GAB Decision 104
June 9, 1980 New Jersey Department of Human Services; Docket Nos.
78-41-NJ-HC, 78-124-NJ-HC, 78-16-NJ-HC (only portion of disallowance
with respect to Emerson Convalescent Center), 78-106-NJ-HC (only portion
of disallowance with respect to Emerson Convalescent Center)
Przybylinski, Donald; Woodruff, Robert Dell'Acqua, Frank
These are cases that are being considered jointly because they
involve the common issue of the validity of the provider agreement for
the Emerson Convalescent Center under Title XIX of the Social Security
Act.
Docket No. 78-41-NJ-HC
The New Jersey Department of Human Services, by letter dated June 2,
1978, filed an application for review of a portion of the May 4, 1978
disallowance of Federal financial participation (FFP) claimed on the
Quarterly Statement of Medical Assistance Expenditures for the quarter
ended December 31, 1977 under Title XIX of the Social Security Act. The
disallowance was made by the acting Assistant Director for Financial
Management, Health Care Financing Administration (HCFA). Of the $81,012
disallowed, the State appealed only $1,079 for services provided by the
Emerson Convalescent Center (Emerson), a skilled nursing facility (SNF),
claimed for the period November 24, 1975 to July 1, 1976. No appeal was
taken with respect to the disallowances of $62,238 for the Woodbine
State School and $12,695 for the Magda Eriksen Nursing Home.The Board
Chairman noted in an Order sent to both parties that the $5,000
discrepancy between the $81,012 disallowed and the sum of the amounts
disallowed for each facility ($76,012) appeared to be the result of an
arithmetical error. Neither party has commented further on this matter.
Docket No. 78-124-NJ-HC
On October 13, 1978, the Administrator of HCFA upheld the
disallowance by the Regional Commissioner, Social and Rehabilitation
Service (SRS) of $87,496 of FFP claimed for the costs incurred by the
Emerson Convalescent Center from November 24, 1975 to July 1, 1976. The
State requested review of the decision on November 13, 1978.
It is not clear from the Administrator's letter exactly which
disallowance of the Regional Commissioner's is being upheld, which
Quarterly Statements of Medical Assistance Expenditures were involved,
and how the $87,496 figure was arrived at. The Administrator's figure
appears to include disallowances for claims made by the State on all the
Quarterly Statements on which reimbursement was claimed for services
rendered by Emerson between November 24, 1975 and July 1, 1976. In
response to an inquiry by the Board's Executive Secretary as to the
total amount of disallowances for all of the claims pertaining to
Emerson (involving four different Board docket numbers), the attorney
for the Agency stated that the Administrator's figure was incorrect.
Board Docket Numbers 78-16-NJ-HC and 78-106-NJ-HC involve, in part,
other facilities and issues. Our decision below does not reach those
issues involving facilities other than Emerson with respect to these
cases.
The record on which this decision is based includes the applications
for review in Docket Nos. 78-41-NJ-HC and 78-124-NJ-HC, the record of
reconsideration in SRS Docket No. ME-NJ7701, Agency responses, an Order
to Show Cause issued by the Board Chairman dated August 8, 1979, and the
State's response to that Order.
Statement of the Case
The State claimed FFP for payments made to the Emerson Convalescent
Center for the period November 24, 1975 to July 1, 1976 for services
rendered by the facility to Medicaid recipients. The costs were
disallowed on the ground that the State did not have a valid provider
agreement with Emerson during the period in question.
FFP in payments to a SNF is available only if the facility is
certified as having met all of the requirements for participation in the
Medicaid program as evidenced by an agreement (provider agreement)
between the single state agency and the SFN. 42 CFR 449.10(b)(4)(i)(
C)(1977). (Although the relevant time period includes 1975 and 1976, we
cite, for convenience, the 1977 edition of the Code of Federal
Regulations, which recodified but did not appear to make any material
change in substance in the regulations effective during the period in
question.) The execution of the provider agreement is contingent upon
certification of the SNF by an agency designated as responsible for
licensing health institutions in the state (state survey agency), in
this case, the Department of Health. 42 CFR 449.33(a)(6).
