GAB Decision 426
Docket No. 82-240
May 24, 1983
Pennsylvania Department of Public Welfare;
Garrett, Donald; Settle, Norval Ford, Cecilia
The Pennsylvania Department of Public Welfare (State) appealed the
disallowance by the Health Care Financing Administration (HCFA, Agency)
of $54,217 in federal financial participation (FFP) claimed under Title
XIX (Medicaid) of the Social Security Act (Act). The disallowance was
based on an audit report and a review of the State's accounts receivable
records. HCFA determined that finalized overpayments to providers
participating in the Medicaid program were not being returned to HCFA
until the State collected the amounts from the providers. HCFA
disallowed $54,217 representing overpayment determinations for providers
which have closed or have been declared bankrupt.
The major issues presented are: whether section 1903(d)(2) of the
Act authorizes HCFA to demand that the State repay the FFP share of
identified overpayments made to Medicaid providers, even though the
State may not have yet recovered the overpayments from the providers;
whether HCFA is required to make its own independent determination that
the questioned costs were unallowable; whether HCFA is precluded from
recovering the FFP share of overpayments where the State has been unable
to collect the funds because of the providers' bankruptcy; and whether
the excess payments made in Fiscal Year 1976 are allowable costs
authorized under the State's Medicaid Plan. For the reasons stated
below, we find that HCFA may, for all Fiscal Years involved, adjust
under section 1903(d)(2) of the Act for overpayments to providers,
including bankrupt providers, prior to the State's recovery from the
providers and may use the State's own records as a basis for the
disallowance.
There are no material issues of fact in dispute. We have determined,
therefore, to proceed to decision based on the appeal file and the
parties' briefs. The State declined to submit a reply brief.
Case Background
The Office of the Inspector General of the Department of Health and
Human Services conducted an audit (Audit (2) Control No. 03-10210) of
the State's administration of its Medicaid program for the period
October 1, 1977 through June 30, 1980. One finding made by the auditors
was that the State had not complied with federal regulations concerning
the crediting of the federal account with identified overpayments to
Medicaid providers. According to the audit report, the State was only
crediting the federal account with overpayments actually recovered.
(Audit Report, p. 4)
HCFA then independently reviewed the State's accounts receivable
records and agreed with the auditors' findings. Citing section 1903(
d)(2) of the Act, HCFA determined that the State owed $54,217 in FFP, an
amount representing final overpayments to eight identified nursing
facilities that had either closed or gone bankrupt. The overpayments
were considered to be final because none of the providers in question
had appealed the State's determination of an overpayment.
General Background
Title XIX of the Act provides for the payment of federal monies to
states to aid in financing state medical assistance programs. Any state
that wishes to participate in the Medicaid program must develop and
submit a plan that meets certain requirements set forth by the Secretary
of HHS. Realizing that many states might have difficulty financing a
Medicaid program even if subsequently reimbursed by the federal
government, Congress also established a funding mechanism by which HSS
advances funds to a state, on a quarterly basis, equal to the federal
share of the estimated cost of the program. After review of the State's
quarterly statement of expenditures, the Secretary may adjust future
payments to reflect any overpayment or underpayment which was made to
the State for any prior quarter. Section 1903(d).
Section 1903(d)(2) of the Act states:
The Secretary shall then pay to the State... the amounts so
estimated, reduced or increased to the extent of any overpayment or
underpayment which the Secretary determines was made under this section
to such State for any prior quarter and with respect to which adjustment
has not already been made under this subsection....
Section 1903(d)(3) of the Act states:
The pro rata share to which the United States is equitably
entitled... of the net amount recovered (3) during any quarter by the
State... with respect to medical assistance furnished under the State
plan shall be considered an overpayment to be adjusted under this
subsection.
Parties' Arguments
The State argued that HCFA's reliance on section 1903(d)(2) of the
Act as a basis for demanding the immediate refund of the federal share
of identified overpayment is erroneous. The State contended that
section 1903(d)(3) of the Act limits any possible federal refund to a
pro rata share of amounts, identified as overpayments, recovered by the
State. The State further argued that, even if HCFA could apply section
1903(d)(2) rather than section 1903(d)(3), HCFA has the burden to
provide sufficient detail to show why a questioned cost was
"unallowable" as medical assistance under the State's Medicaid plan.
The State also argued that section 1903(d)(3) rightfully applies to
situations such as the one presented here, where the bankruptcy of the
providers has prevented the State from collecting the overpayments.
Contending that the language of section 1903(d)(3) is somewhat
ambiguous, the State asserted that the Act should not be interpreted to
require the State to bear the full risk of the loss of overpayments to a
closed or bankrupt provider. Finally, the State maintained that under
the system of prospective payments to certain long-term care facilities
utilized by the State in Fiscal Year 1976, there was no provision for an
annual adjustment of rates; accordingly, any payments under this system
were not unallowable costs because they were authorized under the State
plan. *
Citing previous Board decisions, HCFA argued that section 1903(d)(2)
enables HCFA to adjust for unallowable payments to providers, including
overpayments, even prior to the State's recovery from the providers.
