GAB Decision 111
July 16, 1980 Nebraska Department of Public Welfare; Docket No.
78-36-NB-HC Przybylinski, Donald; Woodruff, Robert Dell'Acqua, Frank
On May 23, 1977, the Nebraska Department of Health (the survey
agency) conducted a survey of the Warren Hospital Annex (Annex) pursuant
to the State's Regulations and Standards for Aged or Infirm. According
to the State, an acceptable plan of correction was agreed upon
subsequent to the survey. The Annex's Medicaid Certification and
Transmittal, dated June 28, 1977, indicates that the facility had been
certified by the Department of Public Welfare (DPW), the single state
agency, for participation under Medicaid for the period August 1, 1977
to July 31, 1978 (HCFA Response, Attachment B). It is assumed, absent
an indication to the contrary, that a provider agreement was executed
for the certification period. On July 15, 1977, the Department of
Health conducted a "complaint visit" to the facility. On August 9,
1977, the Annex's intermediate care facility (ICF) license was revoked
by the Department of Health. The director of the DPW, on August 12,
1977, notified the administrator of the Annex that the facility was
being decertified as a participant in the Nebraska Medical Assistance
Program effective August 9, 1977.
According to the notificaion, this action was based on the revocation
of the ICF license by the Department of Health for violation of its
regulations. The director of the DPW also stated that the "counties of
fiscal responsibility" were being notified that all Medicaid recipients
in the facility must be relocated as soon as possible (DPW Application,
Exhibit 2). The Department of Health conducted an audit of the facility
on August 18, 1977. On September 2, 1977, the Department of Health
rescinded its August 9 revocation and revoked the ICF license as of
September 2. The revocation document (HCFA Response, Exhibit A) noted
serious deficiencies in the areas of fire safety, resident care and
administration, as well as the intentional misrepresentation of
information about nursing schedules. Violations of State fire
regulations included the lack of a 1 3/4 inch solid wood bonded core
door to the utility building and the lack of a sprinkler system
throughout the wood frame building.
On September 6, 1977, the Annex appealed the license revocation to
the Department of Health pursuant to Nebraska Revised Statutes (N.R.S.)
Section 71-2023 (1971). On September 15, 1977, the State Division of
Medical Services wrote to Saline and Thayer Counties that, because the
Annex had appealed the decertifiation, "all the plans for relocation of
the Medicaid recipients in this facility should be suspended until you
are notified of the findings of the appeal hearing" (DPW Application,
Exhibit 4).
On September 16, 1977, the DPW notified the facility that its
decertification had been amended to September 2, 1977 to coincide with
the license revocation by the Department of Health (DPW Application,
Exhibit 3).
On November 17, 1977, the Annex was notified by the DPW that:
Effective immediately no new admissions of Medicaid recipients . . .
will be approved for Medicaid payment. Only after the state Department
of Health has made a determination in the appeal of the license
revocation and has notified this office that your facility is in
compliance with standards for recertification can new admissions be
approved. (DPW Application, Exhibit 5).
The situation within the Annex with regard to the patients was,
therefore, that no new admissions were to be accepted but that patients
did not have to be moved to another facility until the appeal was
resolved.
On January 12, 1978 the Director of the Department of Health
"affirmed and upheld" the license revocation and ordered all of the
residents and patients but one to be removed by March 1, 1978 unless an
inspection prior to that date showed that the violations had been
remedied (DPW Application, Exhibit 8).
The Annex did not appeal the decision to the district court of
Lancaster County, as is provided for in N.R.S. Section 71-2027 (1971).
The DPW submitted its Quarterly Statement of Expenditures for the
Medical Assistance Program for the quarter ended December 31, 1977 to
the Regional Office of the Health Care Financing Administration (HCFA).
