SUBJECT: Alaska Department of Health and Social Services

DECISION

The Alaska Department of Health and Social Services (Alaska) appealed a determination of the Centers for Medicare & Medicaid Services (CMS) disallowing $1,909,577 in Medicaid federal financial participation (FFP) claimed by Alaska for certain emergency air ambulance services provided to Alaska Native Medicaid recipients for the period of October 1, 1998 through September 30, 2000. The disallowance represented the difference between FFP at Alaska's regular federal medical assistance percentage (FMAP) rate, which CMS allowed, and FFP at a special 100% FMAP rate authorized pursuant to section 1905(b) of the Social Security Act (Act) for "services which are received through an Indian Health Service facility" whether operated by the Indian Health Service (IHS) or by an Indian tribe or tribal organization. CMS took the position that the 100% rate was not available for payments to tribal health corporations (which replaced the IHS system in Alaska) for the costs of emergency air ambulance services.

Alaska relied on two policy statements issued by CMS to Arizona in 1993 and 1997 to support its conclusion that emergency air ambulance services provided by an IHS facility qualified for 100% reimbursement. The earlier letter, issued by the Regional Office, stated that emergency transportation was eligible for the 100% rate if the services were covered by the state Medicaid plan. The second transmittal, a memorandum issued in May 1997 by the Central Office, responded to a question about non-emergency transportation and articulated the basis on which CMS considered a service to be one received through an IHS facility. The May 1997 Memorandum, which the Board discussed in detail in earlier decisions, made clear that, to be considered "received through an IHS facility," the service must be offered by the facility, be within the scope of services which that facility may offer, and be billed by that facility. Alaska alleged that, in fact, the emergency air ambulance services were offered by tribal hospitals (which indisputably are IHS facilities), that such services are within the scope of services hospitals may offer, and that these services were billed in the same way as all other services of those hospitals.

CMS argued, as a matter of law, that the effect of its May 1997 Memorandum was to rescind the Regional Office Letter because transportation, by its nature, could never meet the criteria for a "facility service." Specifically, CMS argued that ambulance services are not among the inpatient or outpatient services offered by hospitals. Further, as a factual matter, CMS portrayed the air ambulance services here as purchased by tribal entities (which also own the tribal hospitals) from a private company which merely provided pilots and planes under contract. CMS pointed to the fact that the bills for air ambulance services showed the tribal health corporation, not the tribal hospital, as the pay-to provider. CMS particularly focused on contractual arrangements between a tribal consortium in Anchorage and one of the air ambulance providers as demonstrating that the air ambulance services were not really a service of the regional tribal hospital, as Alaska argued, but rather a contract care provider of the same kind we found ineligible for 100% reimbursement in our earlier cases.

Alaska responded that, as to the facts, CMS was simply wrong in its understanding of the relationships among the air carrier, the air ambulance service, the tribal health corporation, the tribal hospitals and the state-wide tribal consortium. Alaska contended that the air ambulance services were actually operated by the tribal hospitals which provided medical staffing and control using aircraft and pilots from the air carrier, that the regional tribal health corporations owned and billed for all services of the tribal hospitals, and that the state-wide tribal consortium contracted with one of the tribal air ambulance services to provide transportation. Alaska denied that CMS ever gave notice that emergency air ambulance services were ineligible for 100% FMAP and specifically denied that the 1997 memorandum could reasonably be read to do so. Furthermore, Alaska asserted that it had verified its understanding by inquiring of a CMS Central Office official prior to claiming at that rate.

For the reasons explained below, we reverse the disallowance. After holding a hearing and reviewing documentary evidence, we find that Alaska showed by a preponderance of the evidence that, contrary to what CMS found, the emergency air ambulance services were offered and billed by the tribal hospitals as facility services. We conclude that CMS's written policy issuances support Alaska's position and that CMS's current assertion that emergency transportation may not be treated as a facility service was neither timely published nor adequately communicated to Alaska before the costs at issue were incurred. We further conclude that Alaska's reliance on the prior CMS interpretation was reasonable under the facts established on the record before us.

Factual Background

The record in this case consisted of the parties' briefing and argument, exhibits submitted by both parties, ⁽¹⁾ and the transcript (Tr.) of a hearing held in Seattle, Washington, on June 6, 2003. This section presents the undisputed factual context for the case and summarizes some of the central documents. Those matters of fact and interpretation which were disputed are discussed and resolved in the analysis section of this decision. The core of the issue here revolves around how emergency air ambulance services are delivered and claimed under the present health care system serving Medicaid-eligible Native Alaskans. Tribal organizations, often including multiple tribes and formed in accordance with federal law, ⁽²⁾ gradually took over operation of the facilities and functions of the IHS in Alaska. As of January 1, 1999, all the services and facilities previously operated by IHS in Alaska came under the control of tribal entities. CMS Ex. 52, at 4.

Health care under the integrated tribal system is delivered through a number of levels of care, beginning with village clinics in the "bush." Tr. at 29 (Dr. Jane McClure). Alaska has nine regional service areas, eight managed by tribal health corporations. Alaska Ex. 1 (Weller Decl.) at 2. Seven of these tribal health corporations, including the three involved in this case, operate hospitals as well as numerous rural health clinics. Id. These tiered systems form regional structures, each operated by a tribal organization and anchored by a regional hospital and covering a large geographical region. Three different tribal organizations were involved here, but the hearing and evidence focused largely on one, Yukon Kuskokwim Health Corporation (YKHC). ⁽³⁾ The record shows that YKHC is representative of other regional tribal organizations involved. ⁽⁴⁾ Dr. McClure, YKHC clinical director, described YKHC as "a hospital-based regional health care system that's based in Bethel," but delivers services to 48 villages up to 150 miles away. Tr. at 30. Village clinics are staffed by health aides, who are high school graduates with some medical training and who consult with hospital staff regularly, generating some 300 calls per day. Id. Subregional clinics provide the next level of care; are staffed by nurse practitioners and physician assistants, as well as aides; and have such services as x-rays and laboratories. Id. at 30-31. There are no roads to the villages and transportation depends mainly on air, water, and snow machines. Id. at 29. Subregional clinics generally have larger paved runways and village clinics have dirt and gravel runways. Id. at 31.

Patients requiring higher levels of care are transported to YK Delta Regional Hospital, "our hospital-based regional center" in Bethel, which "provides a Level IV trauma center, inpatient, OB [obstetric], surgical, and specialty care from visiting specialists." Id. at 31. Finally, patients who need services not available in Bethel are sent to Alaska Native Medical Center, a tertiary-care hospital in Anchorage serving the whole state and operated by a tribal consortium. From there, if necessary, patients are transported out of state. Id.

Emergency air transportation for patients throughout this network is provided by AeroMed International. Id. at 31-32. AeroMed is operated by YKHC and provides air ambulance service using planes based in Bethel and Anchorage. The exclusive use of the name "AeroMed, International" was transferred to YKHC by contract with a private company, F.S. Air Services, Inc. (referred to as Carrier in the contract), which provides the planes and pilots. CMS Ex. 17. Since the effect of this contract has significance for the parties' dispute, we next set out the relevant terms. First, the contract was premised on three "recitals," as follows:

YKHC has the opportunity to provide patient and emergency medical transportation services in the Yukon Kuskokwim Delta, other areas of Alaska and elsewhere, including international destinations;

YKHC employs the administrative, executive and medical personnel necessary to provide licensed medevac services, and seeks the services of a qualified licensed air carrier to provide both emergent and nonemergent patient transportation ⁽⁵⁾ under contract with YKHC; and

Carrier possesses the equipment, personnel, management, maintenance and support services necessary to provide carrier and aviation services to YKHC.

Id., at 1. The contract then specifies the services to be provided by the carrier, in the form of the aircraft, pilots, and related support necessary to carry out the missions in compliance with standards then set out. Id. at 2-7. YKHC and the Carrier agreed to jointly appoint a Medevac safety committee, to include a management representative, a pilot, and YKHC's Medevac Medical Director, and to conduct flight debriefings after each critical care flight. Id. at 7-8. The Carrier's compensation is to be based on "flight hours" defined as "'block time,' which for fixed-wing aircraft begins at the time the aircraft begins moving under its own power and ends at the time the aircraft stops moving under its own power." Id. at 8. The contract then sets out the rights and obligations of YKHC as follows:

8.1 Medical Care. YKHC will retain medical control of all medical missions. YKHC shall provide all rear cabin medical personnel for patient transports

8.2 Dispatch. YKHC shall provide a communications center for coordination of flight missions and medical flight communications. . . . YKHC shall provide all medical equipment for such flights. YKHC may, in its sole discretion, designate any and all passengers or rear cabin medical crew to be carried by Carrier. . . .

8.3 Classification of Patients for Transport. YKHC shall, through adoption of appropriate standing orders and otherwise, assure that patients for whom it is providing medevac services are classified correctly under laws and regulations regulating critical care transport. . . .

Id. at 10-11. The contract also contemplates that YKHC will respond to an IHS solicitation of "proposals to provide critical care air ambulance services on IHS' behalf throughout the state." Id. at 12. If YKHC is successful (as it was) in obtaining this "IHS Contract," the carrier agreed to the incorporation of the terms of that contract that were applicable to air carriers into the present contract and agreed to comply with the IHS Contract "standards and requirements governing aviation personnel, aircraft, and equipment." Id. at 13. The YKHC-Carrier contract was executed September 24, 1997. YKHC obtained the state-required certificate.

After the execution of the above contract creating the YKHC/AeroMed air ambulance service, AeroMed, as noted, did obtain the "IHS contract." This requirements contract was executed between the Alaska Native Tribal Health Consortium (ANTHC) and YKHC. CMS Ex. 66. The period covered was June 1, 1999 through April 30, 2000, with optional renewal for four years. Id. at 1. Under this contract, in addition to the air transportation provided between YK Delta Hospital and its regional clinic network, YKHC undertook to provide medevac services as ordered by staff of the Alaska Native Medical Center (ANMC), the tertiary level tribal hospital in Anchorage operated by ANTHC. The contract required YKHC to provide clinical teams, medical director and medical control physicians, and necessary medical equipment. Id. at 16-18. The contract specifies that YKHC "shall provide total patient care" and that YKHC's supervision "begins when a medical evacuation is authorized by the requesting physician of ANMC and concludes when the patient is accepted by the receiving facility." Id. at 18. YKHC is responsible for ensuring that the care provided meets acceptable professional standards. Id. at 24. This contract also provided for medevac services for a number of other federal facilities in Alaska (including Coast Guard and military bases), an arrangement carried over from IHS's federal partnerships with those facilities.

