Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department
of Health Services
DATE: December 19, 1991
Docket Nos. 90-190 90-235 90-252 91-93
Decision No. 1285
DECISION
The California Department of Health Services appealed five
determinations
by the Health Care Financing Administration (HCFA)
disallowing $50,432,758 in
federal financial participation (FFP) claimed
under Title XIX (Medicaid) of
the Social Security Act (Act). 1/
California claimed FFP for the costs of
certain targeted case management
(TCM) services which were covered by its
Medicaid state plan. Under
state law, California provided TCM services
to developmentally disabled
people. HCFA disallowed federal funding
because the users of the
services were not charged and had no obligation to
pay for the services.
HCFA determined that reimbursement for these services
would violate
sections 1902(a)(17)(B) and 1905(a) of the Act.
The record in these disallowances consists of the briefs and
exhibits
filed by the parties; the transcript of a hearing conducted on March
15,
1991; and a Preliminary Analysis issued by the Departmental
Appeals
Board (Board) on July 19, 1991.
Below we summarize our decision and then discuss the parties'
arguments
and our analysis of the issues presented by this case.
Summary
This case arises in the context of a clear statement of
Congressional
intent to provide Medicaid funding for TCM services where a
state has
opted to cover such services in its state plan. TCM services
benefit
program recipients by assisting them in obtaining access to
needed
services and also may benefit program management by reducing
costs.
Congress' intent is manifested several places: Congress defined
TCM
services as a Medicaid service in section 1905(a)(19); Congress
defined
what constitutes TCM services in 1915(g)(2) of the Act; and,
Congress
restricted the bases on which the Secretary may deny payment for
TCM
services in section 8435 of Public Law 100-647. Section 8435
provides
that the Secretary may not deny payment on the basis that a state
is
required by law to provide TCM services or is paying for TCM
services
with non-federal funds. However, section 8435 also provides
that the
Secretary is not required to make payment for TCM services which
are
provided "without charge."
HCFA based this disallowance on sections 1902(a)(17)(B) and 1905(a) of
the
Act. HCFA argued that 1902(a)(17)(B) requires services which a
state
provides free to recipients to be considered a "resource" for
purposes of
determining the extent of medical assistance and that
1905(a) requires that
recipients incur a "cost" or obligation to pay for
these services. HCFA
concluded that FFP was prohibited because the
State funded TCM services for
its developmentally disabled citizens and
Medicaid recipients had no
obligation to pay for them.
The State contested HCFA's interpretation of both these sections of
the
Act. Further, the State argued that these services were not
provided
"without charge," and that therefore the Secretary's discretion to
deny
payment for these services under sections 1902(a)(17)(B) and 1905(a)
was
restricted by section 8435.
We conclude that section 8435 bears dispositively on how this dispute
must
be resolved. As we explain below, we find that the history of
the
controversy between the State and HCFA as to the allowability of
these
expenses, the statements made by the section's proponents, and
the
definitions promulgated by HCFA concerning "without .charge," lead
to
the conclusion that these services were not provided "without
charge."
Since the services were not "without charge," the Secretary may not
deny
funding for them on the grounds that the State is required by law
to
provide them or is paying for them with non-federal funds. HCFA
would
have us uphold the disallowances based on general principles
inferred
from sections 1902(a)(17)(B) and 1905(a). However, these
principles are
by no means as dispositive as HCFA argued and are not
clearly
articulated in any applicable regulations or guidelines.
Therefore, we
conclude that they are insufficient to overcome the specific
focus of
section 8435 and related HCFA policies. Nothing here, of
course,
precludes HCFA from amending its regulations or manual to reflect
its
position in this case.
Our decision does not entirely resolve the dispute between the parties.
As
we explain below, California is required to demonstrate that third
party
reimbursement was sought for these services. We therefore remand
this
case to HCFA to determine whether California has met its third
party
obligations under the Act, its state plan, and the State Medicaid
Manual.
Background
This case concerns a protracted dispute between HCFA and
California
involving California's submission of a state plan amendment for
TCM
services, HCFA's denial of that amendment, Congress' enactment of
a
"clarification" of FFP for TCM services, HCFA's approval of
California's
plan amendment for TCM services, and HCFA's disallowance of
federal
funding for those same TCM services. Below we review the
structure of
the Medicaid program and the sequence of events in this
case.
Title XIX of the Act establishes a cooperative federal-state program
known
as "Medicaid" to enable states to furnish medical assistance to
Medicaid
eligible individuals. Section 1901. The federal
government
defines the types of services a state may and must offer and
the
categories of recipients it may and must cover. Within
certain
parameters, the states are given wide latitude to design their
own
programs. A state's choices as to the medical assistance it offers
to
different categories of recipients are reflected in its Medicaid
state
plan, a "comprehensive written statement . . . describing the nature
and
scope" of a state's.Medicaid program. 42 C.F.R. 430.10; see
also
section 1902 of the Act. 2/
Section 1905(a) defines "medical assistance" as payment "of part or all
of
the cost" of a range of care and services (referred to as "covered
services")
such as inpatient hospital services, laboratory and X-ray
services,
physicians' services, and dental services. In 1985, Congress
amended
Title XIX to add "targeted case management" services to the list
of services
which a state could choose to include in its Medicaid
program. 3/ TCM
services are defined as "services which will assist
individuals eligible
under the [Medicaid state] plan in gaining access
to needed medical, social,
educational, and other services." Section
1915(g)(2).
In December of 1987, California submitted Medicaid State Plan
Amendment
(SPA) No. 87-15 to HCFA. State Ex. 9. With this
amendment, California
sought to add TCM services provided to developmentally
disabled people
as a covered service under its state plan. TCM services
for
developmentally disabled people were being funded by California
under
its Lanterman Developmental Disabilities Services Act of 1977
(Division
4.5 of California Welfare and Institutions Code sections 4500 et
seq.).
These TCM services were provided through a network of
state-funded,
nonprofit corporations created under the Lanterman Act and
known as
"Regional Centers." In its amendment, California proposed that
the
Regional Centers continue to deliver the TCM services. Id.
Thus the
plan amendment would have the effect of partially substituting
federal
funding for state-only funding.
.Shortly before HCFA disapproved the plan amendment, HCFA
informed
California that the fact these services were provided at State
expense
and "without charge" to all developmentally disabled people was
grounds
for disapproval of the amendment. State Exs. 13, 20.
California
officials then cited to HCFA a definition of the term "without
charge"
which HCFA had promulgated in its Medical Assistance Manual and
argued
that California's TCM services were eligible for reimbursement
under
that definition. State Exs. 14, 20. They also told HCFA
that third
parties would be billed for these TCM services once they were
an
approved part of the state plan. Id.
On August 5, 1988, HCFA disapproved SPA No. 87-15. State Ex. 21.
The
disapproval listed six "points at which the amendment request is
at
variance with the statute and regulations." The State then modified
its
amendment to address all but one of these points. The point
which
remains at issue in this case concerns the fact that
developmentally
disabled recipients were not charged for these TCM services
and HCFA's
finding that, if the plan amendment was approved, only Medicaid
would be
billed. HCFA wrote in its disapproval letter:
When case management (or any other Medicaid service)
is furnished
without charge to individuals in a
State, regardless of ability (or
willingness) to pay
for the service, section 1902(a)(17)(B) of the
Social Security Act prohibits Federal financial participation
for
these services, because making such payments
would not be taking
into account all resources
available to the Medicaid applicant or
recipient in
determining the extent of assistance to be granted.
State Ex. 21 at 2 (emphasis added).
HCFA then went on to point out that, under California law, fees were
not
to be charged for case management services and that, under the
current
program, "No client/beneficiary, responsible relative, or third party
is
billed for case management services." (Emphasis added.) HCFA
concluded
that while the State intended to bill Medicaid after its amendment
was
approved "there is no indication that the developmental centers
would
bill any other payment source."
