Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Missouri Department of Social Services
DATE: April 5, 1995
Docket No. A-94-106
Decision No. 1511
DECISION
The Missouri Department of Social Services (Missouri) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $935,829 in federal funds claimed under title XIX (Medicaid)
of the Social Security Act (Act). HCFA determined that the amount
disallowed represented the federal share of overpayments to two Medicaid
nursing facilities, Longview Nursing Center and Bridgeton Nursing
Center. 1/
Missouri conceded that it had overpaid the Longview and Bridgeton
facilities by the amount disallowed. Missouri nevertheless argued that
the disallowance should be reversed because HCFA has already been the
beneficiary of the full amount of the federal share of the overpayments
to those facilities by offset through Missouri's settlement of certain
"Beacon Hill" claims related to other providers owned by the corporate
owner of the Longview and Bridgeton facilities. In response, HCFA
argued that the Board lacked jurisdiction over the Beacon Hill claims
because Missouri had never actually made payments to the certified
Beacon Hill providers following the settlement and had never requested
federal funding for any payments to those providers in the manner and
format required by the Medicaid program. HCFA also argued that even if
a claim were now to be filed, it would still be subject to disallowance
as being outside the timely claims deadline.
For the reasons discussed below, we uphold the disallowance of the
Longview and Bridgeton overpayments, but remand this appeal to HCFA so
that it can give Missouri time to make an actual payment to the Beacon
Hill providers and to file a proper claim for federal funding for that
payment. These actions are not merely technical exercises without
substantive meaning but, rather, are integral steps in HCFA's process of
determining the allowability of claims. Missouri has already advised
the Board that it would be willing to take both actions expeditiously.
Since the parties have been negotiating about the issues surrounding the
Beacon Hill claims for at least four years already, these matters should
be brought to closure. If HCFA determines that the Beacon Hill claims
are allowable, this will ultimately have the effect for Missouri of
offsetting the amount of the overpayments here disallowed. 2/ If HCFA
still determines for any reason that the Beacon Hill claims are not
allowable, Missouri would have 30 days from its receipt of HCFA's
decision to reinstate its appeal. Although HCFA may revisit the issue
of timeliness along with any other issue of allowability in its review
of the claims, our preliminary analysis of the timeliness arguments HCFA
made here is that they lack merit.
Background
Missouri does not currently dispute that it made overpayments to the
Longview and Bridgeton facilities, and that the federal share of these
overpayments (the amount here disallowed) should be repaid. The two
overpaid facilities were owned by a large health care corporation in
Missouri, Beverly Enterprises, Inc. (Beverly). In 1991, Missouri
entered into a settlement agreement with Beverly concerning these
overpayments. Missouri agreed that Beverly (on behalf of Longview and
Bridgeton) would not have to repay these overpayments in exchange for
Beverly's agreement to drop its past claims on behalf of certain Beacon
Hill providers amounting to at least $2.6 million in federal and state
funding. 3/
Missouri asserted that the Beacon Hill claims had been pursued by
Beverly at the state administrative level and then in state courts where
a lawsuit was pending at the time of the settlement. That litigation
involved the propriety of Missouri's refusal to grant
change-in-ownership rate increases based upon a state emergency
regulation published August 2, 1982, but with an effective date of July
1, 1982 and which was applied to a change in ownership of the Beacon
Hill providers alleged to have been completed in June 1982. Missouri
argued that based on a considered reevaluation of the merits of the
pending lawsuit, it determined that it was likely to lose the Beacon
Hill litigation. Therefore, Missouri asserted that it agreed that the
recovery of approximately $1.6 million in overpayments resulting from
the Longview and Bridgeton audits would be accomplished by Beverly's
agreement to terminate the Beacon Hill litigation and forego claims
against the Medicaid program of approximately $2.6 million in funding.
The proposed settlement agreement initially stated that it would be
"contingent upon written approval by HCFA of the arrangements for
offsetting for federal financial participation (FFP) purposes recoveries
to be made by the state based on audits of the Longview and Bridgeton
facilities against amounts due to Beverly facilities in settlement of
the Beacon Hill litigation." Exhibit (Ex.) 18 at 1. However, HCFA,
after reviewing the proposed agreement, informed Missouri that it had
concluded "that since HCFA is not a party to this agreement, our
approval is neither appropriate or necessary." State Br. at 16; Ex. 20.
