GAB Decision 548
Docket No. 83-235
June 29, 1984
Oklahoma Department of Human Services;
Ballard, Judith; Garrett, Donald Settle, Norval
The Oklahoma Department of Human Services (State) appealed a decision
by the Health Care Financing Administration (HCFA) disallowing
$165,850.97 in federal financial participation claimed by the State
under Title XIX of the Social Security Act (Medicaid/Act).
HCFA alleged that the State had not shown that it had an effective
program of utilization control in operation during the last calendar
quarter of 1982 and the first two quarters of 1983 as required by
section 1903(g) of the Act because the State had failed to conduct
satisfactory annual reviews at four intermediate care facilities (ICFs).
See, 42 CFR 456.653(a). Specifically, HCFA challenged the composition
of the State's Patient On Site Review (POSR) teams at the four ICFs,
initially reviewed during the December 1982 calendar quarter, alleging
that the POSR teams contained nurses employed by the ICFs. The federal
regulation at 42 CFR 456.603(a)(2) requires that review teams not
include any member who has a financial interest in or is employed by an
ICF. Further, 42 CFR 456.652(b)(3) requires that, when a facility is
not appropriately reviewed in the quarter in which a review is required,
it continues to require a review in each subsequent quarter until the
review is performed. HCFA alleged that two of the ICFs cited for
improper reviews in the December 1982 quarter did not correct the
problem in the first two quarters of 1983.
The State challenged HCFA's findings for three of the four ICFs. /1/
The State contended that since these were State facilities the nurses
alleged to have been employees of the facilities were, in fact, State
employees. Therefore, the State argued it had not violated 42 CFR
456.603(a)(2).
(2) For the reasons set out below, we uphold the disallowance.
BACKGROUND
A. Statutory and Regulatory History
Section 1903(g)(1) of the Act requires each state participating in
the Medicaid program to make a "showing satisfactory to the Secretary"
that with respect to each calender quarter for which it claims federal
funds it has an effective program of control over the utilization of
institutional long-term care services for patients receiving medical
assistance. Section 1903(g)(1)(D) requires that a state's satisfactory
showing include evidence that the state has conducted annual onsite
reviews of the medical care provided to each patient. See, 42 CFR
456.608 and 42 CFR 456.611 for additional guidelines pertaining to the
content and conduct of the annual review.
A state's showing may be found satisfactory if the state conducted
reviews in at least 98 percent of the participating facilities and in
every facility with 200 or more beds, and the state can show that it
exercised good faith and due diligence in attempting to conduct those
reviews not completed. A quarterly showing that fails to show that the
state has met the 98 percent, 200 bed standard will be found
satisfactory only if the state failed to meet the standard for a
technical reason and has met the standard within 30 days after the close
of the quarter. See, section 1903(g)(4)(B) of the Act and 42 CFR
456.653(a), (b). Thus, in order to meet the standard established in
section 1903(g)(1) a state must show that it performed a review in every
facility requiring an inspection during the previous 12-month annual
period and that the inspection included all patients residing in the
facility at the time of the review unless it meets one of the
above-described provisions. Section 1903(b)(2) requires that the
Secretary validate a state's showing in a timely manner by examining the
review reports submitted by the state inspection teams. /2/
B. Basis for the Disallowance
Subpart I of 42 CFR Part 456 prescribes requirements for periodic
inspections of care and services provided in long-term care facilities
including ICFs. As set out at 42 CFR 456.602(b):
Each team conducting periodic inspections must have at least one
member who is at (sic) physician or registered (3) nurse and other
appropriate health and social service personnel.
The State POSR teams at issue were comprised of a social worker, a
registered nurse, and a physician. The regulation at 42 CFR 456.603
establishes the standards for composition of state inspection teams.
Subsection (a)(2) provides:
No member of a team that reviews care in an ICF may have a financial
interest in or be employed by any ICF.
HCFA determined that, for reviews conducted during the quarter ending
December 31, 1982, the POSR teams at four ICFs contained registered
nurses who were employed by those ICFs. Based on its findings, HCFA
concluded that the annual reviews at these facilities were not valid.