According to HCFA, the overpayments in question here were not "medical
assistance," and thus were subject to the provisions of section 1903(
d)(2) rather than section 1903(d)(3). HCFA contended that it was
entitled to rely on the State's accounts receivable to determine the
existence of any overpayments and that it provided a specific basis for
the (4) disallowance by identifying the nursing facilities involved.
Furthermore, HCFA argued that the State's inability to collect the
overpayments from the providers did not excuse the State's
responsibility to account for the federal share of the overpayments.
Discussion
For purposes of analysis, we have divided our treatment of this case
into several distinct issues. We realize that our analysis of these
issues might not exactly parallel the order in which the parties
presented their arguments and that there might be some overlapping of
the parties' arguments across these divisions. We nevertheless believe
that our approach addresses all the major questions advanced by the
parties.
I. Is HCFA's interpretation of section 1903(d) of the Act, requiring
the adjustment of identified overpayments prior to actual recovery,
correct?
The State questioned HCFA's authority to demand the federal share of
overpayments prior to the State's actual recovery of the amounts from
the providers. The State argued that HCFA's interpretation of section
1903(d) as allowing immediate repayment of an overpayment upon discovery
is erroneous because section 1903(d)(3) limits the federal share to a
portion of "the net amount recovered... by the State." (emphasis added)
The Board examined this question in a series of decisions, most
extensively in Massachusetts Department of Public Welfare, Decision No.
262, February 26, 1982. There, the Board found that section 1903(d)(3)
does not by its terms relate back to all overpayments contemplated by
section 1903(d)(2) and that section 1903(d)(3) refers to amounts
recovered with respect to "medical assistance furnished under the State
plan"; excess payments to providers, however, would not qualify as
medical assistance.
The State has not provided arguments refuting this line of reasoning.
We therefore incorporate here the Board's reasoning in Massachusetts,
and also the further analysis expressed in New York State Department of
Social Services, Decision No. 311, June 16, 1982 (pp. 4-5), and the
summary most recently set forth in Illinois Department of Public Aid,
Decision No. 404, March 31, 1983 (p. 12):
Section 1903(d)(3) does not by its terms relate back to all
overpayments contemplated by section 1903(d)(2).
(5) Since section 1903(d)(3) refers to amounts recovered with respect
to "medical assistance furnished under the State plan," it reasonably
may be viewed as referring only to state payments which are allowable
"medical assistance" costs, under section 1905(a) of the Act.
The legislative history supports the Agency's position that section
1903(d)(3) was designed to authorize the Secretary to adjust in
situations where a question might have existed as to a state's liability
to repay the federal share or the Agency's ability to recoup the share
by an offset to future claims.
Neither the Agency nor the courts have ever interpreted section
1903(d)(3) to prevent adjustment under section 1903(d)(2) of an amount
determined by the Secretary to be an overpayment, merely because the
state has not recovered the amount from a provider.
II. Were, then, the overpayments in question "unallowable costs"
outside the scope of medical assistance, thereby subject to the
provisions of section 1903(d)(2)?
The State agreed with the auditors' findings that the payments to a
number of nursing homes constituted overpayments, but contended that
payments which later result in an overpayment are not unallowable per
se. The State interpreted HCFA's position and the Board's holding in
Massachusetts, supra, as follows:
if costs are unallowable, they must be credited to HCFA under section
1903(d)(2);
if costs are allowable, yet constitute overpayments, the State may,
under section 1903(d)(3) wait to credit the amounts to HDFA until the
State recovers the funds from the provider.
The State proceeded to argue that it was HCFA's burden to show that a
cost was disallowed because it was "unallowable" before HCFA could
apply
paragraph (2) of section 1903(d) rather than paragraph (3).In support of
its position the State cited California Department of (6) Health
Services -- Accounts Receivable, Decision No. 334, June 30, 1982, in
which the Board held:
In identifying overpayment amounts in circumstances such as here,
there is a joint burden: the Agency must provide sufficient detail
concrning the basis for the disallowance to enable the State to respond,
but the ultimate burden of documenting the allowability of costs claimed
rests with the State. p. 5
According to the State, this decision, requires that HCFA show
whether costs were "unallowable," thus providing the State with the
basis for the disallowance.
HCFA's position is that it may base a disallowance on State records
if it identifies the records from which the disallowed amounts are
derived and if the State is afforded an opportunity to show the
unreliability of the figures. Also citing California, HCFA argued that
it is most reasonable to place the burden on the State as the State is
responsible for maintaining its own records. HCFA claimed that the
State was aware of the accounts receivable in question and was given the
opportunity to respond to the auditl Finally, HCFA pointed out that the
disallowance notification included the specific nursing facilities and
respective amounts involved in the disallowance.