When Native American/Alaskan Medicaid beneficiaries are transported by AeroMed air ambulances, YKHC makes claims for reimbursement to the State Medicaid program through the State's fiscal intermediary. The claims are based on rates calculated using lift-off and per-mile fees. The parties originally disputed whether these claims reflected medical staff and services provided during transport or only non-medical transportation costs such as fuel and pilots. Testimony at the hearing clearly established, however, that the rates billed by lift-off and per-mile fees reflected all costs, including medical staffing and services. In its post-hearing submissions, CMS appeared to shift to the position that, while standard industry practice may indeed include reimbursement for medical services as part of this billing methodology, any medical costs reimbursed as part of the air ambulance claims here would be duplicative because tribal hospitals receive payment for all their medical staff as part of an "all-inclusive" IHS payment rate. CMS Post-Hearing Br. at 5-7.

Alaska reimbursed the claims for air ambulance services from YKHC and the other tribal organizations. Alaska initially sought reimbursement for its payments at the regular FMAP but reclaimed them as adjustments at the 100% FMAP rate. CMS deferred $1,627,779 on September 11, 2000 and another $281,798 on May 7, 2001. Exs. 5, 6. The entire amount was disallowed by letter dated June 10, 2002. Ex. 7. This appeal followed.

Legal Background

The statutory provision at issue here has been the subject of a series of cases before the Board involving three other states with substantial numbers of Native American Medicaid recipients, Arizona, North Dakota, and South Dakota. Appeals from Board decisions in all three of those cases are presently pending in federal court. The Board decisions involving North Dakota and South Dakota were reversed in separate District Court decisions; both were appealed to the United States Court of Appeals for the Eighth Circuit. North Dakota Dept. of Human Services, DAB No. 1854 (2002), rev'd sub nom. State of North Dakota v. CMS, Case No. A-1-03-028 (D.N.D., memorandum and order dated Oct. 1, 2003), appeal pending No. 03-3954 (8^th Cir., filed Dec. 23, 2003); South Dakota Dept. of Social Services, DAB No. 1847 (2002), rev'd sub nom. Ellenbecker v. CMS, CIV 02-3042 (D.S.D., order dated Sept. 30, 2003) appeal pending, No. 03-4036 (8^th Cir., filed Dec. 23, 2003). Arizona recently filed a court appeal also. Arizona Health Care Cost Containment System, DAB No. 1779 (2001), app. pending Civ. No. 03- 2445 PHX PGR (D. Ariz.). The issues in the three cases involved costs for services received by Medicaid-eligible Native Americans from non-IHS providers through referrals under the IHS contract care program. The Board found that CMS's interpretation of the phrase "received through an IHS facility" to exclude referrals to non-IHS providers was reasonable, long-standing, and well-known to each of the states involved. Further, the Board concluded that the May 1997 Memorandum reaffirmed rather than altered this interpretation. The Board reached this conclusion after a careful review of the language, history and purpose of the provision at issue and a detailed analysis of CMS's communications with the states. After the district court opinions in the North and South Dakota cases were issued, both parties in the present case were afforded an opportunity to comment on what relevance that development might have here. Nothing in either district court opinion or the arguments of the parties here has altered our understanding of the statutory language; and we continue to believe that our analysis in these prior cases was correct and remains applicable to Alaska. Below, we provide a condensed explanation of our reasoning, which forms a context for the present matter. ⁽⁶⁾

Section 1905(b) of the Social Security Act (Act) states, in relevant part:

Notwithstanding the first sentence of this section, the Federal medical assistance percentage shall be 100 per centum with respect to amounts expended as medical assistance for services which are received through an Indian Health Service facility whether operated by the Indian Health Service or a tribe or tribal organization . . . .

(Emphasis added.) ⁽⁷⁾ This provision was first enacted in 1976. Indian Health Care Improvement Act, Title IV, Pub. L. No. 94-437 (1976) (IHCIA). Prior to the IHCIA, eligible Native Americans were entitled to Medicaid benefits on the same basis as other citizens of the various states. In many instances, however, Native Americans, particularly those on remote reservations, received their health care services through the IHS. These services were directly federally funded and were hence not eligible for Medicaid reimbursement. The Board explained the purpose of the IHCIA as follows:

Eligibility for Medicaid had little meaning in that context because IHS facilities could not receive reimbursement under Medicaid for services they provided to eligible recipients. To address this, the IHCIA sought to remove the "current prohibition against [Medicaid] reimbursement for services performed in IHS facilities" and to authorize "payments through the two programs to qualified Indian Health Service hospitals and long-term care facilities for services rendered to Medicaid and Medicare patients." 1976 House Report [H.R. Rep. 1026, 94^th Cong., 2d Sess. (1976) reprinted in 1976 U.S.C.C.A.N. 2652] at 2665, 2746 (emphases added).

The essential effect of the IHCIA was to re-channel some Medicaid funds to be of practical benefit to these recipients by allowing states to use Medicaid funds to pay for services offered in IHS facilities that had not previously been permitted to receive Medicaid funds. Because IHS already received direct federal funding for its facilities and services, the IHCIA also specifically mandated that new funds received as a result of Medicaid reimbursement for services to Medicaid-eligible Native Americans must not replace existing IHS allocations but rather be used to improve quality and expand services for those recipients.

Had the IHCIA provided only that IHS facilities could now bill for Medicaid reimbursement, this would have shifted to the states (which had previously had no responsibility for the services of IHS facilities) part of the costs previously borne by the federal government. . . . .

On the other hand, before the IHCIA, Native Americans were entitled to Medicaid, if otherwise eligible, and could seek services from Medicaid providers. The costs of such medical assistance provided to Medicaid-eligible Native Americans by Medicaid providers fell under the normal FMAP rate. The legislative history contains no indication that Congress intended to alter this, nor any expectation that the federal government was undertaking costs previously borne by the states for medical assistance to Native Americans.

Arizona, DAB No. 1779, at 11-12 (2001) (footnote omitted).

The Board's overall review of the legislative history made very clear that Congress did not choose to apply 100% federal funding to cover all Medicaid services provided to Medicaid-eligible Native Americans. Id. The fundamental effect which Congress sought to achieve was to supplement direct IHS funding by allowing the stream of federal Medicaid funding that would otherwise go to benefit Native Americans (if they had fuller access to non-IHS providers used by other Medicaid recipients) to flow to IHS facilities. Congress's dual concerns were that the funding stream be used to upgrade the quality and expand the services of those IHS facilities and that making those IHS facilities' services newly eligible for Medicaid reimbursement not impose novel costs on the states. Congress nowhere in the statutory language or legislative history ever indicated an intention to transfer to the federal government the states' role in sharing in Medicaid payments to private providers when such providers treated Native Americans. Thus, we found that the pre-existing responsibility of the states to participate in the costs of medical care for all their citizens on an equal basis when received from providers outside of the federally-funded IHS facilities was unchanged by the IHCIA.

The ISDEA provided in 1993 that tribes and tribal organizations could own or operate health care facilities (often referred to as 638 facilities after the Public Law number of the ISDEA) under agreements with IHS. Historically, CMS interpreted the term "IHS facility" in section 1905(b) of the Act to include only those 638 facilities that were either owned or leased by the IHS, while the tribally-owned 638 facilities were not eligible for the 100% FMAP rate. Section 150(l) of the Indian Self-Determination Act Amendments of 1994, Public Law No. 103-413, mandated that the Secretary (through IHS) execute leases for 638 tribal facilities on request, which would then have made the facilities "IHS facilities" for Medicaid purposes, but which would have required administrative processing of numerous leases.

In response, CMS and IHS executed an agreement in December 1996, avoiding the need to actually issue the mandated leases by making the 100% rate available to all tribally-owned 638 facilities, without requiring the formality of a leaseback arrangement with IHS. CMS Ex. 19 (1996 MOA). This 1996 MOA was transmitted to Alaska, and other states, under a cover letter which explained that the effect was to expand the definition of "a facility of the" IHS to include 638 facilities. Id. at 1. The letter informed the State that the IHS would provide a list of "its 638 facilities for which 100 percent FMAP is available." Id. CMS produced a copy of this list (dated March 5, 2001, though the title indicates it was current as of October 1, 1999). CMS Ex. 20. The list includes, inter alia, the village and subregional clinics operated by YKHC; the Yukon Kuskokwim Delta Regional Hospital also operated by YKHC; and the Alaska Native Medical Center in Anchorage, Alaska, operated by the Alaska Native Tribal Health Consortium. The two other regional tribal hospitals whose air ambulance services are at issue, along with their associated clinics, also appear on the list, with the names of their respective parent tribal health corporations.

In addition to providing services directly to Native Americans, IHS operates a program to assist Native Americans in obtaining affordable care from private providers when needed services are not available in the IHS system. Under this program, IHS contracts with private providers to provide health care services not otherwise available or accessible to Native Americans and negotiates for payment rates which may not exceed Medicare allowable rates where applicable. See 51 Fed. Reg. 23,540 (June 30, 1986). The contract care program is governed by regulations in 42 C.F.R. Part 36 and provides funding, within limits based on priorities set by IHS and appropriations from Congress, for services on referral that IHS facilities may not be available, equipped, or licensed to provide themselves. IHS funding for the contract care program is limited and distinct from the general funding for the IHS to operate its own facilities.

Scope of the present dispute

The issues before us in the present dispute are limited in several important ways. First, it is uncontested that the costs at issue were critical for the health care needs of the Native American/Alaskan Medicaid recipients located in remote areas and that these services were properly covered by Medicaid under Alaska's State plan. See CMS Br. at 16. For those reasons, CMS disallowed only that portion of Alaska's claims that exceeded the regular FMAP reimbursement rate. Thus, we need not consider any questions of allowability of Alaska's expenditures for the services at issue, but only the applicability of the 100% FMAP rate to them.

Second, CMS originally stated that the claims were not eligible for 100% FMAP because they "were for transportation services, which are non-facility services, and they were not billed through the IHS system." June 10, 2002 Disallowance Letter, at 1. During the appeal, CMS conceded that the latter assertion was erroneous, and that the Medicaid claims for the air ambulance services were billed by and paid to the tribal organizations (which, in effect, constitute the "IHS system" in Alaska). CMS Br. at 10, n.3. CMS continued to argue, however, that the services were not billed by IHS facilities, i.e., the tribal hospitals.

Third, unlike the prior Board cases relating to section 1905(b), this case does not involve the question of whether Medicaid payments made to non-IHS providers who participate in the IHS contract care program may be reimbursed at 100% FFP when the beneficiaries are referred to them by the IHS system.

