Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Missouri Department of Social Services
DATE: May 17, 1993
Docket No. A-92-165
Decision No. 1412
DECISION
The Missouri Department of Social Services (Missouri) appealed
a
disallowance by the Health Care Financing Administration (HCFA)
under
Title XIX (Medicaid) of the Social Security Act (Act). HCFA
disallowed
$1,571,801 of Missouri's claim for federal financial participation
(FFP)
in costs incurred for pharmacy services rendered from October 1,
1987
through November 30, 1988. The disallowance was based on a finding
by
HCFA that Missouri had failed to reduce its payments to providers by
the
amount of recipient copayments as required by the state plan and
federal
regulations, and that, as a result, Missouri's payments exceeded
the
reimbursement rates established by the state plan.
Based on our review of the record, we reverse the disallowance.
I. S I.SUMMARY OF OUR DECISION
This case involves the interaction of two sets of requirements in
the
Missouri state plan and HCFA's Medicaid regulations. The first
set
governs recipient copayments for pharmacy services. The second
set
governs reimbursement rates for pharmacy services. HCFA based
its
disallowance on a finding that Missouri's computerized claims
processing
system did not have a computer edit deducting the copayment amount
set
in the state plan from the reimbursement rates for drugs
determined
according to methods set out in the state plan. Missouri
argued that it
was not required to deduct the copayment amount.
Missouri argued that
it had reasonably interpreted its plan and the federal
requirements to
permit it to treat any copayment amount due for pharmacy
services as an
add-on to the drug dispensing fee, rather than as a deduction
from the
state payment determined under the state plan and used as a basis
for
determining the FFP amount.
This Board gives deference to a state's interpretation of its own
state
plan, so long as that interpretation is an official interpretation
and
is reasonable in light of the language of the plan as a whole and
the
applicable federal requirements. As we discuss below, we find here
that
Missouri's interpretation was its official interpretation of its
plan.
Missouri provided convincing evidence, which has not been rebutted,
that
high-level Missouri officials interpreted the plan to permit
treating
any copayment amount due from a recipient as an add-on to the
dispensing
fee which would not affect the amount Missouri paid for
pharmacy
services. We also conclude:
o Missouri could reasonably interpret its
state plan provisions on
copayments as not requiring deduction. In
fact, HCFA approved the plan,
which explicitly requires deduction of
copayment amounts for other
services but contains no such requirement for the
pharmacy copayments.
o Absent notice of a HCFA interpretation
to the contrary, Missouri
could reasonably interpret HCFA's copayment
regulations to permit
treating the copayment as an add-on, rather than as a
deduction.
Nothing in the regulations specifically requires such deduction,
and the
history of the statute authorizing states to collect
copayments
indicates that states should not reduce their payment amounts to
reflect
recipient copayments. While the federal regulations refer to
copayments
as a form of cost sharing, Missouri could reasonably consider
the
copayments here to be cost sharing since the standard dispensing
fee
Missouri paid from its own funds did not cover all of a
provider's
dispensing costs.
o Missouri could reasonably interpret its
state plan provisions
setting methods for drug payments to providers as
establishing the
amount it would pay, rather than as a limit on the total
amount of
reimbursement a provider could receive.
o Absent notice of a HCFA interpretation
to the contrary, Missouri
could reasonably interpret HCFA's regulations,
establishing upper limits
for FFP in expenditures for drugs, as applying
those limits solely to
amounts in fact paid by a state Medicaid agency.
Moreover, HCFA did not
find here that Missouri's claims exceeded the
aggregate upper limits for
drug payments in effect during the disallowance
period.
o Missouri's treatment of pharmacy copayments as
an add-on
did not
result in any "windfall" of federal funds to Missouri.
The
disallowed amounts here
were clearly state expenditures
which
Missouri reasonablythought HCFA would
match. Moreover, if Missouri
hadinstead
treated the copayments as deductions, ratherthan
add-ons, it would have hadto increase itsreimbursement rates
to
reflect the fact thatproviders could not always
collectcopayments
fromrecipients, and this would
haveincreased theoverall cost to the
federalgovernment.
Accordingly, we reverse the disallowance.