The January 1991 letter further stated that HCFA believed "that the
preferred resolution of HCFA's financial stake in . . . matters
involving . . . facilities addressed in the agreement is the usual
Medicaid grants process. That process would call for timely HCFA-64
adjustments by [Missouri] reflecting the Federal share of the Longview
and Bridgeton overpayments and . . . finally, an appropriately
documented claim for any Federal financial participation the State might
seek for payments made in the matter of Beacon Hill." Ex. 20.
Despite HCFA's refusal to approve the settlement, Missouri executed the
settlement in March of 1991, after removing the contingency for HCFA
approval. Ex. 15, paragraph 9.
HCFA performed a financial management review of the settlement and
issued a final report on July 2, 1993. That report recommended that
Missouri make a decreasing adjustment of $1,568,118 ($935,829 FFP) for
the Longview and Bridgeton overpayments on Missouri's next quarterly
report of Medicaid expenditures and that "[a]ny allowable actual
expenditures incurred in providing medical assistance under the plan to
facilities involved in the Beacon Hill litigation should be reported on
line 7" of the quarterly report, Form HCFA-64. Ex. 1 at 12. Based on
the financial management report, HCFA issued a disallowance on March 4,
1994 of $935,829 in FFP identified as overpayments to the Longview and
Bridgeton facilities. With respect to Missouri's contention regarding
the offsetting of the overpayments by the underpayments owed, HCFA
stated:
Since the [Beacon Hill claim] is an alleged underpayment and
not an expenditure, it cannot be reported as such for FFP. Any
allowable actual expenditures incurred in providing medical
assistance under the Plan involving facilities in the Beacon
Hill litigation should be reported on line 7 of the Form
HCFA-64 expenditure report.
Ex. 24 at 3.
On appeal, Missouri argued that the offset of the Longview and Bridgeton
overpayments against the Beacon Hill underpayment (each involving shared
federal and state funding) make it unnecessary for it to have to repay
any funding for the Longview and Bridgeton overpayments. Missouri
argued that, as a result of this settlement with Beverly, HCFA already
had been "repaid" the overpayments since Missouri had desisted from
making Beacon Hill claims which would at a minimum have equalled the
Longview and Bridgeton overpayments. 4/ Nevertheless, Missouri did
affirm, when questioned during oral argument, that it was prepared to
make an actual payment directly to the Beacon Hill providers and would
then file an appropriate claim for federal funding for that payment on
Form HCFA-64. Transcript of informal conference at 28 and 29. Missouri
indicated that it did not take this course initially because the
settlement treated the claims as having been offset and because it
feared that if it paid the Beacon Hill providers and filed a claim for
the expenditure, HCFA would deny that claim as untimely and that its
ability to make a claim based on the offset alone would be prejudiced.
In response to Missouri's position, HCFA argued that the disallowance
must be upheld on essentially two grounds. First, HCFA argued that the
Beacon Hill claim is not before the Board because Missouri has never
actually paid the claim to the certified provider of services and has
never filed a proper claim for federal funding for the claim. Second,
HCFA argued that even if Missouri were to make a payment and file a
proper claim, that claim would now be barred by the timely claims rule.
We discuss each of HCFA's arguments in separate sections below.
Analysis
1. HCFA may properly require Missouri to make a payment to the Beacon
Hill providers and report an expenditure on HCFA Form-64 as a condition
precedent for federal funding.
HCFA argued that any alleged Beacon Hill claims are not "before"
the
Board in this appeal since Missouri had never made a settlement payment
to the certified Medicaid providers in question, the Beacon Hill
providers. 5/ HCFA Br. at 8. HCFA added that although Form HCFA-64
reflects the net amount paid to providers by a state under the Medicaid
program, a state must still report its expenditures based upon separate
accounting for each provider. Although Missouri argued that an actual
payment to the Beacon Hill providers and a specific adjustment on Form
HCFA-64 were unnecessary paper transactions, it stated that it would be
willing to take both actions expeditiously if the Board concluded they
were necessary.
We conclude that HCFA may properly require Missouri to make an actual
payment to the Beacon Hill providers and then to report that expenditure
on Form HCFA-64 under the circumstances here. As HCFA noted, the
regulation at 42 C.F.R. 447.10(d) provides, in pertinent part, that a
state may make payment for services only to the provider of services.