While recognizing the factual distinctions between this and the prior cases, CMS argued, nonetheless, that its interpretation of the statute, previously upheld by the Board as reasonable, was controlling here, that the Board should defer to that interpretation, and that Alaska must have been aware of the interpretation, since it did not originally claim 100% FMAP for the air ambulance service costs. CMS took the position, initially, that the particular services here were not in fact IHS facility services and, ultimately, that transportation services may never be facility services, for purposes of the 100% FMAP rate.

Alaska, while disagreeing with our prior analysis, argued that the results in those cases did not govern the outcome here. Alaska relied on its understanding of section 1905(b) and on CMS's interpretative statements (particularly a 1993 Regional Office Letter) to conclude that emergency transportation services provided by IHS hospitals were eligible for 100% FMAP. Alaska argued that it had no notice, from the May 1997 Memorandum, or elsewhere, of any interpretation precluding 100% FMAP for any transportation services. Alaska also contended, as a matter of fact, that the emergency air ambulance services at issue were effectively provided by regional tribal hospitals and should be considered services of those "IHS facilities" under the interpretation set out in the prior decisions, even when provided under the contract with ANTHC. Finally, Alaska argued that it had acted in reasonable reliance on the interpretation in the 1993 Regional Office Letter and that it was unfair to retroactively apply a new interpretation.

Below, we first address the legal issues, concluding that the applicable interpretation, based on the 1993 and 1997 policy statements, was that emergency transportation covered by a State plan could qualify for 100% FMAP when offered by an IHS facility and billed as an IHS facility service. We then address the factual issues, explaining why we find that Alaska proved, by a preponderance of the evidence, that the air ambulance services were services received through IHS facilities, including those provided under the ANTHC contract. Finally, we address the factual considerations relevant to why we find that CMS may not here retroactively apply a new interpretation that emergency transportation is not a "facility service" under any circumstance.

1. The applicable interpretation, based on the 1993 and 1997 policy statements, was that emergency transportation, if covered under a State plan, could qualify for 100% FMAP when offered and billed by an IHS facility as a service of that facility.

In this section, we first set out how the Board analyzes disallowance cases where, as here, an agency asserts that its interpretation of statutory language is controlling and why the issue of notice to the grantee is important. We then address what our previous decisions held about the notice given to states about the CMS interpretation of the statutory language "received through an IHS facility" and why we disagree with CMS that those decisions control here. Finally, we address the 1993 Regional Office Letter and explain why we agree with Alaska that it did not have timely and adequate notice, through the May 1997 Memorandum, that no transportation services could qualify for the 100% FMAP rate.

A. Whether an agency may properly base a disallowance on its informal interpretation of a statute depends on a number of different factors.

The Board is bound by "applicable laws and regulations" in these proceedings. 45 C.F.R. � 16.14. CMS, however, has not issued any regulations implementing the section 1905(b) provision on services received through an IHS facility. We are confronted here with arguably inconsistent agency interpretations of the application of statutory language communicated informally, through letters, memoranda, litigation positions, and oral communications. Such informal interpretations are not binding on the Board. Nevertheless, the Board has traditionally recognized that interpretations by CMS of Medicaid provisions should be accorded deference based on CMS's programmatic expertise. In general, the Board has held that, where a statute or regulation is subject to more than one interpretation, the HHS operating division's interpretation is entitled to deference as long as the interpretation is reasonable and the grantee had adequate notice of that interpretation or, in the absence of notice, did not reasonably rely on its own contrary interpretation. Louisiana Department of Health and Hospitals, DAB No. 1772 (2001); see also Community Action Agency of Franklin County, DAB No. 1581 (1996), and decisions cited therein. The Board used this approach in Arizona and its progeny.

The degree of deference that the Board accords to a particular CMS interpretation depends on a number of factors, such as whether it has been published and in what form, how widely and at what level it has been distributed, what authority the source within CMS has, whether the interpretation is consistent with other issuances, and whether the interpretation is a long-standing one or appears to be a position adopted in litigation which the agency seeks to enforce retroactively. This approach is similar to that taken by courts when dealing with asserted agency interpretations not embodied in regulations promulgated through notice and comment rulemaking. As we summarized in Nebraska Health and Human Services System, DAB No. 1882 (2003):

[Chevron U.S.A., Inc., v. Natural Resources Defense Council, Inc., 476 U.S. 837 (1984)] held that a court must give deference to an agency's regulation containing a reasonable interpretation of an ambiguous statute. In Christensen [v. Harris County, 529 U.S. 576 (2000)], however, the Court stated that "[i]nterpretations such as those in opinion letters--like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law--do not warrant Chevron-style deference. . . . Instead, interpretations contained in formats such as opinion letters are 'entitled to respect' under our decision in Skidmore v. Swift & Co., 323 U.S. 134, 140, . . . (1944), but only to the extent that those interpretations have the 'power to persuade.' ibid." Christensen at 587. In Mead, [United States v. Mead Corporation, 533 U.S. 218 (2001)] the Court made a similar observation about classification rulings (at 220) and, quoting Skidmore, stated that the weight to be accorded to a Customs ruling letter "'will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control."' Mead at 219.

Our analytical approach also arises in part from the Administrative Procedure Act, which provides that, "[e]xcept to the extent that a person has actual and timely notice of the terms thereof, a person may not in any manner be required to resort to, or be adversely affected by, a matter required to be published in the Federal Register and not so published." 5 U.S.C. � 552(a)(1). Accordingly, we have applied any reasonable and permissible interpretation by CMS of ambiguous statutory language if CMS's interpretation was timely published in the Federal Register or, failing that, if the state had actual and timely notice of the interpretation. See, e.g., South Dakota Department of Social Services, DAB No. 1847, at 7 (2002); Arizona, at 8; see also New Jersey Dept. of Human Services, DAB No. 1773 (2001); Louisiana Dept. of Health and Hospitals, DAB No. 1772 (2001); and Community Action Agency of Franklin County, DAB No. 1581 (1996), and decisions cited therein. In addition, where more than one interpretation has been attributed to CMS at various times, or where the content of CMS's interpretation(s) has not been clearly articulated, we must consider what is the applicable CMS interpretation. Applicability must be weighed in terms of both a specific factual context and a specific timeframe.

Where CMS has not informed a state of an interpretation and the state asserts that it relied on its understanding of a prior CMS interpretation or on its own alternative interpretation, we must consider whether the state reasonably relied on the other interpretation. In that regard, the Board has considered whether the alternative interpretation is simply a position taken after the fact in litigation or one responsibly developed and relied upon by that party in its actions. To evaluate this, the Board has considered factors such as historical claiming patterns, good-faith efforts to verify the interpretation with appropriate agency officials, the openness with which the interpretation was put forward, and the nature of contemporaneous statements and actions of the non-federal party (all of which were relevant in Arizona and its progeny).

B. Prior Board decisions upheld the CMS interpretation of "received through" an IHS facility as meaning that the services must be offered and billed by an IHS facility as a service of that facility, but those decisions do not compel a decision for CMS here.

CMS asserted that the Board's prior decisions compelled us to accept its position regarding the costs here. We disagree.

In Arizona, the Board noted that CMS was not there taking, and has never officially taken, the position that only services received within the four walls of an IHS facility could be considered as "received through" that facility. Arizona at 18. Instead, the Board found that CMS communicated (most clearly in its May 1997 Memorandum to state Medicaid Directors) that the costs of services not received within the physical confines of the facility could be eligible, but only when those services were offered by the facility (directly or under arrangement) as a service of that facility and then only when the costs were billed by the IHS to Medicaid. Id. at 22-23. The Board found that services provided by non-IHS contract care providers in Arizona after referral from an IHS facility did not meet those criteria. The Board found that CMS had consistently refused to treat such referred services as having been received through an IHS facility, explaining as follows:

[CMS's] position is not fairly characterized as an improper requirement for "indirect billing through IHS," nor has [CMS] required that every service offered by a facility invariably be provided within its physical confines, although such provision is the most common and clear evidence that the facility is the party offering the service. The quoted language allows only certain contracts to qualify, i.e., those that "achieve the performance of services offered by the facility." Id. (emphasis added). We find this language best fits [CMS's] explanation that the contemplated contracts are not contracts with outside parties to accept patient referrals but rather what is termed in the Act "arrangements." "Arrangements" in Medicare, and derivatively in Medicaid, are "limited to arrangements under which the receipt of payment by the [facility] (whether in its own right or as agent), with respect to services for which an individual is entitled to have payment made under this title, discharges the liability of such individual or any other person to pay for the services." Section 1861(w)(1) of the Act. In other words, the facility must bill Medicaid directly for the services it offers, taking sole responsibility for compensating the contractor independently. An example is a physician with whom a facility contracts to provide care to its patients, which the facility thereby offers as part of its services.

DAB No. 1779, at 18-19.

We find, and Alaska did not deny, that Alaska was aware of the May 1997 Memorandum and thus had notice that only services offered by an IHS facility either directly or under arrangement, as a service of that facility, and claimed by that facility qualified for 100% FMAP. We thus conclude that Alaska had timely notice of the requirements contained in the May 1997 Memorandum that facility services must be offered and billed by an IHS facility as a service of that facility.

The precise issue before us now, however, is not resolved by the earlier analysis and discussions in Arizona and its progeny, for two reasons. First, the prior cases involved referrals outside the IHS system. Alaska's tribal health corporations, as noted, clearly constitute the IHS system in Alaska for purposes of this provision of the Act. Second, as we discuss later, Alaska disputed the factual premises based on which CMS initially concluded that the air ambulance services were not offered and billed by the tribal hospitals as services of those hospitals.

C. Alaska did not have timely and adequate notice of any interpretation that would supersede the 1993 Regional Office Letter and render it inapplicable.

In briefing, CMS ultimately rested on the view that transportation can, by its nature, never constitute a facility service. CMS Post-Hearing Br. at 20. ⁽⁸⁾ The only policy statement identified by CMS that set out this position, however, was a 2001 letter to that effect to Alaska. CMS Ex. 64. That letter was dated after the issuance of the deferrals which led to the disallowance here. Thus, it amounts to a post-hoc articulation of a litigation position, rather than a source of timely, actual notice to Alaska. We are not aware of any issuance articulating this position to other states. It is not clear whether this is a considered policy decision intended to be of general applicability. Nor is it clear whether the interpretation of transportation as a non-facility service is intended to deny 100% FMAP for all related medical costs of emergency air ambulance services.