Below, we first set out the background to this dispute. We then
explain
why we find that Missouri's interpretation was its
official
interpretation. Next, we address the copayment provisions of
the state
plan and HCFA's regulations. Finally, we address the state
plan
provisions and HCFA's regulations on drug payments.
II. BACKGROUND
HCFA based its disallowance on a financial management review
which
addressed Missouri's implementation of its copayment provisions
for
pharmacy services, as well as other Medicaid services. The results
of
this review were published in an April 15, 1991 Financial
Management
Report. The Financial Management Report found that Missouri
had claimed
unallowable FFP in violation of federal regulations and the
Missouri
state plan. In its report, HCFA relied primarily on the
regulation at
42 C.F.R. . 447.57, which provides that a Medicaid agency may
not
increase its reimbursement to providers to offset uncollected
copayment
amounts. According to HCFA, Missouri was required to deduct
recipient
copayments from the provider reimbursement rates established by
the
Missouri state plan. HCFA stated that Missouri's failure to
deduct
copayment amounts from the provider reimbursement rates was due to
the
fact that Missouri's computerized claims processing system did not
have
any copayment edit. HCFA argued that, because Missouri did not
deduct
the copayment amounts from the reimbursement rates, providers
received
additional payments at a level above that established by the state
plan.
HCFA also contended that Missouri's failure to deduct
copayments
resulted in the payment of unallowable FFP for copayment amounts,
in
violation of 42 C.F.R. . 447.59. 1/
Missouri argued that the copayment was an "add-on" to the
provider
reimbursement rate determined according to the methodology in the
state
plan. Missouri said the "add-on" was an additional amount a
provider
could receive, which varied according to the amount of the copayment
due
and which enhanced the "standard" dispensing fee amount budgeted by
the
state legislature. According to Missouri, it had determined (at
a
meeting in 1983 attended by a HCFA representative) that it could
comply
with state and federal requirements by treating copayments as an
add-on
to the standard dispensing fee. Missouri's state law required
that
copayments be made in addition to, rather than in lieu of,
state
payments. Missouri Exhibit (Ex.) A. Missouri said that, to
reflect
this treatment of copayments as an add-on to the dispensing
fee,
Missouri had devised a copayment formula, as follows:
ingredient cost + variable dispensing fee
(standarddispensing fee +
copayment) - copayment
=Medicaid payment
See Missouri Ex. A at 3.
Missouri presented evidence which it said showed that its treatment
of
copayments for pharmacy services as an add-on, and its use of
the
copayment formula, was its long-standing interpretation of its
state
plan. Missouri argued that this was a reasonable interpretation
and
therefore was entitled to deference.
In response, HCFA challenged whether Missouri had in fact
officially
adopted the alleged interpretation. HCFA also argued that,
even if
Missouri had officially adopted a variable dispensing fee
(standard
dispensing fee plus copayment amount), Missouri's implementation of
its
copayment formula (without using a computer edit to deduct the
copayment
amount) had led to overpayments to providers. According to
HCFA, the
state plan required Missouri to compare the drug ingredient cost
plus
the dispensing fee to the provider's usual and customary charge and
to
pay the lower amount, minus the copayment. Thus, HCFA argued that,
at
the very least, Missouri had made overpayments to providers whenever
it
paid the usual and customary charge without deducting any copayment
due
from the recipient.
After receiving Missouri's reply, the Board issued a
preliminary
analysis. The major purpose of the preliminary analysis was
to focus
the parties' briefing on several issues which the Board determined
the
parties had not adequately addressed. In particular, it appeared
that
HCFA had abandoned its reliance on one of the provisions of
the
copayment regulations originally cited in the disallowance letter
(42
C.F.R. . 447.57), without fully explaining how the other
provisions
required a state to deduct copayment amounts from the
reimbursement
rates set out in the state plan. The Board also discussed
the
regulations setting upper limits on FFP in drug payments, and the
state
plan provisions in effect when Missouri first implemented
copayment
requirements, as well as the provisions in effect during
the
disallowance period. Each party was given an opportunity to comment
on
the preliminary analysis and to reply to each other's comments. 2/
III. ANALYSIS
The Board has frequently held that deference must be given to a
state's
own interpretation of its state plan if the state's interpretation
is
reasonable, and it is clear from the state's policy and
consistent
administrative practice that this was the intended
interpretation. See,
e.g., Virginia Dept. of Medical Assistance
Services, DAB No. 1207
(1990). States have considerable discretion in
how to run their
programs, and their intent controls in areas where they have
options and
do not need specific HCFA approval. The reasonableness of
the
interpretation can be determined by deciding whether it gives
reasonable
effect to the language of the plan as a whole, and whether it
is
reasonable in light of the purpose of the plan provision at issue
and
the program requirements. Kansas Dept. of Social and
Rehabilitative
Services, DAB No. 1026 (1989).