.Thus, HCFA based its disapproval of the plan amendment on the ground
that
services for which no individual was required to pay constituted
"resources"
under section 1902(a)(17)(B) of the Act. In the context of
discussing
"without charge" and why such services constituted
"resources," HCFA
specifically raised the issue of whether third party
reimbursement was sought
from sources other than Medicaid. California's
assurances to HCFA that
available third party reimbursement would be
sought were inadequate to
convince HCFA that "the developmental centers
would bill any other payment
source."
The State appealed the denial of its amendment. State Ex. 22.
While
the appeal was pending, Congress enacted section 8435 of Public
Law
100-647. It provides:
Clarification of Federal financial participation
for
case-management services . . . The Secretary of Health and
Human
Services may not fail or refuse to approve an amendment to
a
State plan under title XIX of the Social Security Act [42
USCS
sections 1396 et seq.] that provides for coverage
of
case-management services described in section 1915(g)(2) of
such
Act [42 USCS section 1396n(g)(2)], or to deny payment to a
State
for such services under section 1903(a)(1) of such Act [42
USCS
section 1396b(a)(1)] on the basis that a State is required
to
provide such services under State law or on the basis that
the
State had paid or is paying for such services from
non-Federal
funds before or after April 7, 1986. Nothing in this
section
shall be construed as requiring the Secretary to make payment
to
a State under section 1903(a)(1) of such Act [42 USCS
section
1396b(a)(1)] for such case-management services which
are
provided without charge to the users of such services.
After the October 1988 enactment of section 8435, HCFA
approved
California's plan amendment in September 1989. TCM services
for
developmentally disabled recipients were added as a covered
service
under California's state plan to be effective October 1, 1987.
State
Ex. 3. However, in July 1989, HCFA advised California that under
the
second sentence of 8435, FFP might not be available. At this
point,
HCFA raised a new ground for the denial of FFP by informing the
State
that, under section 1905(a), Medicaid recipients must incur a "cost"
or
legal obligation to pay for the service at issue. It wrote:
It is a fundamental tenet of the Title XIX program
that Medicaid
payments, payments of .last resort,
will only be permitted for
services where the
recipient of the services has a legal obligation
to
make payment. If the provider's services are
customarily
furnished without charge--i.e.,
gratuitously provided--there is
then no obligation
of the recipient to pay for the services. He,
therefore, has not incurred any cost for such
services.
Consequently, there would not be an
obligation for payment under
the Medicaid program
because a particular recipient happens to be
Medicaid eligible. Section 1905(a) of the Act, referred to
at
section 1903(a)(1), defines "medical assistance"
as payment of part
of all of the cost of the . . .
care and services" furnished to the
recipient.
State Ex. 25 at 4.
California submitted claims for federal funds for TCM services provided
to
developmentally disabled Medicaid recipients. HCFA disallowed
these
claims. In the initial disallowance letter, HCFA wrote:
It is a fundamental principle of the Medicaid
program that all
available resources must be
considered before providing medical
assistance, and
that payments for medical assistance under Title
XIX
are payments of last resort, permitted only where the
recipient
is legally obligated to pay for the
services rendered.
State Ex. 1 at 3.
The letter then goes on to cite the term "cost" in 1905(a) and
"resource"
in 1902(a)(17)(B).
Because TCM services are covered under the Act and California's
state
plan, California is entitled to FFP for such TCM services unless
there
are grounds under the Act, regulations, cost principles, or
HCFA
policies to deny funding. HCFA argued that these services were
"without
charge" and therefore the first sentence of section 8435 of Public
Law
100-647 did not apply. HCFA alleged that payment for the
services
violated two provisions of the Act: (1) the services
constituted
"resources" for purposes of determining the extent of medical
assistance
and therefore reimbursement was precluded under section
1902(a)(17)(B);
and (2) the recipients of the services incurred no obligation
to pay as
required by section 1905(a). .Discussion
1. Section 8435 of Public Law 100-647
An initial question presented by this case involves the meaning and
effect
of section 8435. This question is a result of the
apparent
contradiction between the section's two sentences. In the
first
sentence, Congress says that the Secretary may not deny payment to
a
state for TCM services on the basis that the state is required
to
provide the services under state law or is paying for the services
from
non-federal funds. In the second sentence, Congress says the
first
sentence does not require the Secretary to pay for
case-management
services which are provided "without charge" to the
users.
We construe the first sentence of section 8435 to mean that HCFA may
not
deny FFP for TCM services on the grounds that a state is required
to
provide TCM services under state law or that a state is paying for
TCM
services from non-federal funds. However, under the second
sentence,
payment of such claims is not required if the services are
provided
"without charge." Thus, under section 8435, the fact of
state
obligation or state payment is not dispositive of whether the
services
are being provided "without charge" and HCFA is entitled to
consider
whether there are alternative bases for a disallowance.
Therefore, it
is necessary to determine the meaning of the term "without
charge."
HCFA argued that the term "without charge" means that individuals incur
no
cost for the TCM service and have no obligation to pay for the
service.
Since California law says no parent is to be charged for the
diagnostic and
counseling services provided by Regional Centers, HCFA
concluded that no
person in the State has an obligation to pay and these
services are therefore
"without charge." 4/ Pursuant to this definition
of "without.charge,"
HCFA argued that California's TCM services fell
within the "without charge"
exception recognized in section 8435 and
that the first sentence of section
8435 did not preclude the
disallowance. HCFA therefore determined that
FFP was not available on
the basis of standards applicable to all other Title
XIX services. 5/
Where a statute is ambiguous, the Board will ordinarily give deference
to
HCFA's construction of a statute that it administers. Commonwealth
of
Pennsylvania, Dept. of Public Welfare v. The United States Dept. of
Health
and Human Services, 928 F.2d 1378 (3d Cir. 1991). In general,
HCFA's
interpretation is entitled to deference as long as that
interpretation is
reasonable, and appropriate notice of that
interpretation has been given to
the State.
.In this case we do not defer to the construction of the term
"without
charge" in 8435 which HCFA advanced here. While the term is
ambiguous
in the context of section 8435, the legislative history of that
section
together with HCFA's promulgated definitions of the term
"without
charge" make HCFA's present construction contrary to what the
authors of
the statute were obviously trying to achieve and contrary to
HCFA's
previous definition of the term. Under these circumstances,
HCFA's
current interpretation is not entitled to deference. We base
this
conclusion on the following factors:
o The language of section 8435 and
the use of the term
"without charge" must be examined in the context of
the course
of this dispute. This legislation was designed to
resolve the
TCM services controversy between California and HCFA.
In
discussing 8435, its proponents (Senators Cranston and
Wilson)
expressly describe the dispute between HCFA and California
and
represent that HCFA's denial of California's plan amendment
is
unfair. Further, the state plan amendment hearing was
delayed
". . . at the State's request due to pending legislation
that
was aimed at correcting the problem." HCFA Ex. D at 1.
o In the discussion between State
and federal officials
prior to the enactment of section 8435, the
question of charge
and "without charge" was discussed. California
officials cited
a prior HCFA manual provision that services were not
"without
charge" if individuals were charged or third party
reimbursement
was sought. State Ex. 20 at 3. State
officials tried to assure
HCFA that third party reimbursement would be
sought from sources
other than Medicaid. Id. at 7; State Ex. 14
at 2. HCFA did not
accept California's representations and
concluded that "there is
no indication that the developmental centers
would bill any
other payment source." State Ex. 21 at 2.
Therefore, prior to
section 8435, both HCFA and California were
focusing on the
question of third party reimbursement and the concept
of
"without charge."
o The legislative history of
section 8435 indicates that
the "without charge" discussion between
federal and State
program officials was considered by California's
senators in
proposing 8435. 6/ In the statement inserted in
the
Congressional Record by Senators Cranston and Wilson
concerning
section 8435, they discussed the problems that HCFA
had
articulated to California about its plan amendment. Among
the
problems they addressed was the fact that HCFA had
contended
that California provided these services without charge to
all
developmentally disabled people. In response to this
problem,
Senator Cranston said, "However, I would like to clarify
that
all third parties are billed for case-management services . .
