Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Missouri Department of
Social Services
Docket No. 90-146
Decision No. 1229
DATE: February 22, 1991
DECISION
The Missouri Department of Social Services (Missouri) appealed
a
determination by the Health Care Financing Administration
(HCFA)
disallowing $6,836,995 in federal financial participation (FFP)
claimed
by Missouri under the Medicaid program from November 1, 1986
through
September 30, 1988.
The disallowed FFP represented findings by HCFA of overpayments to
11
Intermediate Care Facilities for the Mentally Retarded (ICFs/MR).
HCFA
asserted that the overpayments resulted from Missouri's reimbursement
of
the cited facilities at per diem rates other than those contained in
the
approved State Plan in effect during that period. Missouri
contended
that the disallowance was improper because HCFA should have
given
Missouri's State Plan amendment, adopting the new reimbursement
system,
retroactive effect to November 1, 1986, thereby eliminating the
basis
for the disallowance. Missouri also asserted that the amount of
the
disallowance should be reduced, at least in part, based on the
principle
of equitable estoppel.
This decision is based on the parties' briefs and evidentiary
submissions.
1/ For the reasons discussed below, we sustain the
disallowance in its
entirety.
Background
The basic facts underlying this disallowance are not in dispute.
Prior to October 1, 1981, Missouri reimbursed its long-term care
providers
on the basis of actual costs incurred during a fiscal year.
Facilities were
initially reimbursed based on their historic costs and
then, following the
close of each fiscal year, were allowed to make
adjustments in their claims
for the year based on their actual costs.
Effective October 1, 1981, Missouri
implemented a prospective rate
reimbursement system for all long-term care
facilities. Under
Missouri's prospective reimbursement system, the
reimbursement rate for
a given fiscal year was determined by using costs from
a base year,
Fiscal Year (FY) 1981, and adjusting those costs for
inflation. See
Missouri Exhibit (Ex.) 8.
In 1984 and 1985 HCFA conducted monitoring surveys at a number of
ICFs/MR
in the State. These surveys cited numerous deficiencies and
found
numerous conditions out of compliance. Missouri Brief (Br.),
p.
1. Several ICFs/MR faced threatened decertification, which would
have
made them ineligible to participate in Medicaid, and were required
to
implement extensive changes in their operations and policies.
These
changes required the facilities to incur significant
additional
expenses. Missouri stated that the facilities determined
that they
should receive additional compensation under Medicaid in order to
offset
the costs of compliance. Thus, Missouri decided to change
the
reimbursement rates for these ICFs/MR by allowing them to use their
FY
1985 costs as their base year costs rather than the formula contained
in
the approved State Plan (which used FY 1981 costs as the
base).
Missouri implemented this rate change by State regulation
effective
November 1, 1986. As a result of this change, 11 ICFs/MR
received
higher per diem rates. Missouri Br., pp. 1-2.
In October 1988, auditors from the Department of Health and Human
Services
Office of the Inspector General (OIG) initiated Medicaid
follow-up audits of
ICFs/MR. During the course of the follow-up audits,
the auditors noted
that Missouri had changed its per diem reimbursement
rate methodology
effective November 1, 1986. The auditors were not able
to find any
evidence of a State Plan amendment encompassing the per diem
rate change
within HCFA's files. See HCFA Br., p. 1; HCFA Exs. A-C.
The auditors brought this situation to Missouri's attention in
November
1988. In December 1988, Missouri submitted for HCFA's approval
a State
Plan amendment reflecting the 1986 rate change. The amendment
contained
a proposed effective date of November 1, 1986. Missouri Ex.
4. HCFA
did not approve Missouri's request that the effective date be
made
retroactive to November 1, 1986. Missouri then resubmitted
the
amendment, with an effective date of October 1, 1988, which
HCFA
approved. Missouri Br., p. 3.
On June 6, 1990, HCFA disallowed the overpayments arising from
Missouri's
failure to comply with its approved State Plan for the period
November 1,
1986 through September 30, 1988. The overpayments consisted
of the
difference between the amount of FFP Missouri claimed based on
the November
1986 per diem rate change for the facilities in question
and what Missouri
would have received had it continued to apply the per
diem rate contained in
its approved State Plan. HCFA Br., pp. 2-3.
Analysis
Missouri's appeal is based on two arguments. Missouri asserted
that
HCFA improperly limited the effective date of its State Plan
amendment
to October 1, 1988. Missouri asserted that its failure to
amend its
State Plan to reflect the November 1986 rate change was merely
a
procedural error and that HCFA should have approved the
amendment
effective November 1, 1986. Additionally, Missouri alleged
that HCFA
knew in the spring of 1988 that Missouri had not amended its State
Plan
to reflect the November 1986 rate change, but that HCFA delayed
in
notifying the State of that fact for approximately seven to nine
months.