Here, the issue presented is slightly different from those presented
in
our previous decisions since the question is not how to
interpret
specific language in the plan. Rather, the issue is whether
the way
Missouri implemented its copayment for drugs was consistent with
the
state plan and with federal regulations. The same basic
analysis
applies, however. Since HCFA could point to nothing in its
regulations
or policy issuances specifically requiring deduction of
copayment
amounts from the reimbursement rates established using the method
in the
state plan, our analysis also must address the reasonableness
of
Missouri's interpretation of the regulations as not requiring
such
deduction. As we have previously held, absent timely and
adequate
notice of an agency interpretation to the contrary, a state may rely
on
its own reasonable interpretation of an ambiguous regulation.
See,
e.g., Colorado Dept. of Social Services, DAB No. 1297, at 4
(1992);
Maine Medicaid Fraud Control Unit, DAB No. 1182, at 12 (1990).
A. Missouri had an official policy of treating copayments as an
add-on
which providers received in addition to the state payment, rather
than
as an amount to be deducted from the state plan reimbursement rates.
HCFA argued in essence that Missouri's use of a variable dispensing
fee
and a copayment formula was not an official interpretation of the
state
plan since it was not included in the state plan or any other
official
document and since it was never approved by HCFA. HCFA
asserted that
Missouri never mentioned a variable component to the dispensing
fee in
its official documents and had characterized the dispensing fee
as
simply "dispensing fee" or a "fixed price set by the legislature."
HCFA
Ex. 1; Ex. 2. HCFA also cited Missouri's pharmacy claim
filing
instructions, which told providers not to subtract the dispensing
fee,
as evidence that the copayment formula was not Missouri's
official
formula. Moreover, HCFA contended that, despite Missouri's
assertions
to the contrary, the HCFA representative who was present at a
meeting
where the copayment formula was discussed did not have the authority
to
approve the copayment formula. Thus, argued HCFA, the copayment
formula
was never officially approved by HCFA.
We find that Missouri did have an official and long-standing policy
of
treating the pharmacy copayment as an add-on to the dispensing
fee.
First, the plan as a whole demonstrates that Missouri's intent was
to
treat copayments for pharmacy services differently from copayments
for
other services offered under the state plan. While the state
plan
provisions governing copayments for other services explicitly
stated
that the copayment amount should be deducted from the rates
established
by the state plan, the provisions for pharmacy services did not
require
any such deduction. Missouri Ex. R. 3/
Missouri also provided adequate documentation to prove that since at
least
1983, it has consistently interpreted its state plan to allow for
a copayment
add-on. Missouri submitted both internal and external
documents which
are essentially contemporaneous with Missouri's adoption
of the copayment
provisions and which demonstrate that the copayment was
treated as an add-on
to the providers' reimbursement paid from the state
treasury. Missouri
Exhibits A, D. One of these documents was issued to
the Missouri
Pharmaceutical Association by the Missouri Medicaid
Director and described
the dispensing fee as "variable." Missouri Ex.
E. Moreover, in
response to the Board's preliminary analysis, Missouri
provided further
documentation, including a page from a preliminary
report issued to the
public which stated that "[i]n Missouri, the
co-payment for drugs is an
add-on to the pharmacist's dispensing fee."
Missouri Ex. DD at 6; see also
Missouri Ex. DD, EE, FF, Second McCann
Supp. Aff. All of this
documentation was supported by affidavits from
various high-level
officials. 4/
HCFA did not provide any evidence which directly rebuts
Missouri's
evidence. HCFA pointed to a reference to the dispensing fee
as a "fixed
price set by the legislature" in Missouri's 1992 state budget
request.
See HCFA Ex. 3. Missouri pointed out, however,
that this reference
could reasonably be read as referring only to the
standard component of
the dispensing fee since that is the only part funded
by state dollars.
