Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Oregon Department of
DATE: June 25, 1990
Human Resources Docket No. 90-12
Decision No. 1168
DECISION
The Oregon Department of Human Resources (State) appealed the decision
of the Health Care Financing Administration (HCFA) disallowing $299,457
claimed as federal financial participation (FFP) under the Medicaid
program established by title XIX of the Social Security Act (Act). The
State claimed FFP in expenditures for heart, bone marrow, and liver
transplants and related services provided to Medicaid-eligible
individuals. The State's title XIX plan included a provision covering
such transplants which was effective on August 2, 1988. The plan was
amended to delete this coverage effective September 27, 1988. The
individuals in question submitted requests during this 56-day period for
Medicaid funding for transplant services. 1/ HCFA disallowed the cost
of services which were provided "outside the period in which the State
plan was in effect" on the ground that the costs were not amounts
expended under the approved State plan, as required by section
1903(a)(1) of the Act. Disallowance letter dated 12/12/89, p. 2. All of
the services except for two items totalling $273.88 FFP were provided
after September 26, 1988.
For the reasons discussed below, we conclude that the approved State
plan covered the transplant services which were requested from August 2
through September 26, 1988, but provided after this period.
Accordingly, we reverse the disallowance in the amount of $299,183.12.
The disposition of the remaining $273.88, related to services provided
prior to the effective date of the plan provision, is explained at the
end of this decision.
Applicable Law
Title XIX of the Act establishes a cooperative federal- state program
known as "Medicaid" designed to enable each State to furnish medical
assistance to eligible individuals. States wishing to participate in
the Medicaid program must submit a state plan for the provision of
services which complies with federal requirements. Upon the Secretary's
approval of its plan, a state becomes entitled to reimbursement by the
federal government, termed "federal financial participation," for
a
portion of its payments to providers furnishing medical assistance to
Medicaid recipients. Section 1903(a) of the Act provides that, for each
quarter, "the Secretary . . . shall pay to each State which has a plan
approved under this title . . . an amount equal to the Federal medical
assistance percentage . . . of the total amount expended during such
quarter as medical assistance under the State plan . . . ."
Section 1903(i)(1) of the Act permits, but does not require, a state to
cover the cost of transplant services under its Medicaid program. Under
this section, a state plan covering such services must provide for
written standards which assure that similarly situated individuals are
treated alike and that any restriction on the facilities or
practitioners which may provide such services is "consistent with the
accessibility of high quality care to individuals eligible for the
procedures under the State plan . . . ."
If a state decides to provide transplant services, it must comply with
the general requirement that "[e]ach service [provided under title XIX]
must be sufficient in amount, duration, and scope to reasonably achieve
its purpose." 42 C.F.R. 440.230(b).
In addition, 42 C.F.R. 435.1002(b) provides that "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 . . . ."
Factual Background
The State plan provision at issue in this appeal provided in part as
follows:
Limitations
The State of Oregon's coverage of transplant services is limited to
cornea, kidney, heart, bone marrow and liver.
Prior Authorization
Prior authorization is required by the Adult and Family Services
Division for heart, bone marrow, and liver before the cost
associated with these transplants will be covered under Medicaid.
The Division's Medical Director will approve or deny heart, bone
marrow and liver transplant request[s] based on the patient
selection criteria outlined in Attachment 3.1E . . . .
The medical necessity of cornea and kidney transplants is
determined by the Oregon Medical Professional Review Organization.
Facilities and Practitioners
Oregon's Medical Assistance Program will provide coverage for organ
transplantation procedures in centers consistent with accessibility
of high quality care to individuals eligible under the State Plan.
