Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: California Department of Health Services
DATE: March 24, 1994
Docket No. A-94-003
Audit Control No. CA 93-003-ADM
Decision No. 1472
DECISION
The California Department of Health Services (California) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $330,315 in federal financial participation (FFP) claimed
under Title XIX of the Social Security Act (the Act). 1/ The
disallowance represents the federal Medicaid share of licensing and
certification costs claimed by California for the quarter from October
1, 1989 through December 31, 1989. HCFA denied the claim because
California did not file it within two years of the end of the calendar
quarter in which the expenditures were incurred, as required by section
1132 of the Act.
The issues presented are:
whether the disallowed claim resulted from an adjustment to
prior year costs and thus is subject to an exception to the
two-year filing limitation of section 1132 of the Act; and
whether HCFA should be estopped from disallowing the claim for
untimeliness because HCFA Regional Office employees were aware
that the claim was being prepared and did not notify California
that the two-year filing limitation would apply.
Based on the following analysis, we find that the claim did not come
within the "adjustments to prior year costs" exception of section
1132(a), and consequently was subject to the two-year filing limitation.
Because California had notice of the two-year limitation through the
statute and regulations, and because there is no evidence California was
misled by HCFA officials about the effect of the regulations, there is
no basis for estoppel. Accordingly, we sustain the disallowance.
California also argued that it should be permitted a "good cause"
waiver
of the time limit pursuant to 45 C.F.R. 95.19(c), which implements
section 1132 of the Act. California urged in its briefs that it could
easily have severed the claim appealed here from a group of related
claims and submitted it within the two-year period. Although the Board
has no authority to consider requests for waivers of the time limit,
HCFA may consider whether a "good cause" waiver would be appropriate
here.
Background
California used the same salaried employees to perform certification and
licensing functions for federal and state programs, including Medicaid.
California Br. at 2. California had an automated time reporting system
for allocating the salaries of these individuals to the appropriate
funding sources, based on the amount of time spent on each function.
California Br. at 3. Based on this data, California would claim
Medicaid funds by means of Quarterly Expenditure Reports (QERs). Id.
In June of 1989, a modification to California's process for generating
QER data inadvertently eliminated the federal share of costs for
vacation, sick leave, and holiday pay ("fringes") for survey and
certification employees. California Br. at 4. Before the processing
error was corrected, federal costs were underreported for the three
quarters from October 1989 through June 1990. Id. California also
discovered that other revisions to survey and certification salary costs
were required for those quarters as well as the three following, so QERs
for a total of six quarters, from October 1989 through March 1991, were
revised together. California Br. at 5. California engaged in a lengthy
process of reconstructing time report data, calculating a percentage for
the "fringe" costs, and applying it to each affected QER, while
maintaining "continuous communication between [California] staff and the
HCFA Regional Office." Id. 2/
On February 10, 1992, California submitted the revisions to the six QERs
as a single package. HCFA audit reports -- a draft report issued in
September 1992 and a final report issued April 1993 -- determined that
although the revised claims in the package were reasonable and accurate,
the claim for the quarter ending December 31, 1989 was submitted
untimely. California Br. at 6-7, California Ex. 8; HCFA Br. at 3. HCFA
subsequently disallowed the costs in question based on this audit. Under
the general rule of section 1132, the claim for the quarter ending
December 31, 1989 should have been filed no later than December 31,
1991, and the claim was actually filed 41 days late.
Analysis
I. California's claim does not fall within the exception for
"adjustments to prior year costs" of section 1132 of the Act, as
implemented by 45 C.F.R. Part 95.
Section 1132(a) of the Act requires that a claim by a state for FFP
under Title XIX "with respect to an expenditure made during any calendar
quarter" must be filed within the two year period which begins on the
first day of the calendar quarter immediately following such quarter.
This section also provides for exceptions for "court-ordered retroactive
payments or audit exceptions, or adjustments to prior year costs."
These exceptions were implemented in 45 C.F.R. 95.19. California took
the position that the exception for adjustments to prior year costs
applied here.
