GAB Decision 683
August 21, 1985
New Jersey Department of Human Services;
Ford, Cecilia Sparks; Settle, Norval D. (John) Ballard, Judith A.
Docket No. 84-222; 84-223
DECISION
The New Jersey Department of Human Services (State) appealed two
disallowances by the Health Care Financing Administration (HCFA, Agency)
of $1,285,915 and $286,881 in federal financial participation (FFP)
claimed under Title XIX (Medicaid) of the Social Security Act (Act).
The disallowances were based on HCFA reviews of the financial management
of the State's Medicaid program. The reviews determined that the State
had not made adjustments in FFP for overpayments the State made to
providers of Medicaid services.
The major issue presented is whether section 1903(d) (2) of the Act
authorizes HCFA to demand that the State repay to HCFA the federal share
of identified overpayments to Medicaid providers, even though the State
may not have yet collected the overpayments from the providers. A
subsidiary issue is whether HCFA can base the disallowances on initial
State determinations of overpayments which the State later alleges were
erroneous. For the reasons discussed below, we find that HCFA may
adjust under section 1903(d) (2) for the FFP claimed in the overpayments
here. Accordingly, we uphold the disallowance, in the reduced amount of
$559,594.50.
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 the Department of Health and Human Services (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 HHS 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(2) reflect any
overpayment or underpayment which was made to the state for any prior
quarter. Section 1903(d) of the Act.
Specifically, 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. . . .
The issue here arises because 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 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.
Case Background
HCFA's Regional Division of Financial Operations reviewed the State's
Medicaid program for the purpose of ascertaining the effectiveness of
the State's procedures for identifying, recouping, and crediting the
federal government for overpayments to providers. The review covered
the period from March 1976 to May 1983. Using the State's own records,
the review initially determined that 14 long-term care facilities had
received overpayments, with the amount of FFP owed to the federal
government totalling $1,393,940. The State responded with a calculation
showing that the correct amount of FFP due was $1,285,915. State's
Appeal File, Tab 2, Ex. B-1. HCFA accepted the State's calculation and
issued a disallowance in the adjusted amount of $1,285,915 FFP.
A second HCFA review, covering the period February 1, 1983 through
January 31, 1984, identified an additional $286,881 FFP in overpayments
made to two other providers of long-term care. HCFA then issued a
disallowance in this amount.
Analysis
I. Whether HCFA can adjust for overpayments prior to recovery.
A. Previous Board decisions.
The general question of whether HCFA has the authority to demand from
states the federal share of identified Medicaid overpayments to
providers prior to the actual recovery of the overpayments by the states
has been examined by the Board in(3) a series of decisions. In these
decisions the Board has held that improper or excess payments to
providers do not constitute "medical assistance" within the meaning
of
the Act, and that, therefore, HCFA is empowered by section 1903(d) (2)
of the Act to collect the federal share of these payments, even if a
state has not yet recovered the amounts from the providers. Once a
state makes a determination that an overpayment has occurred, HCFA may
generally collect its share if the state itself considers that
determination sufficiently final so that the state would take action to
recover the amount from the providers. Massachusetts Department of
Public Welfare, Decision No. 262, February 26, 1982; Florida Department
of Health and Rehabilitative Services, Decision No. 296, May 15, 1982;
New York State Department of Social Services, Decision No. 311, June
16, 1982; Illinois Department of Public Aid, Decision No. 404, March
31, 1983; Pennsylvania Department of Public Welfare, Decision No. 426,
May 24, 1983; Missouri Department of Social Services, Decision No. 448,
June 30, 1983; New Jersey Department of Human Services, Decision No.
480, November 30, 1983; New York Department of Social Services,
Decision No. 526, March 30, 1984; California Department of Health
Services, Decision No. 619, January 28, 1985; Iowa Department of Human
Services, Decision No. 629, March 18, 1985; Ohio Department of Public
Welfare, Decision No. 637, April 2, 1985; Washington Department of
Social and Health Services, Decision No. 645, April 30, 1985; and
Minnesota Department of Human Services, Decision No. 653, June 7, 1985.
