DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Missouri Department DATE: February 17, 1989 of Social
Services Docket No. 88-183 Audit Control No. CIN
A-07-87-00062 Decision No. 1018
DECISION
The Missouri Department of Social Services (State) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $352,737 in federal financial participation (FFP) claimed
under Title XIX (Medicaid) of the Social Security Act (Act). HCFA based
the disallowance on an audit of State records identifying Medicaid
payments made on behalf of ineligible individual recipients (erroneous
recipient payments) for the period November 1, 1967 through March 31,
1979 and the period October 1, 1982 through March 31, 1983. (During the
intervening period, erroneous recipient payments were subject to special
disallowance provisions related to the Medicaid quality control system.)
The auditors examined computerized accounts kept in the State's Claims
Accounting Restitution System and found that the State did not refund to
the federal government FFP in individually identified erroneous
recipient payments made during these periods, unless the State had
recouped the payments from the ineligible recipients. The auditors
included in the disallowance only those erroneous payments included in
current balances of $500 or greater which could be identified with the
periods at issue.
Missouri relied primarily on arguments made to the Board by appellants
in prior related cases, most notably the arguments the Board addressed
and rejected in Florida Dept. of Vocational and Rehabilitative Services,
DAB No. 955 (1988) and Louisiana Dept. of Health and Human Resources,
DAB No. 989 (1988). We provide below a summary of our analyses in those
decisions, and discuss the additional arguments raised by Missouri. We
uphold the disallowance in full based on the analysis in our prior
decisions and the additional points discussed below. Legal Background
and Summary of Prior Board Holdings
I. General obligation to account for erroneous payments
Title XIX of the Act authorizes federal grants to aid in financing state
programs which provide medical assistance and related services to needy
individuals, in accordance with a state plan. The Secretary of Health
and Human Services (HHS) is required to pay a percentage of the "total
amount expended as medical assistance under the State plan" and
associated administrative costs. Section 1903(a)(1) of the Act.
"Medical assistance" is defined in section 1905(a) of the Act generally
as payment for covered services provided to individuals who meet
specified eligibility requirements. The Secretary is authorized to make
quarterly advances of the federal share of estimated Medicaid
expenditures in amounts:
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. .
. .
Section 1903(d)(2).
In numerous cases involving excess or improper payments by states to
Medicaid providers, this Board reasoned that the statute does not
authorize FFP in payments made outside of the scope of a Medicaid state
plan. See, e.g., Arkansas Dept. of Human Services, DAB No. 717 (1986);
New York Dept. of Social Services, DAB No. 311 (1982). The Board held
that, under section 1903(d)(2), HCFA may require adjustment of the grant
award for this unauthorized participation in improper or excess
payments, even if a state has not yet recovered the amounts from
providers.
Several states argued that the term "overpayment" in section 1902(d)(2)
is not clearly defined and is limited in the context of the Act
(specifically by section 1903(d)(3)) to include only FFP in excess or
improper amounts which a state has already recouped. 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. The Board found that section 1903(d)(3) applies only
to those amounts which would be allowable as "medical assistance
furnished under the State plan." This would include recoveries
from third parties, such as relatives or insurers, of amounts
properly paid as medical assistance. The Board concluded that
amounts unallowable as medical assistance, such as erroneous
payments, were still within the scope of "overpayments" under
section 1903(d)(2) for which HCFA could require adjustment. See,
e.g., Arkansas Dept. of Human Services, DAB No. 717 (1986). We
note that the Board's analysis of this issue has been upheld in
three decisions by United States Courts of Appeals: Massachusetts
v. Secretary, 749 F.2d 89 (1st Cir. 1984), cert. denied, 472 U.S.
1017 (1985); Perales v. Heckler, 762 F.2d 226 (2d Cir. 1985);
Missouri Department of Social Services v. Bowen, 804 F. 2d 1035
(8th Cir. 1986).