In seeking funds from the state legislature, Missouri would
not need to
refer to the variable portion of the dispensing fee which was
covered by
the copayments. HCFA also pointed to a bulletin sent to
pharmacists in
1989 which refers to an increase in the pharmacy dispensing
fee and
refers only to the amount Missouri considered the "standard" part of
the
fee. See HCFA Ex. 1. This bulletin does not directly
contradict
Missouri's position, however, since it also can be read as
referring
only to the state-budgeted amount Missouri would pay.
HCFA also argued that the presence of a HCFA representative at the
meeting
at which Missouri decided to treat copayments as an add-on could
not bind
HCFA since that representative was merely a Medicaid Program
Specialist who
had no authority to grant HCFA approval. We agree with
this position
generally. However, we note that HCFA did approve
copayment provisions
in the state plan which do not specifically provide
for deduction of
copayment amounts for drugs. 5/ Moreover, since HCFA
did not deny that
the Medicaid Program Specialist was present at a
meeting where Missouri
decided to treat copayments as an add-on, it is
reasonable to infer that he
was. This lends some credence to Missouri's
position that it did make
such a decision and indicates that Missouri
was not attempting to circumvent
federal requirements.
We note that we do not find particularly persuasive here
Missouri's
argument that its consistent administrative practice was to
treat
pharmacy copayments as an add-on. Essentially, that
"practice"
consisted of doing nothing -- in particular, of not implementing
any
computer edits to the claims processing system. The
Financial
Management Report found, however, that Missouri did not
implement
computer edits for any of its copayments, and Missouri acknowledged
that
its state plan required deduction of copayments for other
services. On
the other hand, HCFA provided no evidence of any
administrative practice
directly conflicting with Missouri's assertion that
it did not need to
implement computer edits for pharmacy copayments in light
of its
treatment of the copayments as an add-on. Due to the nature of
pharmacy
services as compared to other services (such as inpatient
hospital
services), it is understandable that Missouri would choose to
treat
pharmacy services differently. Pharmacy services are usually of
a
smaller dollar amount, and one claim might include numerous items,
so
that deducting copayments from each item would be burdensome.
In sum, we conclude that Missouri proved that it had in fact
officially
interpreted its state plan as permitting it to treat pharmacy
copayments
as an add-on to the drug dispensing fee..B. Missouri
reasonably
interpreted the federal copayment regulations and the state
plan
provisions on copayments as permitting it to treat pharmacy
copayments
as an add-on.
Under the Act, a state may require certain recipients to share in the
cost
of Medicaid services. Section 1902(a)(14) of the Act. Under
42
C.F.R. . 447.50(a), states may impose nominal cost sharing charges
on
recipients, which may take the form of "enrollment fees,
premiums,
deductibles, coinsurance, co-payments, or similar cost sharing
charges."
6/ Not all recipients may be subject to the charges, however,
since
certain individuals, such as children and pregnant women, must
be
excluded. 42 C.F.R. . 447.53(b). A state plan should include
a
copayment schedule, and the copayments may not exceed the amounts set
in
the federal copayment schedule at . 447.54(a)(3). These maximum
amounts
are set in relation to the state's payment for the service. If
the
copayment is waived, or cannot be collected from the recipient,
the
state may not increase its payment to providers in order to offset
these
uncollected amounts. 42 C.F.R. . 447.57.
A state plan must provide that participation in Medicaid will be
limited
to "providers who accept, as payment in full, the amounts paid by
the
agency plus any deductible, coinsurance or copayment required by
the
plan to be paid by the individual." 42 C.F.R. . 447.15.
Whenever a
third party is responsible for the payment due, and the amount for
which
the third party is liable is either greater than or less than the
amount
payable under the state plan, 42 C.F.R. . 447.20 sets restrictions
on
the amount which a provider may collect from the recipient of
the
service. If the liability of the third party is less than the
amount
payable under the state plan, the provider may collect from
the
recipient the lesser of the cost sharing amount due or the
amount
representing the difference between the "amount payable under the
State
plan (which includes, where applicable, cost-sharing payments
provided
for in .. 447.53 through 447.56) and the total of the established
third
party liability for the services." 42 C.F.R. .