HCFA then cited the regulation at 42 CFR 456.652(b)(3) which provides
that when a facility is not appropriately reviewed in the quarter in
which it is required to be reviewed it continues to require a review in
each subsequent quarter until the review is performed. In the Notice of
Disallowance HCFA also alleged that the State had conducted subsequent
reviews at two of the four facilities (Pauls Valley and Hissom
Memorial), but that those review teams also included registered nurses
employed by the facilities. Thus, HCFA determined that the State also
failed to meet the regulatory review requirements for the March 1983 and
June 1983 quarters for those two facilities.
C. The State's Position
The State's position was based upon its belief that, in terms of the
application of 42 CFR 456.603, there was a clear distinction between
State and private long-term care facilities. The State's primary
argument was that a nurse working at a State facility was a State
employee, not an employee of "any ICF" within the meaning of 42 CFR
456.603(a)(2), as opposed to a nurse in a private ICF who was under the
direct control of the particular facility. /3/ The State argued that
authority for hiring, firing, setting compensation, promotions,
demotions, and disciplinary actions was vested in either its Office of
Personnel Management, or its Department of Human Services. The State
noted that, unlike privately owned facilities, these ICFs did not have
any of the employment powers described above and that the nurses working
(4) in the ICFs were paid by warrants from the State Treasurer.
Finally, in terms of the annual reviews, the State indicated that the
ICFs had no control over selection of the POSR teams or conduct of the
reviews.
The State also cited 42 CFR 456.602(b) noting that inspection teams
may contain either a physician or registered nurse, but are not
necessarily required to have both. Therefore, the State suggested that
the presence of the nurses of the teams could be ignored and the reviews
validated.
The State also maintained that the penalty should not have been
assessed since its failure to make a satisfactory showing was unforeseen
and beyond its control. The State based this contention upon the
regulation at 42 CFR 456.653 which enumerates acceptable reasons for not
meeting requirements for annual on-site review. The regulation
provides:
The Administrator will find an agency's showing satisfactory, even if
it failed to meet the annual review requirements of 456.652(a)(4), if --
(a) The agency demonstrates that --
(1) It completed reviews by the end of the quarter in at least 98
percent of all facilities requiring review by the end of the quarter;
(2) It completed reviews by the end of the quarter in all facilities
with 200 or more certified Medicaid beds requiring review by the end of
the quarter; and
(3) With respect to all unreviewed facilities, the agency exercised
good faith and due diligence by attempting to review those facilities
and would have succeeded but for events beyond its control which it
could not have reasonably anticipated; . . . . (emphasis added)
The State maintained that HCFA had accepted the POSR team composition
for eight to ten years prior to the disallowance. The State argued that
HCFA's inexplicable, retroactive change in its interpretation of the
regulation at 456.603(a)(2) constituted a situation beyond the State's
control which could not have been anticipated. The State argued that
under the guidelines set out in HCFA Regional Letter 83-3 (HCFA
Attachment A), HCFA was obligated to notify the State of any problems
not resolved during HCFA's review of its program. The State indicated
that HCFA did not notify it of the change in regulatory interpretation
until the disallowance was issued on September 28, 1983. The State
contended that this was not sufficient notice to enable it to correct
the deficiencies for the quarters in question. In sum, the State (5)
claimed that: "The long-standing acceptance of the manner that reviews
were performed, and, the failure to provide timely notice that the
respondent's position was changed indicates an acceptable reason for
finding that the alleged failure to make a satisfactory showing was
unforeseen and beyond the control of the agency." (State Brief, p. 7)
ANALYSIS
A. The State Violated 42 CFR 456.603(a)(2)
The regulation at 42 CFR 456.603(a)(2) clearly prohibits an ICF
employee from serving on an ICF review team. Neither the regulations,
the Act, nor accompanying legislative history address the State's
concerns regarding the difference between State and private ICFs.
However, we do not believe that the State's interpretation of the
regulation is reasonable.
Subpart I of 42 CFR Part 456, which contains the regulation at
section 456.653 is paralleled in the Act by sections 1902(a)(31)(B) and
1903(g)(1)(D). Section 1902(a)(31)(B) provides that a State plan must
provide:
for periodic on-site inspections in all such intermediate care
facilities . . . by . . . independent professional review teams. . . .