The Board recently considered a similar issue in Illinois, supra.
There the State of Illinois argued that HCFA's issuance of a
disallowance based on section 1903(d)(2) was improper because that
section requires a determination by the Secretary that an overpayment
occurred. The State of Illinois claimed that no such determination had
taken place and that HCFA auditors had conducted a cursory review of
state records on which HCFA subsequently based its disallowance. HCFA,
in turn, argued that the notification of disallowance was the necessary
determination because there was sufficiently persuasive evidence, the
State of Illinois' own records, to satisfy the Secretary that
overpayments had been made.
In Illinois the Board believed the question was whether HCFA was
entitled to make a determination that overpayments occurred on the basis
of state records or was required to make its own independent
investigation of the accounts receivable in question. The Board held
that, as a matter of reasonableness, it was not necessary for HCFA (7)
to duplicate the State's own work and independently evaluate each
available record:
HCFA should be entitled to reasonably rely on the accuracy of the
State's own records unless the State can show how the records may be
erroneous. pp. 9-10
In this case we find that HCFA has met its burden, as stated in the
cited reference to California, supra, of providing sufficient detail
concerning the basis for a disallowance to enable the State to respond.
HCFA used the State's own accounts receivable to determine that
overpayments occurred. The State did not dispute that overpayments
occurred. It is undisputed that the providers did not appeal the
findings of overpayments, thereby making the overpayment determinations
final.
Most importantly, the State had the opportunity to show in its
submissions that HCFA's findings were incorrect, yet failed to do so.
HCFA, in the notification of disallowance, identified by name what
nursing facilities received overpayments, the respective amounts, and
the relevant time periods. HCFA thus more than adequately met the
burden set forth in California. In the absence of any arguments by the
State showing how these details were inaccurate, we believe, therefore,
that it is reasonable to infer that overpayments outside the scope of
medical assistance did occur, and that, accordingly, section 1903(d)(2)
is the proper vehicle for HCFA to recoup its share of the overpayments.
III. Does the State's inability to collect the overpayments from the
providers preclude HCFA from recovering its share of the funds?
The State argued that it made a good-faith effort to collect the
funds in question, but, because of the providers' bankruptcy, it was
unable to recover the overpayments. According to the State,
"overpayments which are not recoverable do not qualify as 'overpayments
to be adjusted'" and HCFA should bear its share of the loss. (State's
brief, p. 6)
Although arguing that section 1903(d)(3), with the federal return
limited to a pro rata share of the amount recovered, should be applied
to situations such as bankrupt providers, the State also contended that
the language in paragraph (3) of section 1903(d) is ambiguous. Citing
Pennhurst State School and Hospital, v. Halderman, 451 U.S. 1 (1981), in
which the Suprme Court stated that if Congress intends to impose a
condition on the grant of (8) federal moneys, it must do so
unambiguously, the State argued, "Paragraph (3) may not be interpreted
to require a State to bear the full risk of the loss of overpayments to
a closed or bankrupt facility when the language is ambiguous." (State's
brief, p. 8)
The State considered its relationship with HCFA under the Medicaid
program as contractual in nature. Under principles of contract law, the
State asserted, any ambiguous language in a contract is to be
interpreted against the party who drafted the document. Terming its
relationship with the Medicaid program as an adhesion contract, the
State contended that it was required to "take or leave" the program
as
it was offered, with no opportunity to bargain over the terms. In such
a situation, the State argued, it would be demonstrably unfair to
interpret the Medicaid provisions to mean that the State had to bear the
entire loss of unrecovered overpayments while HCFA suffers no
corresponding penalty. The State concluded that HCFA must bear its
portion of the loss under the equity provisions of section 1903(d)(3)
because the State made a good-faith effort to recover the funds.
HCFA never fully responded to this argument in its brief. HCFA
merely cited Massachusetts and subsequent Board decisions in support of
its proposition that the inability of the State to recover an
overpayment has no bearing upon HCFA's right to adjust for the
overpayment.
The State acknowledged that the inability of a state to recover
overpayments because a provider was no longer participating in Medicaid
program or bankrupt was addressed in Massachusetts, supra. In holding
that HCFA was entitled to its full share of payments made to bankrupt
providers, the Board declared:
While it is true that Congress devised the Medicaid program as a
joint federal-state endeavor, Congress gave each state participating in
the Medicaid program the authority to administer the program within the
state. The matter before us concerns the State's administration of its
Medicaid program. It is the State's responsibility to expeditiously
recover any overpayments that may have been made. The Agency has no
direct role in the recovery of such overpayments. The Agency is not
unreasonable, therefore, in requiring the State alone to bear the burden
which may result from delays in the collection of overpayments from
providers, notwithstanding the fact the providers might at some time
declare bankruptcy.