Several of these decisions have been appealed to federal courts. In
Massachusetts v. Heckler, 576 F. Supp. 1565 (D. Mass 1984), Board
Decision No. 262 was reversed on the grounds that HHS had not
established that payments to a provider at an interim rate higher than a
final rate constituted an overpayment for purposes of section 1903(d)
(2). In Massachusetts v. Secretary, 749 F.2d 89 (1984), cert. denied,
53 U.S.L.W. 3880 (June 17, 1985) (No. 84-1363), however, the United
States Court of Appeals for the First Circuit reversed the judgment of
the District Court and upheld Board Decision No. 262. That court found
HCFA's interpretation of section 1903(d) reasonable and based on sound
policy considerations. On October 1, 1984, the United States District
Court for the Northern District of New York affirmed Board Decision No.
311 in Perales v. Secretary, Case No. 83-CV-900, aff'd sub nom. Perales
v. Heckler, 762 F.2d 226 (2d Cir. 1985). /1/
(4)
In the above appeals, states argued generally that HCFA was not entitled
to recoup the federal share of improper or excess payments to providers
until the payments were recovered, and that section 1903(d) (3) limited
any federal interest to a pro rata share of the amount actually
recovered. The Board's reasoning in rejecting these arguments may be
summarized as follows:
- Section 1903(d) (3) does not by its terms relate back to all
overpayments contemplated by section 1903(d) (2).
- 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.
- The more general language of section 1903(d) (2) has been
consistently read together with section 1116(d) of the Act, so that a
determination that a state has claimed and received FFP in unallowable
costs is(5) tantamount to a determination that the disallowed amount is
an overpayment to be adjusted under subsection 1903(d) (2). See, e.g.,
45 CFR 201.10 et. seq.; Solomon v. Califano, 464 F. Supp. 1203, 1204 (D.
Md. 1979).
- 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 unallowable, merely because the state
has not recovered the amount from a provider. /2/
- Since the states deal directly with the providers, they are in the
best position to see that Medicaid funds are properly expended.
B. The State's arguments here.
Notwithstanding the above cases, the State argued that the Board and
HCFA have misinterpreted section 1903 by confusing the two types of
overpayments which may arise under the Medicaid program: overpayments
of FFP to a state and overpayments of medical assistance to a provider.
According to the State, section 1903(d) (2) applies only to the former.
All the payments in question, whether excessive or not, the State
continued, were for medical assistance to providers. What is due HCFA,
therefore, is only the pro rata share of the overpayments actually
recovered by the State in accord with section 1903(d) (3).
The State further argued that, during the time periods involved in the
disallowance, it utilized two federally-approved prospective
reimbursement systems for long-term care facilities. The State
contended that under these systems a determination that excess medical
assistance beenfits have(6) been paid does not require a determination
that an unallowable expense is involved. The State explained:
Under both prospective systems in New Jersey, the rate of medical
assistance paid to a facility for a Medicaid eligible patient is not
based upon nor does it relate to the actual expenditures made by the
facility on behalf of that patient at the time of reimbursement.
Rather, the rates are based upon the facilities' costs of the prior year
as adjusted by an economic factor and screened, when appropriate at the
reasonableness levels. The rates, being prospective, are not interim
but are final rates when struck prior to the reimbursement period.
State's Brief, p. 5 (emphasis in original)
The State conceded that the Board's analysis of section 1903 may be
valid in a retrospective reimbursement system where the identification
of an unallowable cost can reduce a final restrospective rate from the
projected interim rate. The State maintained, however, that under its
systems an overpayment to a long-term care facility does not mean that
the expense is unallowable, but rather that the expenses reported,
whether allowable or not, will not be reimbursed due to the
cost-containment levels established by the State. The State concluded
that "the final rate paid prospectively is medical assistance under Sec.