State's exhibit (ex.) 11, p. 2. This provision was submitted to HCFA by
the State on August 2, 1988, and was approved by HCFA retroactive to
that date on March 7, 1989. State's ex. 4. Before it submitted the
amendment, the State informed HCFA that it planned to finance the
transplants through private donations and federal Medicaid funds. The
State also indicated to HCFA that if the donated funds were exhausted
and not replaced by additional donations, the State would discontinue
coverage, using State general funds to pay for transplants already
approved. State's ex. 1, p. 1. The private donations, which totalled
only $85,000 when coverage began on August 2, 1988, were soon exhausted,
and on September 16, 1988, the State sent out "10-day notices" to
advise
Medicaid recipients of the termination of the transplant program. The
notices stated in part:
If you are a Medicaid client and need a heart, liver or bone marrow
transplant, please ask your doctor to contact AFS, in writing
before September 27, 1988 and request payment for the transplant.
If AFS receives the request before September 27, 1988, and it is
later approved, your transplant will still be paid for by AFS.
State's ex. 6. Effective September 27, 1988, the State amended its plan
to delete coverage for all organ transplants with the exception of
kidney and cornea transplants. This plan amendment was approved by HCFA
on March 7, 1989 retroactive to September 27, 1988. State's ex. 7.
The State received a number of transplant requests during the period
August 2 through September 26, 1988. 2/ Between August 5 and December 5,
1988, the State sent letters approving 18 of these requests. The
letters stated that the State approved the transplant services so long
as the individual was Medicaid-eligible on the date of service. 3/
State's ex. 15, p. 2 and Attachment B. When it became known that the
State was planning to terminate Medicaid coverage of transplant
services, the State sent out a second letter to several individuals
whose requests had been approved assuring them that Medicaid would pay
the cost of the transplant services after the termination of the
transplant program if they remained Medicaid-eligible. State's ex. 15,
Attachment D.
The disallowed costs represent claims for transplant services provided
to 13 individuals 4/ from September 27, 1988 through April 26, 1989
(except for the two items of service provided before August 2, 1988
which are discussed elsewhere in this decision). State's ex. 15,
Attachment E.
Parties' Arguments
HCFA took the position that the services were not provided "under"
an
approved state plan, as required by section 1903(a)(1) of the Act. HCFA
argued that the word "under" means that "a claim must have been
incurred
when coverage of the service was legally in effect." HCFA's brief dated
5/9/90, p. 4. HCFA asserted that an expenditure must be made by the
State before there can be a claim, and that it was thus "irrelevant"
that the services were requested while the State plan contained a
provision covering transplant services. Id., p. 6.
The State did not dispute that FFP is available only under an approved
State plan. However, the State took the position that nothing in the
Act or regulations prohibited the payment of FFP in transplant services
requested while the plan provision covering such services was in effect
but provided later. The State asserted that the only issue in this case
was whether its plan could be interpreted in this manner. The State
acknowledged that the plan was "silent" regarding whether services
requested during the period that the plan provision was in effect would
continue to be covered. State's brief dated 3/23/90, p. 13. However,
the State asserted that this was a reasonable interpretation in light of
the purpose of the provision and the program requirements, and that its
actions in implementing the plan provision showed that this was the
interpretation intended by the State.
Discussion
We first note that it is not entirely clear what HCFA means by a claim
being incurred. Generally, it is a cost or expenditure which is
incurred. It is reasonable to consider these expenditures to have been
incurred at the time that the recipient submitted an approvable request,
on the basis that this obligated the State to pay for the services. 5/
Under this analysis, these expenditures were incurred during the period
when the State plan provision covering transplant services was "legally
in effect."
Moreover, contrary to HCFA's assertion, the requirement that amounts be
expended as medical assistance under an approved state plan does not
require that the State actually have a right to submit a claim for FFP
during the period between the effective date of the amendment covering
the services and the effective date of the amendment deleting the
coverage. This provision means simply that the services provided must
be covered by the approved State plan. HCFA did not argue that the
State failed to comply with any other applicable statutory or regulatory
requirements. 6/ (Although the disallowance letter cited 42 C.F.R.
430.20, this regulation appears to be relevant only to the amount
claimed for services provided prior to the implementation of the plan,
discussed elsewhere in this decision.) Thus, the only issue here is
whether the State plan in fact covered the services in question.