In Florida Dept. of Vocational and Rehabilitative Services, DAB No. 955
(1988), Florida sought to distinguish erroneous payments on behalf of
individual ineligible recipients from those made to providers because
they are generally more difficult to recoup than overpayments to
providers. Florida explained that ineligible recipients generally do
not receive ongoing payments which can be adjusted and that Florida had
no formal Medicaid collection procedures for erroneous recipient
payments. But the Board found that the mere fact that erroneous
recipient payments are more difficult to recoup does not excuse a state
from the general obligation to account for payments in which the federal
government has not agreed to participate. The Board noted that states
have primary responsibility for Medicaid program administration and are
better able than the federal government to minimize erroneous payments
of all types and to identify and recover erroneous payments in a timely
manner. II.The effect of quality control provisions on this obligation
In both the Florida and Louisiana cases, the states argued that
authority to disallow for erroneous recipient payments was limited by
Congress and HCFA itself through provisions for disallowances based on
quality control systems to monitor erroneous payments due to eligibility
errors. This argument was based on the fact that these systems
authorized FFP in some erroneous payments through "tolerance levels."
These tolerance levels were established percentage rates of erroneous
payments below which the Secretary would not disallow FFP. The states
argued that tolerance levels should be applied even when no quality
control disallowance system was in operation (such as the time periods
at issue in this disallowance). See Florida, pp. 4-7; Louisiana, p.
1-6; see also Oklahoma Dept. of Human Services, DAB No. 417 (1983).
Between April 1, 1979 and October 1, 1982, Medicaid payments on behalf
of ineligible recipients were within the scope of the Medicaid quality
control (MQC) disallowance system, which provided for disallowances of
FFP if a state failed to meet a target error rate based on a goal of a
nationwide 4 percent tolerance level after 3 years. This tolerance
level effectively authorized FFP in erroneous payments up to the
tolerance level, recognizing that some errors were an unavoidable result
of state plan administration.
In 1982, Congress amended the Social Security Act to add section 1903(u)
which replaced the MQC disallowance system as of October 1, 1982. Tax
Equity and Fiscal Responsibility Act (TEFRA), Pub. L. 97-248 (1982),
Section 133(a). Quality control monitoring under the new standards was
to begin immediately, but Congress required disallowances under the new
system (for FFP in erroneous payments in excess of a 3 percent tolerance
level) only after April 1, 1983. TEFRA section 133(a) and (b); section
1903(u)(1)(A) of the Act. The intervening six-month period, between
disallowances under the MQC system and disallowances under the new
system, was to allow time to study the existing quality control system.
S. Rep. No. 494, 97th Cong., 2d Sess. 38-40 (1982). TEFRA did not
explicitly address how the states would account for erroneous payments
during this intervening period.
The Board, in Florida and Louisiana, found that the existence of earlier
quality control programs did not preclude disallowance of FFP in
erroneous recipient payments during periods when no quality control
disallowance system was operating. The Board reasoned that, prior to
1979, the Medicaid quality control program operated only to provide
information for program management purposes; no disallowances were
authorized based on that system, and there was no tolerance level for
erroneous payments. Although later regulations and legislation
permitted FFP in a tolerance level representing a small percentage of
erroneous payments, these provisions were not made retroactive. The
Board concluded that the earlier quality control systems did not provide
a basis for limiting HCFA's authority to disallow FFP in erroneous
payments. See Florida, pp. 4-6.
Similarly, the Board found that TEFRA did not limit HCFA's authority to
disallow FFP during the six months after the MQC system was terminated
and before the disallowance system in section 1903(u) became effective.
The Board reasoned that there is no indication in TEFRA or in its
legislative history that Congress intended that states would not have to
account for errors at all during this six-month period. While TEFRA
repealed the existing MQC disallowance system, it preserved the
"limitations contained in section 1903" of the Act. TEFRA, section
133(c). The language of TEFRA suggested that Congress intended that
states would be required, under the ordinary limitations of sections
1903(a)(1) and 1903(d)(2), to account for erroneous payments in the same
manner as they were during other periods when there were no quality
control disallowance systems. Florida, p. 6; Louisiana, pp. 5-6.
