New York State Department of Social Services, DAB No. 807 (1986)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT: New York State Department of Social Services

Docket Nos. 86-117 86-146
Decision No. 807

DATE: November 17, 1986

PARTIAL DECISION

The New York State Department of Social Services (State) separately
appealed two disallowances by the Health Care Financing Administration
(HCFA, Agency) of funds claimed under title XIX of the Social Security
Act (Act). The amount disallowed in Docket No. 86-117 was $966,947 and
in Docket No. 86-146, $85,293. The funds were disallowed on the ground
that the claims were not timely filed in accordance with the
requirements of section 1132 of the Act. The State appealed only
$785,394 of the amount disallowed in Docket No. 86-117, conceding that
the remaining $181,553 represented claims which were not timely filed.

We consider the cases jointly here since the State argued in both cases
that the disallowance must be reversed based solely on the Agency's
failure to follow proper procedures in deferring the claims. At the
State's request, the Board agreed to rule on this procedural question
first, inasmuch as a ruling in the State's favor would render further
consideration of the cases unnecessary. For the reasons discussed
below, we conclude that reversal of the disallowances on this basis is
not warranted. Accordingly, the parties should proceed to brief the
substantive issues in Docket No. 86-117 in accordance with the schedule
established elsewhere by the Board. In Docket No. 86-146, the State
requested that, if the Board rejected its argument with respect to the
deferral procedures, the Board issue a summary decision upholding the
disallowance based on New York State Dept. of Social Services, DGAB No.
521 (March 6, 1984). Accordingly, a summary decision will be issued
separately.

Facts

The claim disallowed in Docket No. 86-117 was filed on the State's
Quarterly Statement of Expenditures for Medical Assistance for the
quarter ending September 30, 1985, dated December 5, 1985. The claim
related to periods prior to September 30, 1983. The grant award issued
by the Agency for


- 2 -

the second quarter of fiscal year 1986, dated February 3, 1986, showed a
decreasing adjustment applicable to prior periods in the amount of
$966,947, which was explained in a footnote as follows:

$ -966,947 represents claims over two years old that are deferred
pending review to determine allowability (deferral
#NY/85/4/E/09/MAP).

(Docket No. 86-117, State's appeal file, Ex. 1) By letter dated May 30,
1986, the Agency notified the State of its decision to disallow $966,947
on the ground that the claim was not timely filed. The Agency noted:

In accordance with 45 CFR 201.15 this amount was deferred on your
grant award for the second quarter of fiscal year 1986, dated
February 3, 1986.

The claim disallowed in Docket No. 86-146 was filed on the State's
Quarterly Statement of Expenditures for Medical Assistance for the
quarter ending December 31, 1985, dated February 5, 1986. The claim
related to periods prior to December 31, 1983. The grant award issued
by the Agency for the third quarter of fiscal year 1986, dated April 25,
1986, showed a decreasing adjustment in the amount of $85,293 for the
quarter ended December 31, 1985, which was explained in a footnote as
follows:

$ -85,293 represents line 6 claims over two years old that are
deferred pending determination of allowability. (deferral
#NY/86/1/E/MAP)

(Docket No. 86-146, State's appeal file, Ex. 1) By letter dated June 20,
1986, the Agency notified the State of its decision to disallow $85,293
on the ground that the claim was not timely filed. The disallowance
letter did not mention that this amount had previously been reduced on
the grant award dated April 25, 1986.

Applicable Regulations

The State argued that because the Agency failed to follow proper
procedures in deferring the claim, the subsequent disallowance was
invalid. The deferral process is established by 45 CFR 201.15, and
applies to all claims for federal financial participation pursuant to,
inter alia, title XIX. 45 CFR 201.15(a). Deferral action is defined as
"the process of suspending payment with respect to a claim . . . pending
the receipt and analysis of further information relating to the
allowability of the claim. . . ." 45 CFR 201.15(b)(1).


- 3 -

The procedures outlined in the regulation provide for the Administrator
of HCFA to take a deferral action within 60 days after receipt of the
Quarterly Statement of Expenditures, 45 CFR 201.15(c)(1), and to give
written notice to the State within 15 days of the action, identifying
the claim and reason for deferral. 45 CFR 201.15(c)(2). Within 60 days
of receipt of that notice, the State "shall make available to the
Regional office, in readily reviewable form, all requested documents and
materials. . . . If the State requires additional time to make the
documents and material available, it shall upon request be given an
additional 60 days." 45 CFR 201.15(c)(3). If the Regional Medicaid
Director finds that the documents and materials are not in readily
reviewable form or that supplemental information is required, he must
notify the State, and the State then has 15 days from the date of
notification to complete the action requested. 45 CFR 201.15(c)(5).
The Administrator has "90 days after all documentation is available in
readily reviewable form to determine the allowability of the deferred
claim." 45 CFR 201.15(c)(6). At that point, he may disallow the claim,
allow the claim, or pay the claim subject to a later determination of
allowability. 45 CFR 201.15(c)(5) and (6).