The Statement requested FFP in payments to the Annex for services
provided between September 1, 1977 and November 30, 1977. On May 19,
1978, HCFA notified the DPW of the disallowance of $3,403 for the period
September 1 to November 30, 1977 stating that the action was taken
because:
To qualify for FFP under 42 CFR 449.10(b)(15)(i)(A), ICF services
must be provided by a facility which fully meets requirements for
licensure under State law to provide such services. ICF services
provided by the . . . Annex subsequent to September 2, 1977 do not meet
the requirements for FFP.
Since the State did not act within 30 days after the decertification
to transfer patients from the Annex to another facility, FFP was not
available during the 30 days following decertification under 42 CFR
449.10(b)(15)(v).
The Board's decision is based on the State's application for review
dated June 13, 1978, the Agency's response to the appeal, an Order to
Show Cause and the responses, responses to requests by the Board's
Executive Secretary for additional information, and briefs filed in
conjunction with an informal conference which both parties attended,
held in a Delaware case (Board Docket No. 78-108-DE-HC) which involved a
similar issue.
perform any one of the functions in Sec. 449.33(a)(5);
(D) The survey agency failed to use the Federal standards and the
forms, methods and procedures required under Sec. 450.100(c)(1); or
(E) The terms and conditions of a provider agreement do not meet the
requirements of Sec. 449.33(a)(6)(7), (8) and (10).
In addition, 42 CFR 449.10(b)(15)(i)(A) requires, as one of the
conditions for FFP, that ICF services be provided in an institution
which "meets fully all requirements for licensure under State law."
As a result of 42 CFR 449.10(b)(15)(i)(A) quoted above, the State
statutory laws governing licensure, and in particular, N.R.S. Sections
71-2023 and 71-2027 (1971), become applicable.
N.R.S. Section 71-2023 (1971) states, in pertinent part:
The Department of Health shall issue licenses for the operation of
institutions . . . . The Department of Health shall deny, or suspend or
revoke licenses . . . . The denial, suspension, or revocation shall
become final thirty days after the mailing of the notice, unless the
applicant or licensee, within such thirty-day period, shall give written
notice of desire for hearing. Thereupon the applicant or licensee shall
be given a fair hearing . . . . On the basis of such evidence the
determination involved shall be affirmed or set aside. . .
The decision shall become final thirty days after a copy thereof is
mailed, unless the applicant or licensee within such thirty-day period
appeals the decision under section 71-2027. . . .
N.R.S. Section 71-2027 (1971) states:
Any applicant or licensee, who is dissatisfied with the decision of
the Department of Health as a result of the hearing provided in section
71-2023 may, after receiving a copy of the decision, appeal to the
district court of Lancaster County at any time within thrifty days after
the mailing of such copy of the order. . . .
License Revocation
The State admits that the ICF license of the Annex was revoked
effective September 2, 1977 and that it was decertified as a participant
in the Nebraska Medicaid program as of that date. The State argues,
however, that the revocation was held in abeyance as soon as the
facility appealed the revocation, and that FFP should have been
continued during the period between September 2, 1977 and January 12,
1978 when the revocation became final.
The State's argument centers on the use of the work "unless" in
the
State law, viz: ". . . The denial, suspension or revocation shall
become final thirty days after mailing of the notice unless the
applicant or licensee . . . shall give written notice of desire for
hearing." The State claims that, since a timely notice of appeal was
filed in this case, "the license revocation was held in abeyance pending
the outcome of the appeal. . ." (DPW Application, p. 2).
As support for its argument, the State submitted an opinion from its
Attorney General dated July 12, 1979 which states in pertinent part --
If the Department of Health suspends or revokes the license of a
nursing home, its decision is final unless the licensee makes a timely
request for an evidentiary hearing before the department. After such a
hearing, a decision of the department affirming the revocation is final
unless the licensee makes a timely appeal to the district court as
provided in sections 71-2023 and 71-2027, R.R.S. 1943. Otherwise those
statutes are silent about the effect of an appeal on the licensee's
right to continue to operate its facility and the time when the
suspension or revocation takes effect. . .
