GAB Decision 638
March 29, 1985
Massachusetts Department of Public Welfare;
Ballard, Judith G.; Settle, Norval D. Garrett, Donald F.
Docket No. 84-199
The Massachusetts Department of Public Welfare appealed a
determination by the Health Care Financing Administration (HCFA or
Agency) disallowing $4,908,994 in federal financial participation (FFP)
claimed under title XIX (Medicaid) of the Social Security Act. The
disallowed costs were for day school programs provided by the State
Department of Education to residents of eight State-owned intermediate
care facilities for the mentally retarded (ICF/MRs). The activities
were provided from January 1, 1981 through June 30, 1982 and are
indistinguishable from previously disallowed activities provided by the
Department of Education from July, 1978 through December, 1980. State's
brief, pp. 15, 32-33; Agency's brief, p. 2. The Board upheld the
disallowance of the earlier activities in Decision No. 438,
Massachusetts Department of Public Welfare, May 31, 1983. /1/
The Agency disallowed the present claim on the same grounds as the
earlier one, concluding that program regulations preclude reimbursement
since they expressly bar payment for "vocational training and
educational activities" for individuals in ICF/MRs. 42 CFR 441.13(b).
The Agency also cited a policy action transmittal implementing the
regulation, HCFA Action Transmittal 78-104 (AT-78-104) dated November
29, 1978. The Agency concluded that descriptions of educational
activities and contrasting descriptions of reimbursable activities in
the transmittal further supported its position. For the reasons
discussed below and in our previous decision, we agree with the Agency
that costs of the school programs may not be reimbursed under the
Medicaid program. Accordingly, we uphold the disallowance.(2) The State
in its brief identified four issues presented by this appeal. /2/ We
summarize those issues as follows: 1) Whether 42 CFR 441.13(b) bars
reimbursement only of educational activities that have already been
reimbursed under federal education programs for the handicapped; 2)
Whether the activities at issue are reimbursable under standards set out
in AT-78-104; 3) Whether the activities are reimbursable if they
constitute "active treatment" as defined by the Medicaid program;
and
4) Whether the State's good faith reliance on applicable portions of
AT-78-104 precludes the disallowance of these costs.
1. The Regulation Medicaid regulations expressly prohibit any payment
under the program to institutions for the mentally retarded for
"vocational training and education activities." 42 CFR 441.13(b).
We
conclude and, indeed, the State did not even deny that the activities in
question come within the plain or common sense meaning of the term
"educational activities" for residents of institutions for the mentally
retarded. The activities consisted of day school programs staffed by
special education teachers and provided to school age residents of the
ICF/MRs by the State Department of Education. Many of the activities
were even provided outside the institutions in educational
collaboratives or in other settings. All of the activities are
specifically required under Massachusetts law and regulations relating
to educating children with special needs. (State law requirements are
discussed in greater detail on pages 7-8 below.)(3)$%The only argument
the State made based on the regulation itself is that the bar on payment
precluded funding only for activities that had already been reimbursed
from some other federal source. In other words, the State here seems to
be arguing that the regulation does not bar funding generally but
permits the State to select which federal program would be more
advantageous to its in funding the activities. The fundamental
difficulty with this argument is that there is nothing in the language
of the regulation to support the position and indeed the State does not
even point to language that allegedly might. The State instead refers
to the fact that it has returned to the Agency $404,305 of FFP in
Medicaid for activities that were already reimbursed under another
federal program. The State, however, can not use its repayment, an
action fully within its control, as an authority for limiting the scope
and effect of a reimbursement rule in the regulations. Moreover, as we
indicated in Decision No. 438, even if there were no funding bar in the
regulations, it is questionable whether there is authority in the
Medicaid statute for the general reimbursement of educational activities
in ICF/Mrs. Medicaid is designed specifically to provide medical, not
educational, assistance. See section 1901 of the Act. The statute
itself does not provide any authority for funding educational activities
as such. On the other hand, the Congress has enacted other federal
statutes to provide federal assistance for educational programs for the
mentally retarded administered by state educational agencies. See
statutes cited on page 7 of Decision No. 438. The absence of any direct
reference to funding for "educational activities" in the Medicaid
statute, therefore, is evidence of the lack of Congressional intent to
fund the activities. Indeed, the general bar on funding of educational
activities has been in program regulations well before the activities in
question were provided and has never been overridden by Congress through
statutory amendment. /3/
(4) Finally, while the Agency in AT-78-104 (see section 2 below)
discussed the purpose of the regulatory bar in terms of assuring
"non-duplication of federal funds," Appendix B, p. 2, the action
transmittal at no point implied, as the State here would argue, that
"educational" activities could be reimbursed under Medicaid simply
if
the State had not claimed and received funding for those activities
under any other federal program. The Agency could "assure
non-duplication" either by prohibiting funding for activities actually
funded through another federal program, or by prohibiting funding for
"special education" activities potentially covered by another program.
