DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State Department of Social Services
Docket No. 86-170
Audit Control No. 02-60200
Decision No. 862
DATE: April 21, 1987
DECISION
The New York State Department of Social Services (State) appealed
a
decision by the Health Care Financing Administration (HCFA,
Agency)
disallowing $718,451 in federal financial participation (FFP) claimed
by
the State under the Medicaid program (Title XIX of the Social
Security
Act) during the period October 4, 1982 through October 3,
1984. The
Agency's disallowance was based upon an audit report by the
Office of
Inspector General (OIG) of the Department of Health and Human
Services
concerning abortion and abortion-related costs under the
State's
Medicaid program. All of the disallowed costs were found by the
Agency
to be either for abortions or for abortion-related services (which
were
generally not reimbursable under the program at that time).
The State did not intentionally claim FFP for any abortion
or
abortion-related costs in this case; the State intended to pay
100
percent of such costs itself. The issue in this case is whether
the
auditors were correct in finding that the State in fact
received
Medicaid funding for these ineligible services. The auditors
questioned
the State's payments to providers for two general categories of
provider
claims--for hospital services and for ancillary services.
In this decision, we uphold parts of the disallowance, reverse parts,
and
remand issues regarding the remaining provider claims to the parties
to
enable the State to establish whether the claims are allowable in
accordance
with legal standards arising from law and Agency guidelines.
Here is a brief summary of our specific findings:
1. Hospital claims
a. Contrary to the Agency's findings,
the State's method of
allocating per diem hospital expenses by the primary
procedure is
supported by the Agency's published policy statements.
Thus, 973 claims
must be remanded to afford the State a reasonable
opportunity, on the
schedule described below, to establish which claims had a
primary
procedure code not indicating abortion and are therefore
properly
allowable. The disallowance is upheld for any of these claims
for which
the State does not make this showing.
b. The disallowance is upheld for 343
hospital claims which had
no procedure code.
2. Ancillary claims
a. 58 percent of these claims were
considered to be
abortion-related by the State under applicable standards;
the
disallowance of these claims is therefore upheld.
b. Of the remaining 42 percent which the State contested:
o The disallowance for the claims
with the 3 procedure codes
involving pregnancy tests is reversed since
pregnancy testing was cited
as being allowable in the Agency's applicable
policy interpretation.
o The disallowance for the 7
procedures which the State alleged
to be medically unrelated to performance
of an abortion is remanded
because the State has raised a serious question as
to whether these
claims were properly labelled "abortion-related" under
applicable Agency
standards. We direct the State to provide evidence
from a medical
professional supporting this allegation, on the schedule
described
below, or the disallowance is upheld.
o With respect to claims where the
procedure codes are ambiguous
or conflicting, the State has established that
those claims were
identified as unallowable by the Agency using an incorrect
standard and
that an examination of the underlying patient records could
establish
that these claims were allowable under the applicable Agency
standard.
Nevertheless, we conclude that the State still bears a burden
of
justifying its claims. We are therefore remanding these claims to
the
State to develop an acceptable method for identifying
abortion-related
claims. If the State does not propose such a method on
the schedule
described below, the disallowance is upheld.
The Board's findings take into account the State's basic burden
to
document the allowability of its claims. We find that the Agency
has
shown that the State's system of separating allowable from
unallowable
claims during the disallowance period was faulty. In fact,
the State
has conceded that some of the disallowed costs were apparently
claimed
in contravention of applicable authorities. 1/ Thus, in this
case the
burden of establishing allowability must remain with the
grantee.
Pennsylvania Department of Public Welfare, Decision No. 848, March
13,
1987. Even if the standards used by the auditors were incorrect
or
unclear as the State claimed, the State has had the opportunity
before
the Board to understand and respond to the Agency's position. We
have
previously held that where the disallowance was defective in
some
respects, but the Agency had established that improper claims were
made,
reversal of the entire disallowance is not the proper remedy. New
York
State Department of Social Services, Decision No. 284, April 29,
1982.