We have concluded that the licensee can continue to operate its
facility as though its license were in full force and effect pending a
final determination of its appeal. If the order of the department is
affirmed on appeal, the suspension or revocation will commence at the
time of the final judgment, not at the time of the department's order.
It does not appear from the actions of the State that it considered
the license (and therefore its certification according to the State) to
be in full force and effect after September 2, since the State notified
the facility on November 17 that no new admissions of patients would be
eligible for Medicaid payments.
HCFA has agreed, subsequent to the Order to Show Cause issued by the
Board, that the Attorney General's opinion holds that an appeal of a
license revocation pursuant to 71-2023 suspends the effective date of
license revocation until the revocation is affirmed on appeal. As
discussed below, HCFA now argues that the survey of the facility
revealed violations of federal as well as State standards and,
therefore, that the operation of State law does not govern HCFA's
actions.
Decertification
HCFA has argued that surveys of the facility conducted by the State
not only revealed noncompliance with state standards but also
noncompliance with federal standards such as fire safety, resident care
and administration and intentional misrepresentation of nursing
schedules. HCFA points out that in order to qualify for FFP, a facility
must satisfy both state and federal standards. But it argues that,
notwithstanding the stay of revocation of the state license, the
facility still was not certified as being in compliance with federal
standards. Since the facility was not certified, its provider agreement
was no longer valid, and its ICF services were not reimbursable.
The State argues that the license revocation action was the sole
basis for the initiation of decertification, and that since the license
revocation is stayed on appeal by statute, so is the decertification.
Thus when a timely appeal is filed, the State asserts, a final
determination as to the material facts involved cannot be made until a
hearing is held, an order entered, and, potentially, judicial review
completed. The State contends that when there is one set of
deficiencies which form the basis for both license revocation and
decertification, the DPW cannot legally decertify when a timely appeal
has been filed since there can be no legal, final determination as to
the cited deficiencies under State law. Continuing payments during this
period protects the due process rights of both patient and provider.
The State cities Hathaway v. Mathews, 546 F.2d 227 (7th Cir. 1976)
and Klein v. Mathews, 430 F. Supp. 1005 (D.C.N.J. 1977) in support of
its assertion that there are two parallel sets of due process rights
inuring to the benefit of providers and patients which must be
safeguarded in non-emergency situations by the provision of
pretermination evidentiary hearings. The State contends that the facts
of this appeal do not indicate that "emergency" situations existed.
It
further contends that the facts clearly do not support a conclusion that
there were conditions that were so deplorable and dangerous so as to
outweigh the due process rights of the provider and patients.
The State argues that it is obvious from the cases cited that had DPW
chosen to attempt decertification of the provider without a
pretermination hearing, the patients could have brought a lawsuit and
obtained an injunction which would have required the continuation of
Medicaid payments pending the outcome of administrative and, if
necessary, judicial review. It points out that the due process
safeguards are embodied in the Nebraska Revised Statutes, thus obviating
the necessity of such a lawsuit. The State concludes that it should not
be penalized for safeguarding the due process rights of providers and
patients alike in non-emergency situations.
In reply to the State's due process arguments, HCFA asserts that the
cases cited by the State deal only with the rights of patients to a
hearing prior to the termination of a provider's participation in the
Medicaid program. In the present appeal before the Board, however,
there is no evidence that any patients were instrumental in exercising
the appeal rights under N.R.S. 71-2023 or were, in fact, involved in the
hearing before the Department of Health. It thus appears that the
provider was the only one seeking the appeal or represented at the
hearing. HCFA assets that the requirements for a survey, certification,
and provider agreement were designed to safeguard the interests of
recipients of federally funded medical assistance by ensuring that they
receive quality medical care in safe and healthful surroundings. HCFA
contends that the purpose of these laws is to protect low income
individuals from the very kind of conditions they continued to
experience in this nursing facility.