1905(a) even though this rate may result in the payment of excess
medical assistance." State's Brief, p. 7. HCFA's recovery of such
excess medical assistance is then restricted to the 1903(d) (3) pro rata
share.
C. The Board's determination
The arguments advanced by the State here have been previously considered
by the Board. In Decision No. 480, New Jersey raised the same
distinction between overpayments to states and overpayments to
providers. The Board rejected that argument:
Nor are we convinced that the distinction the State drew between
section 1903(d) (2) applying to overpayments of FFP to states and
section 1903(d) (3) applying to overpayments of medical assistance to
providers is warranted. As HCFA pointed out, the crucial factor is that
FFP is permitted only for allowable costs. An overpayment to a provider
represents a determination that an expense has been found to be
unallowable, and hence not medical assistance under the Medicaid
program. It results in the State having received an overpayment of FFP
for that provider, which HCFA is entitled to recoup under section 1903(
d) (2).
Decision No. 480, p. 6. (7)
The Board has also considered whether a state's method of reimbursement
is retrospective or prospective affects HCFA's ability to recoup its
share of overpayments under section 1903(d). The Board has ruled:
(E)xcess payments arising from either (a prospective or
retrospective) system have the same status: they are amounts paid to a
provider in excess of what the provider was ultimately entitled to under
the state plan.
Decision No. 311, p. 6.
The parties have been furnished with Board decisions on the overpayments
question. We do not consider it necessary to discuss the Board's
complete analysis of the issue, but we will repeat what we consider to
be the key factors in finding HCFA's interpretation of section 1903(d)
the more persuasive:
(T)he specific subject of (d)(3) is not "recovery of overpayments"
as
the State alleged, but treatment of certain recoveries as overpayments.
The plain language of (d)(3) concerns amounts which would ordinarily not
be considered "overpayments" because they were "medical assistance
furnished under the State plan" and therefore, were allowable when made.
When such amounts are recovered, (d)(3) describes the extent to which
the federal share is to "be considered an overpayment" for purposes
of
adjustment under (d)(2). Thus, (d)(3) does not constitute a limiting
definition of the term "overpayment" in (d)(2). Contrary to the State's
assertion, the Agency interpretation does not render (d)(3) superfluous,
ineffective, or insignificant, but, rather, gives effect to both
provisions and is supported by the statutory scheme as a whole.
Decision No. 311, pp. 5-6.
- and -
As a result of reimbursing the providers an excess amount, the State
claimed FFP in a greater amount than it was ultimately entitled to, i.
e., FFP in the rate ultimately determined to be the correct one under
the State plan. Since HCFA determined that the amounts were not
"medical assistance furnished under the State plan," this constituted
a
determination that FFP in the amount was an overpayment subject to the
provisions of section 1903(d)(2). Similarly, claims based on fraud or
abusive billings and other excessive payments, irrespective of their
recoverability, are not "medical assistance."
Decision No. 645, p. 7.(8)
The State has not provided us with any convincing arguments to conclude
that the Board's analysis of section 1903(d) is incorrect.
II. Determination of the overpayment amounts.
The Board has previously examined the adequacy of HCFA's use of state
records as a factual and legal basis for a disallowance. The Board has
held that a disallowance based upon HCFA's adoption of a state's audits
will be upheld only if the record before the Board is adequate to
support a factual and legal determination that the state claimed for
unallowable costs. See, e.g., California Department of Social Services,
Decision No. 244, December 31, 1981. But while the Board has reversed
some disallowances initially based on state findings, the Board has also
in a number of cases upheld disallowances based on state findings. The
Board has determined that HCFA may reasonably rely on state findings
provided:
* The Agency provides sufficient detail as to the audits or other
sources from which the disallowed amounts are derived; and
* The State is provided an opportunity to show that
-- adjustments have been made to the State findings;
-- the findings are not reliable for some reason;
-- the State has already recovered the amount identified as an
overpayment and has already adjusted the federal share; and
-- the State never claimed FFP in the overpayment in the first place.