On the other hand, with respect to those parts of the disallowance
which
the State in fact contested, we conclude that the State has shown
that
the disallowance was overstated because the auditors applied
standards
inconsistent with clearly stated Agency policies. Thus, for
those parts
of the disallowance, the correct amount to be disallowed remains
in
question, and the State should be given an opportunity to establish
the
correct amount. See Ohio Department of Public Welfare, Decision
No.
226, October 30, 1981.
Background
It is undisputed that throughout the period of this disallowance, FFP
was
unavailable to pay for abortions or abortion-related services unless
a
physician certified in writing to the State Medicaid agency that the
life of
the mother would be endangered if the fetus were carried to term
and when
such certification had been received by the Medicaid agency
prior to payment
for the services. See 42 CFR 441.203. The State's
policy, as
expressed in its State plan, was to not claim FFP for any
abortions
whatsoever, since the State believed that the expense of
documenting whether
abortion services qualified for funding under the
limited exception provided
by federal law would likely exceed the FFP
that could be claimed.
The audit that gave rise to this disallowance was conducted as a review
of
the State Medicaid Management Information System (MMIS) to determine
whether
the State had an adequate system for preventing claims
reimbursement under
Medicaid for abortion and abortion-related services.
See "Report on Audit of
Abortion and Abortion-Related Costs Under the
New York State Medicaid
Program" (Report), State's Ex. 1. The State's
MMIS relied on having the
computer use certain codes entered on claim
forms submitted by physicians and
hospitals to identify claims for
abortions. This system was designed to
cull out from the universe of
Medicaid claims all claims specifically
identified as abortion services.
Claims so identified were not included
in the State's claims for FFP.
In order to ascertain whether the State's MMIS system was
actually
identifying all costs for abortions and abortion-related services,
and
excluding them from claims for FFP, the OIG selected from the
MMIS
history file for paid claims all claims that had been marked
by
physicians with procedure codes that the OIG classified as abortion
or
abortion-related surgical procedures. If a physician did not mark
a
procedure code on a claim form, that claim was also selected for
further
investigation. The OIG then matched the computer files of
these
patients against the inpatient hospital claims history file to
identify
"abortion-related" hospital costs. For each recipient
identified as
having had an abortion during a hospital stay, the OIG
recommended
disallowing all of the hospital per diem costs for that patient
during
that hospital stay. The auditors did not refer to the diagnosis
codes
in making their findings that claims should be disallowed. In
addition,
the OIG audit was based solely on computer codes; no
patient
documentation was examined. A total of 1,316 claims for
abortion-related
hospital costs, totalling $487,863 in FFP, was found to be
improper. 2/
The OIG also matched the selected recipient files against
other
physician claims to determine if abortion-related ancillary
services
were claimed. This resulted in a recommended disallowance of
$230,588
in FFP for 29,125 claims for services provided on the same date as
the
alleged abortion. Pregnancy testing was one example of a
procedure
identified in this manner, and it accounted for about 14 percent of
the
alleged abortion-related ancillary services.
The State was afforded an opportunity to comment upon the draft version
of
the Report. Only one of its comments was accepted and incorporated
by
the OIG in its final report; the OIG deleted six procedure codes from
its
list of "abortion-related" procedures. The State's other criticisms
were not
accepted by the OIG and now form the basis for this appeal.
On appeal before the Board, the State asserted that it was appropriate
for
it to claim FFP for hospital charges for patients whose
hospitalizations were
due to a primary procedure other than an abortion,
so long as those costs
which were directly and exclusively related to
abortion were excluded.
In other words, the State contended that the
Agency's disallowance of all per
diem hospital costs for a patient that
had had an abortion was erroneous.