Missouri has never made a payment to the actual certified provider of
services in question. Instead, it merely reached a settlement with
Beverly as the corporate owner of the Beacon Hill providers to offset
the Longview and Bridgeton overpayments against the Beacon Hill
underpayment. Although Beverly may have been the corporate owner of the
Beacon Hill providers, it was not itself the certified provider that had
provided the services in question. Nor was a payment actually made to
it for the Beacon Hill claim. Thus, HCFA might reasonably require here
that Missouri make an actual payment to the certified Beacon Hill
providers that provided the services in question. This requirement
makes perfect sense in situations such as here where one corporation
owns numerous providers and where not all of those providers are even
necessarily certified to participate in the Medicaid program. Obviously,
the status of the Medicaid accounts among the participating providers of
a corporation could be needlessly complicated if a state intermittently
paid the umbrella corporation rather than the provider and offset the
accounts of one provider against another without any actual payment to a
provider.
We also conclude that HCFA may require Missouri to report an expenditure
on HCFA Form-64 in order to receive federal funding for any Beacon Hill
payment. The regulations implementing the timely claims requirements
define a "claim" as a request for federal funding "in the manner
and
format required by our program regulations and instructions or
directives thereunder." 45 C.F.R. 95.4. HCFA's instructions in the
State Medicaid Manual (eff. 11-91) specify how a state must report its
Medicaid expenditures on HCFA Form-64. In particular, section 2500.1
notes (under instructions for line 7 of Form HCFA-64) that states should
report "cost settlement and other increasing adjustments to private
providers made in the current quarter for an earlier period on Line 6 as
a current expenditure." 6/ The record suggests that Missouri has never
made an increasing adjustment to the Beacon Hill providers for a higher
per diem rate resulting from the 1982 change of ownership. Thus, once
Missouri makes an actual payment to the providers, the Manual requires
Missouri to report that expenditure on Form HCFA-64 in order to receive
Federal funding.
Since we agree with HCFA's position that Beacon Hill claims are not
presently before us, and therefore cannot be used to offset the Longview
and Bridgeton overpayments, we uphold those overpayments in full.
Nevertheless, in view of the lengthy history of negotiation between the
parties concerning the Beacon Hill claims, and Missouri's stated
willingness to make a payment to the certified providers and file an
appropriate claim to HCFA for federal funding, we remand the appeal to
HCFA to allow Missouri to take these actions. Missouri must first pay
the certified providers that provided the services represented by the
Beacon Hill claims and must then file an appropriate claim for federal
funding. HCFA may then conduct a full review on the allowability of
those claims, including the question of whether the claims would be
timely. Since HCFA has already argued that the claims would not be
timely even if filed immediately after actual payment of the claims by
Missouri to the certified provider, we provide our preliminary analysis
on that issue below in order to assist the parties in the ultimate
resolution of this appeal.
2. Preliminary Analysis: HCFA's timely claims arguments appear to lack
merit.
HCFA has never here argued that Missouri's "considered reevaluation"
of
the Beacon Hills claims lacked a reasonable legal basis or that the
claims were otherwise unallowable. Instead, HCFA argued that even if
Missouri did make a payment to the Beacon Hill providers, and then filed
a claim for federal funding, that claim would now be barred by the
timely claims provisions. HCFA asserted that Missouri's initial,
unadjusted payments to the Beacon Hill providers from 1982 to July 1990
"triggered" the two-year timely claims provisions. HCFA added that
the
latest that any claim could have been filed was during the quarter ended
December 31, 1992 for amounts paid the Beacon Hill providers during the
final quarter of the retroactive rate adjustment period ending September
30, 1990. HCFA Letter dated Dec. 1, 1994.
Section 1132(a)(2) of the Act provides that--
any claim by a State for payment with respect to an expenditure
made during any calendar quarter by the State--
* * *
shall be filed . . . within the two year period which begins on
the first day of the calendar quarter immediately following
such calendar quarter . . . .
Section 1132(a)(2) further provides that it--
shall not be applied so as to deny payment with respect to any
expenditure involving court-ordered retroactive payments or
audit exceptions, or adjustments to prior year costs.
The timely claims regulations implement the basic statutory rule by
defining the quarter in which an expenditure is made as "the quarter in
which any State agency made a payment to the service provider." 45
C.F.R. 95.13(b). The State Medicaid Manual reiterates that an
expenditure occurs when cash "is actually paid" by an agency of the
State. Section 2560.4(G)(1).