Ohio Department of Public Welfare, Decision No. 637, April 2, 1985,
p. 11.
In evaluating whether the Agency has provided sufficient detail to
enable a state to respond, the Board has found that HCFA met its burden
by identifying the names of the providers which allegedly received
overpayments, the respective amounts, and the relevant time periods.
Decision No. 426, p. 7; Decision No. 448, p. 7. If HCFA has done this,
and the State has been provided an opportunity to make the showings
listed above, the Board must then analyze the record as a whole to see
whether there is a factually and legally supportable basis on which to
uphold the disallowance.
This analysis depends on various factors such as the nature of the
overpayments involved; the nature of the state(9) findings involved;
the extent to which HCFA independently determined that the state had
claimed unallowable costs; the issues raised by the state; and the
evidence the state has provided in support of its positions.
In the course of these appeals, questions arose as to the accuracy of
the overpayment amounts HCFA claimed were due from the individual
providers. As noted above, HCFA had reduced the amount of overpayments
in its disallowance decision from the figures calculated in its review
on the basis of a State letter with downward adjustments (Ex. B-1). The
State submitted an Affidavit to the Board from its Chief of the Bureau
of Administrative Control, Office of Program Integrity Administration,
detailing how the amounts should be additionally reduced because: 1)
some overpayments had been collected from providers and the federal
share credited to HCFA; 2) in the course of administrative proceedings
and State and federal litigation, consent orders had established revised
overpayment figures for some of the providers; and 3) continuing exit
conferences had established lower overpayment figures for some of the
providers. State's Appeal File, Tab 4.
In overpayments cases the Board has generally allowed the parties to
informally resolve themselves questions of the accuracy of overpayment
amounts listed as due from individual providers. The Board recognized
that the refunding of overpayments occurs on a regular ongoing basis, so
that it is difficult to determine at any precise moment in the course of
a state's appeal what the outstanding balance may be. In these appeals,
however, the parties disputed who had the burden of proof in
demonstrating the amount of overpayment outstanding. HCFA contended
that the Affidavit was inadequate to demonstrate that the State's
initial determination of its own overpayments should be reduced.
To the extent that the State has now revised its overpayment
determinations (as opposed to merely compromising its claims against
providers), the Board has no basis for concluding that the facts and law
establish that the initial amounts were truly overpayments. In an Order
to Develop the Record, the Board therefore directed the parties to
cooperate to determine whether the Affidavit's figures are supportable
and thus acceptable to HCFA. Both parties then submitted analyses of
the overpayments for each of the providers.(10)
The parties are in agreement on the following facilities:
*4*CHART A Overpayment Amount Amount Collected
Balance Countryside n3 127,199 - 0 - 127,199 Pompton
Lakes 239,000 239,000 - 0 - Beachview
35,291 35,291 - 0 - Hillcrest n3 79,128 - 0 -
79,128 Garden 47,870 47,870 - 0 - Bridgeton
62,511 62,511 - 0 - Holmdel n4 10,225 - 0 -
10,225 Woodcrest 10,894 10,894 - 0 - Edison n5
273,442 - 0 - 273,442 TOTAL 590,994 FFP at 50% 295,497
F
n3 The Affidavit claimed that these overpayments were uncollectible
because of either bankruptcy or closing. Courts hace approved the
Board's holding that the inability of the state to recoup overpayments
from a provider which has been declared bankrupt does not relieve the
state of its obligation to repay HCFA the federal share of the
overpayment. See, e.g., Florida v. Heckler, supra.
n4 The Affidavit claimed that the $10,225 figure for Holmdel was
inaccurate because the audit for that provider was being recalculated as
a result of an exit conference. The State in its July 23, 1985
submission, however, accepted HCFA's continued use of the $10,225
figure.