Section 1903(g)(1)(D) provides that a state's showing of an effective
utilization control program include evidence that --
such State has an effective program of medical review of the care of
patients in . . . intermediate care facilities pursuant to section
1902(a)(26) and (31) whereby the professional management of each care is
reviewed and evaluated at least annually by independent professional
review teams.
Furthermore, the legislative history of the Act, cited by HCFA,
emphasized the Congressional intent to require "regular independent
professional review of patients" in ICFs. (HCFA Brief, pp. 4-5) In our
opinion, the Congressional mandate for independent review cannot be
served if we accept the distinction between state and private ICFs
proposed by the State.
The underlying premise of the State's position is that nurses in
State ICFs will be able to provide independent professional review for
those facilities because they are State employees, not employees of the
particular facility. Evidently, the State's rationale is that nurses in
State facilities are not subject to the pressures caused by the
proximity of employer to employee present in a private ICF which would
possibly compromise independent judgment. We do not agree.
(6) In our estimation, a nurse from a State ICF participating as part
of an independent professional review team at that facility is no less
subject to pressure which would compromise independent professional
judgment than a nurse in a similar situation at a private ICF. The
State's nurses provide their primary nursing services at the ICF. It is
their own services as well as those of their co-workers that are subject
to the statutory requirement of independent professional review. These
nurses are State employees working in a State facility. In our opinion,
a State employee working in a State ICF may be as reluctant to criticize
care provided in the ICF as a person employed by a private ICF owner.
Therefore, we find it possible that a nurse on a POSR team reviewing the
services provided at the very ICF where that nurse provides daily
nursing services may compromise the independent professional review
envisioned by Congress. The regulation at 42 CFR 456.603(a)(2) was
established to avoid this problem. Thus, we conclude that the
interpretation of this regulation offered by the State is unreasonable.
For this same reason, we do not believe that the presence of the
nurses on the inspection teams may be ignored. The regulation at 42 CFR
456.602(b) does not require both a physician and a nurse on the
inspection team. However, once established, the review team may not
contain an employee of any ICF. Merely ignoring the nurses' presence on
the teams will not eliminate the possibility that their contribution to
the review may have been tainted by their employment at the ICFs.
The State has also maintained that the ICFs had no control over the
composition of the POSR teams or the conduct of the reviews. HCFA has
never argued that this was the case; thus the State's contention is not
relevant to the disposition of this appeal. The disallowance is based
simply upon the regulatory standard prohibiting ICF nurses (or other ICF
staff) from serving on ICF review teams.
B. The Circumstances Were Not Beyond the State's Control
The State's mere allegation that there existed circumstances beyond
its control which prevented it from meeting the requirements for annual
on-site review is not a sufficient basis for overturning this
disallowance.
The exception set out at 42 CFR 456.653(a)(3) does not exist
independent of the 98 percent - 200 bed review requirement. The State
must have conducted proper reviews in 98 percent of all the facilities
requiring review ((a)(1)) and in all 200 bed ((a)(2)) facilities before
the (a)(3) exception can apply. The preamble to the Utilization Control
regulations clearly states: "We would not excuse failures to complete
(7) reviews in any facility of 200 or more beds. . . ." (43 Fed. Reg.
50925, November 1, 1978) The State did not allege that it met the 98
percent-200 bed standard.
Further, even if the State met the threshold test for the good faith
and due diligence exception, we do not believe this type of situation
falls clearly within the scope of 42 CFR 456.653(a)(3). The regulatory
history refers to severe blizzards as well as strikes by state employees
as examples of what might be an acceptable reason for failure to conduct
the reviews. Id. The regulatory history provides no support for the
State's position and the State's arguments have no convinced us that the
(a)(3) exception should apply here.
Although not set out with precision, the State's argument, that the
disallowance should be reversed because HCFA had accepted the POSR team
composition for eight to ten years without objection, is essentially one
of estoppel. In an earlier decision involving utilization control
requirements we found that HCFA was not estopped from finding
recertifications invalid since there was no showing that HCFA's failure
to challenge similar recertifications in previous quarters was
attributable to an affirmative decision rather than oversight or error.