.
and that, thus, those services should not be considered to
be
provided 'free of charge.'" State Ex. 27 at 3.
. o
The State's position that services
are not "without charge" if third
party reimbursement is sought is further
supported by HCFA's present
definition of that term in section 5340 of its
State Medicaid Manual. 7/
There, HCFA notified states that services which are
available "without
charge" to everyone in the community are not eligible for
FFP. HCFA
then defined "without charge":
Services without charge, for purposes
of
Medicaid, means that no individual or family
is
charged for medical care, and third
party
reimbursement is not sought.
Thus, the plain language of HCFA's own
definition
authorizes FFP for services which are provided
to
everyone in the community as long as third
party
reimbursement is sought.
Therefore, prior to the enactment of section 8435, the discussion
between
the parties focused on "charging" individuals or "charging"
third party
payment sources. Subsequent to the enactment of section
8435, HCFA
articulated the concept that a "cost" or an "obligation" on
the part of a
Medicaid recipient is a necessary part of the "without
charge" definition and
began to cite section 1905(a). State Ex. 25 at
3. However, given
the correspondence prior to the enactment of 8435 in
which neither an
"obligation" nor a section 1905(a) "cost" requirement
was articulated, we
conclude that the requirement of an obligation
cannot reasonably be read into
section 8435 or into section 5340, HCFA's
present definition of "without
charge."
HCFA's position that "without charge" includes an implied requirement of
a
cost to all Medicaid recipients is further eroded by the fact that
HCFA does
not require .that Medicaid recipients be in the class of
people who incur a
cost or an obligation. An example of this is
provided by California's
TCM services fee statute, enacted subsequent to
these disallowance periods
after extensive consultation with HCFA (see
State Ex. 34; HCFA Ex. N).
This statute was filed by HCFA in this case
as an example of a charge
mechanism, but HCFA failed to explain how
Medicaid recipients would have any
obligation or cost under this
statute. For example, as to two-person
households, the statute provides
that only households with more than $79,000
annual adjusted income will
be charged for the TCM services. Since
two-person households with
$80,000 annual income would not ordinarily qualify
for Medicaid,
Medicaid recipients are necessarily part of the class of people
who
incur no obligation to pay for TCM services under California's new
fee
statute.
Therefore, on the basis of the history of this dispute and
the
Congressional response, HCFA's own manual provision, and
the
inconsistencies in HCFA's position, we conclude that the term
"without
charge" in section 8435 means what HCFA said in its manual:
no
individual or family is charged, and third party reimbursement is
not
sought. 8/ We conclude that it is appropriate to apply.the third
party
requirement to the State because the State had notice of
this
requirement and relied on this definition in seeking HCFA's approval
of
its State plan amendment. See State Ex. 14 at 2.
HCFA raised a number of arguments in rebuttal of this construction
of
section 5340 and its application to the facts of this case and
to
section 8435. HCFA argued: (a) that section 5340 concerns only
the
third party reimbursement actions of providers and not those of
the
State; (b) that under California's statutory guarantee of free
TCM
services, providers had no legal basis for recovery of third
party
reimbursement; (c) that the State did not show that either the
providers
or the State actually sought third party reimbursement; and (d)
that the
State's recovery was limited to case-by-case documentation of
third
party recovery actions which might have substantiated its claims
for
federal funding.
HCFA's arguments concern legal questions of the interpretation of
section
5340 and factual questions concerning the providers' or State's
practices in
seeking third party reimbursement. This record was not
developed in a
manner which would enable the Board to resolve the
factual questions
concerning the practices of providers or the State,
and we are remanding the
case so that the appropriate program officials
can review that issue.
Below, we address HCFA's legal arguments
concerning section 5340.
.
a. Whether the provider,
rather than the State,
must seek the third party reimbursement
HCFA argued that "without charge" under section 5340 should be read
to
mean that "no individual or family is charged [by the provider]
for
medical care, and third party reimbursement is not sought [by
the
provider]." HCFA based this argument on the fact that the first
clause
of the definition refers to "charges" to the individual and the
provider
is the entity that typically "charges" individuals. 9/
Therefore, HCFA
concluded that the second clause should also be read to be
limited to
the provider's activities.
However, under the Act and implementing regulations, third
party
reimbursement may be sought by a provider or a state.
Section
1902(a)(25) of the Act sets forth third party recovery
responsibilities
of a state; 42 C.F.R. 433, Subpart D, codifies HCFA's
implementation of
section 1902(a)(25); Chapter X of the State Medicaid Manual
further
describes standards for states in implementing third party
recovery. As
set forth in the regulations and described in the Manual,
there are two
methods of third party recovery: "cost avoidance" where
the provider
first bills the third party and bills the state only if the
third party
payment is deficient, and "pay and chase" where the state pays
the
provider and then seeks to recover from the third party. 42
C.F.R.
433.139. Where third party liability has been established, a
state must
use cost avoidance unless it has obtained a waiver from HCFA to
use pay
and chase. Id. Where liability has not been established,
a state may
pay the provider and proceed itself against the third party.
Since the Act and the regulations allow a state to seek third
party
reimbursement, we do not agree that section 5340 restricts the
recovery
of third party reimbursement to the efforts of the providers.
However,
section 5340 should be read in conjunction with California's third
party
liability responsibilities under its state plan. In
re-auditing
California for these claims, HCFA is.entitled to rely on the
third party
standards it has approved in that plan.
b. The availability of third party
recovery for TCM
services
HCFA argued that under section 5340, an obligation to pay for the
service
or a cost must be imposed on the individual, and that it is this
obligation
which serves as the basis for seeking third party
reimbursement. HCFA
argued that, since all developmentally disabled
people were entitled to free
TCM services, there was no obligation on
any person and therefore no basis in
law for the Regional Centers to
seek third party reimbursement. Because
there was no basis in law for
the Regional Centers to charge third parties,
HCFA asserted that it
properly viewed these services as having been provided
"without charge."
As background to the parties' arguments on this issue, we note that
TCM
services (i.e., "services which will assist individuals . . . in
gaining
access to needed medical, social, educational, and other services")
are
not typically considered medical services. The very nature of
the
services severely restricts or eliminates the availability of
medical
insurance reimbursement. TCM services are therefore different
from
other types of Medicaid services which the medical insurance
industry
does routinely cover. Were it not for this difference, the
State would
have a weaker case in relation to HCFA's legitimate interest
in
maximizing recoveries from health insurance.
HCFA discussed the liability of two categories of third parties:
health
insurers and tort-feasor/liability insurers. As to health
insurers,
HCFA cited several cases in which health insurers avoided liability
for
other types of medical services pursuant to policy language requiring
an
insured to incur or be liable for an expense. As to tort-feasors,
HCFA
argued that, under California case law, a recipient could recover from
a
tort-feasor only the actual amounts for which the recipient
incurred
liability. HCFA concluded that since the recipient had no
basis of
recovery against a tort-feasor, the provider would also have no
basis
for recovery. HCFA argued that the State's recovery rights
against
tort-feasors created by California Welfare and Institutions Code
section
14124.71(d) was irrelevant because the only test of compliance
with
section 5340 was.whether the provider could and did seek third
party
reimbursement. 10/
It appears from this record that California can seek third
party
reimbursement from tort-feasor/liability insurers. It also
appears
that, based on the cases cited by HCFA, the State's statutory scheme
may
well impair both providers' and the State's recourse against
health
insurers. 11/ However, for the following reasons, we find.that
possible
elimination of one source of third party reimbursement does not
mean
that TCM services have been provided "without charge" within
the
definition set forth in section 5340.
o Section 5340 addresses circumstances
under which Medicaid
funding is available for free services: ". .
