DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State Department DATE: April 21, 1989 of Social
Services Docket No. 88-204 Decision No. 1040
DECISION
The New York State Department of Social Services (State) appealed a
determination by the Health Care Financing Administration (HCFA/Agency)
disallowing a total of $4,981,465 in federal financial participation
(FFP) claimed by the State under Title XIX of the Social Security Act
(Act). The disallowance is based upon an Agency review report entitled
"New York City Non-MMIS Claims Processing." The purpose of the review
was to evaluate the New York City Human Resources Administration's
billing and collection procedures for surplus income from Medicaid
recipients classified as "medically needy" who received personal care
services. The reviewers found that the State had claimed FFP in the full
amount of the payments to providers of personal care services, minus
surplus income actually collected. HCFA disallowed the State's claim to
the extent it represented expenses which should have been covered by the
recipients' surplus income but were not.
As discussed below, we find that the State's claim for expenses which
should have been covered by surplus income was an overstated claim for
FFP purposes, even though the State did not collect the surplus income
from the recipients. We therefore uphold HCFA's disallowance for such
identified, but uncollected, amounts.
Background
Title XIX of the Act established a joint federal-state medical
assistance program commonly referred to as "Medicaid." The purpose
of
the Medicaid program is to provide funds for "necessary medical
services" rendered to certain "needy individuals whose income and
resources are insufficient to meet the costs of those services."
Section 1901 of the Act. For states electing to establish and
administer a Medicaid program, the federal government will reimburse
them for a portion of the costs incurred in providing particular
categories of medical care and services to eligible recipients. See
sections 1903 and 1905 of the Act. Section 1902 of the Act provides
that a state must, in order to qualify for federal matching funds under
Title XIX, submit a state plan which complies with the conditions
specified in the Act and accompanying regulations. Participating states
must cover as "categorically needy" all recipients of cash assistance
under the Aid to Families with Dependent Children program (AFDC) of
Title IV-A of the Act and recipients under the Supplemental Security
Income program (SSI) of Title XVI of the Act. States must provide
medical assistance to all "categorically needy."
In addition, a state may elect to extend medical benefits to "medically
needy" individuals who would meet the AFDC or SSI requirements but for
the fact that their income or resources exceed the financial eligibility
standards of those programs. The "medically needy" must "spend
down"
their surplus income by incurring medical expenses equal to or greater
than the surplus, in order to meet the financial eligibility
requirements of the Act. See section 1902(a)(17).
Section 435.1002(b) of 42 C.F.R. (1985) provides:
FFP is available in expenditures for services provided to
recipients who were eligible for Medicaid in the month in which the
medical care or services were provided except that, for recipients
who establish eligibility for Medicaid by deducting incurred
medical expenses from income, FFP is not available for expenses
that are the recipient's liability.
In regard to "medically needy" individuals, the State noted:
New York State has "declared" that medical assistance for "needy
persons is . . . a matter of public concern" and "a necessity in .
. . promoting the State's goal of making available to everyone . .
. uniform high quality care." . . . Accordingly, New York State
has elected to provide medical assistance to those individuals who,
under the applicable federal standards, qualify as "medically
needy."
State's brief, p. 4.
As noted above, the purpose of HCFA's review was to evaluate the State's
treatment of surplus income available to "medically needy" recipients
of
personal care services (home attendant, housekeeper, or homemaker
services), authorized under 42 C.F.R. 440.170(f). The State's adopted
practice is to pay providers for personal care services prior to
collecting any identified surplus income from the recipients.
Thereafter, the State bills the recipients for the surplus income but
does not always collect from the recipients. The review report
identified $4,981,645 as the federal share of surplus income that was
identified but not collected by the State. The Agency disallowed this
amount as an overpayment of federal funds to the State.
The State did not deny that it had claimed FFP in expenses that the
State had identified as the recipients' liability. Instead, the State
argued that section 1903(d)(2)(D) of the Act precluded the Agency from
disallowing what the State termed as "uncollectible overpayments."
The
State also argued that its method of treating surplus income served
program purposes.
Analysis
I. Section 1903(d)(2)(D) does not preclude the Agency from
taking the disallowance in this case.
Section 1903(d) of the Act provides a system for estimating, prior to
each calendar quarter, what a state's Medicaid expenditures will be for
that quarter. Section 1903(d)(2) of the Act provides:
(A) 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.
* * *
(C) For purposes of this subsection, when an overpayment is
discovered, which was made by a State to a person or other entity,
the State shall have a period of 60 days in which to recover or
attempt to recover such overpayment before adjustment is made in
the Federal payment to such State on account of such overpayment.
Except as otherwise provided in subparagraph (D), the adjustment in
the Federal payment shall be made at the end of the 60 days,
whether or not recovery was made.
(D) In any case where the State is unable to recover a debt which
represents an overpayment (or any portion thereof) made to a person
or other entity on account of such debt having been discharged in
bankruptcy or otherwise being uncollectible, no adjustment shall be
made in the Federal payment to such State on account of such
overpayment (or portion thereof).
The State primarily argued that the uncollected surplus income
represents an uncollectible overpayment within the meaning of section
1903(d)(2)(D) of the Act. The State conceded that the federal
government was entitled to recover its share of uncollectible
overpayments prior to October 1, 1985, the effective date of section
1903(d)(2)(D). However, the State asserted that Congress enacted
section 1903(d)(2)(D) to reaffirm the concept of partnership that
underlies Title XIX and to provide federal funding for all uncollectible
overpayments. State's brief, p. 6. In response to HCFA's position that
the legislative history of section 1903(d)(2)(D) shows that it applies
only to provider overpayments, the State contended that the statute does
not make any distinction between overpayments made to providers and
those made to recipients. The State alleged that the language of
section 1903(d)(2)(D) is clear and unambiguous on this point.