(9) We conclude, therefore, that the Agency is entitled to recover
from the State the overpayments made even to those providers which may
have had their obligation to the State discharged in bankruptcy
proceedings. pp. 13-14
Further, the Board has previously recognized the practical
difficulties implicit in the position the State takes here:
In some instances, loss of funds because of bankruptcy may be
unavoidable. However, to sort out these cases would be difficult,
requiring a highly judgmental case-by-case analysis. Viewing the
program as a whole, therefore, we do not believe that the Agency is
required to participate in these clearly unallowable costs.
Florida Department of Health and Rehabilitative Services, Decision
No. 296, May 14, 1982, p. 9.
As to the question of the meaning of section 1903(d)(3), the thrust
of this particular argument by the State was premised on the idea that
section 1903(d)(3), with its equitable provisions, was applicable to the
facts of this appeal, and that section 1903(d)(3) is ambiguous in its
terms. As stated above, however, we found that section 1903(d)(3) is
applicable only to situations where overpayments related to "medical
assistance under the State plan" occurred. Here we determined that the
overpayments represented excess payments to providers which were outside
the scope of medical assistance, thereby falling under the provisions of
section 1903(d)(2). Furthermore, we do not find that section 1903(d)(3)
is ambiguous as the State argues. The clear intention of the entire
section 1903 is that FFP is available only for medical assistance. We
find it unlikely that the State could consider this ambiguous and could
believe that it would receive FFP for payments that were not for medical
assistance.
Nothing the State has presented convinces us that the Board's
analysis of the bankruptcy question as stated in Massachusetts is
incorrect.
(10) IV. Is HCFA precluded from recovering its share of overpayments
made in Fiscal Year 1976 because the State's payments to providers in
that year were made under a prospective payment system?
The State claimed that, for the fiscal year from July 1, 1975 to June
30, 1976, its State plan provided for a prospective payment system for
certain long-term nursing facilities. This, according to the State,
distinguishes this appeal from prior Board decisions, such as
Massachusetts, where overpayments resulted from retrospective
adjustments to interim rates which were later adjusted upon final
payment. The State acknowledged that in Florida, supra, the Board also
sustained the disallowance of overpayments resulting from a prospective
rate-setting system. The State pointed out, however, that the Florida
case involved a State plan effective on October 1, 1977, following the
effective date, (July 1, 1976) of section 1902(a)(13)(E) of the Act,
which states that nursing facility services should be reimbursed on a
reasonable cost related basis. The State argued that this policy was
therefore not applicable to the disallowed costs in this case for the
fiscal year that ended June 30, 1976. The State supplied portions of
its State plan in effect for that fiscal year, which provided for fixed
prospective rates for long-term nursing care with no provision for an
adjustment of these rates. According to the State, any excess payments
made prior to July 1, 1976 were not unallowable costs to be recovered by
HCFA under section 1903(d)(2) because the payments were authorized under
the State plan.
We do not agree with the State that, merely because the State plan
did not provide for retrospective rate adjustment during this time
period, the excess payments in question were "authorized by the State
plan." The State plan did specify that facilities would be paid based on
a per diem rate for each eligible person. (Appeal Brief, p. 12) State
regulations effective for the time period set the maximum rates for
various classes of facilities, providing further that, if a facility's
rate for private pay patients was less than the maximum, the private pay
rate would apply for Medicaid recipients. In addition, these
regulations contained other limits such as that payment to a facility
would be made on the basis of the per diem rate "times the number of
compensable days, less the amount of resources available to the patient"
and that no payment would be made for the day of discharge or the day
the patient expired. (Appeal Brief, p. 13) Since the State identified
the payments in question here as excess payments to the provider, it is
reasonable to assume, in the absence of any evidence to the contrary,
that these (11) payments violated one of these limits. For example,
excess payments could arise if a provider claimed the maximum rate
rather than its lower private pay rate, or if a provider claimed for
more than the number of compensable days of service actually provided to
eligible recipients. Thus, we do not think that merely because the
State plan did not provide for rate adjustments duing this time period
means that these excess payments were authorized under the State
plan.The State has provided nothing to lead us to conclude that the
State plan authorized payments in excess of the amounts established in
the State regulations. Thus, we think that the Agency properly
determined that excess payments made during this time period were
unallowable and that the Agency can adjust these excess payments under
1903(d)(2).
Conclusion
For the reasons stated above, we unhold the disallowance in the full
amount of $54,217. * In its Notice of Appeal the State asserted that
the disallowance amount for one of the providers, Hollie Peace Home, was
erroneous. The State, however, did not repeat this argument in its
brief nor supply documentation concerning the provider. Consequently,
we have not addressed this contention in our decision.
JULY 07, 1984