With respect to the Agency's assertion that all ancillary
services
provided to a patient on the same day as an abortion
were
abortion-related, the State maintained that the Agency's
position
ignored relevant Agency policy pronouncements, in particular, a July
11,
1979 letter from Arthur J. O'Leary, HCFA Regional Medicaid
Director,
which discussed whether certain services were abortion-related.
The
State argued, moreover, that several of the procedures were clearly
not
"abortion-related," and that since most of the remaining codes
involved
procedures that are not necessarily related only to abortion
patients, a
review of the medical charts would be required to ascertain
whether they
were abortion-related. Furthermore, the State took issue
with the
auditors' assumption that whenever there was a conflict between
the
procedural codes indicated by different physicians, whichever
physician
indicated that an induced abortion had taken place had coded the
record
accurately. The State argued that this discrepancy lent
additional
support to its position that only a medical record audit could
provide
an accurate calculation of actual abortion-related costs.
I. Hospital Costs
The OIG recognized that the State's system for identifying claims
for
abortion services based on procedure codes was generally successful
in
preventing surgeons' and anesthesiologists' claims for the
actual
abortion procedure from being claimed for FFP. State's Ex. 1 at 4,
5.
However, the auditors were critical of the State's method of
allocating
per diem hospital costs according to whatever the hospital
identified as
the "primary procedure" for which the patient was
hospitalized. Under
the State's system, if the primary procedure was
identified as an
abortion, no hospital costs were claimed for FFP.
Conversely, if the
primary procedure was something other than an
abortion--which was
frequently the case since, as the State pointed out, most
abortions in
the State were not performed in hospitals--the State claimed FFP
for the
entire hospital stay.
The Agency's auditors identified, on the basis of selected
procedure
codes, patients who had allegedly had abortions during their
hospital
stay and disallowed 100 percent of the hospital costs claimed for
that
hospitalization, whether the selected procedure code was identified
as
the primary procedure or not. The resulting disallowance covered
1,316
claims representing $487,863 in FFP.
The State argued that its method of allocating the costs of a
hospital
stay according to primary procedure was permissible based on
Agency
pronouncements. Two letters from Medicaid Regional Director
O'Leary are
cited by the State--and by the Agency in its Response--as setting
the
applicable standard for allocating hospital costs where more than
one
procedure was performed. The first, dated December 23, 1980,
advises
that "[s]tates may use any method of allocation which
reasonably
allocates costs . . . for the purpose of excluding the costs
of
non-covered services. . . ." State's Ex. 3 at 11. The second,
dated
March 17, 1981, states that while sterilizations or
hysterectomies
performed as a secondary procedure in conjunction with another
major
surgical procedure would qualify for FFP, even if the
statutory
preconditions for those secondary procedures had not been met,
"[a]ny
additional charges directly and exclusively related to the
non-covered
secondary procedure would not be eligible for FFP." State's
Ex. 3 at
10. The Agency additionally cited a memorandum from the HCFA
Director
of Program Policy, dated October 8, 1980, which stated, "[W]hen
one
component of a multiple procedure claim is for a non-covered
service,
the State must exclude those costs attributable solely to
the
non-covered service from its claim for FFP. Each State must develop
a
methodology for allocating these costs." Agency's Ex. R-3 at 2.
The State maintained that its method of allocation met the
standards
expressed in the Agency policy pronouncements quoted above.
The State
argued that the likelihood that the principal reason for a
patient's
hospitalization was an in-hospital abortion was small, and
that
submitting a patient to only one hospital stay and, if possible,
only
one episode of anesthesia, was sound medical practice. The State
also
pointed out that of the 1,316 disallowed claims for hospital costs,
661
had diagnosis codes of other than "legally induced abortion,"
which
called into question the Agency's method of relying solely on
procedure
codes to identify abortion incidents. 3/ The State argued
that where no
procedure code was identified the Agency should have reviewed
the
patients' medical records to resolve the coding discrepancy.