The relevant factors in making this decision are discussed in several
Board decisions. The State relied on South Dakota Department of Social
Services, DAB No. 934 (1988), in which the Board stated --
In considering whether a state has followed its approved state
plan, the Board first examines the language itself. If the
provision is ambiguous, the Board will consider whether the state's
proposed interpretation gives reasonable effect to the language of
the plan as a whole. The Board will also consider the intent of
the provision. A state's interpretation cannot prevail unless it
is reasonable in light of the purpose of the provision and program
requirements. Lacking any documentary, contemporaneous evidence of
intent, the Board may consider consistent administrative practice
as evidence of intent.
DAB No. 934, p. 4. HCFA took the position that this decision was
inapposite here, arguing that the absence of any language in the State
plan concerning the coverage of services which were merely requested
while the plan provision was in effect did not constitute an ambiguity
in the language of the plan. Ambiguity can lie in silence as well as in
particular language in a plan provision, however. Here, the plan
provision required prior approval of transplant services in order for
their cost to be covered, and indicated that the State would approve a
request if medical necessity criteria were met. What this left unsaid
was whether services which were approved (or in the process of approval)
when coverage was withdrawn would still qualify for funding. This
constitutes an ambiguity, since the plan was susceptible to more than
one interpretation on this point. Thus, it is appropriate to look to
the intent of the State in first providing coverage and then deleting
coverage of these transplant services.
As discussed in detail below, we find that the State's interpretation of
its plan to cover transplant services requested during the period the
plan provision was in effect, but provided later, is reasonable. This
interpretation furthered the purpose of covering transplant services --
the saving of lives -- since a successful transplant requires the
provision of services over an extended period of time. In addition,
this interpretation assured the State's compliance with regulations
requiring that services provided under a plan be sufficient in amount,
scope and duration to satisfy the purposes of the plan. Moreover, it is
clear from the State's actions in implementing the plan that this was
the interpretation intended by the State. Under these circumstances, we
defer to the State's interpretation.
The nature of the services covered here is a major factor in determining
the reasonableness of the State's interpretation. As the State pointed
out, transplants involve considerably more than a single surgical
procedure that can be scheduled as soon as payment is approved. The
State described the process involved as follows:
First, a donor must be located and the donor's tissue typed to
determine if it is a close enough match to the recipient's to
ensure a minimal risk of rejection of the transplant by the
recipient. The process of securing an appropriate donor may take
months (or even years in the case of bone marrow transplants), and
the hospitals that perform transplants will not even begin the
process until funding for the transplant is assured. After an
appropriate donor is located, the organ . . . must be obtained. In
the case of liver and heart transplants, this means waiting until
the donor dies. In the case of bone marrow transplants, the marrow
may be harvested from the living donor and sent to the transplant
center. Even if an organ is obtained, the transplant may not be
performed until any medical problems that the recipient may have
that would interfere with the transplant process have been
resolved. After the recipient is considered to be in a state to
receive the transplant, the procedure is performed . . . .
Depending upon the individual and the type of transplant, hospital
discharge may occur anywhere between a few weeks and a few months
after the transplant. Follow-up care for transplant patients
includes monitoring blood levels for immunosuppressant drugs and
for evidence of rejection of the transplanted organ or relapse of
the original condition. If problems develop, the recipient may
require rehospitalization. Unless all of the medically necessary
services related to a transplant are provided, the recipient is
likely to die, in which case, the purpose of providing the
transplant would not have been achieved.
State's ex. 15, pp. 4-5. This description, which HCFA did not
challenge, indicates that the provision of transplant services is a
multi-step process which may span months if not years. Indeed, in this
case, the State was unable even to complete the approval process for all
of the individuals in question within the 56-day period during which the
plan provision was in effect. State's ex. 15, Attachment B. Only two
individuals actually received transplants during this period, and these
individuals continued to require transplant services well after this
period. Id., Attachment C.