The Medicaid survey conducted by the Department of Health to
determine if the facility met all the requirements for participation was
not completed until April 1, 1976, according to HCFA, although pages 2
through 20 of the Statement of Deficiencies and Plan of Correction
indicates the date to be March 22, 1976. HCFA states that on June 16,
1976, the survey agency indicated on a Certification and Transmittal
form that, based upon an acceptable plan of correction, "Emerson was in
compliance with applicable Medicaid requirements." The survey agency
then certified Emerson for the period July 1, 1976 to December 31, 1976.
The single state agency, however, on November, 24, 1975, had issued a
provider agreement for the period from November 24, 1975 to April 30,
1976. On April 30, 1976, the agreement was extended to June 30, 1976
"in the absence of a survey report and recommendation from the State
Department of Health and/or the Federal Office of Long Term Care
concerning the status of your facility meeting Title 19 Medicaid
requirements." (Letter dated April 30, 1976 from Chief, Medical Care
Administration to Emerson.) Thus, the provider agreement was issued
prior to the date of certification of the facility by the state survey
agency and for a period that was, in part, not covered by the
certification.
Issues Raised by the State
The State contends that the provider agreement was issued only after
the single state agency received oral assurance from the survey agency
that, based on observations made during a survey that Medicaid
certification would follow without difficulty. The State argues that
the single state agency's decision to issue a provider agreement at that
point was reasonable because the licensing survey incorporated Medicaid
standards.
The State argues in its response to the Order to Show Cause that due
to a severe shortage of nursing home beds in the State, the single state
agency inquired as to Medicaid certification, as soon as it became aware
that Emerson, a new facility, had been licensed. It asserts that since
both state licensure and Medicaid surveys are conducted by the survey
agency, the single state agency reasonably relied upon the assurance of
the survey agency that, based upon observations made during a licensure
survey, Medicaid certification would follow without difficulty and a
provider agreement could be issued. The State has provided a copy of a
letter dated November 4, 1976 from the Director of the New Jersey
Division of Medical Assistance and Health Services to the Director,
Office of Long Term Care, Region III, stating that "the
licensing-inspection survey utilized the standards required for Medicaid
program participation." This letter also indicates that certification
was delayed in order to process the facility's request for Title XVIII
Medicare certification. That request (which also included a formal
request for Medicaid certification) was submitted several months after
issuance of the Title XIX provider agreement.
Discussion
The State would not be entitled to FFP during the period November 24,
1975 to June 16, 1976 (see the discussion of HCFA policy regarding the
effective date of a provider agreement, below) if the November 24, 1975
provider agreement is determined to be invalid. The definition of a SNF
in Section 1861(j) of the Social Security Act (made applicable to the
Medicaid program by Section 1902(a)(28) of the Act) requires that, in
the case where state law provides for licensing of an institution, the
institution be licensed pursuant to state law or be approved by the
agency of the state responsible for licensing institutions as meeting
the licensing standards as well as certain other standards, e.g.
Section 1861(j)(13), (15). The regulations (42 CFR 449.33(a)(1)) also
require that, prior to the execution of a provider agreement, the single
state agency certify that the facility is in full compliance with the
Federal standards prescribed in the regulations. There was no such
certification at the time the provider agreement in question was issued.
Indeed, at that time, there were numerous instances of noncompliance
with federal standards and no acceptable plan of correction in effect.
The State contends that because of the severe shortage of nursing
home beds, the Single state agency acted reasonably in issuing a
provider agreement to the facility based on the verbal assurances by the
State survey agency. The State asserts that certification was not based
upon licensure alone, but upon evidence supported by the Licensure
survey which incorporated Medicaid standards.