. it is Medicaid
policy that services which are available without
charge to all
individuals in the community may not be reimbursed.
Services
available without charge, for purposes of Medicaid, means
that
no individual or family is charged for medical care, and
third
party reimbursement is not sought."
o Under the plain language of that
section's definition of
"without charge," if any group of individuals
is charged for the
service, the service is not "without charge" under
the first
half of the definition and Medicaid funding is
available. Only
when no individual is charged, i.e., there is
universal
availability of a free service, does the second half of
the
definition concerning third party reimbursement become an
issue.
Therefore, section 5340 contemplates circumstances in
which
there will be universal free provision of a service and
provides
that Medicaid funding is available if "third party
reimbursement
is sought."
o Since section 5340 contemplates
universal free provision
of a service and it is the fact of this
universal provision
which impairs recourse against health insurers, it
would be
inconsistent then to infer the caveat that recourse against
all
third parties must remain unimpaired.
. o Section
5340
is HCFA's own definition of the term "without charge" and its only
identified
promulgated prohibition of federal funding for "free"
services. HCFA
did not articulate as part of that definition that
either an obligation as to
some individual in the community or
unimpaired recourse against all types of
third parties is required. Our
decision, of course, does not preclude
HCFA from modifying its
definition and providing notice to states that such
obligation and
recourse are a necessary element of the "without charge"
definition.
o There is no suggestion that California
intentionally
compromised recourse against third parties for its own
benefit
or to prejudice HCFA. The compromise is the consequence
of an
independent and legitimate State goal of providing TCM
services
to a dependent segment of its population:
developmentally
disabled people.
This construction of section 5340 and "without charge" is supported by
the
text of HCFA-AT-78-2 in which HCFA promulgated this definition. In
that
material, HCFA did not indicate that an "obligation" on the part of
some
individual to pay for services was necessarily part of the
definition.
Therefore, we conclude that the fact that no individual incurred
an
obligation to pay for the services and that some sources of third
party
reimbursement may be compromised by California's statutory scheme
does
not mean that these services were provided "without charge" within
the
meaning of section 5340 or section 8435.
c. Whether the State is entitled to
reimbursement
only for individual cases in which third party
coverage
was both available and sought
The Preliminary Analysis raised the question of whether seeking
available
third party reimbursement qualified all TCM services for
federal
participation under section 5340 or qualified only those
services for which
third party reimbursement was both available and
sought. HCFA argued
that the State must demonstrate, with respect to
each.case for which
reimbursement is claimed, that third party
reimbursement was actually
available and sought. 12/
We reject HCFA's limited reading of section 5340 for the
following
reasons. First, it simply does not make sense to say that
Medicaid will
pay only in those situations where there is a liable third
party from
whom reimbursement is sought. In these situations, it should
be the
third party that pays, not Medicaid. Second, it is inconsistent
with
the plain wording of section 5340. Section 5340 makes a statement
of
policy on a class of services (such as TCM), not a statement on
separate
services to discrete individuals. Services "which are
available without
charge to all individuals in the community" are
nonreimbursable. If
HCFA had intended to promulgate a policy as to
separate services
received by discrete individuals, it would not have used
the modifiers
"all" and "in the community." Section 5340 then defines
the term
"without charge": "no individual or family is charged for
medical care,
and third party reimbursement is not sought." This
definition also
looks to what is occurring in the class of services rather
than in
separate cases. If HCFA were formulating a policy as to
specific
services received by discrete individuals, the definition would
have
read "the individual or family is not charged for medical care,
and
third party reimbursement is not sought for services to
that
individual." Therefore, we conclude that section 5340
addresses
circumstances under which classes of services are reimbursable, and
that
it would be inconsistent with the thrust of the section to restrict
its
application to individuals with third party liability alternatives.
Further, HCFA's narrow construction is inconsistent with HCFA's
previous
explanations of how it evaluates whether services are provided
"without
charge." In a memorandum of July 11, 1989, HCFA set forth
examples of
Medicaid availability for free services. Attachment B to
HCFA Response
to Preliminary Analysis. The memorandum indicates that
Medicaid will
participate in the costs of a qualified service to all
Medicaid
recipients as long .as the provider seeks payment from some group
of
people or seeks third party reimbursement in cases in which it
is
available. Finally, HCFA offered no examples or background
information
to indicate that it had previously read section 5340 to qualify
only
services for which third party reimbursement was actually available
and
sought.
We note that, on remand, when HCFA reviews California's enforcement of
the
third party standards, California must do more than produce some
isolated
cases for which third party reimbursement was sought.
Rather,
California must demonstrate that it had established a system
which
complies with the standards in the Act, regulations, and its state
plan
for seeking third party reimbursement for these services.
The State also raised a number of arguments concerning the meaning
of
section 8435. The State argued that the second sentence of section
8435
should be read to apply to all states but California; that the
second
sentence of section 8435 should be read to apply only to
services
provided without charge by some entity other than the State; and
that
the second sentence of section 8435 gave the Secretary discretion to
pay
for services which were provided without charge. However, the
State
could point to no language in the text of section 8435 or in
its
legislative history which would support these constructions of
that
section.
In sum, under section 5340 and section 8435, we conclude that (1)
where
third party reimbursement for TCM services is sought against
liable
third parties, TCM services are not provided "without charge" within
the
meaning of the second sentence of section 8435; (2) when TCM
services
are not provided "without charge," the first sentence of section
8435
precludes the Secretary from denying federal funding on the grounds
the
state is required by state law to provide such services or is paying
for
such services from non-federal funds; and (3) when TCM services are
not
provided "without charge," HCFA must establish grounds for
a
disallowance which do not contravene the provisions of the
first
sentence of section 8435. We now consider sections 1905(a)
and
1902(a)(17)(B), HCFA's grounds for this disallowance, in light of
the
foregoing conclusions.
2. Section 1905(a) of the Act
HCFA argued that, pursuant to section 1905(a) of the Act, a recipient
must
incur a "cost" or legal obligation to pay for a covered service
before
Medicaid will.participate in its cost. 13/ Since California
funded
these services and did not "charge" the recipient or the
recipient's family,
these recipients did not incur such a cost.
Consequently, HCFA concluded that
these claims should be disallowed on
the basis of 1905(a).
The Act authorizes federal participation in the "total amount expended
as
medical assistance. . . ." Section 1903(a)(1). Section
1905(a)
defines the term "medical assistance" as "payment of part or all of
the
cost of the following care and services . . . for individuals. . .
."
That section goes on to describe the types of services for
which
Medicaid will pay, including case management services. HCFA
argued that
the word "cost" in 1905(a) means cost to the recipient and
therefore
requires a recipient to incur a legal obligation to pay for all
Medicaid
eligible services.
.In the absence of a regulation or guideline so stating, we are
not
persuaded by HCFA's arguments that 1905(a) requires a recipient to
incur
a legal obligation to pay for the "cost" of TCM services--at least
to
the extent and with the specificity needed to overcome the effect
of
section 8435. First we consider the nature of the Medicaid
program,
then we consider the use of the word "cost" in Title XIX, and then
we
review why HCFA's implementation of section 1905(a) is inconsistent
with
its position that a "cost" to Medicaid recipients is required.
The Medicaid program is a public assistance program rather than a
health
insurance program, i.e., people are eligible because of their
low
income, not because of payments or contributions they have made. In
the
context of insurance, insured individuals are routinely and
expressly
required to "incur" an expense or to have "a legal obligation to
pay."