"Adjustment to prior year costs" is defined in the implementing
regulations as "an adjustment in the amount of a particular cost item
that was previously claimed under an interim rate concept and for which
it is later determined that the cost is greater or less than that
originally claimed." 45 C.F.R. 95.4 (1988). Under an interim-rate
concept, typically a state pays providers an interim rate estimated from
costs of a past year, and then conducts an audit of the providers'
actual costs to establish a final rate. California did not argue that
the survey and certification salaries were originally claimed on an
interim-rate basis so that the fringe claims at issue are "adjustments"
to the rate. California contended instead that the definition of
"adjustment to prior year costs" in 45 C.F.R. 95.4 impermissibly
narrowed the statutory exception, and that under a broader reading the
claims at issue would be exempt from the two-year time limit.
California Br. at 13.
Under 45 C.F.R. 16.14, this Board is bound by applicable laws and
regulations, including the definitions in 45 C.F.R 95.4. Thus we must
apply the definition to uphold the disallowance here. Even if we had
authority to review the regulation for reasonableness, however, we would
not find persuasive California's argument that section 95.4 provides an
unreasonably narrow definition of "adjustment to prior year costs."
In enacting the two-year filing limitation, Congress' intent was to
facilitate federal budget planning for programs under the Act by
controlling states' ability to make delayed claims. See Connecticut v.
Schweiker, 684 F.2d 979, 982 (D.C. Cir. 1982), cert. denied, 103 S.Ct.
1197 (1983). In light of this purpose, the Board has stated that "[t]he
exceptions were not intended to cover a routine situation where a state
simply did not get around to getting its data together in time to file a
claim within the statutory requirements. The exceptions are to take
care of those cases where it would be patently unfair to a state to
outlaw its claim merely because of the passage of time." New York State
Dept. of Social Services, DAB No. 521 (1984). Thus, the scope of the
exceptions was clearly meant to be limited. California's interpretation
of the "adjustments to prior year costs" exception to include any
adjustments to costs previously claimed is so broad as to defeat the
purpose of the time limit altogether. California contends that as long
as it made a timely claim for a general category of cost covered by a
program, California would be at liberty to claim additional amounts for
that category whenever it wished. (Moreover, although California
emphasizes the small amount of the adjusted claim for the quarter at
issue, the interpretation it proposes here would permit unlimited
adjustments.)
On the other hand, HCFA's interpretation of this exception is consistent
with legislative intent. The interpretation recognizes that in
retrospective reimbursement systems a reasonable period of time is
required to adjust interim rates as actual cost information is received
and reviewed, and that this reasonable period may make it impossible for
states to submit claims within the two-year limit. Thus, the Board has
stated that the exception would apply to adjustments where an interim
rate did not include costs of which a state was not aware at the time it
filed its claim based on the interim rate, or where a delay in
establishing a final rate was due to circumstances beyond a state's
control. See South Carolina Health and Human Services Finance
Commission v. Sullivan, 915 F.2d 129 (4th Cir. 1990). As California
acknowledged, the costs which it sought to adjust were not based on an
interim rate.
California also argued that the exception applied here based on a
discussion of the application of the exception in the HCFA audit report.
California Ex. 1 at 6. Although the audit report language explaining the
exceptions to the time limit is not clear, the conclusion is: "The
claim for the quarter ended December 31, 1989 does not meet any of the
exceptions and is therefore not allowable." Id. The language on which
California relies concerns quarters and amounts not at issue here.
Furthermore, as HCFA has clarified its interpretation of the regulatory
exceptions for the quarter at issue in its disallowance letter and in
its brief, the language in the audit report has no weight as a statement
of HCFA's position. See HCFA Br. at 1, 3-7.
California also argued that because HCFA had permitted it to claim
additional FFP beyond the two-year limit in an instance when a lower
percentage of FFP had been erroneously claimed, the fringe claims should
be similarly exempted from the limit. California Br. at 11; California
Ex. 10. It is not clear from California's description precisely what
action HCFA took in the earlier case. California Ex. 10. Assuming that
the only issue was that the incorrect percentage of FFP had been
claimed, HCFA correctly pointed out that a claim correcting the FFP rate
in a timely claim does not add discrete cost items not found in the
original claim, and is therefore distinguishable from the fringe claim.