The regulation takes the latter approach. We would also note that the
Agency has identified other purposes for the bar on funding for
educational activities. In discussing an earlier version of the same
regulatory bar on funding for educational activities, the predecessor to
the Agency stated that the activities were not "medical care costs
(services) as defined under title XIX and are assumed to be financed by
other Federal agencies or to be a traditional service of the State for
all appropriate population groups." Medical Services Administration
Program Regulation Guide No. 33 (PRG-33), September 30, 1974, Question
7, p. 4. Accordingly, we conclude that the regulatory bar on funding
applies to the activities in question and precludes reimbursement for
them under the Medicaid program. 2. HCFA Action Transmittal 78-104 On
November 29, 1978 the Agency released an action transmittal (AT-78-104)
which discussed the relationship between recently enacted education laws
and rules concerning educational and habilitative activities in the
Medicaid program. The State here argued that AT-78-104 permitted
reimbursement of special education or related services under the
Medicaid program as habilitative activities. The State did not argue
that all of the activities here were outside the definition of
educational activities under the action transmittal criteria.
Nevertheless, it implied that all should be reimbursed because the
action transmittal recognized flexibility in funding certain
habilitative activities and because, even if the activities were
educational, they still might fall within the conceptual umbrella of the
statutory term "active treatment."(5) In Decision No. 438 (pages 13-16)
and in Decision No. 367 (pages 9-18), we discussed at length the effect
of AT-78-104 on the regulatory funding bar for educational activities.
Although AT-78-104 contains language about providing flexibility to
states in deciding what funding sources apply, that language is used
within the limited context of services which are reimbursed as
habilitative under Medicaid (in accordance with 42 CFR Part 442, Subpart
G) and also qualify as "related services" under the Education for
All
Handicapped Children Act and the implementing regulations. It is within
this very limited context that certain funding choices may be made.
However, the action transmittal also indicates that even these limited
choices may not exist where related services are provided by the State
educational agency free of charge to all children as part of "special
education." See, 45 CFR 121a.14(a) (2) now recodified as 34 CFR
300.14(a) (2). Ultimately, then, the action transmittal distinguishes
between services that may clearly be identified as a Medicaid
habilitative responsibility (fundable) or an educational responsibility
(non-fundable) and "related" activities that because of their nature
may
be reimbursed under other programs or Medicaid "dependingon careful
assessment of Federal requirements and State and local factors."