n5 The State alleged that the $273,442 figure was a tentative
overpayment amount subject to reduction through a current administrative
review process. When a provider is challenging in an administrative
review process a state determination that it received overpayments, the
Board has held that HCFA's ability to use the initial figures depends on
whether the state itself considers the figures sufficiently final so
that it can demand the overpayment from the provider. This, in turn,
depends on the state's own laws and Medicaid plan. The State has not
provided the Board with information concerning its administrative review
process although Board cases on this issue were brought to its
attention. Thus, we consider the State determination here sufficiently
final. We note, though, that should the provider prevail, the State
could submit a claim for additional FFP to HCFA.$E
For other providers (Swainton, Brookbend, and Ashbrook) the parties had
relatively minor discrepancies. Since these discrepancies might arise
from recent collections by the State not reflected in HCFA's records, we
will adopt the State's calculations, subject to a possible later
recalculation by the parties.(11)
*4*CHART B Overpayment AmountBalance Amount CollectedDue
Swainton 194,964 97,094 97,870 Brookbend 53,499
17,616 35,883 Ashbrook 15,768 1,000 14,768 Total
148,521 FFP at 50% 74,260.50
% The remaining four providers in question here were involved in
proceedings which resulted in consent orders. These consent orders,
according to the State, substantially reduced the amount of the
overpayments from the amount which the State originally determined the
providers had been overpaid. The Board's Order directed the parties to
determine whether the settlement figures established by the consent
orders actually reflected a redetermination of the overpayment amounts
or were simply practical compromises by which the State tried to ensure
recovery of the maximum possible amount. We will examine each of these
four providers separately.
Lakewood Pine-Aire
The State's audits initially found that this facility received $379,357
in overpayments. The Affidavit asserted that the correct amount was
$227,734, of which $221,913 had already been collected. The $227,734
figure was not mentioned in the consent order submitted by the State.
The Board's Order reasoned that --
it appears that the amount the State would receive as a result of the
order could vary depending on what the proceeds were from the sale of
various assets. Thus, it does not appear that the State's agreement to
accept less than the $379,357 was based on a determination that Lakewood
Pine-Aire had, in fact, been overpaid less than that amount for the
period in question. . . .
p. 4(12)
In its response to the Order the State agreed that $379,537 was the
correct overpayment amount. We find, therefore, that, regardless of the
consent order, HCFA is entitled to the FFP share of the $379,537, less
any amounts already collected.
East Orange
The State's audits initially found that this facility received $187,582
in overpayments. The Affidavit maintained that the correct amount was
$25,000, all of which had been collected. After examining the consent
order containing the $25,000 figure, the Board's Order concluded:
This document appears more clearly to constitute part of the State's
cost settlement process, rather than merely to establish what the State
will accept in recovery when it cannot recoup an entire overpayment. .
. . HCFA has not given any reason why we should not accept the consent
order as an acknowledgment that the correct overpayment amount . . .
should have been $25,000.
p. 5.
HCFA responded that the consent order cannot reduce the amount of the
overpayment as measured by operation of the State plan and that its
records indicate the correct amount is $187,582. HCFA did not submit
its records nor any other evidence that the $187,582 related to costs
unallowable under the State plan. The State then explained that the
overpayment amount was vastly overstated because of the erroneous
disallowance by State auditors of $132,253 in rental costs. The State
added that audit records necessary to support the disallowance at a
hearing were unavailable and that the provider's offer of a $25,000
settlement, as explained in Exhibit B to the State's July 23, 1985
submission, was reasonable and more than adequate to cover any
overpayments East Orange might have received, particularly since East
Orange had raised valid claims for additional payments covering the same
period.
While the State's explanation for the $25,000 figure does not completely
establish that the amount is related directly to an overpayment
determination, we nevertheless consider it sufficient to show a revision
of the State's original determination on which HCFA relied. In the
absence of evidence from HCFA to support a contrary finding, we
determine that the settlement amount is sufficient to cover any
overpayments. Accordingly, we accept the $25,000 figure for East
Orange. (13)
Liberty
The State's records indicated that $287,578 was due from this facility.