Unlike CMS, Alaska did point to a prior written statement by CMS directly addressing the kind of costs at issue here - the 1993 Regional Office Letter. This letter, dated September 17, 1993, was from the Associate Regional Administrator, Division of Medicaid, in Region IX to the Acting Director of the Arizona Medicaid program and responded to a question from that State about the federal reimbursement rate for "an ambulance service to be operated by the IHS." Alaska Ex. 3, at 1. The letter stated:

Since transportation is covered under the Arizona State plan, one hundred percent (100%) Federal financial participation (FFP) will be available for ambulance services such as those you are proposing be provided by IHS to Title XIX beneficiaries.

Id.

CMS did not deny that the 1993 Regional Office Letter set out what was CMS policy at the time, but argued that it had been rescinded by the May 1997 Memorandum. The May 1997 Memorandum, issued by CMS Central Office and forwarded to all state Medicaid directors, resulted from another inquiry from the State of Arizona, this time concerning reimbursement rates for non-emergency transportation. The relevant text read as follows:

Our position on this issue is that in order for IHS services to qualify for 100% FMAP, the service must be (1) provided by IHS, or a contractual agent of an IHS or tribal facility; (2) considered as a 'facility service'; that is, a service that would be within the proper scope of services which can be claimed by that facility; and (3) claimed by the IHS facility as a service of that facility. Those services are referred to in regulations at 42 C.F.R. 440.10 ("Inpatient hospital services") and 42 C.F.R. 440.20 ("Outpatient hospital services and rural health facility services").

* * *

[R]eferred services, provided through a contractual arrangement, can also be considered provided 'through an IHS facility' and reimbursed at the 100% FMAP rate as long as these are services that could be provided as a facility service, as referenced by regulation above. Any other type of services, such as non-emergency transportation, are not considered to be 'facility services', and therefore should be reimbursed [only at the normal FMAP].

Alaska Ex. 4, at 2 (emphasis added).

Nancy J. Weller, who was responsible for overseeing Indian health policy for Alaska's Medicaid program, stated that, shortly after issuance of the May 1997 Memorandum, she learned of the 1993 letter to Arizona approving of 100% FMAP for emergency transportation. Alaska Ex. 21, at 1, 10. Ms. Weller indicated that she then checked with her contact in CMS Central Office to be sure that the prior guidance remained in effect as to tribally-provided emergency transportation. Id. She stated that Ms. Wanetah Pinder in CMS Central Office verified to her that "tribal ambulance services, including emergency air ambulance services, were eligible for 100% FMAP." Id. at 10; see also Tr. at 92.

While CMS objected that Alaska could not rely on oral representations that conflict with the statute or with written CMS policy, that is not the relevance of Ms. Weller's statement. Cf. CMS Post-Hearing Br. at 16, n.9. We do not read Alaska's arguments as suggesting that the oral advice it obtained from a CMS official could estop CMS from applying an otherwise valid legal interpretation. Rather, the situation confronting Alaska was that CMS's written interpretations could be read to be consistent with each other in permitting 100% FMAP for emergency transportation meeting the other tests but not for non-emergency transportation. The oral statement reportedly made by Ms. Weller simply establishes that, prior to making the claims at issue, Alaska confirmed that CMS intended its two communications to be read in a manner consistent with each other (as opposed to viewing the second communication as reversing the first sub silencio).

Further, the affirmative steps taken by Alaska to ascertain that its reading of the two policy statements was correct contrasts with the absence of similar measures taken by officials in the other states involved in Arizona and its progeny to seek any CMS confirmation of their purported reading of the May 1997 Memorandum to justify 100% FMAP for payments made to non-IHS contract care providers. ⁽⁹⁾ We are persuaded that Alaska did not have actual notice of a CMS policy which would preclude its air ambulance claims at 100% FMAP.

CMS argued, however, that Alaska must have known the claims were improper because it had claimed emergency transportation at the normal FMAP rate prior to 2000, even after receiving the May 1997 Memorandum. CMS Br. at 21-22. CMS contended that the Board had already found that CMS "repeatedly communicated its interpretation regarding these types of claims to the states, and states had been using appropriate FMAP rates for years." Id. at 22, citing Arizona at 14 and South Dakota at 8.

We disagree that the position of Alaska here with respect to notice is analogous to that of Arizona, North Dakota, and South Dakota in the earlier cases. First, the CMS interpretation which the Board held was repeatedly communicated to the states was that referrals to non-IHS providers, even when those providers participate in the IHS contract care program, were not considered to be services received through IHS facilities. To be considered received through IHS facilities, as CMS stated, a service must be "one offered by an IHS facility" and "that facility must bill Medicaid." Id. at 23. The only CMS communication directly addressing the reimbursement rate for emergency transportation provided within the IHS system or offered by an IHS facility flatly approves 100% FMAP for emergency transportation where such services are covered under a state Medicaid plan.

Second, CMS's position ignores other relevant changes occurring in the system by which health care in general, and emergency air ambulance services in particular, were provided to Native Americans in Alaska over the period from 1996 through 2000. The Board noted in Arizona that the State there was attempting to reclassify as eligible for 100% FMAP expenses which it had for many years treated as reimbursable at the normal FMAP. Here, however, Alaska alleged that the prior IHS-run system changed in significant ways as the tribal corporations took over control in a process that began on October 1, 1994 and was not entirely complete until 1997. Alaska Br. at 1-3; Alaska Ex. 21, at 4-5. The IHS-run system provided air ambulances by contracting with a private air ambulance service of Providence Hospital known as LifeGuard. Tr. at 126-33, 138-39. Under the contract care program, LifeGuard billed the state Medicaid program directly for any Medicaid-eligible patients. Id. Neither IHS itself nor any of its facilities operated, or billed Medicaid for, an air ambulance service.

Alaska asserted, and CMS did not deny, however, that very few Native Alaskans actually signed up for Medicaid prior to the tribal health corporations, and that the IHS was never able to develop a successful mechanism to bill Medicaid for those services which would have been reimbursable in Alaska. Alaska Resp. to DAB Questions, at 10. Consequently, Alaska Medicaid entered an agreement for an alternative approach in which it paid a monthly amount to IHS based on a total number of inpatient days and outpatient encounters multiplied by a set rate. In 1996, according to Alaska, efforts were undertaken to actually enroll all tribal providers in Medicaid and only by 1998 were all tribal organizations submitting detailed claims for services rendered in the same manner as non-tribal providers. Id. at 11. Meanwhile, as discussed in more detail later, the tribal health organizations chose to provide air ambulance services themselves rather than making arrangements with LifeGuard or another non-IHS (or non-tribal) provider. It is thus plausible that Alaska's understanding about which detailed claims by tribal providers could be considered to reflect services of tribal facilities was in flux during the period from 1996 to 2000.

As discussed below, it became evident, after the hearing and the full development of the record in this case, that Alaska had substantial factual reasons to believe that the YKHC air ambulance services in many ways resembled more the provision of services by YK Delta Hospital (either itself or under arrangement with its parent tribal health corporation) than the referral of patients to an outside source (as happens in the usual contract care situation involved in our prior decisions). Such reasons support Alaska's position that its claims were made in conformance with CMS's announced policy. As the factual context became clearer, CMS's emphasis later in the case shifted more toward the interpretation that emergency air ambulances services, by their very nature as transportation services, could never be considered eligible facility services. However, CMS pointed to no source of express notice of this interpretation prior to the litigation, except its strained effort to insist that the May 1997 memorandum should have been read as rescinding the 1993 Regional Office Letter. ⁽¹⁰⁾

Having found that Alaska did not have notice of any CMS interpretation of section 1905(b) which precluded 100% FMAP for the costs of air ambulance services offered and billed by a tribal hospital as a service of that hospital, we consider in the next section the factual basis for Alaska's conclusion that these costs were eligible.

2. Alaska proved by a preponderance of the evidence that these emergency air ambulance services were received through IHS facilities.

A. Air ambulance services were offered by the tribal hospitals as services of those facilities.

The essence of Alaska's position was that AeroMed was operated by YKHC as a service offered by YK Delta Hospital to serve the emergency transportation needs of Native Alaskan patients. Alaska contended that it was reasonable to have considered such services to be received through an IHS facility. In declarations and at the hearing, Alaska presented considerable factual support for this view of the relationships involved. Overall, we found the witnesses presented by Alaska to be credible, straight-forward, and well-informed. They appeared experienced and knowledgeable about the actual operation of the tribal health system in Alaska and the complicated relationships among the "IHS system," the tribal hospitals and clinics, and the air ambulance services, bringing a range of hands-on experience and varied perspectives. Most of their factual testimony was uncontradicted, even where the legal implications were disputed. Accordingly, we rely on their testimony for much of the factual picture of how the tribal air ambulance services here were in fact delivered and reimbursed.

Dr. McClure's uncontradicted testimony was that the medical physicians who control the treatment of patients in the transport process are part of the emergency room (ER) staff physically located at YK Delta Hospital in Bethel. Tr. at 34-37. Calls from the clinics for emergency transport come into operators located at the hospital, who then page an ER or on-call physician. Tr. at 34. These physicians may consult a specialist in the hospital (such as a pediatrician like Dr. McClure). Tr. at 34-35. The hospital physicians then consult with clinic staff, determine when launch of an air ambulance is appropriate, advise on necessary equipment and medical staffing for the particular patient to be transported, and are ultimately responsible for the decisions about the care and transport of the patient. Tr. at 34-36. Any special medication or equipment (such as an incubator) is supplied by the hospital emergency room for the flight. Tr. at 36. The medical crew on board operates "under protocols which have been approved by our medical staff executive committee," which Dr. McClure described as "our YKHC hospital leadership." Tr. at 38. Upon arrival at the hospital, the ambulance medical crew members very often stay with patients in the ER and assist the ER staff with their stabilization and care. Tr. at 37, 39.

Air ambulance medical team members have an office and crew quarters inside YK Delta Hospital and work in groups of three on duty "24/7," rotating one week on and one week off. Tr. at 40, 43. When not out on a call or sleeping, the on-duty crew works in the ER with ER staff physicians and nurses and attends training with hospital staff. Tr. at 42-44. ⁽¹¹⁾ The crew members participate in the same hospital orientation, follow the same hospital policies and procedures, wear the same name tags as hospital staff, and "work side by side with us," according to Dr. McClure. Tr. at 46. Dr. McClure described the ambulance medical crews as "an integral part of our emergency room services and easy to access." Tr. at 43. According to Dr. McClure, these individuals are considered and act as "adjunct hospital staff" and do not act as paramedics or ambulance personnel on any other types of flights or for any other corporation apart from YKHC's air ambulance service. Tr. at 50. When an emergency call comes in while the on-duty team is away, a hospital ER nurse may staff an air ambulance with the remaining paramedic, and one or more hospital physicians will accompany the ambulances for complicated cases. Tr. at 39-44. The quality of care provided on the air ambulances is overseen by the same medical staff executive committee as reviews quality for other hospital components, which aggregates the data and may submit it to the hospital governing board. Id.