Missouri asserted that, in view of this delay, the doctrine of
equitable
estoppel precluded HCFA from disallowing FFP claimed during that
seven
to nine month period. As we explain more fully below, we reject
both of
these arguments.
I. Missouri's State Plan amendment was properly effective October
1,
1988.
A state is entitled to Medicaid reimbursement only for costs incurred
in
accordance with an approved State plan. See section 1903(a)(1) of
the
Social Security Act. The implementing regulations at 42 C.F.R.
Part
447, Subpart C, set out the criteria for payments for providers
of
inpatient hospital and long-term care facility services.
Specifically,
42 C.F.R. 447.253(g) provides that states--
must pay for . . . long term care services using
rates
determined in accordance with methods and standards specified
in
an approved State plan.
Additionally, 42 C.F.R. 447.257 provides:
FFP is not available for a State's expenditures for . .
.
long-term care facility services that are in excess of
amounts
allowable under this subpart.
Thus, where a state pays a provider at a rate that is higher than
that
authorized by a state plan, the federal share of the excess amount
may
properly be disallowed. See California Dept. of Health Services,
DAB
No. 1007, (1989), p. 4, and cases cited there.
Moreover, the regulation at 42 C.F.R. 447.256(c) provides that:
A State plan amendment that is approved will become
effective
not earlier than the first day of the calendar quarter in
which
an approvable amendment is submitted . . . .
Missouri did not submit the State Plan amendment at issue until
December
1988. Therefore, by regulation, the earliest possible
effective date
for the amendment was October 1, 1988, the first day of the
calendar
quarter in which the plan was submitted. Thus, the effective
date
applied by HCFA was the correct date under the regulation.
Missouri argued that its failure to submit the amendment until
December
1988 was not "significant" and HCFA should have made the
amendment
retroactive to November 1, 1986.
While Missouri does not view the failure to amend its Plan
as
"significant," we cannot agree that a change in per diem
rate
methodology that would increase FFP by $6.8 million in less than
two
years is insignificant. Missouri's assertion that HCFA "should
have"
made the amendment effective retroactive to 1986 ignores the fact
that
HCFA, as well as the State, is bound by all program regulations.
The
regulation at 42 C.F.R. 447.256(c) explicitly provides that the
earliest
possible effective date which HCFA could have applied was the first
day
of the calendar quarter in which the amendment was submitted, October
1,
1988.
As HCFA noted, state plan amendments are more than mere
procedural
exercises. This Board has long held that the regulation
limiting the
effective date of a state plan--
is not a mere procedural matter promulgated for
administrative
convenience. It is an important portion of the
Agency's process
in fulfilling the statutory obligation to determine
whether the
State plan was administered in compliance with the
provisions of
Section 1902(a).
New Jersey Dept. of Human Services, DAB No. 115 (1980).
HCFA gave the amendment the earliest possible effective date, October
1,
1988. The State here was clearly in a position to make an
earlier
request to HCFA for a change in its Plan, based on the change in
rate
which it initiated, but did not do so. Further, Missouri has
not
pointed to any statute or regulation which would enable HCFA to
waive
the regulatory requirement.
Based on the facts and applicable law, we conclude that HCFA
acted
properly in approving Missouri's amendment with an effective date
of
October 1, 1988.
II. HCFA is not estopped from taking this disallowance.
Missouri contended that the OIG's auditors were aware that it had
not
amended its State Plan to reflect the increased per diem rates "at
least
seven to nine months" prior to notifying the State. Missouri
asserted
that this "unexplained delay creates equitable estoppel."
Missouri
argued that prompt notice would have saved it "several hundred
thousands
of dollars." Missouri Br., pp. 3-5.
The unstated conclusion to Missouri's argument is that the
disallowance
should be reduced, proportionately, to reflect the damage caused
by
HCFA's alleged delay in notifying Missouri of the
potential
disallowance. As we explain below, neither the facts of this
case nor
the law would support a conclusion that estoppel should lie
against
HCFA.
Even if estoppel would lie against the federal government in this
context
(and that is by no means clear), there can be no estoppel absent
the
traditional requirements of a misrepresentation of fact, reasonable
reliance,
and
detriment to the opposing party. Heckler v. Community Health
Services
of Crawford County, Inc., 467 U.S. 51, 59 (1984); see also
Tennessee
Dept. of Human Services, DAB No. 1054 (1989). 2/ There is no
evidence
in the record before us that Missouri has satisfied any of the
elements
necessary to a showing of estoppel.