14/ For example, in the Medicare health insurance program, the
Act
expressly states that Medicare will not participate in a cost unless
the
insured has a legal obligation to pay it. Section 1862. 15/
However,
HCFA has identified no language in Title XIX or regulations
which
articulate any similar requirement that Medicaid recipients "incur"
a
cost for all Medicaid reimbursable services. Therefore, the
principle
that Medicaid recipients must incur a liability for the cost of
services
as a condition for FFP is neither expressly articulated by Title
XIX
or.its regulations nor readily apparent from the public
assistance
nature of the program. 16/
While there is no explicit requirement in Title XIX that
recipients
generally incur an obligation or a cost, Medicaid expressly
considers
whether a recipient has "incurred" an obligation in at least
two
circumstances: determination of income for medically needy
eligibility,
and post-eligibility determination of income for recipients
in
institutions or community based care. 17/ In these two
circumstances,
"costs incurred" or "incurred medical expenses" may be
deducted from the
recipient's income. However, the repeated
articulation of the
requirement of "costs incurred" or "incurred medical
expenses" in these
two circumstances conflicts with HCFA's position that the
term "cost"
means a recipient's obligation to pay. If incurring an
obligation or
cost were a universal assumption in Medicaid, then it would
be
unnecessary for the statute and regulations to specifically require
it
in these two circumstances.
Further, while the term "cost" in Medicaid is used in relation to
the
recipient of a service, it is also used repeatedly in relation to
the
provider or the state Medicaid agency. For example, in
section
1902(a)(13) of the Act, Congress has set out the standards pursuant
to
.which states should set rates to reimburse hospitals,
nursing
facilities and intermediate care facilities which "take into account
the
costs of complying with [Medicaid standards]." As to providers,
see
also sections 1902(a)(13) and 1902(a)(17)(D); 1902(e); 42 C.F.R.
447.35;
447.202; 447.250; 447.252; 447.252; 447.371; as to the state agency,
see
also section 1903(e), 42 C.F.R. 447.361.
Therefore, the State's position here is supported by (a) the absence
of
language similar to that of the Medicare statute which
expressly
requires recipients to incur an obligation or cost; (b) the
presence of
two discrete circumstances under which recipients' benefits
are
expressly determined in relation to an "incurred cost"; and (c)
the
multiple use of the term "cost" in Title XIX in relation to
recipients,
providers, and the state Medicaid agency.
Further, HCFA's position that recipients must incur a legal obligation
is
contradicted by its manual, examples in its policy memoranda, and
its
explanations in this case as to how it implements this
requirement.
Below we discuss each of this sources.
HCFA's policy memoranda demonstrate that HCFA does not require
Medicaid
recipients to have an obligation to pay for services. For
example, in
Medicaid Regional Memorandum No. 90-52, dated April 27, 1990,
HCFA
articulated its position that federal funding was not available
for
services which were free to the user. HCFA Ex. J. In the
Memorandum,
HCFA gave the following example of when costs would be
allowable:
The State's Department of Mental Retardation is required
by
State law to provide diagnosis, evaluation, counseling, and
case
management services to mentally
retarded/developmentally
disabled individuals in the State. State
law does not address
the issue of charging individuals for the
services. The State
has, of its own volition, targeted funds to
provide these
services at nominal or no charge to low income
individuals, and
on a sliding scale to those with greater incomes or
third party
coverage. Because the services are not available
without
charge, FFP may be made available for the services provided
to
Medicaid eligible individuals.
HCFA Ex. J. .At the hearing, Counsel for HCFA agreed that the
sliding
fee scale could be structured so that Medicaid recipients, by virtue
of
their low income, would be included in the class of people who
received
services at no charge and consequently would have no obligation to
pay.
Transcript (Tr.) at 85-86. In such circumstances federal funding
would
be available. Tr. at 86. If, however, the State changed its
policy to
pay for these services for all mentally
retarded/developmentally
disabled individuals, then federal funding would not
be available
because there would be no charge to any user in the class.
Tr. at
87-89. Therefore, under HCFA's own explanation of this
Memorandum, the
determinative factor for federal funding is whether there is
a charge to
someone in the class of users, not whether Medicaid
recipients
themselves incur a legal obligation to pay for the services.
This position (that someone in the class of users, rather than
Medicaid
recipients must incur an obligation to pay) explains the structure
of
California Welfare and Institutions Code section 4850 which
California
has now enacted to obtain FFP for these services. HCFA cited
this
statute as an example of user liability, but did not explain
how
Medicaid recipients would incur liability under this statute when
they
are too poor to meet the fee liability threshold.
Finally, as previously discussed, the definition of "without charge"
in
section 5340 of the State Medicaid Manual does not require that
Medicaid
recipients have an obligation to pay a cost.
Therefore, we conclude that the term "cost" in section 1905(a) does
not
necessarily require that Medicaid recipients incur a cost or
obligation
for payment.
3. Section 1902(a)(17)(B) of the Act
Medicaid is a "means tested" program. Section 1901. Eligibility
and
the extent of medical assistance are determined on the basis of
a
person's "income" and "resources." Section 1902(a)(17)(B).
Section
1902(a)(17)(B) requires states to set forth such income and
resource
standards in their state plans. However, states are not free
to define
"income" or "resource" in any way they choose. Instead,
section
1902(a)(17)(B) requires state plans to ". . . include
reasonable
.standards . . . for determining eligibility for and the extent
of
medical assistance under the plan which . . . provide for taking
into
account only such income and resources as are, as determined
in
accordance with standards prescribed by the Secretary, available to
the
applicant or recipient. . . ." (Emphasis added.)
Section
1902(a)(17)(B) does not by itself create the standards for
evaluating
what constitutes a "resource." Instead, it gives the
Secretary the
authority to promulgate standards and requires states to
conform their
state plans to such standards. 18/
California insisted that the Secretary's authority to prescribe
standards
under section 1902(a)(17)(B) applies only to medically needy
recipients (as
opposed to categorically eligible recipients). Since
California's
Lanterman Act Medicaid recipients are overwhelmingly
categorically eligible,
California argued that section 1902(a)(17)(B)
was not applicable in this
case.
HCFA argued that section 1902(a)(17)(B) applies to categorically
eligible
recipients. Because the State paid for the TCM services and
recipients
were not charged, HCFA asserted that the services constituted
a "resource"
under section 1902(a)(17)(B) and must be considered in
determining the
"extent of medical assistance" provided under Medicaid.
We reject California's construction of section 1902(a)(17)(B).
While
the section is difficult to read because of its several
parenthetical
clauses which do relate to medically needy recipients, the
plain
language empowers the Secretary to set standards for all types
of
recipients. Both the Secretary and the courts have
consistently
interpreted the section to apply all categories of Medicaid
recipients.
For example, in Schweiker v. Gray Panthers, 453 U.S. 35 (1981),
the
Supreme Court discussed section 1902(a)(17)(B) and the
Secretary's
authority to prescribe income and resource standards pursuant to
it. It
noted that Title XIX provides medical assistance to both
"categorically
needy" individuals and "medically needy" individuals, and
"[i]n either
case," the Act required States to base assessments.of financial
need
only on section 1902(a)(17)(B). Id. at 37. 19/
On the other hand, we do not adopt HCFA's construction of
section
1902(a)(17)(B) for the following reasons. First, defining
these
services as a "resource" would be inconsistent with section
8435.
Second, defining receipt of state-funded services as a
"resource"
appears to be contrary to the standards prescribed by the
Secretary as
to what constitutes a "resource."
Under section 1902(a)(17)(B), the Secretary has substantive authority
to
prescribe standards for determining "income" and "resources"
for
determining Medicaid eligibility and the extent of medical
assistance.
The Secretary has exercised this authority repeatedly by
promulgating
regulations concerning what constitutes "income" or
"resources."