Asked whether AeroMed was a service of the hospital, Dr. McClure answered:

Yes. It's an absolute service of the hospital. It is an extension of our services, just as the health aides in the villages are an extension of our physician services. The air ambulance service is our mobile critical care unit, and they are extending our physician services out to remote sites and getting those patients and caring for those patients and getting them back to us.

Tr. at 46-47.

It was apparent throughout this proceeding that the personnel actually involved in Native Alaskan health care did not perceive a meaningful distinction between whether AeroMed was a service of YKHC or YK Delta Hospital. See, e.g., Tr. at 28-30. Dr. McClure's testimony was consistent with the image of a single integrated system with multiple entry points but a single identity. CMS argued that this conflation of the tribal health corporation with the elements of its network of services in the minds of Alaska health care providers and officials should not obviate the legal distinction between a facility and the tribal corporation operating it. While this may be true, it is also true that the mere fact that there is a legal distinction between the two entities does not answer the question of whether the services could reasonably be treated as services of the hospital for purposes of 100% FMAP. In the case of IHS hospitals owned and operated by IHS, rather than a tribe or a tribal corporation, there is a legal distinction between the hospital and IHS, but it would take evaluation of a number of different indicia to determine whether any particular service is considered a service of the hospital, and how IHS, hospital, and State officials treat the service is a relevant indicia.

CMS put forward a number of objections to the picture painted by Alaska of an intimate relationship between YK Delta Hospital and the AeroMed air ambulance service as justification for Alaska's interpretation of section 1905(b) to cover the emergency transportation as a facility service. We discuss each of these below. In each case, we consider not whether the objections might have merit in the first instance were CMS to rely on them in formulating a policy about whether or when tribal air ambulance services may be reimbursable at 100% FMAP. Instead, in the present context, we consider whether the objections were such as should have put Alaska on notice that its interpretation was unreasonable, given the CMS policy issuances of which Alaska had notice and the record before us.

B. Ambulance services are within the scope of services which hospitals may and do offer, either themselves or under arrangement.

CMS characterized the issues here (as opposed to those in Arizona and the related cases) as going to the "nature of the service provided, which must be a 'facility service' or a 'service of that facility,'" rather than going to concepts of "mechanics of claims and payments." CMS Br. at 12. Thus, according to CMS, "facility service" must be a "type of service provided by an IHS facility in order to qualify as a service received through the facility." Id. at 13, citing Board decisions in Arizona at 24 and South Dakota at 2. We therefore consider next whether emergency ambulance transportation is a service of a type that may be provided by a facility of the kind at issue here (i.e., a hospital). We look first at whether in fact such services are provided by hospital facilities generally, and in Alaska specifically. We look next at CMS's argument that the structure of its regulations defining inpatient and outpatient services precludes considering emergency ambulance transportation as a service of a hospital.

Notably, although CMS insisted that this air ambulance service was not a service of this hospital, CMS did not deny that emergency transportation may be treated by a hospital as its service or provided under arrangement. CMS acknowledged that, under Medicare, "[c]overed ambulance services can be provided by Medicare-participating providers (institutions such as hospitals) or by Medicare-enrolled (freestanding) suppliers." CMS Supplemental Statement at 7. At the relevant time period, Medicare paid hospitals on a reasonable cost basis for ambulance services that they provided. Id.; see also CMS Ex. 55 (Declaration of Dianne Harvey). Moreover, states have considerable flexibility under Medicaid to cover different services, so long as they qualify as "medical assistance" and are covered in the state plan. CMS did not claim that these were not services covered by the State plan here when provided by a hospital. Thus, CMS did not establish that, even though transportation obviously occurs largely outside the physical confines of the hospital, ambulance services can never be reasonably thought of as offered by a hospital facility. Alaska also pointed to the CMS Medicare Hospital Manual which discusses how claims for "ambulance service furnished by participating hospitals" are to be processed and notes that "hospital ambulance services furnished 'under arrangements' with suppliers" can be covered (if the supplier meets certain quality specifications). Ex. 8, at 3. Hospitals are instructed to bill ambulance services furnished directly by the hospital or under arrangement by it with an ambulance company as "outpatient services" (with one exception not relevant here). ⁽¹²⁾ Id. at 2.

Ms. Weller testified as follows about her understanding of the Medicare provisions on hospital air ambulance services:

A Actually, the Medicare instructions for ambulance service say to bill them as an out-patient hospital service. It is a Part B covered service.

Q Service of the facility?

A Yes

* * *

A. . . . [I]t is considered an out-patient hospital service by Medicare, and those are the instructions in their intermediary manual. It's to bill as an out-patient hospital service.

Tr. at 116-17. This understanding was shared by Ms. Obermiller. Tr. at 155.

The uncontradicted evidence is that hospitals can and do operate their own air ambulance services in Alaska. Ms. Weller noted that, besides the three tribal air ambulance services at issue here, Alaska has three other emergency air ambulance providers. Tr. at 69. Two of these "are operated by hospitals in Anchorage, Providence and Alaska Regional Hospital, and the other one is operated by a consortium of hospitals" in Seattle that keep an air ambulance on site in Juneau. Id.

Ms. Weller testified that the non-tribal hospitals have multiple provider numbers to reflect various payment methodologies, including provider numbers for their transportation services. Tr. at 102-03. The non-tribal hospitals are the owners of the air ambulance certificates for their air ambulance services. Tr. at 71. The non-tribal hospitals submit claims and receive reimbursement in their own name for air ambulance services which they provide to Medicaid-enrolled patients. See Alaska Reply Br. at 3-4; Alaska Exs. 29, 30, 31, 32. The record evidence showed that the tribal hospitals hold none of their own provider numbers (including those for inpatient and outpatient services, as well as air ambulance services) and none of the certificates for any services they offer; and that all Medicaid claiming for tribal hospital services is done by the parent tribal health corporation. See, e.g., Tr. at 74. Yet, it was undisputed that the tribal hospitals offer most of the same services as non-tribal hospitals. Therefore, while we agree with CMS that the activities of YKHC, for example, cannot automatically be attributed to YK Delta Hospital, we do not agree that the fact that YKHC holds the provider number or certificate for AeroMed or submits claims in the name of AeroMed alone answers the factual question of whether AeroMed services are offered as a service of YK Delta Hospital. We must consider the full circumstances of the relationships involved to make this determination.

Alaska provided uncontradicted testimony from Gwen Obermiller ⁽¹³⁾ about the air ambulance service of Providence Hospital, which operates under the name LifeGuard, as an example of the way hospitals in Alaska provide such services. See Tr. at 126-131. It was not disputed that air ambulance services are treated as services offered by Providence hospital. Yet, in many ways, the relationship of LifeGuard with Providence Hospital is strikingly parallel to that of AeroMed and YK Delta Hospital. For example, Providence Hospital contracted with a charter company which provided the aircraft, pilots, and aviation services "because Providence did not operate an aircraft." Tr. at 130. LifeGuard was staffed by nurses who had all the benefits of nurses employed by Providence Hospital even though they were in a separate program; LifeGuard's medical control physicians were actually Providence ER physicians on contract for whom this duty was a "special supplement;" LifeGuard had a communication center with operators to take the calls. Tr. at 126-27. The medical crew members wore the same uniforms and nametags as the hospital employees; received significant training with them at the hospital; and, when not out on a run, would help out in the ER or intensive care units in addition to the normal hospital personnel, thus keeping up their skills. Tr. at 126-129. The hospital physician was responsible for quality control and policies and procedures. Tr. at 129.

The only significant difference that appears from this description is that AeroMed's medical crew is employed by the tribal organization not the hospital. But the evidence at the hearing established that all staff working in the hospital are also employees of the tribal organization, not the hospital itself. Tr. at 41-42. The ER physicians thus are employees of the tribal organization, just as the medical crew of the air ambulance service are employees of the tribal corporation. The hospital physicians at YK Delta Regional exercise medical control over the care of patients transported by AeroMed air ambulances and similar quality control over the functioning of the air ambulance services, as do the Providence Hospital physicians over LifeGuard's service delivery. The medical crews when not actually out on runs play similar adjunct roles to hospital staff and benefit from similar training and practice experience in YK Delta Hospital as in Providence Hospital.

We conclude that the facts concerning the relationship of AeroMed to YK Delta Hospital could reasonably justify Alaska in concluding that AeroMed was a hospital air ambulance service. Thus, it was reasonable for Alaska to interpret the air ambulance service as one offered by the hospital and hence to consider the costs to be those of a facility service.CMS argued that its May 1997 Memorandum provided notice that the only facility services, apart from rural health clinics, that may be reimbursed at 100% FMAP are those which are "referred to" in 42 C.F.R. � 440.10 (inpatient hospital services) or 42 C.F.R. � 440.20 (outpatient hospital services). CMS Br. at 13. On the other hand, transportation services, CMS pointed out, are defined in a different regulation at 42 C.F.R. � 440.170. CMS Br. at 18-19. We find that the existence of a separate regulation defining transportation services, however, does not in itself serve to establish that emergency ambulance transportation may never be a service of a hospital or other facility. First, there are other compelling reasons to believe otherwise, as we have discussed. Second, we do not read the May 1997 Memorandum as requiring so constrained a reading.

While the May 1997 Memorandum cited specifically to only the three regulations listed above, we believe these citations are best read as examples of the regulations governing the scope of services that may be provided by particular categories of IHS facilities. Congress clearly intended to fund other categories of facilities operated by the IHS, such as long-term care facilities, and CMS has also recognized, for example, federally qualified health clinics, each of which are governed by other regulations.