State's Position

The State argued that the Agency's failure to send it a notice of
deferral in accordance with section 201.15 rendered the Agency's
withholding of the funds illegal. The State asserted that this
withholding of funds by the Agency caused financial harm to the State,
which must continue to provide medical services for eligible individuals
regardless of the availability of federal financial participation. The
State also asserted that the Agency's failure to send a notice of
deferral deprived the State of an opportunity to document its claims.
Although the State acknowledged that it would have, on appeal to the
Board, an opportunity to submit documentation in support of its claims,
the State asserted that it might have already destroyed certain
documentation supporting the claims which it would have retained had it
been notified that the Agency found the claims of questionable
allowability.

Agency's Position

The Agency argued that it gave the notice of deferral required by
section 201.15 by indicating in the notice of grant award that claims
over two years old were being deferred. The Agency argued that this
gave the State adequate notice of the ground on which the Agency
questioned its claims, and that the State could have proceeded to
provide documentation in support of the claims. The Agency also
asserted that the State had not in fact shown that the documentation
necessary to support its claims was no longer available because of the
Agency's - 4 -

failure to defer the claims properly. The Agency also took the position
that deferral was not a condition precedent for a valid disallowance, so
that any failure to comply with section 201.15 was immaterial. Finally,
the Agency argued that reversal of the disallowances was not an
appropriate remedy for the failure to comply with section 201.15, since
the Agency could not be required to pay untimely claims in violation of
section 1132 of the Act.

Discussion

We agree with the Agency that deferral of the claim in Docket No. 86-146
does not appear to have been required, so that any failure by the Agency
to follow the deferral procedures does not affect the validity of the
disallowance in that case. There was no reason for the Agency to
request any additional documents or material in support of the claim
before proceeding to disallowance if, as the State acknowledged, the
claim was on its face untimely under the Board's reasoning in DGAB No.
521. Thus, it is immaterial that the Agency for some unexplained reason
deferred the claim and, in so doing, may have failed to follow
appropriate procedures.

We do not agree, however, with the Agency's assertion here that this
Board has previously held that deferral is never a condition precedent
to a valid disallowance. In New York State Dept. of Social Services,
DGAB No. 542 (June 4, 1984), the Agency took the position, which we did
not contradict, that deferral was required only when the Agency could
not determine that the claims were clearly allowable or unallowable.
Deferral of the claim in Docket No. 86-117 may have been required under
this standard; thus, it is not clear that any failure to follow the
deferral procedures in that case was immaterial on the basis that
deferral was not a necessary step. Even if deferral was required in
Docket No. 86-117 and the Agency failed to follow the proper procedures
1/, we are not persuaded that there was any prejudice to

1/ We need not decide whether the Agency failed to comply with the
deferral procedures. We note, however, that it is not clear that the
statement in the notice of grant award was tantamount to a notice of
deferral, as the Agency asserted. The description of the deferred
claims as "over two years old" fell short of fulfilling the requirement
for a reason for deferral since there was no reference to any deadline
for filing the claims. In addition, the notice of grant award was not
signed by the Administrator (or his designee) as required by section
201.15(c)(2). Thus, there was at least a technical failure to comply
with the regulation. - 5 -

the State as a result. The State has not shown in either case that
supporting documentation is no longer available because of the alleged
lack of notice of deferral.

Moreover, assuming that the State could have established during the
deferral process that the claim in Docket No. 86-117 was timely (which
it apparently could not have done in Docket No. 86-146), the withholding
of funds to which the State was entitled did not significantly harm the
State. Under the deferral procedures, the Agency has more than seven
months from receipt of the Quarterly Statement of Expenditures before
payment of the claim is required (including the time-without any
extension--provided in the regulation for the State to make the
requested documents and materials available to the Agency). Thus, the
State's claim in Docket No. 86-117 would not have been paid before July
1986 had all the steps of the deferral process taken place. The fact
that the State is temporarily obliged to finance Medicaid services for a
few more months than if it had been able to demonstrate during the
deferral process that the claim was allowable does not clearly have any
substantial adverse impact on the State. Moreover, since the claim was
a retroactive claim for services rendered more than two years earlier,
the State most likely paid long ago for the services covered by the
claim, so that the few extra months which the State must now wait for
payment (assuming the State can demonstrate allowability) are relatively
insignificant.

Finally, we agree with the Agency that reversal of the disallowances is
not appropriate regardless of any prejudice to the State since the
effect would be to require the Agency to perform an illegal act--payment
of untimely claims contrary to section 1132 of the Act. 2/ Thus, we
conclude that there is no basis here for the reversal of the
disallowances.

Conclusion

For the foregoing reasons, we conclude that, even if the Agency failed
to follow the procedures set out in 45 CFR 201.15 when it deferred the
claims, the disallowances should not be reversed on this basis.
Accordingly, briefing on the substantive issues in Docket No. 86-117
should proceed in accordance with the schedule established in the letter

2/ We assume for purposes of this decision that the amount in dispute
in Docket No. 86-117 represents untimely claims.

- 6 -

forwarding this decision to the parties. The Board will issue a summary
decision separately in Docket No. 86-146 as requested by the State.


________________________________ Cecilia Sparks Ford

________________________________ Norval D. (John) Settle

________________________________ Alexander G. Teitz Presiding
Board