DMH do
not have much probative value in the absence of evidence that these
arrangements were unusual. Yet, these findings are not totally
irrelevant when added to other, more probative findings. /22/
Summary of Factual Findings
With respect to Westside, we find that there is undisputed evidence
that this facility had the overall character of an IMD during the audit
period. For Hammond House and Terrace Manor, we find that these
facilities had the requisite overall character as well, as shown by the
percentages of patients with mental diseases (excluding senility)
requiring institutional care, the percentages of patients identified by
IPRs as having mental illnesses, the fact that patients were receiving
(or needed) some specialized psychiatric services, the fact that
facility staff and placement and referral sources regarded the
facilities as psychiatric institutions, and other factors which indicate
that the facilities had an ongoing relationship with mental health
authorities. Our determination is based on applying the regulatory
definition, not the Agency criteria or guidelines.
VIII. The Compliance/Disallowance Issue
In its notice of appeal, the State challenged the Board's
jurisdiction to act in this matter, contending that a plan compliance
hearing was required pursuant to section 1904 of the Act and regulations
at 45 CFR Part 201. The Board Chair issued a Ruling on Jurisdiction,
tentatively concluding that the Board had jurisdiction over the dispute
and that the Board's procedures were appropriate for resolution of the
dispute. The Ruling gave the State an opportunity to further brief the
issue, and the (26) State devoted a substantial portion of its brief and
argument at the hearing to the issue. Nothing the State presented,
however, convinces us that the tentative ruling was incorrect.
In making the tentative ruling the Board relied on the analysis of
the question of when a compliance rather than a disallowance proceeding
is appropriate set forth in New Jersey Department of Human Services,
Deicison No. 259, February 25, 1982; see, also, Massachusetts
Department of Public Welfare, Decision No. 262, February 6, 1981. /23/
In Decision No. 259, the Board discussed the relevant statutory and
regulatory provisions, as well as court decisions on the issue. We will
not repeat that discussion here, except as necessary to indicate why we
disagree with the State's analysis and how subsequent court decisions
have viewed the issue.
The most critical point which the State's analysis ignores is that
the compliance procedures apply only when the Secretary finds
substantial noncompliance in the administration of the state plan,
sufficient to justify invoking the potential sanction of withholding
funds from the state's program. Although, as the State alleged, the
auditors and the Agency did indicate that the State's failure to
establish procedures for determining whether SNFs or ICFs were IMDs was
a failure to comply with federal policy in this area, nothing the Agency
has said indicates that the Agency considered this to be substantial
noncompliance. The disallowance relates to discrete expenditures for
payments to three nursing homes during a specified time period. Both
the Minnesota and Connecticut decisions discussed above concluded that
this type of determination does not require use of compliance
procedures. Although the auditors here did question whether an
additional 12 homes might be IMDs, there was no finding that they were.
Moreover, since the State had identified eight State hospitals as IMDs,
we do not think the Agency was required to find that a failure to have
procedures for identifying nursing home IMDs was substantial
noncompliance.
Contrary to the State's assertion, we think that the circumstances
here are similar to those in Decision No. 259 in that there is no
continuing noncompliance. The State responded to the Audit Report by
establishing procedures for identifying nursing home IMDS. Although the
State disagreed about the criteria to be applied in this process, it did
not directly contest the Agency position that the State should have such
procedures, but did not.
(27) We also think that the State mistakenly relied on several
statements taken from court decisions or legislative history. Although
a few courts have distinguished compliance issues from "clerical
mistakes," we do not think that disallowance procedures are appropriate
only where a State is alleged to have made a computational or similar
error in claiming FFP. The relevant legislative history refers to
"audit exceptions." The basis for an audit exception can be a failure
to
comply with a federal requirement. We also do not think that the
compliance procedures must be invoked in any case involving significant
legal questions. Such questions can arise from disallownaces based on
audits or similar reviews even though there are only discrete items of
cost in dispute and no finding of substantial noncompliance by a state
in administering its program.
The State's reliance on its diligence in claiming that the dispute
here is a compliance dispute is also misplaced. Although court
decisions indicate that failure to raise the issue may contribute to a
court finding that a mere disallowance is involved, nothing in the court
decisions indicates that a state's diligence in insisting that a
compliance dispute is involved is sufficient.
Finally, we do not think that comity and equity require a compliance
hearing here. Appeal Brief, pp. 26-27. The State relied for this
argument on a statement (made by Senator Javits on the Senate floor)
which relates to the need for hearings and judicial review to avoid
disruption in an existing state plan. See, 116 Cong. Rec. 3068 (1965).