However, the Secretary's authority to prescribe what are
"resources"
must be considered in light of section 8435. For TCM
services which are
not provided without charge, section 8435 expressly
precludes the
Secretary from denying payment for the services on the basis
that "a
State is required to provide such services under State law or on
the
basis that the State had paid or is paying for such services
from
non-Federal funds. . . ." Unless section 8435 is read to limit
the
Secretary's authority to define state-funded TCM services
as
"resources," then the provisions of section 8435 could be nullified
by
such a definition. Since a statute should be read to give .effect
to
all of its parts (Colautti v. Franklin, 439 U.S. 379, 392 (1979)),
we
find that section 8435 limits the Secretary's authority as
to
state-funded TCM services, and prevents HCFA from treating
state-funded
TCM services as "resources" under section 1902(a)(17)(B) of the
Act.
Further, we find that, even if section 8435 does not limit the
Secretary's
authority, treating state-funded services as a "resource" in
this case
appears to be inconsistent with specific standards promulgated
by the
Secretary concerning what constitutes a "resource" under
section
1902(a)(17)(B). In the discussion which follows, we consider
the
resource standards which have been prescribed by the Secretary.
We
explain they do not appear to encompass receipt of state-funded
medical
or social services.
The Secretary has prescribed income and resource standards in
various
sections of the Code of Federal Regulations for the different
categories
of Medicaid recipients. See 42 C.F.R. 435.700. 20/
While HCFA
contended that Lanterman Act TCM services constitute "resources"
for
purposes of determining the extent of medical assistance, the
Secretary
has not defined "resources" to include receipt of state-funded
services.
See 42 C.F.R. 435.841; 20 C.F.R. 416.1201; 45 C.F.R.
233.20(a)(3)(i)(B).
21/.HCFA argued that the foregoing standards were
promulgated for
purposes of "eligibility" determination, rather than for the
purpose of
determining the "extent of medical assistance" in the
post-eligibility
process. Consequently, HCFA maintained that these
regulations were not
relevant to the post-eligibility process. However,
HCFA has not cited
any regulation or other authority which changes the
definition of
"resource" in the post-eligibility process. Therefore,
the only
definitions in effect do not encompass the receipt of
state-funded
medical services. 22/ Further, HCFA has recognized the
need to amend a
definition if it wants states to apply post-eligibility
standards which
differ from eligibility standards. For example, there
are numerous
regulations which address how "income" is to be calculated in
the
post-eligibility process and which change the definition of
"income"
from that used in the eligibility process. 23/.In its response to
the
Board's Preliminary Analysis, HCFA cited language in section 5-40-20
of
the Medicaid Assistance Manual, issued in HCFA Action Transmittal
78-2,
as authority for the proposition that the Secretary had
previously
defined state-funded medical services as a "resource" for
determining
the extent of medical assistance. Since this action
transmittal is not
currently effective, we question whether this language
would, in itself,
constitute a definition of "resource" pursuant to the
Secretary's
legislative rulemaking authority under section 1902(a)(17)(B).
24/
However, even if this language were still in effect, it plainly does
not
define state-funded services as a "resource" under
section
1902(a)(17)(B) when it is read in the context of the Action
Transmittal
in which it was promulgated. The entire passage reads:
H. Financing arrangements.--Effective
financing arrangements
between Medicaid and the
other state agencies can facilitate the
development,
organization and implementation of health care
services for Medicaid recipients. Decisions about
financing
arrangements and reimbursement for
services to Medicaid recipients
should be worked out
between the responsible agencies to make the
most
effective use of funds of all programs. However, the
statute
has given special emphasis to the use of
Medicaid funds as a first
dollar resource by Title
V.
Medicaid funds may also be used as a first dollar
resource for
services provided by vocational
rehabilitation and certain other
.programs and
projects (see section I-1). However, payment
benefits from other hospital or health insurance, or other
third
parties which are under obligation to provide
such benefits for
Medicaid eligible, must be used
before drawing on Medicaid funds.
(Underlined portion cited by HCFA as definition of
post-eligibility
resource.)
The passage explains that Medicaid can be the "first dollar" in
relation
to other state and federal programs. The language cited by
HCFA is
merely reiterating the standard Medicaid requirement that, even
if
Medicaid is the first dollar to another governmental program,
third
party liability must be exhausted before Medicaid pays for a
service.
Since HCFA acknowledged that California is not a third party
liability
source, this language is not relevant here. This language
simply does
not define the receipt of state-funded services as a
"resource."
In support of its interpretation of section 1902(a)(17)(B), HCFA
cited
"fundamental Medicaid principles" articulated in HCFA's notice
of
proposed rules, Congressional committee reports and Board
decisions.
However, in each of these cases, the "principles" were cited in
support
of HCFA's regulatory authority or an amendment to Title XIX.
They were
not cited as a substitute for and in contravention of
specific
definitions which HCFA had promulgated. For example, HCFA
cited 53 Fed.
Reg. 32253 (August 24, 1988), which dealt with a proposed
revision of
regulations defining "income" in SSI and Medicaid. The rule
change was
a result of Sumy v. Schweiker, 688 F. 2d 1233 (9th Cir. 1982), in
which
the court concluded that Veterans Benefit reimbursements for
unusual
medical expenses should be considered reimbursements for
medical
expenses and not pension payments. As medical expense
reimbursements,
rather than pension payments, such reimbursements do not
constitute
income under 20 C.F.R. 416.1109(a) [now 416.1103(a)]. In
response to
this decision, HCFA promulgated revised regulations to
differentiate
between VA reimbursement for purposes of SSI and Medicaid
eligibility
determinations and for the purposes of the post-eligibility
process.
Pursuant to the rule change, the regulations on the
post-eligibility
process define "income" as "payments made directly to the
individual
under a Federal, State, or local government program for medical
or
remedial care or social services, which are not considered to be
income
for purposes of eligibility, e.g., Veterans Administration
payments
for.aid and attendance or resulting from unusual medical
expenses."
(Emphasis added.)
Rather than supporting HCFA's construction of 1902(a)(17(B), this
notice
of proposed rulemaking illustrates the weakness in HCFA's
present
argument. In the notice, HCFA invoked such principles as "payer
of last
resort" and "all available resources" in support of its proposed
and
expanded definition of 1902(a)(17)(B) post-eligibility income. In
this
case, HCFA invoked these principles in support of a definition
of
"resources" which is inconsistent with specific standards HCFA
has
promulgated in the Code of Federal Regulations and its manual
concerning
what constitutes a "resource." While HCFA could
appropriately rely on
these principles if it chooses to amend its regulations
or manual, the
principles may not properly be used to justify a construction
of
1902(a)(17)(B) which is inconsistent with present regulations or
manual
provisions. General principles, however valid, cannot overcome
specific
standards which HCFA has previously promulgated in administering
the
Act.
In summary, the Secretary's authority to define state- funded TCM
services
as a "resource" under section 1902(a)(17)(B) is clearly
circumscribed by the
first sentence of section 8435. Since we conclude
that the first
sentence applies to these services, we find that HCFA may
not treat
California's TCM services as a "resource." Further, HCFA
has
promulgated definitions of "resource" which do not appear reasonably
to
encompass the receipt of state-funded services. Because
HCFA's
definition of "resources" does not encompass receipt of
state-funded
services, state plans cannot "take into account" state-funded
services
as resources "in accordance with standards prescribed by the
Secretary"
under section 1902(a)(17)(B). Therefore, we conclude that,
under
section 8435, and under HCFA's present regulations, these TCM
services
should not be considered a "resource" within the meaning
of
1902(a)(17)(B).
Conclusion
For the reasons stated above, we conclude that HCFA may not disallow
these
claims for FFP on the basis of the present record. However,
because
California did not show that it had complied with section 5340
of the State
Medicaid Manual by seeking third party reimbursement, we
also conclude that
California did not establish that it is entitled to
the disallowed
funds. Since the question of whether California complied
with 5340 was
not raised .until late in the case, California should be
given an opportunity
to demonstrate that it sought third party
reimbursement. Therefore, we
remand this disallowance to HCFA so that
it can determine whether California
has satisfied the requirements of
section 5340 as interpreted by this
decision and its obligations under
its state plan. If California is
dissatisfied with HCFA's
determination, it may file an appeal with the Board,
within 30 days
after receiving the determination.