Discussion
In the decision in Delaware Department of Health and Social Services,
DGAB Docket No. 78-108-DE-HC, Decision No. 87, February 29, 1980, the
provider agreement itself stated that a hearing would be held if the
single State agency suspended or cancelled the facility's Medicaid
participation. As the Board's Chairman stated in his decision at page 2
--
There is no good solution to the dilemma which the parties . . .
face. Residents of the facilities participating in the Medicaid program
should be protected against substandard conditions but also have an
interest not to be moved unnecessarily from facilities they have chosen.
The State in good faith may feel that it must extend due process to a
facility which has had its participation in the Medicaid program
suspended or cancelled and that if the State does not provide a hearing,
it may be required by a court to do so. If it is forced to continue
reimbursing the facility for its Medicaid costs, it naturally looks to
the Federal government for participation in the costs. On the other
hand, the Federal government has not committed itself to continue to
fund poor, inadequate, even harmful services to individuals while review
proceedings, possibly protracted, possibly deliberately stalled, are
conducted.HEW's decision not to particiate appears to be consistent with
the Medicaid regulations and not in conflict with current case law.
The State has argued that case law indicates that due process rights
inure to the benefit of providers and patients which must be safeguarded
by pretermination hearings and that these due process safeguards are
embodied in N.R.S. 71-2023. The State contends that it should not be
penalized (by a loss of FFP for safeguarding these rights.
The court cases relied on by the State do not fully support its
contentions (see discussion at pages 7 and 8 of the Delaware decision).
In Hathaway v. Mathews (cited supra), in which an HEW inspection team
determined that the facility should not have been certified, the court
emphasized the fact that the owner had not been give notice of what
specific areas of the facility were allegedly out of compliance; the
argument for requiring a pretermination hearing was thus stronger than
in other situations in which a facility had been given notice. In this
appeal, it is clear that the owner of the Annex had been aware of the
deficiencies inasmuch as a plan of correction had been approved several
months before decertification. In the Klein case (cited supra), in
which HEW terminated FFP although the State and its surveyors disagreed
with HEW's findings, the district court stated that the patients had a
right to a hearing and that the patients' direct assertion of their
interest not only undermined the government's interest in a pre-hearing
termination but was a more compelling interest in postponing termination
than that asserted by the nursing home in Hathaway. The Supreme Court,
on June 23, 1980, in the case of O'Bannon v. Town Court Nursing Center,
48 U.S.L.W. 4842, determined that the patients in the facility do not
have an interest in receiving benefits for care in a particular facility
that entitles them, as a matter of constitutional law, to a hearing,
before HEW can decertify the facility. The trend of the case law as
characterized by the state is that this Department must reimburse a
state pending the outcome of a pretermination hearing. The O'Bannon
case indicates that the trend is not as clear-cut as this.
The issue presented in this case is whether FFP can be provided to
reimburse the State for payments to a facility after it has been
decertified but prior to the time the decertification becomes final
under the applicable state law. In order to find for the State, we
would have to determine that there was valid certification of the
facility during the appeal process.
The State law cited above, N.R.S. Section 71-2023, refers only to
license revocation procedures. There is neither reference in this
section to a decertification procedure nor has the State documented any
provision in any other section of the State statutes. State law could
have provided for such a procedure, but did not do so. Therefore,
during the relevant time period, there was no statutory provision
requiring any sort of hearing procedure when a facility was found not to
comply with federal Medicaid standards. On the date of decertification,
September 2, 1977, there was no valid provider agreement under the
regulations, and FFP could no longer be given for services rendered by
the facility.
The State has argued that the deficiencies which caused the
delicensing procedures were the same deficiencies which HEW claims are
violations of federal standards and were the cause for decertification.
The Agency has not proved otherwise. Therefore, assuming arguendo that
the violations were coterminous, there is merit in the contention that
the State could not decertify until there was a final, legal
determination under Stte law on the true nature and extent of the
deficiencies. Nevertheless, the facility ultimately did lose its appeal
and its license.