HCFA Br. at 6.
California further argued that the fringe claims at issue are not "new"
but are "part and parcel" of the claims originally made for the base
salaries (which inadvertently excluded the fringes). California Br. at
9-11; California Reply Br. at 3-4. This reasoning is unavailing.
Section 1132(a) of the Act does not distinguish "new" from "old"
claims,
but simply imposes a two-year deadline, with limited exceptions, for the
filing of claims. As discussed above, the exception for "adjustments to
prior year costs" does not apply (and California did not contend that
any of the other exceptions applied). Furthermore, the Board has upheld
the disallowance of untimely claims even where the claims covered the
same type of expenditures already claimed for the same time period.
See, e.g., Colorado Dept. of Social Services, DAB No. 1239 (1991) (claim
for increased administrative costs based on data from revised time
reporting system was not an adjustment to a prior year cost). It is
even more clear that California's claim must be considered a separate
claim for purposes of the two-year filing requirement because the
fringes are stated as a distinct cost item from the salaries claimed
earlier.
II. As California had adequate notice of the statutory time limit and
failed to establish any misrepresentation, there is no basis for
estoppel.
California argued alternatively that HCFA was estopped from denying the
claim as untimely. According to California, "a major contributing
factor to the lateness by 41 days of the QER for the quarter ending
December 31, 1989, was a HCFA Regional Office employee's representations
that all revised claims would be reviewed on the merits[.]" California
Reply Br. at 5 (emphasis in original). California also contended, "It
appears that HCFA Regional staff affirmatively misled the State into
believing that its QER revisions would not be viewed as new claims
subject to a timely claims filing rule." Reply Br. at 6. Further,
California asserted that "State staff believed their [f]ederal contact
perceived the revisions as corrections to expenditures already claimed,
as did they." California Reply Br. at 5. California referred
specifically to "the course of dealing between HCFA Regional Office,
particularly Peter Summers, and State staff" and "Mr. Summer's
interpretation of claims revision regulations," upon which California
maintained it reasonably relied. Id. at 7.
We are not persuaded that there is any basis for estoppel here. As we
have stated in earlier decisions,
There can be no estoppel absent the traditional requirement of a
misrepresentation of fact, reasonable reliance, and detriment to
the opposing party. Heckler v. Community Health Services of
Crawford County, Inc., 467 U.S. 51, 59 (1984); see also Tennessee
Dept. of Human Services, DAB No. 1054 (1989). Moreover, estoppel
against the federal government, if available at all, is presumably
not available absent affirmative misconduct by the federal
government. Schweiker v. Hansen, 450 U.S. 785 (1981).
Texas Dept. of Human Services, DAB No. 1344 at 9 (1992) (and cases cited
therein). In Office of Personnel Management v. Richmond, 496 U.S. 414,
423 (1990), reh'g denied, 111 S.Ct. 5 (1990), the Supreme Court stated
that it would "leave for another day whether an estoppel claim could
ever succeed against the Government." Even where government agents have
given private individuals advice directly contrary to controlling
federal regulations, the Supreme Court has not permitted estoppel.
Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947); Hansen. As
discussed below, California has not proven even the first of the basic
elements of common law estoppel. Thus, even assuming that estoppel
against the federal government is possible (which is extremely doubtful
based on the cases cited above), there is no basis for estoppel here.
California received notice that claims must be filed within two years
through section 1132 of the Act, through the regulations in 45 C.F.R.
Part 95, and through the corresponding provision in Part 2 of the State
Medicaid Manual, Section 2500.D. HCFA clearly was not required to
provide notice to California beyond this. California cannot justify
overlooking a regulatory provision by asserting that HCFA owed
California a "duty to explain th[e] regulation more fully either in
writing or orally[.]" Tennessee Dept. of Health and Environment, DAB
No. 1082 (1989). The two-year filing requirement at issue here is clear
on its face, and had California had any question as to whether an
exception was applicable it could have requested clarification from
HCFA. California thus could not have reasonably relied on HCFA's
failure to point out the filing deadline, or even on the alleged
representation by HCFA (of which there was no proof, as discussed below)
that the fringe claims would be reviewed on their merits without regard
to timeliness.