447.20(a)(2)(ii). A
state will not receive FFP for cost sharing amounts
which "recipients
should have paid" as copayments or any other cost sharing
charges. 42
C.F.R. . 447.59.
Missouri's copayment provisions were approved by HCFA in Missouri's
state
plan effective July 1982. Unlike the state plan provisions
on
copayments for other services, the provision on copayments for
pharmacy
services did not specifically require that the copayments be
deducted
from the reimbursement rates determined according to the methods in
the
state plan. While HCFA's Financial Management Report found
that
Missouri's failure to implement a computer edit deducting copayments
was
inconsistent with the state plan, it appears that the report (and
HCFA's
disallowance letter) failed to consider the fact that the
copayment
provisions in the state plan were different for pharmacy services
than
for other services.
In the report and the disallowance letter, HCFA also relied on 42 C.F.R.
.
447.57 (providing that states may not increase their payments to
offset
uncollected copayments). Missouri responded that there was no
finding
here that the copayments were uncollected or that Missouri had
made payments
specifically to offset uncollected amounts. In our
preliminary
analysis, we noted that Missouri appeared to be correct on
this point.
HCFA did not specifically contest that view, nor otherwise
indicate that it
continued to rely on this section.
While HCFA also cited other provisions of the regulations, none of
those
provisions expressly requires deduction of copayment amounts.
Each can
be reconciled as easily with Missouri's interpretation of its state
plan
as with HCFA's. For example, with respect to 42 C.F.R. . 447.20,
HCFA
contended that it intended to require a deduction of the copayment
from
the "amount payable under the state plan" when it characterized
this
amount as "includ[ing], where applicable, cost-sharing payments
provided
for in .. 447.53 through 447.56." Due to the ambiguity of
this
statement, however, this description may also be interpreted to
support
Missouri's argument that no copayment deduction is necessary.
According
to Missouri, the state plan provides separately for a methodology
to
determine the amount which the state will pay providers from its
funds
and for a copayment schedule to establish the amount which
recipients
must pay to providers from their funds. 7/ Thus, the
regulation may be
interpreted as simply describing the two amounts which are
payable under
the state plan, without any requirement that copayment amounts
be
deducted. Thus, Missouri's interpretation of the copayment
regulations
is consistent with its position that copayments could be treated
as an
add-on to the state payment.
Similarly, HCFA's reliance on 42 C.F.R. . 447.59 is misplaced.
That
section denies FFP for amounts a recipient "should have paid" but
does
not answer the key question posed here: whether the disallowed
amounts
are in fact amounts the recipients should have paid.
HCFA also relied on the concept of cost sharing in the
regulations,
arguing that this meant that the recipient must share in the
cost of the
services as determined by the reimbursement method in the state
plan.
The main purpose of copayments is to act as a disincentive to
recipients
to overutilize services, rather than to reduce the amounts paid
by
states. H.R. Conf. Rep. No. 760, 97th Cong., 2d Sess. 436
(1982). As
Missouri pointed out, the legislative history to the
copayment provision
in the Act states that the House Committee "does not
intend that the
States use the authority to impose copayments in order to
reduce
provider reimbursements." H.R. Rep. No. 757, 97th Cong., 2d
Sess. 5
(1982). The Committee recognized that "in many instances it may
be
difficult for providers to collect even nominal copayments from
indigent
beneficiaries." Id. Missouri's evidence indicates that
it implemented
pharmacy copayments as an add-on to the dispensing fee because
the
dispensing fee budgeted by the state legislature and paid by
Missouri
was inadequate to cover the actual dispensing costs. Thus, we
do not
think that the mere reference to copayments as cost sharing
was
sufficient to put Missouri on notice that it could not treat
pharmacy
copayments as an add-on to the drug dispensing fee. 8/
In sum, we conclude that Missouri's interpretation of the state plan
and
regulatory provisions on copayments as permitting it to treat
pharmacy
copayments as an add-on is reasonable.
C. Missouri reasonably interpreted its state plan methodology and
HCFA's
drug payment regulations to permit it to treat pharmacy copayments as
an
add-on.
Section 1902(a)(30) of the Act requires that payments for
Medicaid
services be consistent with efficiency, economy and quality of
care.