Missouri's evidence supporting its claim for estoppel consists of
an
affidavit by the State Director of Audit Services (Director). 3/
The
Director indicated he attended the November 22, 1988 meeting in
which
HCFA notified Missouri that no plan amendment had been in effect for
the
period in issue. The Director asserted that, during this
meeting--
[an OIG auditor] stated that in the Spring of 1988 he did
not
remember seeing that a Medicaid Plan Amendment had been filed
by
the State . . . with the Health Care Financing Administration
on
these rates, but he was unsure if a Plan had been filed.
Missouri Ex. 10, paragraph B.
HCFA asserted that, when asked about this allegation, the auditor--
stated that he had no knowledge of Missouri's failure to
amend
its State plan until October 1988, and denied making
any
statements to the contrary at the meeting in question.
HCFA Br., p. 6.
Moreover, HCFA submitted the OIG auditor's notes from the November
22,
1988 meeting which support HCFA's contention that the auditors were
not
aware of this situation until October 1988. See HCFA Ex.
F.
Additionally, an internal OIG memorandum dated November 18, 1988
and
signed by this auditor, as well as two others, further supports
HCFA's
position. See HCFA Ex. D. Finally, notes from the
auditors' files
indicate that copies of the pertinent Missouri regulations
were obtained
on October 18 and 20, 1988 (HCFA Ex. B) and that HCFA had been
unable to
locate a Medicaid State plan amendment by November 17, 1988 (HCFA
Ex.
C).
Without considering its self-serving nature, Missouri's evidence
cannot
reasonably be viewed as establishing the fact that an OIG
auditor
delayed by several months in notifying the State about its failure
to
submit a State Plan amendment. The State's affidavit does not
even
allege that the auditor definitely knew in the spring of 1988
that
Missouri had not submitted an amendment. Moreover, the
evidence
submitted by HCFA persuasively refutes the allegation that the
auditor
knew in the spring of 1988 that no amendment had been submitted
and
approved.
Even if we accepted Missouri's evidence as establishing the assertion
that
the auditor did know with certainty that Missouri had not submitted
an
amendment, Missouri would still have failed to establish a
misrepresentation
of material fact inducing reasonable and detrimental
reliance by the
State. Missouri has clearly misconstrued the burden
placed upon it by
the statute and regulations concerning payments made
to providers under its
State Plan. It is the State, not HCFA, that has
the primary
responsibility to monitor that rates paid to providers are
consistent with
its plan methodology. See California, supra. Each
state is the
administrator of its own program, making the payments to
providers and
implementing its plan on a day-to-day basis. Moreover, as
HCFA argued,
because the responsibility of operating in compliance with
its approved plan
rests with Missouri, it would not be reasonable for
Missouri to assume that
it was in full compliance merely because HCFA
had not notified it to the
contrary. See HCFA Br., p. 9. Thus,
Missouri cannot reasonably
rely on HCFA's silence to mean that it was
acting in compliance with its
approved plan.
Conclusion
On the basis of the foregoing analysis, we sustain the entire
disallowance
of $6,836,995.
Norval D. (John) Settle
Alexander G. Teitz
Donald F.
Garrett
Presiding
Board
Member.1. Each
party
submitted a brief on
the
merits.
Missouri
elected not to file
a
reply brief;
however,
Missouri had
previously
requested an
evidentiary
hearing on the issues
in
dispute. Based on
the
State's failure
to
substantiate its
hearing
request and to
proceed
with
hearing
arrangements
when
required, the
Board
dismissed
Missouri's
hearing request
and
closed the record.
See
Ruling dated
February
13, 1991.
2. In the recent case of Office of Personnel Management v.
Richmond,
110 S. Ct. 2465 (1990), the court deplored the fact that its dicta
on
affirmative misconduct had "spawned numerous claims for
equitable
estoppel in the lower courts." Id. at 2470. While it
cited with favor
the older cases tending to view estoppel against the
government as
impossible (e.g., Utah Power & Light Co. v. United States,
243 U. S.
389, 408-409 (1917) and Federal Crop Insurance Corporation v.
Merrill,
332 U.S. 380 (1947), the court said it "would leave for another
day
whether an estoppel claim could ever succeed against the
Government."
Richmond at 2471. In Richmond the Supreme Court refused to
apply
estoppel because it dealt with a claim for payment of money from
the
public treasury contrary to a statutory appropriation.
3. The Director fully identified his position as "Director
of Audit
Services in the Office of Departmental Affairs and General Counsel
in
the Missouri Department of Mental Health." See Missouri
Ex.