Furthermore, the Board found that, at the time TEFRA was enacted, the
policy was clear that the Department could disallow individually
identified erroneous payments in the absence of any quality control
disallowance system.
In sum, the Board found that HCFA was reasonable in taking the position
that it could not participate in payments to ineligibles in the absence
of a quality control tolerance level provision. Louisiana, pp. 2-5.
The Board noted that this policy was addressed as early as 1979 in
California State Dept. of Health, DAB No. 55 (1979). That decision
upheld a disallowance of individually identified erroneous Medicaid
payments, finding that the Agency need not apply a tolerance level
during a period when no quality control disallowance system was
operating. See also California Dept. of Health Services, DAB No. 170
(1981), aff'd, California v. Settle, 708 F.2d 1380, 1383 (9th Cir.
1983).
III. The Administrative Procedure Act or other notice requirements
Some states argued that they lacked proper notice under the
Administrative Procedure Act (APA), 5 U.S.C. 552 et seq., or other
notice requirements, of the policy of disallowing for individually
identified erroneous recipient payments. The Board found that the APA
requirements do not apply, since the policy is not a "rule" within
the
scope of the APA, but merely a restatement of the plain meaning of the
Act. Florida, pp. 7-8. Even if the policy were to be considered an
interpretation of the statute in these particular circumstances, the
Board found that the policy would constitute only an interpretative rule
or a general statement of policy. These are exempt from the notice and
comment requirements of the APA under 5 U.S.C. 553(b). Id.
Furthermore, the Board noted that HCFA policy was clear that states
would be accountable for any identified erroneous payments, in the
absence of any tolerance levels, whether or not the state had recouped
the erroneous payments. The Board cited the general public assistance
grant requirements of 45 C.F.R. 201.5(a)(3) (1970-1988), which require
states to report on quarterly statements of expenditures all
acknowledged or identified "expenditures not properly subject to Federal
financial participation." See Georgia Dept. of Medical Assistance, DAB
No. 798 (1986). This regulation, published in 1970, was a codification
of provisions which previously appeared in the Handbook of Public
Assistance Administration. 35 Fed. Reg. 12180 (July 29, 1970). The
Board also cited 45 C.F.R. 248.10(d), which codified the statutory
principle in section 1903(a)(1) of the Act, stating that FFP is
available only in "payments for medical care and services provided under
the State plan to any financially eligible individual . . . ."
[emphasis added] (redesignated in 1977 as 45 C.F.R. 448.4(b) and
recodified in 1978 as 42 C.F.R. 435.1002(b)). 36 Fed. Reg. 3860 (Feb.
27, 1971); 42 Fed. Reg. 52827 (September 30, 1977); 43 Fed. Reg. 45176
(September 29, 1978).
For these same reasons, the Board found no violation of the Freedom of
Information Act (FOIA) requirements for publication in the Federal
Register, 5 U.S.C. 552(a)(1)(D) and (E). Under FOIA, a person may not
be adversely affected by "statements of general policy or
interpretations of general applicability" which are not published in the
Federal Register, unless the person had actual and timely notice of the
terms of the policy or interpretation. 5 U.S.C. 552(a)(1). Since
HCFA's policy was expressed in the regulations cited above (which were
published in the Federal Register) and states thus had notice of that
policy, the Board found that the policy did not violate this provision
of FOIA.
IV. The arbitrary and capricious standard
Since the Board found that the policy authorizing disallowances of FFP
in erroneous recipient payments when no quality control disallowance was
in effect had been consistently expressed in regulation and other
issuances, the Board found that the policy was not arbitrary and
capricious. Florida, pp. 9-11. The Board examined a number of internal
HCFA documents and found that these documents were all consistent with
the long-standing disallowance policy even if not clear as to whether
disallowances were required or merely within the discretion of the
regional office. The Board concluded that, whether or not a
disallowance was required, the Regional Administrator had authority to
impose the disallowance, and the disallowance was consistent with the
overall policy expressed in these documents, the requirements of
sections 1903(a)(1) and 1903(d)(2) of the Act, and prior Departmental
issuances.