The Affidavit claimed that the correct amount was $100,589, all of which
had been collected. The Board's Order reviewed the consent order
regarding this facility and preliminarily found it insufficient to
support the reduction claimed by the State:
The document does not explain nor justify the reduction in the
overpayment amount although . . . it could have resulted from a
determination that the originally identified overpayments amounts were
too high.
p. 5.
The State responded that, although the amount demanded by the State from
Liberty was $287,578, the overpayment amount identified by the auditors
was $147,974. The State explained that the remainder was attributable
to treble damages, penalty interest, and false claim penalties. The
State claimed that HCFA used the wrong figure in arriving at an
overpayment amount. The State further alleged that the amount
identified in the consent agreement ($38,996.42 + $51,593 = $90,589)
reflected recommendations by a State official that a number of
questionable audit adjustments would be reversed if a hearing were held,
with a resulting overpayment amount lower than the settlement figure.
The State added that these recommendations were made orally, but offered
to supply affidavits from the official.
We conclude that the State's documentation supports a finding that the
State audits revealed an overpayment of only $147,974, but that the
State has failed to establish that it subsequently redetermined the
amount of the overpayment for Liberty and reduced it to $90,589.
State's Exhibit C, which is the "Notice of Demand and Administrative
Recovery Proceedings" issued to Liberty, shows that the State audits had
revealed overpayments of $147,974 to Liberty and that the $287,579
demanded from Liberty was calculated by adding to that overpayment
amount about $194,235 in damages and penalties and then subtracting
about $54,630 which had already been withheld from Liberty. Although
the Board has upheld HCFA's right to a pro rata share of any interest
actually received from a provider (Decision No. 480), we know of no
basis for HCFA disallowing amounts of penalty and interest which a state
attempts unsuccessfully to collect from a provider. The State would not
have previously submitted a claim for FFP for these amounts because they
do not represent reimbursement for Medicaid services billed by the
provider.
The record does not support a reduction to $90,589, however. Unlike
East Orange above, the State has not provided us with(14) details
concerning the alleged questionable audit adjustments. The mere
speculation that audit findings would have been revised if a hearing had
been held is insufficient. Moreover, the State acknowledged that it had
no documents to support a finding that the State actually revised the
overpayment determination in the course of litigation with the provider.
Although the Board's order clearly placed a burden on the State to show
that it had not merely compromised its claim against Liberty, the State
only offered an affidavit to show this, rather than submitting one. In
any event, such an affidavit would be less persuasive than documentation
prepared for a purpose other than this appeal (see our discussion of
Shore Manor below). Furthermore, if the correct amount of the
overpayment is accurately reflected in the consent order's figure of
$90,589, we question why Liberty has repaid $100,589 as claimed by the
Affidavit.
Thus, the State has simply failed to support its position that the
consent order figure represents the correct amount of the overpayment
made to this provider. The record before us supports only the reduction
to $147,974.
Shore Manor
The State's audits initially found that this facility received
$1,274,829 in overpayments. The Affidavit claimed that the correct
amount was $290,261, of which $182,334 had already been collected. The
Board's Order examined the consent order for this facility and
preliminarily found:
(I)t is a Stipulation of Settlement in a bankruptcy proceeding.
While the document appears to establish amounts which will be paid to
the State of New Jersey by certain persons apparently associated with
Shore Manor, nothing in it indicates that it is a determination that
Shore Manor was not in fact overpaid the amounts in question here.
Moreover, the figure $290,261 does not appear in the document, so the
document does not even establish that figure as the amount the State has
agreed to accept in settlement of the original claim of $1,274,829
against Shore Manor.
p. 3.
In response to the Order's request for documentation to support the
statement in the Affidavit, the State asserted that the actual amount of
the overpayment for Shore Manor was $237,000. The State explained that
the Affidavit had overstated the overpayment amount by improperly
combining the settlement amount from a bankruptcy proceeding with court
ordered restitution in a criminal proceeding.