This refers to provisions for review of denial of approval of state plan
amendments and was used by the court in the case of State Department of
Public Works of the State of Texas, 556 F.2d 326, 332 (5th Cir. 1977),
cert. denied, 439 U.S. 818 (1978), as support for its view that that
dispute was over plan conformity. There is no question here about the
State's plan conforming to applicable requirements. Moreover, the Texas
Court's statement that the compliance-type hearing put a state on a
"more equal basis" than a disallowance reconsideration was premised
in
part on the Court's view that the latter procedures were "summary."
The
Board's procedures for reconsidering disallowances provide substantially
the same protections as the compliance procedures. /24/
Moreover, we do not think that the State is entitled to a compliance
hearing merely because it has alleged that the Agency's "enforcement"
of
its IMD criteria five years after the criteria was adoped is inequitable
and is the cause of the large dollar value of this dispute. As
discussed (28) above, the basis for the disallowance is the regulation,
which gave the State notice that any institution, including a nursing
home, might be an IMD if it had the requisite overall character. The
State has not denied that it never established procedures for
identifying whether nursing homes were IMDs. Had it done so, it might
have avoided this disallowance.
Conclusion
For the reasons stated above and in Decision No. 231, we conclude
that use of disallowance procedures was appropriate here, and we uphold
the disallowance. /1/ The Board specifically provided the State the
opportunity to reargue these issues. Transcript (Tr.), p. 13.
However, the State did not provide any extensive briefing on most of
these issues, merely raising a few new points not addressed in Decision
No. 231. We discuss these new points below, but, where appropriate, we
have merely summarized our conclusions from Decision No. 231.
/2/ This language previously followed section 1905(a)(17). For a
discussion of other provisions in the Act relating to the IMD exclusion
and to the exceptions for aged individuals and children, see Decision
No. 231, pp. 3-6. /3/ Indeed, the States themselves relied on
the reference to "nursing homes" as an alternative to care in public
IMDs for the proposition that ICFs could not, therefore, be IMDs.
/4/ Since that definition is very specific and states, for example, the
minimum number of residents required to make an institution, we fail to
see how it is not a result of the application of technical expertise.
See, 42 CFR 435.1009(1980). Further, Congress could not have meant the
term "institution" to encompass only facilities providing a high level
of medical care since Congress also denied funding for residents of
non-medical "public institutions" such as prisons. Subsection (A)
of
the language following 1905(a)(18) of the Act. /5/ For the
history of these provisions, beginning in 1966, see Decision No. 231,
pp. 14-15. /5/ For the history of these provisions, beginning in
1966, see Decision No. 231, pp. 14-15. /6/ The State alleged
generally that use of patient count was unlawful discrimination on the
basis of diagnosis. We addressed similar arguments in Decision No.
231, p. 34, concluding that there was no discrimination under the
circumstances. /7/ The State acknowledged at the hearing that by
"psychiatric intervention" it meant the type of "active psychiatric
treatment" referred to in the statute with respect to inpatient
psychiatric hospital services for individuals under age 21, discussed
below. /8/ We agree with the Court in Minnesota that the mere
reference in section 1905 of the Act to various levels of services "in
an IMD" does not mean more than that an IMD might be providing more than
one level of care and, thus, by itself does not contradict the State's
view that Congress was referring only to mental hospitals as IMDs.
However, when considered in the context of the entire statute and
longstanding regulatory definitions, the scheme in section 1905 does
support the Agency position that a private, free-standing facility
providing only SNF or ICF level of care might be an IMD. /9/
Specific findings regarding the Minnesota facilities included that
psychiatric services were being provided to residents of the facilities
in the form of counseling in living skills and through services provided
by outside psychiatrists. We stated, "Minnesota does not deny that
psychiatric treatment received by residents outside the facility may
complement the services received within the facility and may be
considered part of the residents' comprehensive treatment program at the
facility." Decision No. 231, p. 45. The District Court did not
specifically address this point but found, somewhat conclusorily, that
there was no psychiatric treatment "administered by the three facilities
in question," and that other services provided were "nursing services."
Slip op. at 15. /10/ The Court recognized that the size of the
institution was not determinative. We also think that the exclusion
cannot be limited to those institutions which "warehouse" the mentally
ill without ignoring the fact that Congress has continued to deny
Medicaid funding for individuals between 21 (or 22) and 65 years of age
even when they are in the most modern of psychiatric hospitals,
providing active psychiatric treatment. /11/ In addition, the
lead auditor testified that the registered pharmacist at Terrace Manor
had 1) explained the psychotropic drugs being administered to Terrace
Manor patients, 2) stated that psychotropic drugs are used to alter
patient behavior from that of a violent nature to that of a subdued
nature, and 3) stated that 95% of the time such drugs are used for
behavior alteration of psychiatric patients. Tr., p. 120. The State
did not dispute these statements. /12/ The State admitted that,
at the time the exclusion was enacted, admission to State mental
hospitals was not limited to acute disorders. Moreover, the State's own
figures indicate that, at the time of the State survey, 41% of the
patients in Hammond House and 60% of the patients in Terrace Manor had
been transferred from a State mental hospital. In addition, the State
did not directly challenge the audit finding that 46% of the patients in
Hammond House and 26% of the patients in Terrace Manor might have
entered a State hospital if they had not been admitted to these
facilities instead. /13/ The Agency system of guidance was
called the Field Staff Information and Instruction Series (FSIIS); the
documents were FSIIS FY-76-44, November 7, 1975, FSIIS FY-76-97, May 3,
1976; and FSIIS FY-76-156, September 14, 1976. Portions of these
documents are quoted and summarized in Decision No. 231 at pages 23-26.