Inpatient and outpatient services, as defined in the cited regulations, may subsume many other services defined in separate regulations where those services are offered to inpatients or outpatients by a hospital. Thus, outpatient services are "preventive, diagnostic, therapeutic, rehabilitative, or palliative services that -- (1) are furnished to outpatients; (2) are furnished by or under the direction of a physician or dentist; and (3) are furnished by an institution" that meets the requirements for a hospital. 42 C.F.R. � 440.20(a). An outpatient is a patient "of an organized medical facility, or distinct part of that facility who is expected by the facility to receive and who does receive professional services for less than a 24-hour period regardless of the hour of admission, whether or not a bed is used, or whether or not the patient remains in the facility past midnight." 42 C.F.R. � 440.2(a). ⁽¹⁴⁾

Numerous services which may meet the definitions of inpatient or outpatient hospital services are also themselves defined separately, such as laboratory and x-ray services, physicians' services, pharmacy services, and diagnostic services. 42 C.F.R. �� 440.30, 440.50, 440.120, and 440.130. Transportation is listed with "other medical care or remedial care" and is defined as "expenses for transportation and other related travel expenses determined to be necessary by the agency to secure medical examinations and treatment for a recipient." 42 C.F.R. � 440.170. CMS did not deny that laboratory, physician, pharmacy and diagnostic services are of a kind that may constitute inpatient or outpatient services when furnished under care of a physician to patients of a hospital, even though these services are also separately defined. We thus conclude that the separate definition of transportation services did not suffice to put Alaska on notice that emergency ambulance services could not qualify as facility services for these purposes.

CMS also noted that states are permitted to limit outpatient services and argued that Alaska had chosen to exclude transportation services and off-site drugs and medical supplies from outpatient services in its state plan. CMS Br. at 18-19. The portion of the state plan on which CMS relies does not support this assertion. It states that reimbursement for IHS and tribal facilities will be as follows: inpatient hospital services are paid at the most current IHS per diem rate for inpatient services; outpatient hospital services are paid at the most current IHS per visit rate for outpatient services; and clinic services are also paid at the most current IHS per visit rate for outpatient services and include the services of listed practitioners as well as on-site laboratory, x-rays, drug and medical supplies that are incidental to the service provided to the patient. CMS Ex. 15, at 2. A 1998 letter from Alaska to CMS concerning this state plan amendment makes explicit what appears from the language, i.e., that the quoted attachment serves only to describe which services are considered covered by the IHS published rates while "many other Medicaid covered services are provided by IHS and tribal health facilities that are reimbursed in the same manner as non-IHS/tribal health providers . . . ." CMS Ex. 16, at 1. Thus, the omission of a reference to ambulance services from this attachment, far from implying that Alaska excluded ambulance services from those which tribal hospital facilities could provide to their inpatients and outpatients, merely establishes that ambulance service costs are not among those considered to be reimbursed by the payment of the IHS rate for a hospital stay or outpatient visit and would be subject to reimbursement as for any other provider. ⁽¹⁵⁾

Alaska explained that it decided to reimburse emergency air ambulance costs separately from the IHS published rates because they are an infrequent but very costly service and are much more heavily used in Alaska because of its geography compared to other states. Alaska Ex. 21, at 2-3 (Weller Second Declaration). ⁽¹⁶⁾

Thus, Alaska concluded that the large and disproportionate effect of use of air ambulances on the costs of service would make it unfair to treat air ambulance costs as included in the standard rate. Alaska made the same decision with respect to its own standard reimbursement rate for hospitals that do not elect the IHS published rate methodology, and reimburses those emergency air ambulance costs on the same basis as it reimbursed YK Delta costs for AeroMed. Id. at 3.

Alaska pointed to a Medicare cost report for fiscal year 1999 for YK Delta Hospital as further evidence that the air ambulance services were offered by the hospital. Alaska Ex. 9. The report shows a line item for ambulance services reflecting costs of $4,492,543, including salaries. Id. at 6. A series of adjustments were then made that included backing out that amount for AeroMed ambulance costs. Id. at 7, 10. ⁽¹⁷⁾

Alaska argued that the inclusion in the report of costs for AeroMed ambulance services confirms that these costs were recognized as costs of the hospital. Alaska Reply Br. at 8. Further, Alaska asserted that the costs were backed out of the totals because they were not to be reimbursed under the reasonable cost methodology (further evidencing that the hospital ambulance costs were not included as part of the IHS published rate reimbursement). Id. at 8-9, citing Alaska Ex. 21, at 7-8 (Weller Second Declaration). Thus, the tribal hospital was not claiming ambulance services via this cost report, ⁽¹⁸⁾ according to Alaska, but was indeed incurring and reporting costs for providing air ambulance services, which were subject to reimbursement under other methodologies. Id.

The record does not include sufficient information to reach any final conclusions about this isolated cost report. On its face, and given Alaska's explanation, however, the report does provide further reason to believe that Alaska could reasonably conclude that the air ambulance services were provided by the tribal hospitals, not merely by the tribal health corporations.

C. That parent tribal corporations (rather than the tribal hospitals themselves) submitted the bills as pay-to providers does not demonstrate that the services were not billed by the facilities, because the same billing method was used for all services of the tribal hospitals.

CMS argued that the billing practices of AeroMed demonstrated that its services were not being offered by YK Delta Hospital. CMS premised its description of the billing as beginning with presentation of a bill by the carrier to YKHC and consisting solely of non-medical costs that "involve only the aircraft, pilots, mechanics, and mechanical support services." CMS Br. at 15. CMS contended basically that YKHC was merely serving as a billing agent for F.S. Air Services.

On the first point, CMS argued that in effect an air ambulance contractor (F.S. Air) billed the tribal organization (rather than the hospital) and then the tribal organization (rather than the hospital) filed a claim with the State. Were YK Delta Hospital offering the service under arrangement, according to the logic of CMS's argument, the hospital would be paying the carrier and then billing itself for the service. This argument would have been more persuasive if YK Delta Hospital in fact billed its other services directly to Medicaid, while the air ambulance service was billed instead by YKHC. The facts proved at the hearing did not support this, however.

As noted previously, the record shows that the tribal hospitals are not merely operated by the tribal organizations, but that the tribal organizations (e.g., YKHC) hold all the Medicaid provider numbers for the hospital and submit all the bills for the hospital's services to Medicaid. The tribal hospitals never bill or receive reimbursement directly for any of the services which they offer. Tr. at 111 (Weller). CMS did not dispute this or provide any contrary evidence about the billing practices for YK Delta Hospital services.

The tribal organizations also hold the Medicaid provider numbers for all the physicians, just as they do for the air ambulance services. The record does not disclose any difference in the billing practices of YKHC for YK Delta Hospital's emergency room physician services and for the air ambulance services at issue. Yet, CMS specifically named, as an example of facility services that may permissibly be provided under arrangement and reimbursable at 100% FMAP, "an emergency room physician, who provides care to the facility's patients, which the facility thereby offers as part of its services." CMS Br. at 14.

CMS characterized Alaska as arguing that no distinction exists between YK Delta Hospital and YKHC simply because YKHC was the "pay to" provider for all services operated by YKHC. CMS Post-Hearing Br. 6. To rebut this argument, CMS pointed out that "all claims can and must be attributable to a servicing provider," and that Alaska Medicaid can "readily identify whether a claim is filed by a clinic, a hospital, or a physician associated with a particular IHS facility" because of the particular provider number assigned to each. Id. This oversimplifies Alaska's position. Alaska did not claim that it is impossible to distinguish among services offered by YKHC, and in fact agreed that each service has a specific provider number that identifies the nature of the service and the appropriate billing methodology. See, e.g., Tr. at 101-02. Thus, a number beginning TR would involve a provider of transportation, AA would mean an air ambulance provider, MD would mean a physician, IP would mean an inpatient provider, and so forth. Id. The testimony indicated, however, that the provider number would not identify where the service was provided or what the association of the provider was with a particular facility. Tr. at 112-13. Alaska contended that an air ambulance service in the State may be freestanding or may be operated as a service of a hospital (which can hold AA or TR provider numbers in addition to inpatient, outpatient or other provider numbers). ⁽¹⁹⁾ The existence of an AA provider number for AeroMed held by YKHC thus provides no information about whether the air ambulance service is a freestanding service of YKHC or is "offered by" YKHC's hospital as a service of the hospital.

We therefore cannot conclude that Alaska should have known that AeroMed air ambulance services were not being offered as a service of YK Delta Regional Hospital simply because the Medicaid bills for those services were submitted by YKHC rather YK Delta Hospital directly. The billing methodology was equally consistent with the provision of air ambulance services by the hospital itself or under arrangement with AeroMed as an entity of YKHC.

As for CMS's second point (that the bill showed that YKHC was merely acting as an agent passing through a claim for purely non-medical costs of F.S. Air Ambulance), we find that the facts do not support this characterization. The evidence at the hearing was conclusive that the methodology of using a lift-off rate or "loaded patient mile" to bill Medicaid for air ambulance services was the industry norm; and that those rates included medical costs, such as the medical crew, the medical supplies and the physician control. Tr. at 132-135, 141-44 (Obermiller); see also Tr. at 78-80 (Weller). A sample bill for a Providence Hospital air ambulance claim uses the same methodology as that shown on an AeroMed bill. Compare Alaska Ex. 30 with CMS Ex. 18; see Tr. at 133-36.

CMS's questioning of whether medical costs were included in the billed rate appeared to derive from Mr. Covello, the CMS auditor who reviewed the AeroMed invoice provided to him by Alaska. See CMS Ex. 11 (Declaration of Jack Covello); Tr. at 177-78. He relied on the face of the invoice to conclude that it was for air expenditures based on a lift-off charge and mileage expenses but "did not include any medical expenses," as well as for his conclusion that the costs were "outside of the facility and were not IHS facility costs." Id. at 3. At the hearing, CMS's own witness, ⁽²⁰⁾ Mr. Armbrust from the IHS, agreed that all costs, including medical costs, of air ambulance services are billed in the form of lift-off and mileage amounts. Tr. at 244.

Mr. Covello's misunderstanding of the methodology for billing associated medical costs as part of lift-off and mileage rates appeared to lead in part to his conclusion that the claims were not eligible for the 100% FMAP rate, which triggered the disallowance here. He was persuaded that no medical expenses were involved because the AeroMed invoice "doesn't include any medical that one can readily see and nobody said that it did at the time I was looking at it," so that he concluded that the costs involved only transportation. Tr. at 191. From this, he reasoned as follows:

[W]hether it's air transportation or nonemergency, that, from my experience, it's not allowable at 100 percent, period. And the reason that I would assume that, based on my profession, is that any time the federal government allows the state anything over and above the normal FMAP rate, it's spelled out in the C.F.R.; and, for example, MMIS development costs are at 90 percent. That's spelled out. The regulations are silent when it comes to transportation; therefore, prior to this review, I'd been aware that this is a cost that we wouldn't pay 100 percent on.

Tr. at 191; see also Tr. at 205-06. When specifically asked about the statutory provision for 100% FMAP for services received through IHS facilities, he went on to state that:

Transportation in my mind is a service that's performed outside of the medical facility, and it deals with taking a person from Point A to Point B, and it doesn't necessarily help the individual medically when you move them from one spot to another to get medical attention. And that's been the general thought among my colleagues when we talk in terms of transportation.