Therefore, the State argued, no resort to the legislative history is
necessary and the legislative history cannot be used to "distort"
the
plain meaning of the statute. State's reply brief, p. 2 and cases cited
therein. Finally, the State asserted that the Board had implicitly
recognized the applicability of section 1903(d)(2)(D) to recipient
overpayments in Georgia Dept. of Medical Assistance, DAB No. 798 (1986).
As noted above, the disallowance is based on 42 C.F.R. 435.1002(b),
which clearly specifies that no FFP is available in expenses which are a
recipient's liability. Since the State claimed FFP in such expenses, it
is clear that the State has received an overpayment of FFP which should
be adjusted under section 1903(d)(2)(A). Section 1903(d)(2)(D) applies
only "where the State is unable to recover a debt which represents an
overpayment . . . made to a person or other entity . . . ." (Emphasis
added.) Here, the only payments the State made were to the providers of
personal care services, and there is no finding that those payments were
in excess of what should have been paid to the providers. Thus, as
asserted by the Agency, section 1903(d)(2)(D) does not apply to the
amounts at issue here.
Even if the language of section 1903(d)(2)(D) could be read to include,
as overpayments, amounts which are a recipient's liability, we would
find the legislative history to be relevant since this reading is not
clear from the face of the statute. As the Agency argued, the
legislative history of section 1903(d)(2)(D) shows that Congress did not
intend that section to apply to surplus income in the possession of a
program recipient.
The Consolidated Omnibus Budget Reconciliation Act of 1985, Public Law
99-272, added section 1903(d)(2)(D) to Title XIX of the Act. The Senate
report that accompanied the legislation stated:
Current law.--State Medicaid agencies are allowed to pay nursing
homes and hospitals at interim rates until final rates are
established. If the final rate is less than the interim rate, the
institution was overpaid and the State is responsible for the
collection of the "overpayment". The State must refund the Federal
share of the overpayment to the Federal Government. . . . even
where they are not collectable . . . . Explanation of
provision.--The provision would allow States up to sixty days (from
the date of discovery) to recover overpayments from providers and
refund the Federal share. The provision would provide that a State
is not liable for the Federal share of overpayments which cannot be
collected from bankrupt or out-of-business providers.
S. Rep. No. 146, 99th Cong., 2nd Sess. 314 (1985); see also
H.R. Rep. No. 453, 99th Cong., 1st Sess. 548 (1985).
Clearly, the legislative history of the statute places the provision in
its proper context. The legislative history indicates that Congress
intended to limit the term "overpayment" to situations where a provider
has gone bankrupt or out-of-business and the State, therefore, cannot
collect the funds. See 54 Fed. Reg. 5452, 5453 (February 3, 1989). We
found nothing in the legislative history to suggest that this provision
was intended to extend to recipients. Nor did the State point to any
legislative material to support this interpretation.
Moreover, the State construed too liberally what the Board said in
Georgia. In Georgia, the Board said, at page 4, note 2:
We note that the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA), Pub. L. 99-272, contains a provision which would
permit states to retain FFP for overpayments to bankrupt providers
or which are otherwise uncollectible.
This language simply paraphrases the statutory provision; certainly, the
Board did not indicate in Georgia that this provision would apply to the
situation presented here. In light of the foregoing, we cannot accept
the State's position.
II. The operation of the State's program is not determinative of
the issue here.
Secondarily, the State argued that the disallowance should be reversed
because its surplus income program complied with the federal directive
that medical services "be provided in a manner consistent with
simplicity of administration and the best interests of the recipients."
State's brief, pp. 6-7, citing section 1902(a)(19) of the Act. The
State did not allege that it had at any time attempted to collect
surplus income before providing medical services, and that this proved
to be ineffective. Instead, the State speculated that if it withholds
Medicaid services until the surplus income is collected, many recipients
might be forced to forgo personal care services and enter a hospital or
nursing home. The State argued:
Most "medically needy" individuals would be unable to bear the
expense of a home attendant, housekeeper or homemaker. This
situation could result in a serious health crisis. Many recipients
might be forced to forgo personal care services and enter a
hospital or nursing home. Such a result would be both injurious to
the affected recipients and contrary to the underlying purpose of
Title XIX.
While the State might be correct that the recipients might be injured if
they were asked to bear the entire costs of personal services, these
recipients clearly had excess income which they were required to apply
to the costs of medical services in order to establish eligibility for
Medicaid. The State did not explain why it could not have established a
system where the recipient paid directly to the provider that part of
the cost of the personal services that the State had identified as the
recipient's liability, and the State paid the remainder. It is not
uncommon for insurance companies to pay only a percentage of a
provider's bill, leaving to the insured the responsibility for paying
the remainder. Even if this would be impractical, the State did not
show that the failure to collect here was a necessary consequence of its
payment system; it is possible that the State simply failed to pursue
collection in a timely and effective manner.
As the Agency explained, the regulatory requirements do not mean that
the State must collect surplus income before services are provided to
the medically needy, only that the State must exclude the surplus income
amount from the claims it ultimately submits to HCFA. Agency's brief,
pp. 9-10. In light of the regulation which excludes FFP in expenses
which are the recipient's liability, the State could not have reasonably
believed that it would be entitled to FFP for those parts of the
provider payments that should have been covered with surplus income.
We also reject the State's argument that its system was a way of
establishing "reasonable standards . . . for determining . . . the
extent of medical assistance," as required by section 1902(a)(17) of the
Act. Expenses which are the recipient's liability simply may not
qualify as medical assistance under the statute and regulations.
Conclusion
Based on the foregoing, we uphold the Agency's disallowance in full.
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Norval D. (John) Settle
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Alexander G. Teitz
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Judith A. Ballard Presiding
Board