Additional Arguments Raised by Missouri
I. The federal-state cooperative relationship
Missouri argued that the disallowance was a violation of the
federal-state cooperative relationship, stating that it reflected a
policy of "cooperation to be solicited at the end of a stick."
Missouri's Brief, p. 3. Missouri relied on the dissent of Judge Heaney
in Department of Social Services v. Bowen, 804 F.2d 1035 (8th Cir.
1986), in which Judge Heaney emphasized the federal-state cooperative
relationship and stated his view that the federal government should
share the financial burden of unrecoverable overpayments made to
providers in Missouri. Judge Heaney quoted the following language from
Harris v. McRae, 448 U.S. 297, 308 (1980), to support his position:
Nothing in Title XIX as originally enacted, or in its legislative
history, suggests that Congress intended to require a participating
State to assume the full costs of providing any health services in
its Medicaid plan. Quite the contrary, the purpose of Congress in
enacting Title XIX was to provide federal financial assistance for
all legitimate state expenditures under an approved Medicaid plan.
Even this language, however, provides no support for federal
participation in payments made to ineligible individuals (such as those
in this disallowance), which were outside the scope of the definition of
"medical assistance" in section 1905(a) of the Act and similarly outside
the scope of an approved state Medicaid plan. The expenditures at issue
here were not "legitimate state expenditures under an approved Medicaid
plan" because they were payments to individuals not eligible for the
federal-state cooperative Medicaid program.
In considering the cooperative federal-state relationship in the context
of excess provider payments, the Board recognized that in some instances
excess payments and some consequent loss of funds may be unavoidable.
But the Board noted that states have primary responsibility for
administering the Medicaid program and have the best opportunity to take
steps to minimize excess payments and to recover identified overpayments
in a timely manner. The Board concluded, therefore, that it was not
unreasonable to require states to bear the burden of unrecovered
overpayments. See New York Dept. of Social Services, DAB No. 311
(1982), p.7. In the Eighth Circuit, a majority of the court in
Department of Social Services v. Bowen, 804 F.2d 1035 (1986), agreed
with the Board's approach in a review of Missouri Dept. of Social
Services, DAB No. 448 (1983). See also Massachusetts v. Secretary, 749
F.2d 89 (1st Cir. 1984), cert. denied, 472 U.S. 1017 (1985).
We note that Congress, in the Consolidated Omnibus Budget Reconciliation
Act of 1985, Pub. L. No. 99-272, section 9512(a)(3), eventually gave
states a 60-day period to recover certain overpayments and provided that
states may retain FFP for uncollectible overpayments. See n.1 above.
Based on the fact that the legislative history refers only to
overpayments to providers and on the fact that recipient eligibility
errors were within the scope of the Medicaid quality control
disallowance system in place, HCFA has interpreted the provision to
apply only to overpayments to providers. See 54 Fed. Reg. 5452
(February 3, 1989). Furthermore, this provision is effective only for
overpayments identified for quarters beginning on or after October 1,
1985. Section 1903(d)(2)(D) of the Act. Congress did not make the
provision retroactive to the periods at issue here.
II. Potential hardship
Missouri argued that the disallowance was "harsh" and represented
"the
most oppressive terms and conditions permissible." Missouri's Brief,
pp. 3-4. This Board is bound by all applicable laws and regulations,
and has no authority to provide relief based solely on these factors.
45 C.F.R. 16.13. Even if we did, however, Missouri has provided no
evidence to support its characterization of the disallowance. The
disallowance is a request for repayment of federal funds claimed (and
paid) for State expenditures which were not within the scope of the
Medicaid program in which the federal government had agreed to
participate. While it places the burden on Missouri of errors in
Missouri's administration of the State Medicaid program, this is not
unreasonable in light of Missouri's greater ability to limit erroneous
payments in its role as the administrator of the State program and to
take steps to recover the erroneous payments in an expeditious manner.
Conclusion
For the reasons summarized above, we uphold the disallowance in the full
amount of $352,737 of FFP.
________________________________ Donald F. Garrett
________________________________ Alexander G. Teitz
________________________________ Judith A. Ballard Presiding
Board