For an eight year period starting in 1982, the Beacon Hill providers
claimed from Missouri a higher per diem rate than Missouri actually paid
the providers. Their claim for a higher rate was based on an alleged
change of ownership and the continued applicability of certain state
regulations authorizing adjusted per diem rates following a change of
ownership. Missouri initially disallowed the higher rate and paid the
providers at their existing rate. The providers appealed this decision
at the administrative level and in state court. Missouri, as part of its
settlement with Beverly, reevaluated its position taken in the
litigation and is now prepared to make an increasing adjustment so that
the providers will have been paid at the higher rate for this earlier
period.
HCFA has not raised any persuasive reason why the increasing adjustment
here contemplated would not be in compliance with the timely claims
rules. Under these rules, the timely claims deadline begins to run once
the state makes an actual payment to the certified provider of the
services. Missouri has not yet made an actual payment to the Beacon
Hill providers for the additional increment of the higher rate claimed.
Once an actual payment is made for this previously disputed increment of
the rate, Missouri would appear to have the full two-year time period
specified by the timely claims rule in which to file a claim for the
adjustment amount.
HCFA argued nevertheless that the basic timely claims rule contains an
exception for adjustments to prior year costs, and that the basic rule
must therefore be interpreted to bar as untimely any adjustments in
payment that are outside the scope of the exception and that are not
claimed within the two-year period afforded under the basic rule for the
initial, unadjusted payment for the same service. HCFA argued that the
adjustment payment here would not be protected by the exception for
adjustments to prior year costs (limited by regulation to "interim rate"
adjustments) and therefore had to be claimed within the two-year period
afforded for Missouri's unadjusted payments to the Beacon Hill providers
that were made between 1982 and 1990. HCFA reasoned that Congress would
not have created an exception for adjustments to prior year costs if
adjustments generally could be treated in precisely the same way as any
other payment for services under the basic rule.
HCFA's position appears to be unpersuasive for several reasons:
o HCFA's position apparently conflicts with the plain meaning of the
timely claims rule as described in the statute, regulation and State
Medicaid Manual. The basic timely claims rule relies entirely on the
date the state makes an "expenditure" or "payment" for the
service to
the provider as the beginning point of the two-year timely claims
period. The plain meaning of the term "expenditure" or "payment"
is the
state's actual reimbursement to the facility for the service it
provided. Thus, Missouri's timely claims deadline for any adjusted
payment here would not begin to toll under the basic rule until Missouri
actually reimburses the provider for the adjustment amount. 7/
o Consistent with the foregoing, moreover, the terms "expenditure"
or
"payment" as used in the timely claims statute and regulation reasonably
mean the amount the state actually pays the facility in reimbursement
for the services performed. If the state questions whether it owes a
provider additional amounts, and has not yet paid the provider, it would
not be authorized to make a claim for federal funding for the additional
amount until it actually pays the provider the additional amount.
Indeed, a state is only permitted to claim federal funding for what it
actually expends in reimbursing a certified provider for covered
services. Section 1903(a)(1) of the Act; Section 2497.1 of the State
Medicaid Manual. HCFA's position here would have required Missouri to
have filed a claim for the disputed portion of the rate beginning in
1982 and continuing through 1990 even though Missouri during that time
questioned the legality of the additional payment and had not in fact
paid the provider.
o HCFA's policy would have the effect of requiring a state to make full
payment on a claim even though the state questioned the legality of the
claim and even though HCFA would not ultimately provide funding for any
claim which a state had determined was unallowable. Moreover, if the
provider subsequently declared bankruptcy, the state might not even be
able to recoup from the provider the unallowable part of the claim.
o The State Medicaid Manual suggests that the type of adjustment that
would be occurring here when Missouri actually paid the Beacon Hill
providers is a "current" expenditure rather than an adjustment
increasing claims for a prior quarter. See note following discussion of
"Line 7 - Adjustment Increasing Claims for Prior Quarters." in section
2500.1 (eff. 11-91). Viewing such adjustments as current expenditures
is consistent in our view with applying the basic timely claims rule to
such expenditures when they are actually made by the state.
o HCFA cited no support for its position in any HCFA policy issuance.