With respect to misrepresentation, the record shows only that HCFA
Regional staff was aware that fringe costs had been inadvertently
omitted from California's earlier claims for survey and certification
costs and that California intended to file claims for the fringe costs.
California Ex. 5; California Br. at 5, 14, and 15; California Reply Br.
at 5-8. In support of its allegations of misrepresentation, California
proffered an affidavit from a state employee which included the
allegation that California relied on a promise by Peter Summers to
review the revised QERs on their merits. California Ex. 5 at 14.
However, this allegation apparently refers back to earlier substantive
paragraphs which merely stated that Summers knew the QERs were being
revised, that he "at no time" indicated that there was a deadline,
and
that he "indicated that he would review the revised QERs [the employee]
was working on after he received them, and then turn them over to a
federal auditor to verify." California Ex. 5 at 8 and 10. Thus,
Summers is alleged to have promised nothing beyond what he actually
performed: that is, to review the claims and pass them on to HCFA
auditors.
California did not support its allegation of misrepresentation with any
other documentary evidence. Thus, all that the record shows is that the
HCFA Regional staff knew California's claims were forthcoming and did
not announce to California that the two-year time limit in the statute
and regulations applied. California has not established that any
statement about the timely filing regulation was made; therefore, there
can have been no "interpretation" of the regulation, and no
misrepresentation took place.
California has not established misrepresentation on HCFA's part, nor
reasonable reliance on the part of its own employees, so there is no
basis for common law estoppel. A fortiori, California has not met the
even stricter requirement of demonstrating affirmative misconduct by a
federal employee such as to raise the possibility of estoppel against
HCFA as a federal agency. III. The Board has no authority to direct
HCFA to grant a waiver of the two-year time limit for good cause.
California also asserted that HCFA should have granted a "good cause"
waiver of the time limit for the claim at issue. California Br. at
14-15. The regulations require waiver requests affecting the programs
of only one agency of the Department of Health and Human Services, such
as the request in question here, to be submitted to that agency. 45
C.F.R. 95.31. California submitted such a request to HCFA on December
17, 1993. California Ex. 14. As HCFA correctly pointed out, the Board
has no authority to review California's waiver request; nevertheless,
this decision does not preclude HCFA from considering it. 3/
Conclusion
For the reasons discussed above, we conclude that the claim for the
costs in question was not filed within the time required by section 1132
of the Act. Accordingly, we sustain the disallowance. Our decision
does not preclude HCFA from considering whether there are grounds for a
good cause waiver of the filing deadline, however.
Cecilia Sparks Ford
M. Terry Johnson
Donald F. Garrett Presiding Board Member
1. The notice of disallowance, dated September 2, 1993, incorrectly
included some costs chargeable to Medicare as well as the Medicaid costs
properly the subject of this appeal. HCFA has acknowledged this error
and will recalculate the correct amount after the Board has ruled on the
merits of the Title XIX disallowance. HCFA Brief (Br.) at 8. Also, the
notice of disallowance apparently contained a typographical error as to
the amount, which was stated as $330,215 in the underlying audit report.
California Exhibit (Ex.) 1 at 6.
2. Notably, California stated that "the QER for the quarter ending
September 30, 1990 corrected the problem for that quarter." California
Br. at 4. Thus, California appears to have known at least by April 10,
1991 (when it submitted that QER) that it needed to file claims for the
fringe costs at issue, and thus appears to have had approximately eight
months to do so. California conceded that it could have severed the
claim at issue from the group of six QERs so as to file it within the
two-year deadline (i.e., by December 31, 1991). California Br. at 14.
3. While the Board has no authority to consider requests for a
waiver of the filing deadline in the first instance, it is an open
question whether the Board can review the denial of a waiver request.
See Montana Dept. of Social and Rehabilitation Services, DAB No. 1471