(Emphasis supplied) AT-78-104, p. 6. In giving an example of an activity
that usually falls in the purely educational category, the action
transmittal cites "educational services provided in a traditional
classroom setting by trained special educators." Id. First and
foremost, the State here has not demonstrated that any of the services
at issue fall outside the scope of this example. Many of the services
are provided in educational collaboratives or other settings outside the
institutions. The remaining services are still provided within some
form of school program setting within the institution. The record here,
including a videotape prepared by the State for its earlier appeal,
demonstrates that the programs were designed to take into account the
needs of children within a broad range of abilities. However, the fact
that the programs were designed to be responsive to particular learning
needs of individuals, or the fact that the programs may not resemble
methods of education for nonhandicapped children is not a basis for
concluding the activities are not educational activities. This term
must be interpreted in the context of a regulation addressing activities
for retarded persons requiring institutionalization. Moreover,(6) in
using the adjective "traditional," we think the Agency was attempting
to
convey something of the scale, scope, and source of the program. We do
not think that the Agency was attempting to bar activities solely
because they might use a particular educational methodology. In sum,
then, we think that the action transmittal's characterization of
educational activities fully supports the Agency's position that the
claim here would not be reimbursable. /4/
Moreover, as we discussed in detail in Decision No. 438 (pages 13-16),
Massachusetts statutory and regulatory standards extend responsibility
for "related services" to the State education agency as part of its
definition of "special education." Thus, even for those limited services
where flexibility might exist under the Agency action transmittal, State
statute and (7) regulations preclude the exercise of discretion here.
/5/ The Board's conclusions concerning State law in Decision No. 438
were based on the plain meaning of the State statute and regulations.
The same statute and regulations have remained in effect for the period
of the current disallowance. /6/ Although the State made two arguments
to refute the Board's conclusions, neither was based on interpretations
of the actual language of the State(8) law and regulations for the
period in question. The State instead cited a series of cases (State's
brief, pp. 25-26) which it argued supported the position that the State
was not the sole financial source for special education activities.
These cases, however, are irrelevant to the actual issue raised. They
do not address the reimbursement of special education activities under
Medicaid and indeed do not focus specifically on the one activity that
is potentially reimbursable, related services. If anything, the
relevance of these (and cases cited on pages 19-20 of the State's Brief)
to the issue here is that they buttress the point that special education
is indeed an educational activity by emphasizing that handicapped
children have educational needs which must be met.
The State also argued that Massachusetts has amended its special
education statute to relieve local school committees of the obligation
for health care services that are reimbursable by third parties. Mass.
G.L. Ch. 71B Sec. 5. This amendment also is irrelevant to this case for
several reasons. First, it was not enacted until after the period for
which this disallowance was taken. Second, it affects the obligations
of the local school committees and does not purport to alter the
responsibility of the Department of Education for institutionalized
handicapped individuals. Third, it alters responsibilities only for
health care services. The Agency did not take a disallowance for any
health care services which were provided in the ICF/MR setting by
Department of Mental Health doctors, nurses, therapists, and mental
health personnel and which would clearly fall within any definition of
health care. Agency brief, pp. 5, 9. The State did not show that any
of the activities in question here would be encompassed by its amended
provision. Accordingly, we conclude that the activities here fall within
the category of educational activities described in the action
transmittal. Even if some of the activities might have qualified as
"related" services where some flexibility for Medicaid funding might
exist under AT-78-104, no funding would be available here since
Massachusetts statutes and regulations make such activities part of
"special education" for Massachusetts children. 3. The Active Treatment
Requirement The State argued as its primary position in the instant
appeal that program "active treatment" requirements make all of the
subject activities fundable in spite of the regulatory bar.(9)$%In
defining what type of facility is an ICF for purposes of determining
whether that facility provides "covered services" for particular
patients, the Medicaid statute includes public institutions for the
mentally retarded, if among other things:
(1) the primary purpose of such institution . . . . is to provide
health or rehabilitative services for mentally retarded individuals and
which meet such standards as may be prescribed by the Secretary;
(2) the mentally retarded individual with respect to whom a request
for payment is made under a plan approved under this title is receiving
active treatment under such a program . . . . Section 1905 (d) of the
Act. Program regulations require as part of "active treatment":
(a)n individual written plan of care that sets forth measurable goals
or objectives stated in terms of desirable behavior and that prescribes
an integrated program of activities, experiences or therapies necessary
for the individual to reach those goals or objectives. The overall
purpose of the plan is to help the individual function at the greatest
physical, intellectual, social or vocational level he can presently or
potentially achieve. 42 CFR 435.1009 (b). Without providing a
comprehensive subject-matter breakdown of the activities for all of the
children involved /7,/, the State argued that the activities here have
as their "primary objectives the stimulation of sensorimotor
capabilities and the encouragement of development growth." State's
brief, p. 22. The State suggested that the activities were structured
around a normal school day and that many of the activities were provided
in collaboratives or locations away from ICF/ MRs because the activities
responded to "normalization," the attempt to make the environment
of the
retarded individual as close to normal as possible. Finally, the State
argued that the Agency recognized this functional overlap of active
treatment services by permitting a single consolidated plan to enable
the State to meet the active treatment requirement.