As the State pointed out, moreover, the full range of transplant
services is necessary to assure the success of a transplant. Thus,
since termination of Medicaid funding was likely to result in
termination of transplant services, it would have defeated the purpose
of providing Medicaid coverage -- saving lives -- if Medicaid did not
pay for all services provided to individuals who submitted approvable
requests while the plan provision was in effect. It is important to
note that the State knew at the time this provision became effective
that it might have to withdraw coverage if further donations to pay the
State's share were not received. Thus, it is appropriate to judge the
reasonableness of the State's interpretation in light of the likelihood
that the plan provision would be in effect for only a short time.
The State also asserted that its interpretation of the plan was
necessary because, under 42 C.F.R. 440.230(b), services provided under a
plan must be sufficient in amount, duration, and scope to achieve their
purpose. In light of the nature of the process involved in the
provision of transplant services described above, coverage for services
provided over the course of only a few months would not appear to comply
with this regulation. As just noted, the State knew when it submitted
the provision for coverage of transplant services that it might have to
withdraw coverage if the limited amount of donated funds available was
exhausted. Under these circumstances, it can reasonably be concluded
that the State intended an interpretation which clearly complied with
the regulation.
It is arguable, moreover, that HCFA would not have approved the plan
provision unless it interpreted it as the State did. Since HCFA
approved both the amendment providing coverage and the amendment
withdrawing coverage at the same time, HCFA knew that the State plan
provision on transplant services was in effect for only 56 days.
Accordingly, if HCFA had any understanding of the nature of transplant
services, it could not have read the plan as covering only transplant
services provided during this period and still approved this provision
consistent with 42 C.F.R. 440.230(b).
Furthermore, the record clearly shows that the State implemented the
plan provision for coverage of transplant services in a manner
consistent with the interpretation for which it argued here. As already
noted, the State sent out notices to all Medicaid clients in
mid-September 1988 advising them that Medicaid would pay for transplants
requested before coverage was deleted as long as the recipient remained
Medicaid-eligible. In addition, the State sent out several letters to
individuals who were approved for transplant coverage which contained
language to the same effect. Finally, the State continued to pay for
the transplant services in question here after it amended its State plan
to withdraw coverage for such services.
HCFA argued, however, that correspondence from the State responding to
questions raised by HCFA concerning the plan showed that the State's
interpretation was different from the one advanced here. HCFA cited a
December 6, 1988 letter in which the Director of the Department of Human
Resources stated:
The [Adult and Family Services] Division also made it clear that,
as long as the Medicaid State Plan for this coverage was in effect,
no Medicaid client who met the medical standards contained in that
plan could be denied a transplant solely because private funds were
not available.
State's ex. 9, p. 1. However, this statement does not necessarily imply
that once the plan provision for such coverage was withdrawn, a
transplant would be denied to a Medicaid client who had already
requested a transplant. HCFA also cited the statement in the same letter
that "[a]ssuming the state no longer covers the specific organ
transplant procedure that the client needs, the state would not intend
to meet that need." Id., p. 4. This statement responded to a question
about how the State intended to meet the needs of the client whose need
for a transplant did not develop until after donated funds were
exhausted. Thus, the statement refers to a client who did not request a
transplant while the State plan provision was in effect. Rather than
supporting HCFA's position, this statement arguably implies that the
State intended to meet the needs of a client who requested a transplant
while the State plan provision was in effect. Finally, HCFA cited
another statement in the same letter that "[w]e believe that the
requirement that similarly situated individuals be treated alike applies
only for services covered under the State Plan." Id., pp. 4-5. However,
this statement does not indicate what services the State believed were
covered under the State plan, and thus does not shed any light on the
issue in this appeal.
