Gab Decision 149
February 3, 1981 South Carolina Department of Social Services Docket No.
79-219-SC-HC Garrett, Donald; Settle, Norval Ford, Cecilia Panel
Chairman
The South Carolina Department of Social Services (State) appealed an
October 23, 1979 decision by the Administrator, Health Care Financing
Administration (HCFA -- Agency), disallowing $221,218 in federal
financial participation (FFP) claimed for payments the State made to
Skilled Nursing Facilities (SNFs) in its Title XIX Medicaid program.
In its application for review the State argued that the Board did not
have jurisdiction over this case because the Agency's determination
raised conformity and compliance questions under 42 USC 1316(a) and (b),
and 1396(c). The Board Chair ruled that this matter is a disallowance
under 42 USC 1316(d), subject to the Board's jurisdiction under 45 CFR
Part 16, Subpart C, (43 FR 9264, March 6, 1978). For an analysis of
this issue, see Ruling on Jurisdiction, May 22, 1980.
This decision is based on the parties' submissions and the Conference
held on December 11, 1980.
Background
In 1978 State auditors and Blue Shield auditors under contract with
the State conducted reviews of payments made to individual SNFs from
October 1, 1971 through January 31, 1977. Overpayments of $800,000 were
initially identified. In subsequent audits additional overpayments of
aproximately $600,000 were identified. Conference Transcript (Tr.) at
p. 146. A tally of the figures from all the auditors' workpapers
disclosed that the State may have overpaid the SNFs a total of
$1,490,526 ($1,086,731 FFP). The Agency maintains that $1,490,526 is a
final amount for overpayments to the SNFs; the State maintains that
this was only a preliminary determination, and, therefore, the Agency
can not rely on it as a basis for the disallowance. Although the State
does not provide a precise figure, it claims that the maximum overpaid
totals $1,268,305, the federal share of which the State has refunded.
Affidavit of Commissioner, State Department of Social Services, at p. 2.
By letter dated September 20, 1978, the State advised the Agency of
agreements to settle with the SNFs for 85 percent of the preliminary
figures for overpayments, and requested that the Agency participate in
the settlements. The Agency, in its disallowance letter, said that the
federal government could not agree to a percentage reduction in the
amount of the alleged overpayments and, therefore, the State must refund
the entire federal share of the amounts identified as overpayments.
Of the $221,218 disallowed, only $164,340 remains at issue; the
State has returned the other $56,879 to the federal government.
The Issue
The Agency argues that the issue in this case is whether the State
can enter into settlement agreements which are binding on the federal
government. The Agency maintains that a state does not have such
authority and, therefore, this disallowance should be upheld. Tr. at p.
19. Even if the Board were to accept the Agency's argument that a state
may not settle the federal share of Medicaid funds unless specifically
authorized, such a determination would not dispose of this case.
In order to uphold the disallowance, the Board must find that the
record supports the Agency's determination that the State made
unallowable overpayments to providers totalling $1,490,526. The Board
concludes, however, that there is insufficient evidence in the record to
support this position. Accordingly, we do not sustain the disallowance.
Discussion
Two related factors underlie the Board's decision: (1) the
insufficient basis for the Agency's determination of the amount which it
claims the State overpaid, and, (2) the fact that neither the State nor
the Agency believes that $1,490,526 is actually the amount overpaid.
The Agency maintains that its determination of the amount overpaid is
based on representations by the State identifying overpayments totalling
$1,490,526. The Agency does not claim that its determination that the
State had overpaid SNFs is a result of any Agency audits or
comprehensive reviews of the State's audits. The parties agree that
there is no single audit report or discrete document that identifies all
the overpayments at issue. The State's determination that overpayments
were made is based on information contained in a variety of audit
workpapers and SNF cost reports. The Agency auditors only reviewed some
of the cost reports submitted by the SNFs and verified the computations
made by the State. The Agency explains that it does not ordinarily
question a state's audits. Agency's Pre-Conference Brief at p. 2; and,
Tr. at pp. 26, 60-66, and 94.
At the Conference, the Director of Management Operations for the HCFA
Medicaid Bureau, Region IV, explained that the Agency's determinations
are typically based on a state's certification of the amount overpaid.
The Director said that the Agency considered the September 20, 1978
letter from the Commissioner of the State's Department of Social
Services to be the certification of a final determination that
overpayments to the SNFs totalled $1,490,526. The Director also said
that the Commissioner had previously told him that this was the amount
overpaid. Tr. at p. 67.
The State denies that it certified overpayments in that amount, and
challenges the Agency's reliance on the Commissioner's September 20
letter, noting that the letter specifically states that "these audits
are not yet final." Tr. at p. 66. The State explains that it did not
finalize its audit determinations in order to maximize the State's
bargaining position in negotiations with the SNFs. The State maintains
that the $1,490,526 figure was used as the initial negotiating point and
included "100 percent of any kind of allegation we could have against
them in terms of overpayments . . . prior to making any kind of
adjustments . . . to those audits . . . adjustments which would normally
be made." Tr. at p. 148.
The Agency agrees that the audit process can involve adjustments to
original audit figures based on objections and appeals by providers (Tr.
at p. 113), and that the Agency can accept a reduction in audit findings
if the audit findings are invalid or unsustainable. Tr. at p. 70. The
Agency also says several times that because of the magnitude of the
audits involved in this case "it would be impossible to support all the
figures in the audits." Tr. at pp. 78, 85, 99, and 153. The Agency also
admits that it does not know the $1,490,526 figure to be correct, but
used it as the basis for the disallowance because it lacked a substitute
amount. Tr. at p. 171.
The Agency argues that if the State does not consider $1,490,526 a
final or correct figure, the State should come forward with information
showing the actual overpayment. The State, in an affidavit from the
Commissioner, responds that the maximum amount overpaid is $1,268,305.
The Agency rejects this assertion because $1,268,305 is the amount of
the settlement with the SNFs, and argues that the State settled for 85
percent of the identified overpayments because of the high costs of
pursuing the claims against the SNFs through formal legal channels.
The Board's decision in this case is limited to the question of
whether this disallowance should be upheld on grounds that the record
shows that the State made overpayments to nursing homes totalling
$1,490,526. The Board has not considered and does not decide whether a
state may settle the federal share of an amount determined to be
overpaid. This decision does not preclude the Agency from relying on a
state audit or certification of an amount overpaid when such reliance
would be justified under the circumstances of the case. Nor does this
decision provide that the Agency must wait to make a disallowance
determination where a state unreasonably delays in finalizing an audit.
We do hold, however, that the Agency has not supported its determination
that the State made unallowable overpayments totalling $1,490,526.
Without such support, the Board cannot uphold this disallowance.
The controlling factors in our decision are that the disallowance is
based on an overpayment amount which has not been shown to be final and
which the Agency admits is not sustainable. If the State had certified
an amount clearly related to unallowable overpayments, that
certification might have served as an adequate basis for an Agency
determination. The Board is not persuaded by the Agency's claim that
the Commissioner's September 20 letter is the State's certification
inasmuch as that letter specifically states "the audits are not final,"
and does not even mention the $1,490,526 figure alleged as overpaid.
The Agency has not provided any additional evidence of certification
even though the Panel Chair presiding at the Conference requested
complete identification of all documents the Agency considers to be the
State's certification of the amount overpaid. Tr. at pp. 118 and 199.
Conclusion
There is insufficient information in the record to support a
determination that the State's overpayments totalled $1,490,526.
Accordingly, this appeal is granted. This decision does not preclude
the Agency from issuing a new disallowance if it can support a
determination that the State made unallowable overpayments.
OCTOBER 04, 1983