(10)$%The State here completely misconstrues the effect of the active
treatment requirement. /8/ This provision allows public facilities that
otherwise would be outside of the definition of an ICF (and thus unable
to have patients for whom services could be reimbursed under the
program) to qualify as an ICF for given patients if the facilities
provide "active treatment" for those patients according to an
individualized plan. The provision, however, in no way guarantees that
every activity or service that the facility might include in an active
treatment plan for a given patient is reimbursable. This is purely a
threshhold requirement that must be met before any type of otherwise
reimbursable service can be reimbursed. If an activity or service is
precluded from reimbursement to begin with, e.g, educational or
vocational activities, those services therefore still can not be
reimbursed even if included in an individualized plan. Services
included in the plan may be non-reimbursable for any number of reasons,
not merely because they might be educational or vocational. To the
extent that AT-78-104 provides flexibility in consolidating plans to
meet the active treatment requirement, it never indicates that
consolidation can make a non-reimbursable service reimbursable or that
special education activities can be reimbursed if used to meet a
facility's active treatment requirement. /9/
The action transmittal identified one type of activity, "related"
services, that may be reimbursed under the Medicaid program in spite of
any similarity or relationship to educational activities. As we
discussed previously, however, none of the activities here qualify for
reimbursement under criteria identified by AT-78-104. We also note that
the State's argument ignores the fact that if there was no overlap
between ICF/MR services and educational activities, there would be no
need for the regulation. Accordingly, we conclude that the activities in
question are barred from reimbursement under the regulations and may not
be funded even if used to meet active treatment requirements under the
program.(11) 4. Reliance The State's final argument was that the costs
here were allowable because the State in good faith relied on applicable
portions of AT-78-104 and that such reliance should "preclude the
Secretary from subsequently disclaiming (those) portions." State's
brief, pp. 30-32. The obvious difficulty with this argument is that the
action transmittal does not support the State's position and
consequently is not being disclaimed by the Agency here. The
transmittal nowhere implies that services or activities that qualify as
"educational" activities are reimbursable under Medicaid. Indeed,
as we
stated above, the example given by the transmittal of what is an
"educational service" fully supports the conclusion that the activities
at issue here are "educational." To the extent that the activities
might
have qualified as "related services," the transmittal also indicates
that Medicaid funds may not be used even for "related services" if
State
standards make those services part of "special education." The plain
meaning of State statute and regulations is that they do. Conclusion On
the basis of the foregoing reasons, we uphold in full the disallowance
of $4,908,994. /1/ Board Decision No. 438 is currently under review in
the U. S. District Court for the District of Massachusetts. D.