Even if we found that the language of the State statute could be
interpreted to include decertification hearings, this Department, under
the "look behind" regulations, 45 CFR 449.10(b)(15)(vi)(A) need not
accept the final determination at the end of the appeals process as
binding on its decision as to whether to provide FFP.
42 CFR 449.33(a)(2)(i)(C) states that an ICF having Life Safety Code
deficiencies may be certified provided that during the period allowed
for corrections, the institution is determined to be in compliance with
existing State fire safety and sanitation codes and regulations. The
record shows that one of the reasons for the delicensure action was that
the facility did not comply with State fire Regulations 10-2327 and
10-2352 as well as the Life Safety Code. Under the Federal regulations,
therefore, because of the State code violations, the Department of
Health improperly certified the facility, even though there was a plan
of correction. The provider agreement was, therefore, invalid, and FFP
cannot be awarded for the reimbursement of services by a facility with
an invalid provider agreement.
As the State suggests in its argument, it is appropriate to apply a
balancing test to the property rights of the providers, the interests of
the patients and the interest of the state and federal governments in
ensuring that the patients are provided a healthy and safe environment.
In the instant case, the Board rejects the State's characterization of
Warren Hospital Annex as a facility where conditions were not so
deplorable and dangerous so as to outweigh the due process rights of the
providers and patients. The record establishes that the patients, many
of whom were not fully ambulatory, were housed in a wooden frame
structure which was not fully protected by an automatic sprinkler
system. In addition, the facility was not properly staffed and at times
did not have sufficient personnel on duty to perform an evacuation of
the building. This cannot be condoned by Federal financing
participating. This would remain true no matter what the outcome of the
hearing conducted by the State on the license revocation. The health
and safety of patients will always be a concern of the Board in a
controversy involving the Department's obligation to provide FFP when a
state has terminated a facility from the Medicaid program. To require
the Department to continue payments when a facility does not meet
minimal statutory and regulatory requirements would disarm the
Department of its main weapon, the denial of FFP, to ensure that quality
care is received.
On February 15, 1979, the Agency promulgated regulations (44 FR 9749)
requiring states to make appeals proceedings available to facilities
whose participation in the Medicaid program is being denied, terminated,
or not renewed. In the preamble, the Agency states that one of the
primary goals of the Notice of Proposed Rulemaking was --
to clarify the point at which Federal funding of Medicaid payments
would cease for a facility that had been terminated from the Medicaid
program. Included . . . were rules providing retroactive payments for
terminated facilities which were determined after administrative or
judicial appeal to have been qualified to participate and certain
provisions relating to the coterminous nature of Medicare and Medicaid
provider agreements. (42 FR 3665)
It was our intention to raise in that Notice the question whether the
federal financial participation in payments to facilities should be
continued throughout the hearing process, and, more specifically, what
effect State laws and court injunctions against States which continued
State payments to facilities or extended their provider agreements
throughout the hearing process should have on Federal Medicaid payments.
We now believe, however, that these issues were not adequately addressed
in the Notice. We have, therefore, decided not to issue final rules on
the Federal financial participation question contained in the Notice at
this time. We intend to address those issues specifically in a new
Notice of Proposed Rulemaking.
Although it has been almost one-and-a-half years since that
regulation was published, there has been no new Notice of Proposed
Rulemaking dealing with the issues set out in the part of the preamble
quoted above. Accordingly, the Board will deal with this admittedly
difficult problem on a case-by-case basis and attempt to provide some
guidance to the states until the Agency issues comprehnsive rules.
Conclusion
Based on our analysis that N.R.S. 71-2023 and court decisions cited
by the State are not applicable to this appeal and that 42 CFR 449.10(
b)(15)(vi)(A) is applicable to this factual situation, we conclude that
the payments by the State to the Warren Hospital Annex during the period
from September 1, 1977 through November 30, 1977 are not eligible for
FFP because the provider agreement entered into by the facility and the
State was not valid under Federal regulations. This decision consitutes
the final administrative action on this matter.
OCTOBER 04, 1983