Under HCFA regulations, a state plan must "describe the policy and
the
methods to be used in setting payment rates for each type of
service
included in the State's Medicaid program." 42 C.F.R. .
447.201
(1978-present).
Before July 1987, HCFA regulations set upper limits of payments
for
individual drugs. Specifically, they provided that a state agency
"may
not pay more for prescribed drugs than the lower of ingredient cost
plus
a reasonable dispensing fee or the provider's usual and customary
charge
to the general public." 42 C.F.R. . 447.331 (1980-1986).
Limits on the
ingredient cost depended on whether the drug was considered a
"multiple
source" drug or "other" drug.
The Missouri state plan provisions at 4.19-B, which implemented
these
regulations, essentially adopted the federal upper limits for
individual
drug payments. Later versions specifically required paying
the lower of
the provider's usual and customary charge or the drug ingredient
cost
plus a "professional dispensing fee." The state plan defined the
term
"professional dispensing fee" as the "applicable fee at the time
the
prescription is being filled." Missouri Ex. T, TN# 80-16.
In July 1987, HCFA amended the upper limit regulations to permit
states
more flexibility in adopting methods for rate-setting for drugs.
52
Fed. Reg. 28,648 (July 31, 1987). Instead of setting limits
on
individual drug items, these regulations set aggregate upper limits
of
payment. The analysis for determining the aggregate upper limit
for
certain "multiple source" drugs does not require a comparison to
the
provider's usual and customary charge. 42 C.F.R. . 447.332(b)
(1987).
The analysis for determining the aggregate upper limit for "other
drugs"
requires a comparison between the ingredient cost plus a
"reasonable
dispensing fee" and the usual and customary charge.
Missouri amended its state plan in 1987 and in 1988. Although
these
amended provisions had the same definition of "professional
dispensing
fee" as the earlier plans, they did not refer to the
"professional
dispensing fee" in the formulas for determining payment rates
for
prescribed drugs. Instead, the 1987 amended plan provided
that
reimbursement would be made at the lower of 1) the provider's usual
and
customary charge; and 2) either the "prices which are derived from
the
applicable upper limits" (multiple source drugs) or "prices included
on
the Drug Pricing File which are derived from" sources specified in
the
state plan (other drugs). Missouri Ex. T, TN# 87-16. The 1988
version
substituted for the wording "derived from applicable upper
limits,"
included in the reimbursement rate methodology for multiple
source
drugs, wording similar to that for other drugs. Missouri Ex. T,
TN#
88-10.
HCFA argued as an alternative basis for disallowing part of
Missouri's
claims at issue that, even if Missouri had officially adopted a
variable
dispensing fee, the way Missouri implemented its copayment
formula
resulted in Missouri claiming unallowable FFP. Specifically,
HCFA said
that the failure to implement a computer edit meant that, when
the
ingredient cost plus the standard dispensing fee was higher than
the
usual and customary charge, Missouri paid the full amount of the
usual
and customary charge. Instead, HCFA said, the state plan and
federal
regulations required Missouri to deduct the copayment amount from
the
usual and customary charge. HCFA also said that, if Missouri had
a
variable dispensing fee, the state should have compared the usual
and
customary charge to the ingredient cost plus the variable
amount
(standard fee plus the copayment amount), rather than just to
the
ingredient cost plus the standard dispensing fee.
HCFA's argument regarding the comparison required was based on
two
premises, which we have now determined are faulty. First, HCFA
was
assuming that the comparison required was the same under the pre-
and
post-1987 versions of the state plan. However, unlike the
pre-1987
version, the amended plan in effect during the disallowance period
did
not require comparing the usual and customary charge to the
ingredient
cost plus the "professional dispensing fee." Missouri's
evidence shows
that the "prices" referred to in the amended state plan
included only
the state-budgeted standard dispensing fee. McCann 2d
Supp. Aff. HCFA
replied by submitting an undated document which it said
was "Enhancement
Package 4 to the State Fiscal Agent Contract." HCFA
Ex. 7. HCFA said
that this described the drug pricing file and
described how the
dispensing fee would be determined. The dispensing
fee amounts referred
to are identified elsewhere in the record as the
standard dispensing fee
amounts. Thus, this document is consistent with
Missouri's evidence
regarding what dispensing fee, if any, it intended to use
in the
comparison to the usual and customary charge under the amended plan.