The Agency's position was that the State's system of allocating
expenses
was unacceptable because it might permit FFP to be claimed for
some
hospital expenses associated with treatment of a patient that had had
an
abortion. The Agency therefore held that the State had failed
to
demonstrate that its claims for FFP in these cases were valid.
The
Agency apparently contended that the only acceptable method
of
documenting the allowability of these costs would be through
a
case-by-case analysis of the patient records performed by the State,
not
the Agency, based on the State's burden of documenting allowability.
We cannot agree with the Agency that the State's method of
allocating
costs based on the primary procedure is prohibited by the
policy
statements cited by the Agency. To the contrary, all three
policy
pronouncements specifically speak of the State's responsibility
to
develop a reasonable methodology for allocating costs where one of
the
procedures performed is for a non-covered service. In fact, the
October
8, 1980 memorandum states:
HCFA has not established a specific
policy regarding the method
to be used
by the States in allocating costs to the
various
components of an inpatient claim
which includes multiple
procedures. We are aware of no existing regulations that
could
be interpreted to require a
particular method of allocation.
In
the absence of regulations, any
method of allocation adopted by a
State,
which reasonably allocates costs for the purpose
of
excluding the costs of non-covered
services or claiming the
appropriate
rate of FFP, must be found acceptable by HCFA.
Agency's Ex. R-3 at 2 (emphasis added). The Agency agreed that
the
State excluded claims for abortion surgical procedures. There is
no
basis in the record here to conclude that the State has not adopted
a
reasonable method for excluding the costs of non-covered services
under
HCFA's standards. Since it eliminates as unallowable all cases
where an
abortion is the primary procedure, it directly addresses the
situation
specified in Action Transmittal HCFA-AT-79-43 (AT-79-43) (cited by
the
Agency as the basis for the entire disallowance) that, "if, in
the
performance of an abortion, it is necessary to hospitalize the
patient,
the hospital stay is directly related to the procedure." Where
an
abortion is the primary procedure causing the hospitalization, no FFP
is
claimed for the hospital stay even if other procedures performed
for
that patient might make a portion of those costs allowable if
a
record-by-record analysis were undertaken. 4/ The State was
reasonable
in concluding that this method of allocation satisfied the
guidelines
established in three separate Agency policy statements
and,
consequently, we uphold it. However, this does not dispose of
the
matter. Although 973 of the disallowed claims had procedure codes, it
is
unclear whether they were identified by the auditors as
unallowable
based on a primary or secondary procedure code related to
abortion. In
compliance with the procedures and schedule set out on
page 15, the
State should identify and document which of the 973 claims
with
procedures codes did not have abortion as the primary procedure code,
so
that the Agency can adjust the disallowance accordingly. If the
State
fails to make this presentation, the disallowance for this portion
of
costs is upheld.
About 26 percent (343) of the disallowed hospitalization claims had
no
procedure codes listed at all and thus the State's system, which
relied
on procedure codes, would not have identified and properly paid
these
claims. This problem was identified by the auditors in their
draft and
final audit reports but the State never offered any explanation
about
how its allocation system, which was based on procedure codes,
permitted
payment in full of claims that had no procedure codes. In
this
instance, the State could not, and indeed did not, argue that
the
Agency's disallowance was based on incorrect standards since there
was
no basis even under the State's own procedures for payment of
these
claims. Moreover, the State presented no argument or evidence to
the
Board to support the allowability of these claims. A
significant
question about the allowability of these claims is raised in any
event
since a large percentage had a diagnosis code of "legally
induced
abortion." Accordingly, since the State failed to demonstrate
to the
Board that any portion of these claims could be allowable, we
uphold
this part of the disallowance. .II. Ancillary
Services.
The auditors identified as abortion-related ancillary services all
claims
for services provided to a patient on the same date that an
abortion was
performed. This covered 29,125 claims for $230,588 in FFP.