_______________________________ Judith A. Ballard
_______________________________ Norval D. (John) Settle
_______________________________ Alexander G. Teitz
Presiding
Board Member
1. The first three disallowances at issue in this case
totaled
$47,750,557. In order to clarify the quarter in which the
expenditures
were made by the State, the federal funding claimed by the
State, and
the quarter in which the funding was claimed, the parties filed
a
stipulation dated April 8, 1991 as to these three disallowances.
The
fourth and fifth disallowances (the subjects of DAB Docket No.
91-93)
were issued on June 11, 1991 in the amounts of $1,385,302
and
$1,296,899.
2. A state plan, and amendments to the plan, must be approved by
HCFA,
and serve as the basis for a state's federal reimbursement:
"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(a) of
the
Act.
3. The Consolidated Omnibus Budget Reconciliation Act of 1985,
section
9508 of Public Law 99-272, added a new subsection (g) to section 1915
of
the Act. Public Law 99-514, section 1895(c)(3), added TCM services
to
the list of services identified by section 1905.
4. HCFA has repeatedly argued that the Regional Centers
were
"prohibited" from charging for TCM services. California did not
develop
the record on this question, and it is apparent that the
State
appropriated money for the Regional Centers to provide TCM
services.
However, it is not as apparent that there was a prohibition
in
California law against charging for TCM services. The
only
"prohibitative" language cited by HCFA is Calif. Welf. & Inst.
Code
section 4782: "In no event, however, shall parents be charged
for
diagnosis or counseling services received through the regional
centers."
This language is far from a blanket prohibition: it only
addresses the
liability of parents and is silent as to the liability of adult
Medicaid
recipients; and "diagnosis and counseling" services are not
necessarily
synonymous with TCM services.
Further, under the Lanterman Act, the scope of the State's undertaking
to
provide services through the Regional Centers does not appear to be
as broad
as HCFA assumed. Regional Centers are under an express
obligation to
pursue alternative funding sources such as "governmental
or other entities or
programs required to provide or pay the cost of
providing services, including
Medi-Cal . . ." and other private sources
such as insurance. Calif.
Welf. & Inst. Code section 4659(a). Further,
California enacted
Welfare and Institutions Code section 14132.44
expressly to cover TCM
services as a benefit under its Medi-Cal program.
Therefore, the State can
fairly be viewed as guarantying funding for TCM
services only where no other
payer is available.
5. We specifically note that HCFA did not argue that the
second
sentence of section 8435 created exceptional or additional authority
for
denying TCM services. Rather, it argued that where TCM services
fell
within the exception created by the second sentence, they were to
be
treated as all other Medicaid services.
6. HCFA cited authority that "[t]o the extent that legislative
history
may be considered, it is the official committee reports that provide
the
authoritative expression of legislative intent. . . . Stray
comments by
individual legislators, not otherwise supported by statutory
language or
committee reports, cannot be attributed to the full body that
voted on
the bill. The opposite inference is far more likely." In
Re Kelly, 841
F.2d 908, 912 n. 3 (9th Cir. 1988). While we do not
disagree with this
and we therefore do not find that the comments of the
California
Senators are controlling, they nonetheless are relevant here
because:
they comprise the section's only history and are not inconsistent
with
committee reports; they demonstrate that the California Senators
were
trying to address all of HCFA's objections to the California
amendment
including that the services were being provided "without charge";
they
harmonize two sentences which appear to be contradictory in a way
which
is consistent with HCFA's own construction of the term "without
charge."
Further, we do not agree with HCFA's argument that Senator
Cranston
admitted in his letter of August 15, 1990 that California was
not
entitled to FFP under section 8435. See HCFA Ex. N. That
letter is the
second part of the correspondence between Senator Cranston and
Gail
Wilensky, Administrator of HCFA. Initially, Senator Cranston
inquired
about why California was being denied FFP under section 8435.
Faced
with the Administrator's response that California was still not
entitled
to FFP, he then inquired as to how California might restructure its
TCM
services to obtain FFP. His failure in the second letter to
continue to
argue about section 8435 cannot be read as an admission.
7. While HCFA did not initially cite this definition, it is the
only
definition of "without charge" which has been identified in the
course
of this proceeding. Section 5340 is in the chapter of the Manual
which
addresses reimbursement for Early and Periodic Screening Diagnostic
and
Treatment (EPSDT) services. However, it is clear from the text
of
section 5340 and the Action Transmittal in which the definition
was
first promulgated (see Medicare and Medicaid Guide (CCH),
para.
14,791.41 at 6465-81) that this definition refers to Medicaid
services
generally and not just to EPSDT services.
8. A "charge" to an individual or to a third party payment
source
serves at least two programmatic purposes. First, a "charge" to
an
individual links the costs of a service to a specific Medicaid
eligible
person. For TCM services, California has created a methodology
to do
exactly this: Regional Centers document specific "units" of
TCM
services allocated or "charged" to specific Medicaid recipients.
State
Ex. 12 at 14-15. This methodology resulted from HCFA's rejection
of
California's initial methodology and HCFA's requirements
for
documentation of services. See State Ex. 9 at 12-13 (in
which
California sought to calculate an average monthly case management
cost
multiplied by the number of Medicaid recipients receiving TCM
services)
and State Ex. 11 at 2 (in which HCFA responded that California
must
establish a methodology which would document date of service; name
of
recipient; name of provider agency and person providing the
service;
nature, extent or units of service; and place of service).
Second, a "charge" to third party payment sources provides a measure
for
the reasonableness of the state Medicaid agency's payment rate.
The
fact that other payment sources are willing to pay a given
rate
indicates that other payers have evaluated the payment amount and
found
it appropriate for the service and the community in which the
service
was rendered. California represented that it in fact seeks such
third
party reimbursement. Also, as a measure of the reasonableness
of
California's TCM rate, HCFA required California to establish
a
unit-of-service reimbursement rate for each Regional Center based
on
that center's actual cost for provision of TCM services. State Ex.
16
at 22. The California officials explained to the Regional Centers
that
"[t]he federal government is requiring that a rate be established
for
each center because each center's actual costs for case
management
services may differ, depending on various factors such as
facility
rental costs, employee salaries, etc." Id.
Therefore, HCFA and the State had cooperated in establishing
methodologies
which fulfilled the function of a traditional "charge"
mechanism.
9. We note that the provider may not be the entity that charges
for
services. Under Cal. Welf. & Inst. Code section 4850-4854, the
recently
enacted statutory scheme for charging fees for TCM services,
the
Regional Centers forward billing information to the State and the
State
bills the individuals who have incurred charges under the sliding
fee
scale.
10. California responded that third party reimbursement for
TCM
services was available and that it had instituted a system for
seeking
such reimbursement. As to health insurers, California argued
that the
cases cited by HCFA on the liability of health insurers were
not
dispositive because insurers' liability ultimately turned on
the
language of individual policies. As to tort-feasors, California
argued
that, under Cal. Welf. & Inst. Code section 14124.71(d), the State
had
greater rights of recovery against a tort-feasor than either a
recipient
or a provider. The State therefore had a legal basis to
recover the
costs of TCM services against tort-feasor/liability insurers.
11. Since health insurance offsets Medicaid expenditures, lack
of
recourse against the insurance industry costs Medicaid and is of
obvious
concern to HCFA. However, in this particular case, lack of
recourse
would not appear to deprive Medicaid of otherwise available funds
since
case management services are not typically considered "medical
services"
and are therefore not covered by health insurance policies.
State Ex.
20 at 19.
Further, HCFA did not explain how the new California fee statute
would
change providers' ability to recover health insurance for TCM
services
provided to Medicaid recipients. Under California's new fee
statute,
Medicaid recipients would not incur liability for payment by virtue
of
their low income. Therefore, health insurers would apparently still
be
able to deny claims on the grounds that the Medicaid recipient had
not
incurred, or was not liable for, an expense under the State fee
statute.