Nor did HCFA point to anything in the legislative history of the basic
rule or the exceptions as supporting its position. HCFA argued
nevertheless that by providing the exception for adjustments to prior
year costs, Congress meant to limit funding for adjustments not
qualifying under the exception. On the contrary, Congress could just as
easily have wished to insure that adjustments are still entitled to
receive funding if they qualify under the basic rule even if they do not
qualify under the exception (as interpreted in regulations or other
policy issuances). Missouri's interpretation here would not obviate the
need for the three statutory exceptions. Those exceptions have
relevance where a state makes an initial payment or adjustment to a
provider which qualifies under an exception but is still unable to file
a claim for federal funding for that payment within the two-year period
provided by the basic rule.
o HCFA's interpretation could have serious program implications since
it might encourage states not to question dubious claims from a private
provider or, in the alternative, to forego settlement and continue
litigation, even where a state had reevaluated its position on a
provider's claim, until a court ordered the payment of the claim. (A
court-ordered payment is another exception to the basic timely claims
rule.) Conceivably, Missouri could have qualified under that exception
in the instant case if it pursued the litigation to the point where the
court ordered it to make the adjustment to the Beacon Hill providers.
Accordingly, we preliminarily conclude that HCFA's timely claims
arguments concerning the potential Beacon Hill claims lack merit.
Conclusion
For the reasons explained above, we uphold the disallowance but remand
the appeal to allow Missouri to make the requisite payments for the
Beacon Hill providers and to then file the appropriate claim on its next
Form HCFA-64. If HCFA allows the claim, the claim will ultimately serve
to offset the amount of the overpayments here disallowed. If HCFA still
determines for any reason that the Beacon Hill claims are not allowable,
Missouri would have 30 days from its receipt of HCFA's decision to
reinstate its appeal. Although HCFA may revisit the issue of timeliness
of these claims along with any other issue of allowability during its
review, our preliminary analysis of the timeliness arguments HCFA made
before us here is that they lack merit.
_____________________________ Cecilia Sparks
Ford
_____________________________ M. Terry Johnson
_____________________________ Donald F.
Garrett Presiding Board Member
1. During Board proceedings, Missouri withdrew its appeal of an
additional disallowance of $237,695 relating to Missouri's delayed
implementation of a Medicaid state plan amendment. Missouri stated that
it was withdrawing its appeal of that part of the disallowance based on
the assumption that it was correctly calculated. State Brief (Br.) at
19 and 20. That part of the original disallowance, therefore, will not
be addressed in this decision.
2. Missouri may nevertheless have to repay the Longview and
Bridgeton overpayments before receiving a decision on the Beacon Hill
claim.
3. The settlement agreement involved other Beverly facilities as
well. The factual background is lengthy and complex and is fully
explained in Missouri's brief. State Br. at 3-18. We focus here on
only those aspects that directly involve this disallowance.
4. Missouri argued, moreover, that HCFA was highly advantaged by the
settlement since the potential federal funding for the entire $2.6
million Beacon Hill claim (which Missouri concluded would have been
allowable) was considerably higher than the funding involved in the
Longview and Bridgeton overpayment. An essential ingredient of the
settlement was also Beverly's willingness to adopt and implement a
quality assurance program for all of its Missouri facilities. The
agreement specified Missouri's right to monitor the program to ensure
its effectiveness. Stangler Affidavit, Ex. 15.
5. Form HCFA-64 is the vehicle for claiming federal funding in the
manner and format required by Medicaid.
6. As our background discussion indicates, HCFA previously advised
Missouri that the Beacon Hill claim should be reported on line 7 of the
Form HCFA-64 expenditure report. However, the note under the
instructions for Line 7 of Form HCFA-64 in the State Medicaid Manual
states that expenditures reported on Line 7 "include only increasing
adjustments made to private . . . providers in prior quarters which
were not reported on a prior Form HCFA-64." (Emphasis supplied.) We
question whether Line 7 would be the appropriate line for Missouri's
claim here since Missouri did not make an increasing adjustment for the
Beacon Hill providers in a prior quarter. Rather, Line 6 for current
quarter claims would appear to be the proper spot for Missouri's claim
on Form HCFA-64, since the claim presumably would be filed immediately
after Missouri makes a payment to the Beacon Hill providers.
7. Our analysis pertains to the reimbursement of private providers
by a state agency. A different analysis of the issues might result for
reimbursement of services provided by public providers under the
Medicaid program. See South Carolina State Health and Human Services
Finance Commission, DAB No. 943 (1988), aff'd, 915 F.2d 129 (4th Cir.