The final
audit report stated that the State apparently admitted that
many of the
procedure codes used by the auditors were for procedures
which the State
considered to be abortion-related. These procedures
allegedly accounted
for 16,931, or about 58 percent, of the claims found
ineligible for FFP.
As noted above, the State never claimed that its system identified
all
abortion-related ancillary services and it also never disputed the
audit
report's statement that procedure codes accounting for 58 percent of
the
disallowed claims were accepted by the State as
abortion-related.
Instead, the State focused on three areas of disagreement
concerning 19
procedure codes. First, it contended that the auditors'
selection of
procedure codes encompassed procedures (such as pregnancy
testing and
biopsies of suspected tumors) which were not directly related
to
abortions. The State argued that the HCFA action transmittal cited
in
the final Report, AT-79-43, dated May 7, 1979, contained a circular
and
vague definition of "abortion-related services" that was
unreasonable
and failed to give the State proper notice of the standard to
be
applied. In addition, the State maintained the Agency ignored a
July
11, 1979 letter from Arthur J. O'Leary, Regional Medicaid
Director,
which contains a more detailed interpretation that was not
inconsistent
with AT-79-43 and, the State argued, supports the State's
contention
that its claims were allowable. 5/ Specifically, the O'Leary
letter
expressly mentioned pregnancy tests (three procedure codes)
as
allowable, but the OIG excluded these as unallowable. Second, the
State
argued that seven of the Agency-selected procedures medically should
not
be considered "abortion-related" because they were not
abortional
procedures 6/ and that nine other procedures were ambiguous
because
they related to general services for which it would be necessary
to
review the patient's medical chart to determine if the service in
that
particular case was abortion- related. Third, the State contended
that
the auditors erred by assuming that, whenever there was a
conflict
between the procedure coded by a surgeon and an anesthesiologist for
the
same patient, e.g., one indicated a spontaneous abortion while the
other
coded for an induced abortion, whoever billed for the induced
abortion
was correct. The State argued that the Agency was required to
resort to
the underlying medical records in the face of these obvious
coding
errors.
In its submissions, the Agency consistently maintained that the
O'Leary
letter was inapplicable despite the fact that it was written two
months
after AT-79-43, because the purpose of the letter was to respond
to
questions concerning AT-78-66, the action transmittal transmitting
the
Medicaid abortion funding regulations to the States, which
predated
AT-79-43. The Agency stressed that although the O'Leary letter
was
written months after AT-79-43, it was drafted in response to
questions
raised prior to the "clarification of HCFA policy and the
more
restrictive language contained" in AT-79-43. Agency Response at
8.
Thus, the Agency contended, the State should be bound by
the
interpretation embodied in AT-79-43. According to the Agency,
the
relevant part of the latter document provides:
B. Services Related to Abortions
Services which
are necessary to an abortion performed
under
any
criteria spelled out above are considered
directly
related. For example, keeping in mind the
above
restrictions, if, in the performance of an abortion, it
is
necessary to
hospitalize the patient, the hospital stay
is
directly
related to the procedure, and is considered to
be
within the
context of "directly related services." This
also
holds true
with respect to laboratory work, drugs,
and
anesthetics. FFP is available in payments for
"directly
related services" if the abortion is one that would
be
eligible for
FFP. However, in case of an abortion which
does
not meet
one of the above three criteria [then in effect
for
Medicaid
funding of abortions], there can be no FFP
for
either the
abortion or the "directly related services."