9/
Second, HCFA's argument (and our preliminary analysis) were premised on
a
faulty understanding of Missouri's position. If Missouri were
saying
that it had interpreted the term "professional dispensing fee" in
the
pre-1987 versions of the state plan to mean a variable dispensing
fee,
then those versions of the plan would have required using the
variable
dispensing fee in the comparison to the usual and customary
charge.
Missouri's evidence shows, however, that it did not view its
copayment
policy as an interpretation of the term "professional dispensing
fee" in
the state plan; rather, it simply intended to treat copayment amounts
as
an add-on separate and apart from the payment rates set according to
the
state plan.
HCFA's upper limit regulations do not specifically address copayments.
In
our preliminary analysis, we indicated that deduction of copayments
would be
required if the regulations are read as setting upper limits on
the amount of
reimbursement a provider could receive. We noted,
however, that the
regulations did refer in some places to state
payments, rather than to
reimbursement rates. In response to the
preliminary analysis, Missouri
cited to wording in the regulations, in
the regulatory history, and in the
State Medicaid Manual which shows
that Missouri could reasonably interpret
those regulations as governing
only FFP in the amount actually paid by a
state. 10/ HCFA pointed to
nothing in the regulations or its policy
issuances informing states that
the upper limits applied to the total
reimbursement received by a
provider, including copayments. HCFA
indicated generally that it agreed
with the Board's preliminary analysis,
which questioned whether it was
appropriate for pharmacists to receive
differing amounts for their
services, depending on whether a copayment was
due. As Missouri pointed
out, however, whenever a state requires
copayments, a provider's
reimbursement can vary according to whether the
provider is successful
in collecting the copayment.
The preliminary analysis also questioned whether provider
reimbursement
must be tied to the provider's reasonable cost. Missouri
responded with
an analysis of statutory changes made in 1981 to give states
flexibility
in determining Medicaid payments. Missouri Response Br. at
9-10. HCFA
did not challenge this analysis in its reply, except to say
that it
agreed with the Board's preliminary analysis. Nor did HCFA
challenge
Missouri's evidence which shows that the variable dispensing fee
amounts
(standard dispensing fee plus copayment) would not exceed the
provider's
actual costs of dispensing, as measured in 1991. In view of
the
arguments and evidence submitted by Missouri, HCFA's mere
general
agreement with the preliminary analysis of these issues, with
no
supporting citations or evidence, is simply insufficient.
Under section 1903(a)(1) of the Act, FFP is available in amounts
expended
as medical assistance under the state plan. There is no
dispute here
that Missouri in fact expended the amounts disallowed, by
making payments to
providers. Thus, this is not a situation where a
state interpretation
resulted in a "windfall" of FFP to the state.
Missouri's treatment of the
copayments as an add-on resulted in the
providers receiving additional
reimbursement whenever a copayment was
due and they could actually collect it
from a recipient. 11/ But this
did not increase FFP claimed by
Missouri. Also, Missouri's evidence
indicates that, if it had not
treated copayments as an add-on to the
dispensing fee but had instead
deducted it from the rates set using the
state plan rate-setting methods,
Missouri would have had to amend its
rate-setting method to increase the
rates. Thus, as Missouri argued, it
is likely that a different
implementation of pharmacy copayments would
have resulted in higher FFP
claims.
In sum, Missouri's treatment of pharmacy copayments as an add-on
is
consistent with its reasonable interpretation of the state plan and
the
regulatory provisions on drug payments. Absent notice from HCFA of
an
official interpretation to the contrary, Missouri could reasonably
rely
on its interpretation.
Conclusion
For the reasons stated above, we reverse the disallowance.
__________________________
Cecilia
Sparks Ford
__________________________ M.
Terry
Johnson
___________________________ Judith
A.
Ballard Presiding Board Member
1. Missouri also received a separate disallowance for other
services
(namely, inpatient hospital services, outpatient clinic/emergency
room
services and physician services provided in an
outpatient
clinic/emergency room department of a hospital). This
disallowance was
based on the same Financial Management Report mentioned
above and on
HCFA's finding that Missouri had failed to deduct copayment
amounts for
other services as well. Missouri did not appeal this
disallowance,
since it acknowledged that its state plan required deduction
of
copayments for services other than drugs.
