GAB Decision 444
Docket No. 82-199
June 30, 1983
Illinois Department of Public Aid;
Ford, Cecilia; Settle, Norval Garrett, Donald
The Illinois Department of Public Aid (DPA) appealed a decision by
the Health Care Financing Administration (HCFA) to disallow $85,267 in
federal financial participation (FFP). The funds were claimed by the
DPA for laboratory services provided under Title XIX (Medicaid) of the
Social Security Act (Act) for the period October 1, 1977 through
December 31, 1980. HCFA based the disallowance on the findings
contained in a Health and Human Services Audit Report (ACN 05-20201) for
this period. There were two components to this disallowance. HCFA
disallowed $39,211 in FFP for payments made to provider laboratories
(laboratories) which were not certified to perform the particular
services for which DPA reimbursed them under Medicaid. HCFA also
disallowed $46,056 in FFP which it alleged represented overpayments to
laboratories for certain blood tests.
For the reasons discussed below, we uphold the entire disallowance.
Background
A. Uncertified Labs
The Division of Laboratories, within the Illinois Department of
Public Health (DPH), periodically visits independent laboratories to
determine whether they are equipped to adequately perform the tests they
are conducting or planning to perform. Based upon the results of the
DPH review, HCFA determines whether to certify or decertify a laboratory
under Medicare for a particular specialty and/or subspecialty. Medicare
certification is one prerequisite for reimbursement under Medicaid. 42
CFR 440.30(c) (1978).
During the period April 1, 1979 to September 30, 1980, 47 independent
laboratories received payments for services they were not certified to
perform. Specifically, 38 laboratories, although certified for certain
services, billed for services in a specialty for which they were not
certified. The remaining 9 laboratories were paid for (2) services
which they performed and billed after they completely lost their
Medicare certification.
HCFA sent letters to the laboratories notifying them of changes in
their certification status. (HCFA Exhibit Nos. 1-47) These letters
indicated that HCFA sent copies of the notices to either DPA or DPH and
sometimes to both departments. /1/
B. Overlapping Procedures
This portion of the disallowance concerned alleged billing
irregularities for Complete Blood Counts (CBC). A CBC is a series of
hematology measurements. Two types of CBCs, a manually performed CBC
(85010) and an automated CBC (85015), were involved here. Six
individual tests were included in one or both of the two CBCs. (See
below) The maximum rate for each test billed as a separate procedure is
shown in the column on the right.
Tests Included Under
Procedure *2* Maximum
Code Procedure Code
Test 85010 85015 R 85020 Red blood
cell count (RBC) X X 85030 White blood
count (WBC) X X 85040 White blood
cell dibberential X 85050 Hemoglobin
X X 85055 Hematocrit
X 85060 Erythrocythe indices X
The auditors found that, for the period October 1, 1977 through
December 31, 1980, DPA paid 4.3 million dollars to laboratories for
866,983 tests which consisted of CBCs and one or more of the individual
tests not included in the CBC performed. HCFA indicated that when DPA
manually processed (3) the bills it imposed a limit on the reimbursement
is would provide to the laboratories. However, HCFA alleged, and DPA
did not deny, that DPA did not apply this limitation to billings
processed by computer.
During manual processing DPA limited reimbursement to a maximum of $6
when a CBC (85010 or 85015) and any combination of the remaining
individual tests not included in that particular CBC were billed
conqurrently. Under the automated procedure, however, the computer was
not programmed to limit the amount paid for a combination of these
services. The computer priced each individual test at the lesser of the
amount charged or the State maximum for each test. (Audit Report, pp.
10-11) The auditors indicated that the overpayments resulted from the
fact that billing instructions issued by DPA did not refer to certain
billing combinations which, when manually processed, would have
triggered the $6 limit. The auditors concluded that had the computer
been programmed to limit payment in the same manner as the manual
billing, the overpayments would have been avoided. (Audit Report, p.
11)
Analysis
A. Payments to Uncertified Providers
The DPA did not dispute the fact that it paid the laboratories for
particular tests that they were not certified to perform and that it
paid certain laboratories after they lost their certified status. Nor
did DPA challenge the HCFA decision to decertify the laboratories. DPA
merely contended that its records on these laboratories contained no
notice from HCFA regarding any change in the laboratories' certification
status. DPA argued that "(since) Medicare is responsible for certifying
laboratories and laboratory specialties, the State should not be
responsible for Medicare's failure to notify the State when actions are
taken." (DPA Brief, p. 2)
Federal regulation 42 CFR 440.30(c) provides that FFP is available
under Medicaid for services provided by a lab that meets the
requirements for participation in Medicare. On November 1, 1971, DPA
issued a policy memorandum to the laboratories with billing instructions
which indicated that DPA would make payments to independent laboratories
only if the laboratory was certified under Medicare to perform the
specific type of service provided. Laboratories were instructed not to
bill DPA for any tests they were not certified to perform. (DPA
Attachment 5, (4) pp. 10-2). Thus, both federal and DPA policy
prohibited FFP payments to uncertified laboratories.
Here, there is no question that FFP was paid to laboratories not
properly certified, in whole or part, to perform the services for which
they billed Medicaid. The DPA, as the single State agency established
to administer the Illinois Medicaid program, has consented to abide by
the terms and conditions governing the Medicaid program. This includes
the prohibition against providing FFP to non-certified laboratories.