AT-79-43 at p. 3 (reproduced at p. 26 of State's Ex. 2). The
Agency
inferred from this action transmittal that once it is established that
a
patient had an abortion, all of the services received by that patient
on
the same day as the abortion, including pregnancy tests and
doctors'
consultations, were abortion-related ancillary services. It is
this
interpretation that the Agency claimed supports the audit
methodology
employed by the OIG. 7/
Since the Agency flatly maintained that this disallowance was mandated
by
its interpretation of AT-79-43, HCFA never directly addressed any of
the
State's contentions regarding the relationship of specific
procedures to
abortions, except that it argued that since pregnancy
tests were required by
State law prior to an abortion, those procedures
were clearly abortion-
related. With respect to the State's arguments
that review of the
medical records was necessary to determine whether
certain ambiguous
procedures codes were abortion-related and to resolve
coding discrepancies,
the Agency stated that such a review was the
responsibility of the State and
that "should the Board accept the
State's argument that the underlying
medical records might indicate that
FFP is available, the State must
nevertheless be required to document
that the . . . physician costs are
eligible for FFP." Response at 11.
The Agency implied that all patient
records would have to be reviewed to
meet the State's burden of
documentation.
The "O'Leary letter" cited by the State is a July 11, 1979 letter to
the
head of the State's Medicaid agency from Arthur J. O'Leary, who
was
then the Regional Medicaid Director for HCFA Region II. State's Ex.
1
at 18. The letter refers to questions raised at an August 24,
1978
meeting on final Medicaid rules governing funding of abortions that
were
transmitted to the States on July 21, 1978 via HCFA-AT-78-66,
and
provides in an attachment a listing of those questions and
their
respective policy interpretations. The language cited as
pertinent by
the State is as follows:
Question #10. Do the regulations
apply to the actual abortions
or do they
apply to doctor visits before and after, lab
tests,
etc.?
Response: The limitations placed
upon the Federal funding of
abortions
apply to all services and procedures which are
directly
related to the abortion.
For example, tests and physician's
visits made for the determination of pregnancy, or
procedures
necessary to treat
complications after an abortion would not
be
directly related to that service, and
therefore, the Federal
regulations
governing the Federal funding of abortions would
not
be applicable to FFP in those
procedures. However,
anesthesiologist
bills, the costs of a hospital stay which
is
necessary for the performance of the
abortion, and normal
post-operation
physician's visits would be directly related
and
the regulations cover FFP in those
procedures.
State's Ex. 1 at 21.
We have reviewed AT-79-43 and the O'Leary letter in light of the
parties'
contentions concerning them. We find that the Agency's
preferred
interpretation of "abortion-related services" is not compelled
by the
language of AT-79-43 and is contradicted by the subsequent
Agency
document, the O'Leary letter. The specific examples expressed in
the
O'Leary letter could easily be interpreted as an elaboration of the
very
general definition of "abortion-related services" expressed
in
AT-79-43. Both issuances used the term "directly related," but
the
O'Leary letter uses the word "directly" to mean
"exclusively."
Although the Agency argued that the O'Leary letter was
inapplicable
because it interpreted the earlier AT-78-66, it still is worthy
of note
that the O'Leary letter followed AT-79-43 by about two months; in
any
event, AT-79-43 did not revoke or rescind AT-78- 66, so that both
action
transmittals were valid during the disallowance period. Since
AT-78-66
was the vehicle by which the final regulations were transmitted to
the
States, a continuing discussion of its provision would be expected.
The
State therefore had no notice prior to the final Report of
the
restrictive interpretation of AT-79-43 now urged by the Agency
in
preference to the later O'Leary letter. Consequently, we conclude
that
the Agency standard to be applied in this particular case is
that
embodied in the O'Leary letter. 8/ (Obviously, nothing here
precludes
the Agency from using its preferred interpretation where notice
was
given).
Based on our discussion above, it is evident that, to the extent
this
disallowance was based on the Agency's broad, retroactive
interpretation
of the term "directly related" based upon its reading of
AT-79-43 rather
than the narrower view specified as Agency policy in the
O'Leary letter,
a portion of this disallowance must be remanded for
recalculation. The
State apparently agrees that procedure codes
representing 16,931 of the
disputed claims (about 58 percent) are
abortion-related under either
standard. See Report at 11-12, State's
Ex. 1. We uphold the
disallowance of these claims and direct the Agency
to calculate their
amount, which is not specified anywhere in the
record. There remain,
however, 42 percent of the claims to be
considered under the standard
set forth in the O'Leary letter.