Finally, we note that the State asserted that HCFA knew when it approved
the plan provision that the State interpreted the plan to cover
transplant services which were requested during the period the provision
was in effect although not provided until later. HCFA denied that it
knew this, and asserted that in any event, the federal government could
not be estopped on this basis from disallowing the costs since there was
no affirmative misconduct on its part. The State argued that there was
affirmative misconduct in that HCFA's failure to object to this
interpretation induced the State to incur further expenditures after the
approval date. However, we need not reach this issue in view of our
conclusion that the State's interpretation is entitled to deference as a
reasonable interpretation which is not prohibited by the statute or
regulations and which was the interpretation intended by the State at
the time the plan was implemented.
Services Provided Prior to August 2, 1988
The State argued that $114.55 claimed for services provided on 9/29/87
was allowable under an earlier State plan provision for coverage of
heart, bone marrow and liver transplants which was in effect only until
July 1987. State's ex. 15, pp. 3-4. However, the record contains no
information concerning the earlier plan provision, nor did HCFA respond
to the State's argument. Accordingly, we remand the appeal with respect
to this item to HCFA to make a determination as to its allowability.
HCFA's determination may be appealed to the Board pursuant to 45 C.F.R.
Part 16.
State's Exhibit 15, Attachment E, shows in addition that the State
claimed $159.33 FFP for services provided on 6/22/88. The State's
appeal did not address the allowability of this item of service.
Nevertheless, the $159.33 appears to be unallowable. Although the
regulation at 42 C.F.R. 430.20, cited by HCFA in its disallowance
letter, was not effective until October 21, 1988, prior regulations
contained provisions at 45 C.F.R. 201.3(g) which were substantively the
same. See 53 Fed. Reg. 36569 (September 21, 1988). These regulations
provide that the effective date of a plan amendment that provides
additional services to individuals eligible under the approved plan may
not be earlier than the first day on which an approvable amendment is
submitted to the regional office and the first day on which the
amendment is in operation on a statewide basis. The plan amendment in
question here was not in operation until August 2, 1988, which was also
the date it was submitted to HCFA. Accordingly, we sustain the
disallowance with respect to this item. Conclusion
For the foregoing reasons, we reverse the disallowance in the amount of
$299,183.12. Of the remaining $273.88 disallowed, we remand $114.55 to
HCFA for a determination as to its allowability, and sustain the
disallowance of $159.33.
_________________________ Cecilia Sparks
Ford
_________________________ Donald F. Garrett
_________________________ Judith A. Ballard
Presiding Board Member
1. The terms "services" or "transplant services" are used
in this
decision to refer to both the surgical procedure in which the organ is
transplanted and medically necessary services related to a transplant,
including locating a donor and follow-up care for the transplant
patient.
2. Requests received prior to August 2 due to publicity about the
start-up of the transplant program were deemed to have been received on
August 2. State's ex. 15, pp. 1-2. HCFA did not argue that any costs
were unallowable on the ground that requests for the services were made
prior to August 2.
3. Certain other conditions were placed on the approval which are not
at issue here.
4. Five of the individuals who received approval for Medicaid funding
of transplant services never received transplants for reasons which are
not germane here. No FFP was requested for any payments made on their
behalf.
5. Office of Management and Budget Circular A-87, which establishes
cost principles for State and local governments under grants, defines
the term "cost" to include costs determined on a cash, accrual, or
other
basis acceptable to the federal agency. Att. A., section B.3. Most
states use a modified accrual system, reporting some costs on a cash
basis and some on an accrual basis. In determining whether an amount is
"expended as medical assistance under the State plan," however, it
makes
sense to determine what State plan was in effect at the time the
expenditure was accrued, regardless of when it was actually paid or when
the State would report it. Otherwise, a state could not receive federal
financial participation for some services, even though they were clearly
covered in the state plan at the time the state became obligated to pay
for them.
6. HCFA appeared to argue that the State's attempt to obtain FFP for
individuals who were eligible for Medicaid when they requested
transplant services violated the requirement that an individual be
eligible for services in the month the service was provided. However,
the State determined that the individuals were not only
Medicaid-eligible when the services were requested, but also when the
services were provided. See State's ex. 15, Attachment