(HCFA Brief, pp. 7-8)
As noted above, DPA's position is that HCFA was responsible for
providing notice of changes in the laboratories' certification status to
DPA. DPA characterized the HCFA system of notification as "hit or miss
at best." (DPA Reply Brief, p. 1) DPA argued that given the
uncertainties in HCFA's notification system and DPA's inability to
locate the letters, DPA should be exclused from repaying its erroneous
payments because of the lack of notice to DPA that the providers were
decertified. We do not agree.
DPA was responsible for administering the Medicaid program but
claimed ignorance of the certification status of the various
laboratories. Even if DPA could definitively show that it received no
notice of the changes in certification status, there is no justifiable
expectation in the Medicaid regulations that HCFA is to be the sole
source of notice of decertification. DPA did not demonstrate that it
made any effort, during the period in question, to keep up with the
status of the laboratories, in spite of its own prohibition against
paying FFP to laboratories for services they were not certified to
perform and DPA's directive to the laboratories not to bill for such
services.
Federal and state guidelines clearly prohibited payment of FFP to
uncertified laboratories. DPA admitted claiming FFP for payments to
uncertified labs and did not demonstrate circumstances which mitigate
that violation. Therefore, we believe that the $39,211 in FFP paid to
uncertified laboratories was properly disallowed.
B. Overlapping Billings
HCFA argued that this aspect of the disallowance was governed by the
federal regulation at 42 CFR 447.352(b) (1978), which provided that:
For all other noninstitutional items or services furnished only under
Medicaid... the agency (5) must not pay more than the customary charge
for a provider or the prevailing charge in the locality for comparable
items or services, under comparable circumstances, whichever is
lower....
DPA argued that its billing procedures had been revised to convert to
the use of the 2nd Edition of the Current Procedural Terminology (CPT
2nd), published by the American Medical Association, and that this
publication did not prohibit the use of the billing combinations
questioned by HCFA. DPA indicated that it did not understand why the
difference between the computer and manual pricing procedures violated
the regulation. DPA argued that it applied the price limitation so
infrequently during the period in question that it had no bearing on the
amount they paid the laboratories when processing was performed by
computer. (DPA Brief, pp. 3-4; DPA Reply Brief, pp. 2-3)
We first focus our attention on what the prevailing or customary rate
of reimbursement was for the services. Both parties agree that DPA
practice in instances of manual billing had been to limit to a maximum
of $6, the amount that it paid for any combination of a CBC and one or
more of the remaining tests when billed concurrently. (DPA Brief, p. 3;
HCFA Brief, p. 5) Furthermore, both parties agree that, in instances of
computer billing, DPA did not apply the limit. DPA presented no other
evidence of what could be considered the prevailing reimbursement rate
for these services. Therefore, we believe that it is fair to conclude
that DPA's statewide policy for pricing is an acknoledgment of the
prevailing charge for these services.
It would appear that section 447.352(b) would not have prevented DPA
from changing its policy regarding reimbursement for these services if
it determined that prevailing or customary charges had changed.
However, the evidence does not demonstrate that DPA intended to
implement a change in its pricing policy, or that there was a reasonable
basis for having two different pricing practices. DPA's Memorandum to
the laboratories, notifying them of the immediate implementation of the
billing procedure employing the CPT 2nd, had been in effect since
November 1, 1971. Furthermore, this memorandum did not appear to
discuss prices. DPA did not provide any evidence that the CPT 2nd was
anything more than a billing code manual. (DPA, Exhibit 7) Nor did DPA
actually argue that it intended to use a different price policy by using
the CPT 2nd. The evidence simply shows that DPA reimbursed computer
billing at a higher rate because there was no computer code telling the
computer to apply a limit on the amount paid. At the same time, DPA (6)
continued to apply the $6 limit during manual processing. Based on the
evidence as presented, we cannot conclude that DPA intended, merely by
use of CPT 2nd, to institute a new or different reimbursement policy for
these services.
DPA argued that only a small percentage of the billings were priced
manually during the period in question and that that procedure should
therefore not be taken into account. DPA has not indicated any policy
reason why it used inconsistent pricing practices, however. Given our
conclusion above that the CPT 2nd did not address pricing at all, we are
faced with two separate pricing practices, and no reasonable basis for
the difference. DPA has not shown that the prices applied to computer
billings represented State policy or other prevailing or customary
changes for these services. We, therefore, conclude that the lower of
the two prices paid by the State should be applied as the customary or
prevailing charge. /3/ Therefore, the policy used for manual processing
should have been applied to computer processing as well.
Based on our analysis above, we uphold the HCFA decision to disallow
the $46,056.
Conclusion
For the reasons outlined above, we sustain the HCFA decisions
regarding the payments to uncertified providers as well as the payments
for overlapping procedures. Therefore, we uphold the full disallowance
of $85,267. /1/ HCFA stated that a notation on the letter that a copy
had been sent to "SSA" (the Single State Agency) referred to
DPA. Where the initials "SA" (State Agency) appeared, a copy had been
sent to DPH. /2/ Billings for this procedure were manually priced. /3/
DPA's initial comments on the draft Audit Report indicated that they had
attempted to ".... establish that overpayments exist and recover
monies,...." from the laboratories, but that they were unsuccessful
because their billing instructions had not been complete. (Audit
Report, p. 12)
JULY 07, 1984