A. Claims for Pregnancy Testing
Pregnancy testing, which encompasses three of the codes disputed by
the
State, was specifically named as allowable in the O'Leary letter.
It is
not reasonable to say, as the Agency argues, that the
State's
requirement of a pregnancy test prior to an abortion overrules
the
specific language of the O'Leary letter which holds that these
pregnancy
tests are not so directly related to performance of an abortion as
to be
disqualified for FFP. The Agency should be held to its
explicit
guidelines. We therefore overturn this portion of the
disallowance.
B. Claims for Procedures Allegedly Unrelated to Abortions
With regard to the seven procedure codes alleged by the State to
be
completely unrelated to performance of an abortion, the Board
cannot
resolve this dispute based on the record before it. The State
has
raised a serious question concerning these claims by submitting
the
State Commissioner's opinion that these are not
abortion-related
procedures. The State, however, did not establish the
Commissioner's
credentials for rendering this opinion. In order to
resolve this
question, the State should, in compliance with the schedule
and
procedures set out on pages 15, produce evidence from persons
with
medical expertise to support its allegation. If it does not
produce
this information, the disallowance for this portion of costs is
upheld.
C. Claims Where Procedure Codes Are Ambiguous or Conflicting
Finally, with respect to claims which contained the nine
ambiguous
procedural codes and those other claims where the codes
were
conflicting, the Agency never addressed these problems with
the
calculations of the disallowed claims. Instead, it relied on
its
interpretation of AT-79-43 and, in the alternative, maintained that
if
the Board determined that an analysis of the underlying medical
records
might indicate that FFP was available, the State, not the Agency,
should
undertake that review. We agree with the Agency's alternative
position;
however, as discussed below, there are approaches short of
case-by-case
review which may suffice for the State to meet its burden.
Since we have found here that the O'Leary letter, not AT-79-43, was
the
Agency standard to be applied to these claims, their amount is
in
question. Although the Agency's submission implied that the
only
acceptable method of documenting the allowability of these claims
was
through case-by-case analysis, this Agency contention was made
in
response to the State's assertion that the Agency should be required
to
undertake such an exhaustive review, which is clearly inconsistent
with
the State's burden of documenting its claims discussed above.
However,
the Agency's contention is contrary to the Agency's frequent
practice of
using statistical sampling itself to establish the amount of
a
disallowance. 9/ The Agency has also permitted grantees to
use
statistical sampling methods to establish the amount of allowable
claims
in a dispute. See, e.g., California Department of Health
Services,
Decision No. 665, June 28, 1985. Alternatively, the State may
propose
and the Agency may agree that in cases where the coding conflicts,
the
surgeon's coding will be presumed correct, or the State may propose
some
computer application to sort out these claims. In keeping with
the
State's responsibility for documenting allowability of claims, the
State
should, in compliance with the schedule and procedures set out on p.
15,
propose a method for resolving these claims. If the State fails
to
present a proposal within this time frame, the disallowance for
this
portion of costs is upheld.
Conclusion
In this decision, we uphold parts of the disallowance, reverse parts,
and
remand parts to afford the State an opportunity to establish whether
the
claims are allowable in accordance with the discussion of Agency
standards
above. A summary is set forth on pages 1 and 2. At various
points
above, in connection with the portions of the disallowance which
are
remanded, the State must provide certain information to the Agency;
this must
be done within 60 days of receiving this decision (or such
longer time as the
Agency allows) or the relevant portion of the
disallowance is upheld.
Our decision contemplates Agency review of such
State submissions and a
written response which reduces the related
disallowance amount or explains
why it is not reduced. The State may
return to the Board within 30 days
after receiving an Agency response
with which the State disagrees, and the
Board will provide accelerated
review.