Finally, California's health insurers' exposure under the statutory
scheme
existing during this disallowance period or under the new fee
statute may be
broader than HCFA anticipated. California's insurance
code restricts
insurers' freedom to deny payment for Medi-Cal expenses:
"A policy of
disability insurance [a term which includes health
insurance in California]
may not provide an exception for other coverage
where such other coverage is
entitlement to Medi-Cal benefits. . . . A
policy of disability
insurance may not provide that the benefits payable
thereunder are subject to
reduction if the individual insured has
entitlement to such Medi-Cal
benefits." See Cal. Ins. Code section
10117.
12. HCFA also asserted that the State would have to show that
its
providers sought third party reimbursement for all recipients of
TCM
services and not just for Medicaid recipients. HCFA cited no
authority
for this assertion, nor did HCFA offer any reason why we
should
interpret the provision this way. We see no obvious federal
interest in
whether a state seeks such reimbursement for non-Medicaid
individuals.
13. HCFA described this as a "fundamental principle" of the
Medicaid
program. While HCFA was able to quote legislative history or
Board
decisions for the other two fundamental principles it cited in
this
disallowance (i.e., all available resources must be considered,
and
Medicaid is a payer of last resort), HCFA did not cite any authority
for
this third principle.
We do note that in section 4302.2 of the State Medicaid Manual
concerning
case management services, HCFA has written:
As with all Medicaid services, payment cannot be made
for
services for which another payer is liable, nor for services
for
which no payment liability is incurred.
However, HCFA did not cite this manual provision as authority for
its
disallowance. Further, we do not find this provision persuasive for
the
following reasons. The phrase "for which no payment liability
is
incurred" can be interpreted to be consistent with HCFA's definition
of
"without charge" in section 5430 to mean at least third parties must
be
liable. Also, this provision was promulgated in January 1988, prior
to
the enactment of section 8435. To the extent HCFA intended
this
provision to address the fact that a state had been paying for
the
services previously, this provision must be read in light of
section
8435.
14. See HCFA's Response to the Board's Preliminary Analysis at
6-10
(HCFA's discussion of health insurance carriers' liability where
an
insured does not incur a liability to pay).
15. Section 1862(a)(2) provides:
(a) . . . no payment may be made under part A or part B for
any
expense incurred for items or services-
* * *
(2) for which the individual furnished such items or
services
has no legal obligation to pay, and which no other person
(by
reason of such individual's membership in a prepayment plan
or
otherwise) has a legal obligation to provide or pay for;
16. According to the record in this case, HCFA first articulated
the
section 1905(a) "cost" requirement in July 1989, some eighteen
months
after the State filed its plan amendment and almost a year after
HCFA
had engaged in extensive discussions and correspondence with the
State
and had disapproved the amendment. HCFA Ex. 25.
17. Medically needy recipients are people who have too much income
to
meet the income eligibility standards for cash assistance but not
enough
income for medical care. For these people, states are required
". . .
to deduct an applicant's incurred medical expenses from income
in
determining his eligibility for Medicaid." 42 C.F.R.
435.1(b)(3). See
also sections 1903(f)(2)(A); 1902(a)(17)(D); 42 C.F.R.
435.301(a);
435.330(b)(1)(i); 435.732(d). The second circumstance
involves the
post-eligibility calculation of income for recipients in
institutional
or home/community based care. In determining what portion
of these
recipients' income must be applied to his/her cost of care, states
may
deduct "incurred medical expenses" which are not subject to payment by
a
third party. See 42 C.F.R. 435.725(f), 435.726(c)(4).
18. In Schweiker v. Gray Panthers, 453 U.S. 34, 44 (1981), the
Supreme
Court ruled that 1902(a)(17)(B) constituted an "explicit delegation
of
substantive authority" and the Secretary's standards pursuant to it
were
entitled to "legislative effect."
19. One line of cases which demonstrates that section
1902(a)(17)(B)
applies to categorically eligible recipients concerns the
Secretary's
attempt to apply the AFDC sibling deeming requirements to
Medicaid
eligibility determinations. These cases addressed the
relationship
between the Secretary's authority under section 1902(a)(17)(B)
to
prescribe eligibility standards and section 1902(a)(17)(D),
which
prohibits deeming income between certain relatives. The
courts
recognized that the Secretary had authority to prescribe
eligibility
standards for AFDC-linked categorically eligible recipients
under
section 1902(a)(17)(B), but found that section 1902(a)(17)(D)
restricted
that authority and prevented him from prescribing standards which
would
deem sibling or grandparent income to AFDC-linked Medicaid
recipients.
See Vance v. Hegstrom, 793 F.2d 1018 (9th Cir. 1986); Sneede by
Thompson
v. Kizer, 728 F. Supp. 607 (N.D. CA 1990); Malloy v. Eichler, 860
F.2d
1179 (3rd Cir. 1988) and the cases cited therein at 1182.
20. The majority of California's Lanterman Act TCM services
are
provided to three categories of Medicaid recipients: SSI/SSP-linked
(89
percent), AFDC-linked (four percent), and medically needy
recipients
(two percent). Declaration of Susanne Hughes attached to
March 27, 1991
letter of Eileen Ceranowski. Income and resource
standards for people
who are eligible for Medicaid because they are
Supplemental Security
Income (SSI) recipients are set forth at 20 C.F.R.
Subparts K and L.
Standards for AFDC-linked Medicaid recipients are at 45
C.F.R.
233.20(a)(3)(i)(B). Standards for medically needy recipients are
at 42
C.F.R. 435.840 et seq.
21. For example, the majority of the Medicaid recipients of
Lanterman
Act TCM services are SSI-linked recipients. The regulations
relevant to
this class of recipients define "resource" as ". . . cash or
other
liquid assets or any real or personal property that an individual . .
.
owns and could convert to cash to be used for his or her support
and
maintenance." 20 C.F.R. 416.1201. That definition, which
conceptually
focuses on assets or property, would not encompass receipt of
medical or
social services. If anything, receipt of services is more
related to
the concept of "income," i.e., something of value which is
received
periodically. 20 C.F.R. 416.1102. However, for
SSI-linked Medicaid
recipients, the Secretary has considered the periodic
receipt of medical
and social services and expressly provided that they are
not to be
regarded as "income" for SSI and Medicaid purposes. 20
C.F.R.
416.1103(a) and (b).
22. Contrary to HCFA's assertion in its Response to the
Preliminary
Analysis, the Board does not read section 1902(a)(17)(B) to
require
identical definitions of "resource" for determining eligibility
as
opposed to "resource" for determining the extent of medical
assistance.
We recognize the Secretary's broad power to adopt
separate
post-eligibility definitions. The problem here is that HCFA
has not
identified any credible source in which the Secretary has defined
the
receipt of state-funded services as a "resource" and such a
definition
is contrary to the only existing definitions of "resources"
promulgated.
23. What HCFA has referred to as the "post-eligibility process" in
its
regulations seems to apply only to income calculations for recipients
in
institutions or receiving care under home and community-based
waivers
who must apply certain amounts of their income toward the costs
of
medical care. In this process, a recipient's total available
income,
including amounts which are not counted in the eligibility process,
is
considered in reducing the Medicaid payments for the costs of
medical
care. See 42 C.F.R. 435.725; 42 C.F.R. 435.726; 42 C.F.R.
435.733; 42
C.F.R. 435.735; 42 C.F.R. 435.832; and 42 C.F.R. 436.832.
24. The Medicaid Assistance Manual (MAM) was the program manual
in
effect prior to the issuance of the State Medicaid Manual. As
of
October 1990, HCFA-AT-78-2 was not included on the list of
currently
effective action transmittals. Medicaid Program Memorandum,
Transmittal
No. 90-7 (October