/14/ International Classification of Diseases Adjusted for Use
in the United States, eighth revision, Public Health Service Publication
No. 1693. Although "mental retardation" is considered a mental disorder
under the ICDA, it was not counted as one by the auditors. /15/
This psychiatrist was the one who had testified in the cases leading to
Decision No. 231. /16/ Some of this testimony arguably
constituted hearsay evidence, but this in itself is not a basis to
reject the findings. Hearsay evidence need not necessarily be excluded
in our proceedings, nor in administrative proceedings generally; the
issue in administrative proceedings is the extent to which the
reliability of the allegedly hearsay evidence has been established.
See, e.g., Pitts on Behalf of Pitts v. U.S., 1 Cl. Ct. 148 (1983). We
think this evidence is reliable since it was based on records, made at
the time the statements were made, by an auditor charged with using
generally accepted accounting standards, and since the appellant
presented no evidence which directly disputes the content of the
statements recorded by the auditor. Moreover, we rely on the statements
primarily to show how the staff regarded the facilities. We rely on the
truth of the statements only as tangential support for conclusions based
on other evidence. /17/ Nonetheless, the State argued that FFP
should be available for the facility because the State was required to
pay the facility pursuant to court order, citing 45 CFR 205.10(b)(3).
The record shows that the court orders on which the State relied for
this argument were issued in a federal bankruptcy proceeding. Appeal
File, Ex. N. One of the orders enjoined the State from cancelling or
refusing to honor, make payment on or otherwise perform existing
contractual arrangements with Westside relating to patient care.
Another ordered the State to expedite its payments to Westside "to the
maximum extent permitted by law." These court orders were in effect for
only part of the disallowance period. Moreover, this is not the type of
situation to which 205.10(b)(3) refers, i.e. where a court order
overcomes a program requirement which would otherwise apply and payments
are otherwise within the scope of the program. See, Ohio Department of
Public Welfare, Decision No. 173, April 30, 1981. Here, given the
determination that this facility was an IMD, payments to the facility
were not within the scope of the Medicaid program and these bankruptcy
orders cannot overcome that deficiency. /18/ The State did not
survey Westside, because the State did not contest the Westside
findings. Tr., p. 24. The State did survey 12 other facilities which
the Audit Report indicated might be suspect because of the IPR figures
on numbers of patients with mental illness. /19/ We also note
that the State survey results in Exhibit L support the determination in
another respect. The auditors' found that Hammond House did not
advertise as a psychiatric institution although referral sources knew
that psychiatric patients could be referred to the facility. Exhibit L
indicates that the State asked Hammond House "Do you openly advertise
for psychiatric patients?" and the facility responded "Yes."
/20/ For a more complete discussion of the reliability of medical
records in general, see Decision No. 231, p. 33. /21/ At page 12
of its post-hearing brief, the State claimed that it is not unusual for
DMH to provide "treatment resources" to nursing homes, citing to page
57
of the transcript. The transcript reads as we have quoted it above,
however, and the State did not challenge the correctness of the
transcript on this point. See, State's Corrections to Transcript, p. 2.
/22/ On another audit finding, that Hammond House and Terrace Manor were
each within a 25-mile radius of a State mental hospital, we accept the
State's contention that this is meaningless in a state as small as
Massachusetts with many state hospitals. Therefore, we do not rely on
this finding for our conclusion. /23/ Recently, the U.S. Court
of Appeals for the First Circuit concluded that Decision No. 262 was
properly decided using disallowance procedures. Commonwealth of
Massachusetts v. Departmental Grant Appeals Board, Civ. No. 82-1364,
January 12, 1983. /24/ The U.S. Court of Appeals for the Third
Circuit, in its decision in State of New Jersey v. Department of Health
and Human Services, 670 F.2d 1284 (3rd Cir. 1981), indicated that the
Board's action there was after an "opportunity for a hearing" sufficient
to satisfy statutory requirements for compliance proceedings. At note
13.
JULY 07, 1984