Mass. No. 83-2523-G. /2/ The State raised several additional
issues in its earlier appeal. Since those arguments were previously
unavailing to the State, and the State did not even raise them here, we
do not address them. We note, however, that, in order to clarify the
nature of services and the factual basis of the case, the State did
"incorporate by reference" the entire administrative record in Board
Decision No. 438, including a videotape, which we do consider in
reaching our decision here. /3/ In Decision No. 438 (pages 9-11)
and in Oklahoma Department of Human Services, Decision No. 367, December
17, 1982 (pages 5-9), we considered other issues of legislative intent
which also supported the conclusion that barring funding for educational
activities is consistent with Congressional intent. /4/ The State also
cited an Agency interpretation of educational activities based on an
earlier version of the educational activities regulation in a program
regulation guide. This interpretation referred to educational
activities as "formalized classroom programs." MSA-PRG-33, September
30,
1974, question 8. Although the State admittedly had not relied on this
interpretation since it only recently came to its attention, the State
identified the interpretation as a more contemporaneous one to the
underlying rule than the action transmittal's. Clearly, however, based
on all the evidence in the record in this appeal, the activities in
question are part of a "formalized" classroom setting. The discussion
above fully demonstrates this. Moreover, as the Agency argued, the
program guide uses the terms "formalized classroom setting" to contrast
educational activities with toilet training, feeding, dressing etc.
provided to patients by the staff of the institution or with camps or
farms maintained by the facility for recreation or physical
rehabilitation. Here there is no allegation of the latter and the
Agency has allowed costs of training and services in activities of daily
living provided by the ICF/MR staff (State Department of Mental Health).
Moreover, AT-78-104 explains in greater detail the effect of
later-enacted "special education" programs on the "educational
activities" regulation and, to the extent it conflicts with MSA-PRG-33
(which it here does not), it can be said to supersede it. /5/ In
discussing what its law provided, Massachusetts completely misconstrues
the Agency's reference to the action transmittal standard in the
disallowance and the Board's interpretation of AT-78-104 in Decision No.
438. The State implied that the proper standard under the action
transmittal was whether State statute and regulations require the State
to bear the "sole financial responsibility" for the services--presumably
to the exclusion of any federal source including Medicaid and education
programs. There is no basis whatsoever in the language of the action
transmittal for such a standard, however, nor is there any basis in the
Medicaid statute or regulations. Further, the program purpose of such a
standard would be very difficult to decipher. The state here did not
clarify why a regulatory bar for funding of educational activities under
Medicaid should go into effect only where the State had already
expressly assumed sole financial responsibility for the activities.
Finally, although the action transmittal states that Medicaid funding is
precluded "(i)f State statute extends responsibility for payment of
specific health services to the education agency" or for "health or
supportive services available without charge to all children," we do not
need to reach the issue here of whether this creates a rule excluding
Medicaid funding even in some circumstances where no federal funding
elsewhere is potentially available. Here, all of the services are
clearly special education under state standards, and thus apparently
would be fundable under federal education programs. /6/ The
Masschusetts law, commonly referred to as "Chapter 766," provides
under
section I: In light of the policy of the Commonwealth to provide an
adequate publicly-supported education to every child resident therein,
it is the purpose of this act to provide for a flexible and uniform
system of special education program opportunities for all children
requiring special education. . . . Mass. G.L. Ch. 71B. Massachusetts
Department of Education's Chapter 766 regulations (603 CMR 122) define
special education as "everything which is required to be provided to a
child in need of special education pursuant to the IEP (Individualized
Education Plan) for such child." The activities at issue here are
precisely those activities which are provided pursuant to the child's
IEP. /7/ Although the State incorporated into the record a
videotape providing a limited description of services or activities for
a selected group of residents, it never provided the Board with a
precise subject-matter breakdown of all of the activities for all the
individuals concerned for the period of the disallowance. /8/ The Board
discussed the active treatment requirement at length in
Connecticut Department of Income Maintenance, Decision No. 562, August
17, 1984, pp. 1-18. The issue raised there, however, was whether a
facility was actually providing active treatment for residents of
certain cottages, not whether the State was entitled to funding for
educational activities used by a facility to meet the active treatment
requirement. /9/ The Agency here noted that the State meets the
active treatment requirement in the case of adult residents of ICF/MRs
without resort to the subject special education programs provided to
children under State education laws. Agency's brief, p. 7. The Agency
also noted that active treatment services for children are reimbursed
under the program, e.g., the costs of training and services in
activities of daily living provided the staff of the institutions (State
Department of Mental Health). Id. at 5.
JUNE 06, 1985