The regulations require that the state plan for medical assistance
under Title XIX of the Social Security Act must provide that the state
survey agency will, in accordance with a written agreement with the
single state agency, determine whether a facility meets the requirements
for participation in the Medicaid program. The written agreement must
specify, among other things, that inspections are to be completed by
inspectors surveying the premises and that completed reports are to
include notations indicating whether each requirement for which
inspection is made, is, or is not satisfied, with documentation of
deficiencies. 42 CFR 450.100(c)(2). The State's description of the
survey agency's actions establishes that such a procedure was not
followed before the provider agreement was executed in November 1975.
The verbal assurance made by the survey agency that a provider
agreement could be issued cannot be considered a certification that the
facility was in full compliance with the regulations because there is no
evidence that the survey agency applied Federal standards for
certification as set forth under 42 CFR 449.33(a)(1)(i), 449.33(a)(4)(
i)-(iv), 449.33(a)(5), (6), (9) and (10) except for the unsupported
assertion to that effect in the November 4, 1976 letter from the State
to HEW cited on page 3. Indeed, a survey was not completed until the
end of March or April 1, 1976, and when it was completed, many
violations of the standards were found. These violations included,
among others, a lack of a number of written policies, certain qualified
staff members, social services and certain record-keeping procedures.
State licensing standards were applied, but Federal standards which must
also be applied under the Federal regulations, were not met. In this
case, the survey agency could not and did not state that the facility
met Federal requirements as of November, 1975. Even if the requirements
were met, verbal approvals are not sufficient under the regulations.
While the regulations do not explicitly state that certification by the
survey agency has to be in writing, a requirement for a writing is
implied by the procedures set forth in the regulations. Moreover, the
fact that written documents were later employed by the State in the
course of its normal certification process indicates that the State
understood a writing to be required.
The State argues that since the Medicaid statute entrusts
administration of the Medicaid program to the states, FFP should not be
withdrawn without a hearing before the Board on the propriety of the
state administrative decision. The State requests a hearing to prove by
testimony that, among other things, during the time the provider
agreement was in effect there was a severe shortage of nursing home
beds, and the single state agency was seeking new facilities to accept
Medicaid patients. The State contends that it would present evidence
which would tend to show that the single state agency acted reasonably
under the circumstances in issuing a provider agreement. The State
further contends that it would show at a hearing before the Board that
none of the deficient conditions had a serious effect upon the quality
of the facility's patient care. The nature of the deficiencies as noted
above do not tend to support these statements. Even if the State were
to be successful in proving these statements at a hearing, the Board's
decision would remain the same. The extenuating circumstances cited by
the State do not excuse its failure to comply with the clear terms of a
validly promulgated regulation. The Panel therefore denies the State's
request for a hearing.
The regulations provide that certification must precede issuance of a
provider agreement. According to the Certification and Transmittal form
(Form 1539), however, the state survey agency determined that Emerson
complied with Medicaid requirements on June 16, 1976, several weeks
before the effective date of the certification (Item 19 -- Date of State
Survey Agency Approval). In a recent Federal Register publication
pertaining to changes in regulations regarding provider agreements, HCFA
stated that "Medicaid's practice was to make participation effective on
the date on which it was determined that the provider met all
requirements." 45 FR 22933, April 4, 1980. Therefore, based on Agency
policy, FFP should be allowed for the cost of services rendered between
June 16, 1976 and July 1, 1976.
Conclusion
In view of the foregoing discussion, we conclude that the payments by
the State to the Emerson Convalescent Center during the period November
24, 1975 to June 16, 1976 are not eligible for FFP because the provider
agreement entered into by the facility and the State for that period was
not valid under Federal regulations. Because of the uncertainty created
by the record as to the amount that has been disallowed for this
facility and because of our determination that FFP should be made for
the cost of services rendered between June 16, 1976 and July 1, 1976, we
leave to the parties the determination of the amount of the disallowance
which is appropriately sustained in accordance with our stated
conclusion.
OCTOBER 04, 1983