Tr. at 194; see also Tr. at 210-11 ("If you perform an operation, you do something like that inside the facility. If you transport somebody it's outside the facility."). He further testified that it would not matter to his analysis whether the claims were billed through the IHS system, because he did not "believe that transportation expenses are reimbursable at anything other than the ordinary state MAP rate" because they are "technically nonmedical in nature." Tr. at 204.

CMS's position that the tribal health organization received payment from Medicaid and then in turn paid the carrier also appeared to rest on Mr. Covello's understanding, which he gleaned from discussions with his contact at Alaska Medicaid and from the fact that --

the tribal organization didn't move the patient. AeroMed moved the patient. AeroMed must be getting paid somewhere along the way. They're not a charity....

Tr. at 195.

Mr. Covello, while plainly sincere, did not appear well-informed about the nature of the air ambulance services involved here, their role in Alaska Native health care, or the structuring of the various tribal services and facilities in Alaska. Furthermore, he frankly explained his original conclusion that the costs involved were not eligible for 100% FMAP as founded on the absence of a specific regulation on transportation services and a "general thought" that transportation occurs outside a facility, rather than by reference to any official interpretation of the governing statutory provision based on which CMS disallowed these claims. Based on the observation of his testimony, we do not put significant weight on his factual assertions about the relevance of the billing methodology here. Nor do we find his legal reasoning persuasive, since CMS has previously disavowed an interpretation that services eligible for 100% FMAP must be provided "in" the IHS facility. Arizona at 20. ⁽²¹⁾

D. The terms of the "IHS contract" do not prove that AeroMed was not a service offered by YK Delta Hospital.

In its post-hearing brief, CMS argued that AeroMed was an entity based in Anchorage, Alaska, rather than Bethel where YK Delta Hospital was located, and that YK Delta Hospital had no relationship with it other than "to provide occasional medical support." CMS Post-Hearing Br. at 8. CMS viewed the contract between ANTHC ⁽²²⁾ and AeroMed (the so-called "IHS contract") as preempting the operational terms of the YKHC - F.S. Air contract (by which YKHC obtained the name AeroMed and the use of F.S. Air pilots and planes to operate the air ambulance services). Id. at 9-10, n.6.; Exs. 17, 66. CMS stated that all medical services, as well as dispatch of aircraft, were "controlled in Anchorage," and in fact that AeroMed contracted its "medical control function to physicians at a private hospital in Anchorage, the Alaska Regional Hospital." Id. at 9-10, nn.5,6. The evidence to which CMS cited, however, does not support these sweeping assertions and bears a different interpretation.

The scope of work covered in the IHS contract is limited to "ANTHC beneficiaries" and those federal agency personnel covered by IHS's pre-existing partnership agreement. Ex. 66, at 16. For those patients, the request for air ambulance services must originate with appropriate staff at ANMC (the IHS-equivalent hospital in Anchorage). Id. The patients covered by the IHS contract may be brought to ANMC from facilities of tribal health corporations other than YKHC (or from locations covered by the federal partnership). Nothing in the IHS contract purports to alter the way AeroMed may provide services to patients that it serves within the YKHC network. Ex. 66.

Furthermore, under the IHS contract, AeroMed, not ANTHC or ANMC (or Alaska Regional Hospital), undertakes to provide the program medical director, the medical control physician, the clinical transport team, and all needed medical equipment, in addition to the actual transport. Id. at 16-17. There was no testimony that established that the medical director and the medical control physician responsible for AeroMed's services when provided under the IHS contract were different than those responsible for AeroMed's air ambulance services generally, whose relationship to both YKHC and YK Delta Hospital was discussed above. CMS's claim that AeroMed contracted its medical control function to Alaska Regional Hospital physicians is based solely on a statement of Dr. McClure in response to the question of where central AeroMed dispatch was located. She said:

It is their offices at Anchorage International [Airport]. Actually, dispatch may be located -- but I'm not -- the dispatch center was going to be transferred to Alaska Regional where their medical control that we contract for is located.

On its face, this statement appears to refer to some planned or recent development, rather than to the arrangements in place at the relevant time. CMS presented no further elaboration, follow-up questioning, or other testimony to clarify the rather unclear antecedents (of "their" and "we"), the nature or scope of any contracting involved beyond mere dispatching services, or the kind of medical control which was involved (which could mean, for example, obtaining prior authorizations rather than taking over medical direction of the actual service provision). Therefore, we do not find this statement alone sufficient to support CMS's assertion, especially in the face of all the contrary testimony and evidence about the operation of the AeroMed air ambulance services which we discussed earlier.

Dr. McClure's testimony was clear that AeroMed used a single dispatch service in Anchorage to dispatch planes from two airports, one in Bethel (which responded to bring patients into YK Delta Hospital) and the other in Anchorage (which would service the patients to be brought to ANMC from YK Delta, other regional hospitals, or the federal agencies "piggybacking" on the IHS contract). ⁽²³⁾ Tr. at 50-54. CMS did not identify, however, any requirement that, when a hospital provides air ambulance services either itself or under arrangement with a contractor, the ambulance services dispatcher must be located on the hospital premises. Dr. McClure also testified that the dispatchers in Anchorage were accessed by a four-digit direct line from the YK Delta Regional Hospital emergency room. Tr. at 53.

It was undisputed that, when the aircraft based in Bethel are out on runs, the Anchorage-based AeroMed planes would be dispatched to bring patients from YKHC clinics to subregional centers or into YK Delta Hospital. Dr. McClure described that situation as follows:

[W]e've had to occasionally use our Anchorage-based AeroMedical Services to fly out to a subregional clinic and then we do whatever we can to get our patient sent to that subregional clinic from the village in the most medically appropriate way that we can.

Tr. at 57. She explained that it would be "almost impossible to fly from a village to Anchorage because the planes that can actually land in a village do not have the capacity, fuel capacity, to fly from a village to Anchorage." Tr. at 58. She agreed that "once the patient is taken and reevaluated in the ER at YK Delta, they are sometimes flown to ANMC in Anchorage, if necessary." Id. Rather than undercutting the relationship of YK Delta Hospital to AeroMed, this flexibility in using AeroMed's Anchorage assets to meet the needs of patients coming into YK Delta Hospital or from YK Delta Hospital on to ANMC can also be viewed as reinforcing the view that all the patients flown on AeroMed planes were under medical control from physicians at YK Delta Hospital and were, in some sense, receiving services offered by that hospital.

Thus, Alaska's perspective that AeroMed was an air ambulance service whose services were offered by YK Delta Hospital to patients in need of emergency transport is supported by the record. Even where the patient's transport is requested by or terminates at another hospital, AeroMed is fully responsible under the IHS contract for "total patient care" from the point that "a medical evacuation is authorized by the requesting physician of ANMC" until the patient is accepted at the receiving facility. CMS Ex. 66, at 18. It is reasonable in those cases to view the patients as under the care of the medical personnel associated with YK Delta Hospital during such transports.

Furthermore, Ms. Weller testified that, when AeroMed provides emergency transportation between ANMC in Anchorage and another tribal regional hospital (that is, other than YK Delta Hospital itself), the billing process is the same as when AeroMed air ambulance carries YK Delta Hospital's own patients to or from that hospital. Tr. at 98-99. When asked whether YKHC would bill for a service rendered "to another tribal health corporation" in such cases, Ms. Weller responded that "[t]hey're rendering the service to the patient." Tr. at 99. Thus, Alaska's Medicaid program viewed the patient as receiving the medical transportation service from YKHC/AeroMed while under its care. To the extent that our conclusion above is correct that YK Delta Hospital could reasonably be viewed as offering the AeroMed air ambulance service, the use of the same billing process for all patients being transported by AeroMed could further undergird the reasonableness of Alaska's view that YK Delta Hospital could offer this service to patients and that the patients it transported could be considered YK Delta's patients while under its care in transport, even if their transport did not originate or terminate at YK Delta Hospital in Bethel.

We find the evidence offered by CMS regarding the IHS contract inadequate to demonstrate that Alaska should have known that AeroMed's air ambulance services were not received through an IHS facility. This is not to say that Alaska's perspective is the only or the best characterization of the complicated legal relationships, nor does it preclude CMS from delineating or limiting in the future which, if any, tribal ambulance services may be considered to be offered by a tribal hospital. Nevertheless, we conclude that, as of the time period involved here, these services could reasonably be so considered.

E. AeroMed was not shown to be merely a contract care provider for ANTHC.

CMS suggested that the best analogy to consider in analyzing whether payments to AeroMed are eligible for 100% FMAP is the way air ambulance services were previously provided by IHS when it was directly responsible for Native Alaskan health care. Specifically, CMS asserted that IHS provided air ambulance services by vendor contracts, usually with the private air ambulance service of Providence Hospital. CMS Supplemental Statement at 4; CMS Ex. 52, at 2 (Armbrust Declaration). CMS provided testimony that the "IHS contract" discussed earlier between ANTHC and AeroMed was structured very much like previous contracts between IHS and LifeGuard. Tr. at 235 (Armbrust). The arrangements were "similar" to those in the IHS contract care program, in that LifeGuard was required to bill any other resource available to the patient before the IHS would pay directly. Tr. at 221. CMS concluded that the arrangement between the tribal health corporation and its air ambulance service amounted to contract care services, and offered testimony that one tribal organization may act as a contract care provider for another. Tr. at 235-36.

CMS's conclusion that AeroMed is not an IHS facility service does not follow from this evidence, however. Under the prior system, IHS obtained transportation services not only from outside any particular IHS hospital or clinic but from outside the IHS system altogether. There is no question that, as our prior decisions have held, CMS policy transmitted to the states reasonably interpreted section 1905(b) to preclude the 100% FMAP rate for services provided and billed by private providers under the contract care program. Thus, it was irrelevant then whether Providence Hospital's LifeGuard air ambulance was a facility service or not, since it was plainly neither offered nor billed by any IHS facility as a service of that facility. ⁽²⁴⁾

Here, by contrast, the air ambulance services were indisputably provided from within the tribal system and were allegedly also offered as services of a hospital facility, in this case a tribal hospital operated by the tribal organization under a 638 agreement. Mr. Armbrust testified that previously the IHS had distinguished directly-provided services (provided by federal employees at an IHS-owned or -leased facility) and indirectly- provided services (by non-IHS providers, generally through the contract care program). Tr. at 236. He testified that presently "there is a third component," which is the "tribally-operated programs that can be either programs that were previously directly operated by the [IHS] or previously provided indirectly through the Contract Health program or a combination thereof." Id. Furthermore, he acknowledged that the self-governance provisions of the ISDEA specifically give tribes the authority to offer a different mix of services than IHS did, so they are "able to redesign programs and provide programs of their priority and in the manner that they choose to provide, as opposed to what might have been provided by the government." Tr. at 137. He was then asked whether "if they choose to do that, would you consider it to be a service of the tribally-operated facility?"; to which, he answered as follows: "If it was based in the facility, yes, ma'am." Id.