See, Oklahoma Department of Institutions, Decision No. 318, June 28,
1982; Reconsideration of Decision No. 318, August 12, 1982. Here, the
State has done no more than to aver that the disallowance resulted from
a sudden change in HCFA policy to which the State did not have adequate
time to react. The State has not provided any evidence to show that
HCFA had previously been aware of the now-questioned composition of the
POSR teams, nor has the State demonstrated any affirmative misconduct by
HCFA upon which the State could have justifiably relied to its
detriment.
Additionally, we are not convinced that Regional Letter 83-3
compelled HCFA to notify the State of deficiencies prior to issuing the
disallowance. The State based its position on Part IX of Regional
Letter 83-3. Part IX provides direction for HCFA personnel in comparing
onsite survey findings with the RO (Regional Office) Quarterly Statement
review findings. Specifically, Part IV, Item 6 requires HCFA surveyors
to:
Notify the State agency, in writing, of any problems not resolved.
Request that any additional information be forwarded to the RO within 5
days. This letter should not make any reference to any dollar amount or
that a disallowance will be issued. . . .
The State argued that this provision required HCFA to notify a state
prior to issuing a disallowance, thereby providing a state with an
opportunity to correct the deficiencies. HCFA (8) maintained that, read
in the proper context, Part IV Item 6 addresses technical, or mechanical
problems encountered in the review. We agree.
Both Part IX, Item 6 and Part VIII, Item 9 /4/ (Exit Interviews)
specifically direct HCFA personnel to refrain from informing a state of
any possible disallowance because a final determination is not made for
several months after the survey. See, Part VIII, Item 9. Thus, the
State's interpretation of Part IX, Item 6 would, in effect, require HCFA
to warn states of a pending disallowance, an act clearly not envisioned
by HCFA as demonstrated by the plain language of the Regional Letter.
Additionally, the State contended that HCFA had not notified it of
the improper composition of the POSR teams until September 1983, causing
it to suffer a disallowance for the first two quarters of 1983.
However, evidence submitted by HCFA demonstrates otherwise. HCFA
Attachment C is a letter, dated May 1983, from the State's Assistant
Director, Medical Services Administration to the HCFA Program Director
for Region VI. The letter serves as the State's response to the
Regional Office "findings and recommendations resulting from the FY 83
State Assessment." In this letter the State recognized HCFA's finding
regarding the composition of the POSR teams. Further, the State
indicated that it had reconstructed the review teams and conducted a
review of the Enid facility on March 21, 1983. Additional reviews for
the Pauls Valley and Hissom Memorial facilities were scheduled for July
1983. /5/ This letter clearly demonstrates the State's knowledge of the
deficiency in POSR team composition which, if acted upon in a more
timely fashion, would have mitigated some portion of the disallowance.
(9) Conclusion
Based upon the above analysis, we find that the State POSR teams
under scrutiny were improperly composed. Additionally, we find that
this disallowance was not based upon unforeseen events beyond the
State's control. Therefore, we uphold the entire disallowance in the
amount of $165,850.97. /1/ The facilities involved are Children's
Shelter, Inc., Enid State School ICF, Pauls Valley State School
ICF, and The Hissom Memorial Center ICF. Children's Shelter is a
privately owned ICF, and the State does not contest the disallowance for
this facility. /2/ For purposes of this decision, since the parties
have not indicated otherwise, we assume that the ICFs were in the 200
bed category. /3/ This was the basis for the State's decision not to
challenge HCFA's finding regarding Children's Shelter, Inc. /4/
HCFA quoted from this Part in its Brief at page 5, but cited it as Part
VI, Item 9. There is no Item 9 for Part VI of Regional Letter 83-3.
/5/ The disallowance letter suggested that the State had
conducted additional reviews at the Pauls Valley and Hissom ICFs, but
again with improper review teams. The State contended that the
additional reviews referred to had never been conducted. (State's
letter to the Board dated June 14, 1984) Regardless of this confusion,
once the ICFs were found to be improperly reviewed, they continued to
require review in each succeeding quarter until a proper review was
conducted. Thus, the fact that further improper reviews or no reviews
may have been conducted in these two ICFs is of no additional
consequence. The State did not have an effective program of utilization
control until proper reviews were conducted at the ICFs.
NOVEMBER 14, 1984