The State furnished a Memorandum on the settlement proposal with Shore
Manor and another memorandum from State auditors(15) as documentation
for a $357,000 figure. Essentially, the State argued that the
$1,274,829 figure utilized by HCFA incorrectly combined amounts from
uncompleted audits of Shore Manor. Because the audits had not been
completed and a formal exit conference not held, the State continued,
Shore Manor did not have the opportunity to present evidence to support
its costs. The State further alleged that it had underreimbursed Shore
Manor $120,000 in 1975 because its auditors used an incorrect
construction date for the facility. Thus, the State reasoned the correct
amount of the overpayment was $237,000.
We have examined the documents regarding Shore Manor, and we find that
they support a reduced overpayment amount of $357,000. While HCFA
should be free to examine whether the overpayment was, in fact, greater,
the State's documentation is sufficient to establish that the original
State audit determination on which HCFA relied was incorrect. The
memorandum from the State auditors detailed a consultation between State
auditors and counsel as part of litigation involving Shore Manor. The
accuracy of the $1,274,829 was disputed because the audits for the
facility were not completed. The State counsel arrived at a "solid
audit adjustment" amount of $357,000, which the auditors found
"reasonable." (The documents do not, however, indicate that the $120,000
underreimbursement for 1975 had not already been considered in arriving
at the $357,000 figure. The record does not show, then, that the
$237,000 figure is the correct one.)
Our findings then with regard the providers which were the subject of
court orders are:
*4*CHART C Overpayment Amount Balanc
Amount Collected Due
Lakewood Pine-Aire 379,537 221,913 157,62
East Orange 25,000 25,000 - 0 -
Liberty 147,974 100,589 47,38
Shore Manor 357,000 182,334 174,65
TOTAL 379,674 FFP at
50% 189,83
(16)
Our determination of the correct amount of the disallowance is:
Chart A 295,497 FFP Chart B 74,260.50FFP Chart C
189,837 FFP $559,594.50FFP
% Conclusion
For the reasons stated above, we sustain the disallowance in the reduced
amount of $559,594.50. /1/ District courts have reviewed other Board
decisions on the issue of recovery of overpayments. On January
5, 1984, the United States District Court for the Northern District of
Florida in Florida v. Heckler, Civ. No. 82-0935, affirmed Board Decision
No. 296, holding that the State of Florida was liable for Medicaid
overpayments made to providers notwithstanding the providers'
bankruptcy. On September 27, 1984, the United States District Court for
the Western District of Missouri, in Department of Social Services v.
Heckler, Case No. 84-4106-CV-C-5 (appeal pending), reversed Board
Decision No. 448. The results of the district court decisions appear to
hinge on the type of rate-setting mechanism and excess provider payment
involved. The Court of Appeals decision in Massachusetts, however,
allows recovery of the federal share of the excess payments irrespective
of the rate-setting system that may have generated the overpayments.
Compare, Arkansas v. Heckler, Case No. LR C 83 467, Eastern District of
Arkansas, September 17, 1984 (discussed in footnote 2). The term
"improper payments" is sometimes used to distinguish payments violating
federal requirements (even when made) from "excess payments,"
representing the difference between final reimbursement rates and
interim rates, where payment at the interim rate was authorized under
the State plan. /2/ In the Massachusetts district court decision
(followed in Missouri, supra), the court held that, where there is an
overpayment, there need be no recovery by a state before the overpayment
can be properly disallowed, but disagreed whether there was, in fact, an
overpayment when an interim rate was later found to be greater than a
final rate. In Arkansas, the court upheld the Secretary's authority to
adjust for excess payments but found the Board's distinction between
overpayments found in a federal audit and overpayments found in a state
audit to be inadequately explained. The court also disagreed with the
Board concerning whether the accuracy of the federal audit there was, in
fact, contested, and remanded the case for further factual development.
JANUARY 14, 1986