_____________________________ Judith
A.
Ballard
_____________________________ Norval
D.
(John) Settle
_____________________________ Donald
F.
Garrett Presiding Board Member
1. The State never contested the OIG's statement that
16,931, or
about 58 percent of the 29,125 claims for ancillary services
costs, were
for procedures that the State itself conceded were
abortion-related. In
addition, the State did not contest the Agency's
finding that a
significant number of hospitalization claims lacked procedure
codes
required by the State's system for claims payment.
2. The OIG also identified as unallowable, at least
in part, 35
additional hospital per diem claims for $84,807. These
claims were for
lengthy hospitalizations in which the individual had been the
recipient
of an abortion during the period of service of the hospital
stay. The
Report recommended a case-by-case analysis of the medical
records, which
the OIG stated it was unqualified to make, in order to
allocate the
costs involved between abortion-related and
non-abortion-related
expenses. These claims were not included in the final
disallowance
letter and we do not consider them here.
3. The State produced nine medical records of claims
that were
disallowed because one of the procedure codes for the record
was
identified by the Agency as related to abortion. State's Exs.
6-14.
Some of these patients had had spontaneous rather than induced
abortions
(i.e., miscarriages); several others were not even pregnant.
The State
argued that examination of individual patient records would be
necessary
to completely separate out all possible abortion-related costs, and
that
the Agency was the party responsible for performing this review.
4. Moreover, we note that under the Agency's
interpretation, medical
experts would be required to make an after-the-fact
judgment based on
medical records as to what proportion of a hospital stay
should be
attributed to which of several procedures. The State's method
makes
efficient use of resources, since it relies on the medical judgment
of
the treating physician as to the primary reason for a
patient
hospitalization, at the time of treatment.
5. The State argued that the OIG's failure to
identify specifically
this action transmittal as the applicable standard at
an earlier stage
renders the audit and the resulting disallowance
invalid. However, the
audit methodology followed by the OIG was
definitely the one outlined in
"Title XIX Financial Management Review Guide
No. 9: Abortions"
(Agency's Ex. R-1), which specifically relies on
AT-79-43. Thus, it is
evident that this action transmittal formed the
basis for the audit,
even if it was not identified in the draft audit
report.
6. The procedures challenged by the State were:
colposcopy with
biopsies; biopsy or local excision of lesion; biopsy of
cervix; excision
of malignant lesion; family planning, initial; family
planning,
follow-up; and maternity, initial prenatal visit.
7. As discussed in n. 5 above, the OIG followed an
audit
methodology, outlined in a financial management review guide, that
was
expressly based on AT-79-43. However, this financial guide was
not
issued until the middle of the disallowance period and, moreover,
there
is no evidence in the record that the State had notice of the guide
(it
apparently was an internal Agency document providing guidance to
the
auditors). Thus, the financial guide is irrelevant to the issue
of
whether the State had notice of the Agency's interpretation.
8. The Agency also argued that it was not estopped by
the O'Leary
letter from taking this disallowance. We did not understand
the State
to be making an estoppel argument when it stated that the Board
should
hold that the O'Leary letter established the applicable
Agency
interpretation. Appeal Brief at 12, 13. The State did not
address the
standards for estoppel or cite any estoppel cases.
9. The Board has in the past repeatedly found the use
of valid
statistical sampling to be a reasonable way to calculate the amount
of a
disallowance in cases dealing with a large number of individual
claims.
See University of California--General Purpose Equipment, Decision
No.
118, September 30, 1980; California Department of Health Services -
San
Joaquin Foundation, Decision No. 182, May 29, 1981; Nebraska
Department
of Public Welfare, Decision No. 422, April 29, 1983;
California
Department of Social Services, Decision No. 816, December 5,
1986. In
fact, as contrasted to reviewing hundreds of thousands of
items, an
intensive review of a sample actually can produce a more
precise
extrapolated