2. While the preliminary analysis indicated that it appeared
that
there was support for HCFA's position in the regulations and state
plan
provisions in effect at the time Missouri adopted its
interpretation,
the preliminary analysis also noted that there was
insufficient
information on the state plan provisions in effect during
the
disallowance period, which reflected changes in the drug
payment
regulations. The cover letter to the preliminary analysis
clearly
stated that "this preliminary analysis discusses the parties'
arguments
and highlights the issues which need to be further
developed." The
letter also notified the parties that "this is a
preliminary analysis
and does not constitute a decision of the Board, either
in final,
preliminary or draft form."
We note here that Missouri objected to the preliminary analysis as
going
beyond HCFA's original basis for the disallowance, which was
the
copayment provisions. In our view, the issues discussed were raised
by
the parties' arguments and thus were appropriately addressed.
3. HCFA asserted that because the same billing instructions
were sent
to all providers regardless of the service, Missouri intended to
use the
same copayment methodology for all services. This is not a
reasonable
conclusion, however, since the instructions to the providers said
not to
deduct the copayment amount from the billed amount. Missouri
ultimately
added a computer edit to its computerized billing system to deduct
the
copayment from rates determined for other services, as
explicitly
required in its state plan. Thus, Missouri apparently
instructed its
providers not to deduct copayments for other services because
it
intended to make the deductions itself. This does not necessarily
mean,
however, that Missouri also intended to do this for pharmacy
services.
4. Missouri's evidence emphasizes the nature of the copayment
as an
add-on, collected by the pharmacist, which does not affect the amount
of
the state-budgeted payment. The copayment formula apparently
was
devised simply to illustrate this point. Missouri's emphasis on
the
copayment formula in its first briefs was misleading since it
suggested
that Missouri agreed with HCFA that the copayment should be
deducted
from the rates set according to the method in the state plan, yet
the
formula does not take into account the provider's usual and
customary
charge, as required by that method.
5. In any event, we have deferred to state interpretations, even
if
they have not been approved by HCFA, in areas where states
have
discretion in administering their programs. See, e.g., South
Dakota
Dept. of Social Services, DAB No. 934 (1988).
6. The copayment provisions have been amended several times
since
first published, but the changes do not appear relevant to
our
discussion.
7. Pharmacists were instructed to collect copayment amounts
directly
from the recipients. Missouri Ex. I, Attachment (Att.) 7, June
29, 1982
Missouri Medicaid Bulletin.
8. In our preliminary analysis, we noted that the regulations
in
effect when Missouri adopted its interpretation appeared to require
that
the dispensing fee in the state plan reflect actual costs of
dispensing.
In response, Missouri pointed to language in those regulations
and their
history which indicated that states were not required at the time
to pay
dispensing fees which reflected actual costs. Missouri Resp. Br.
at
16-17. While this Board held in Texas Dept. of Human Services, DAB
No.
961 (1988), that inclusion in a dispensing fee of a specific
profit
component tied to drug ingredient cost was not permitted under
the
pre-1987 regulations, here the dispensing fee varied according to
the
copayment due, if any. Moreover, as Missouri noted, the
1987
regulations in effect during the disallowance period gave the
states
flexibility on what to pay as a dispensing fee. HCFA did not
dispute
this position.
9. We do not express any opinion here on how the amended versions
of
the plan and Missouri's implementation comported with the
amended
regulations. HCFA made no finding here that Missouri's payments
in fact
exceeded the aggregate upper limits set in those regulations.
10. For example, Missouri noted HCFA's consistent use of the
word
"agency payment" and the state's "Medicaid expenditures" when
referring
to the payment limits in the upper limit regulations. See,
e.g., 42
C.F.R. .. 447.331(a) and (b); . 447.332(b); .. 447.333(b)(1)(i)
and
(b)(1)(ii). Missouri also cited HCFA's explanation in the final
rule
that "[t]hese rules will directly affect only the State, and . .
.
establish limits on the extent that we will share in the State's
overall
expenditures for covered drugs." 52 Fed. Reg. 28649,
28655 (July 31,
1987).
11. Missouri presented evidence that indicates that providers
were
successful at collecting copayments only about 50% of
the