The confusion here arises from CMS's apparent assumption that, if ANTHC is arranging to obtain ambulance services from AeroMed (as IHS did from LifeGuard) through a mechanism similar to contract care, then AeroMed must stand in the shoes of LifeGuard in relation to its claims to Medicaid for providing services to Native Alaskan patients. The conclusion does not necessarily follow from the premise. If, for the reasons we have discussed above, AeroMed can reasonably be seen as a service of a tribal hospital (i.e., an IHS facility service), then the Native Alaskan patients which it transports can reasonably be seen as receiving its services through that tribal hospital during their medical care in transport. ANTHC may pay for those services in the case of patients that are brought to ANMC under the IHS contract with contract care funds where the patient is not Medicaid-enrolled. It is undisputed that IHS or tribal facilities may themselves serve as contract care providers to other IHS or tribal organizations. Where the patient is Medicaid-enrolled, AeroMed must bill Medicaid, not ANTHC, because the contract care program is by law the payor of last resort, after Medicaid. Tr. at 138-39, 235-36. In that situation, based on the analysis in the rest of this decision, AeroMed is a tribal facility and submits its claims to Medicaid on that basis, unlike Providence LifeGuard, which is a private provider. Thus, AeroMed's role as a contract care provider in relation to ANTHC under the IHS contract does not preclude AeroMed from billing Medicaid as a tribal facility for the patients it serves.

3. CMS may not now enforce retroactively an interpretation that emergency transportation is never a "facility service," especially since Alaska relied on CMS's prior interpretation and did not take steps it otherwise might have taken to ensure that funding would be available for these critical services.

As explained above, this Board has previously found that a grantee was not "adversely affected" by the lack of timely notice of an agency interpretation merely because claimed costs were disallowed based on that interpretation, if the grantee was in no worse position and would not have done things differently even if it had previously known that the costs would be disallowed. This analysis (sometimes couched in terms of lack of detrimental reliance on the grantee's alternative interpretation) was prompted by the requirement in the federal Administrative Procedure Act, discussed above, that interpretative rules must be published in the Federal Register and that a person may not be adversely affected by such a rule not so published, except to the extent the person has actual and timely notice. 5 U.S.C. � 552(a)(1). The analysis also reflects basic principles of fundamental fairness. We thus questioned Alaska in this case about whether it in fact had relied on its interpretation to its detriment, particularly since its claims for some of the costs were not submitted at the time the costs were incurred. We have now determined that the prior cases are distinguishable, for two reasons.

First, Alaska showed that it had relied on a written interpretation issued by a CMS official, after a good faith effort to clarify that it was still good policy. Second, denying 100% FMAP for the disputed costs would not simply put Alaska in the same situation it would have been in had it known that CMS would take the position that its prior interpretation was superseded.

In this regard, as with notice, Alaska stands on a very different footing from the States involved in our prior decisions on section 1905(b) of the Act. Those States had claimed the costs of contract care referrals to non-IHS providers at the normal FMAP rates for many years, evidencing a clear understanding that the costs were not eligible for the higher rate. Several years after CMS issued the May 1997 Memorandum, those States essentially treated that memorandum as changing the groundrules to expand eligibility for 100% FMAP to allow them to reclassify these costs as eligible. We found that those States made no effort to verify with CMS that their new expansive interpretation, extracted from a strained misreading of the Memorandum, was correct. Furthermore, none of the States established that any relevant change had occurred in the way the services were provided, but rather focused only on the supposedly liberalized CMS policy.

By contrast, Alaska provided evidence that the facts concerning how air ambulance services were being provided changed in a significant way. Under the prior IHS system, air ambulance services were obtained from a private provider. Over the next few years, the Native Alaskan health system was turned over from IHS to the tribes, effective for most IHS facilities on October 1, 1994, and fully completed in 1997. Alaska Ex. 21, at 4. At some point during that transition, the air ambulance service provider under the IHS contract was changed from a private provider to a tribal provider, associated with a tribal hospital rather than a private hospital. ⁽²⁵⁾ We have held above that Alaska could reasonably have concluded that the provision of air ambulance services by an IHS facility provider qualified for the 100% FMAP, whereas the provision of such services by a non-IHS contract care provider clearly would not. Thus, this factual change was legally important.

Furthermore, it was not disputed that, while IHS was running the health care system in Alaska, IHS was unable to provide documentation for its services in a form useable by Medicaid and therefore Alaska simply paid IHS a monthly payment based on a "summary bill" totaling patient encounters. Tr. at 120. The tribes began submitting detailed claims for services only between 1996 and 1998. Alaska thus had good reasons to revisit the claiming methodology for air ambulance costs for Native Alaskans, during the time frame in 1997-1999, entirely apart from the issuance of the May 1997 Memorandum by CMS. We do not see evidence that Alaska, as appeared to be the case with the other States, actually "knew" for years that CMS interpreted the statute to preclude the higher rate for services identical in nature to those now being reclaimed by the States.

Nor, as mentioned in the notice discussion above, did Alaska present a mere after-the-fact justification for applying the higher rate or appear to have avoided ascertaining what CMS's interpretation was. On the contrary, the record reflects that Alaska officials were already making inquiries in 1997 both to other states and to CMS about this issue. Alaska Ex. 21, at 10. In so doing, Alaska became aware in 1997 of the 1993 Regional Office Letter expressly approving the higher rate for emergency transportation. We thus do not think that the mere fact that the costs were originally claimed at the normal rate, in this instance reflects any historical claiming pattern suggesting actual knowledge of any contrary interpretation.

Furthermore, Alaska should not be penalized simply because, rather than immediately claim at the higher rate after learning of the 1993 Regional Office Letter, Ms. Weller contacted CMS Central Office to verify Alaska's understanding that this approval continued in effect. ⁽²⁶⁾ Ms. Weller stated that Ms. Wanetah Pindar confirmed that 100% FMAP was available for tribal emergency ambulance services. Id. ⁽²⁷⁾ In this context, Alaska's decision ultimately to claim the higher rate where it initially did not do so does not undermine the evidence that Alaska ultimately relied on a CMS interpretation that had never been disavowed.

Lacking notice that CMS had changed its policy to bar emergency transportation from qualifying for the 100% FAMP, Alaska did not take steps it otherwise might have taken to ensure that funding would be available for these critical services. Alaska Response to Board Questions at 11. Among other things, Alaska pointed to State law which required it to reduce certain optional services in a priority order. Id., citing Alaska Statutes 47.07.035. Ms. Weller stated that, had it known that CMS would deny 100% FMAP for its air ambulance claims, Alaska would have made different reductions to provide State funding for those services in accordance with the statutory priorities. Alaska Ex. 21, at 11. In addition, Alaska pointed out that it could have chosen to include air ambulance costs in the IHS hospital payment rates, thus effectively eliminating separate claiming for those costs while raising the payment rate for services CMS acknowledged were eligible for the 100% FMAP. Alaska Response to Board Questions at 12; Alaska Ex. 21, at 11-12. CMS did not specifically deny that at least some of the costs might have been properly included in the all-inclusive rate. We therefore conclude, based on the record before us, that this case is distinguishable from cases in which the lack of timely and adequate notice of an interpretative rule was found not to adversely affect a grantee in a way that would preclude application of the rule.

For all the reasons set out above, we decline to impose retroactively an interpretation of facilities services that precludes eligibility of costs for emergency air ambulance services, including costs of related medical staffing, supplies, and treatment, from qualifying for the 100% rate when offered by a tribal hospital.

Conclusion

For the reasons explained in detail above, we reverse the disallowance in full.

Cecilia Sparks Ford

Donald F. Garrett

Judith A. Ballard
Presiding Board Member

1. The exhibits in this case were numbered consecutively for both sides. We have included the proponent of the exhibit (CMS or Alaska) in our citations to exhibits where useful to assist the reader.

2. The governing law is the Indian Self-Determination and Education Assistance Act, Public Law No. 93-638 (ISDEA).

3. The other two are Bristol Bay Area Health Corporation and Norton Sound Health Corporation. Each of these tribal corporations also operates an air ambulance service, for which it holds the state certificate and the Medicaid provider number, and contracts with a private vendor to supply aircraft and pilots. Each operates a regional hospital which is served by the tribal air ambulance. Ex. 1, at 3-4; Tr. at 68-69.

4. In its post-hearing brief, CMS argued that Alaska had failed to produce any evidence that "the subject matter of these disallowances involves any tribal corporation other than" YKHC, and asserted that remand to allow Alaska to provide documentation was inappropriate. CMS Post-Hearing Br. at 19. CMS contended that evidence about other air ambulance claims would not matter because the same rule about transportation costs would apply and that Alaska had many opportunities to provide any documentation. Id. at 19-20. We agree that it is unnecessary at this point to remand to try to parse out which claims resulted from which tribal corporation's air ambulance services, since it is not disputed that the legal considerations are identical. We do not agree that the disallowance should be upheld on the basis that Alaska did not document its costs. CMS's own auditor testified that Alaska documented that these expenses were emergency air ambulance costs, that he did not dispute that fact, and that Alaska officials gave him a breakout to identify the amounts in question. Tr. at 175, 186. He further testified that he asked Alaska officials whether the sample bill he was shown would be the same as the other documents for the costs at issue and, when told that it would be, instructed them that the single representative document was "sufficient." Tr. at 190.

5. It is not disputed that the services at issue were solely emergency transportation services.

6. The fuller discussions contained in the three cited cases are incorporated herein by reference.

7. The first sentence of the section explains how each state's regular FMAP is calculated. The regular FMAP for Alaska is not at issue.

8. Earlier in the proceedings, CMS emphasized that its understanding was that YKHC, and not YK Delta Hospital, was billed by AeroMed or F.S. Air Service (as YKHC's contractor) and that YKHC then in turn filed a claim with the Medicaid program. CMS Br. at 14. Thus, CMS's original focus was on whether these particular transportation services were or were not in fact offered and billed by a facility. CMS distinguished this situation from that in which a facility provides a service under arrangement and then bills Medicaid "directly for the services it offers, taking sole responsibility for compensating the contractor independently." Id. In the latter situation, such as where an emergency room physician treats patients for a hospital and is paid by the hospital, CMS asserted the services may be considered to be facility services. Id. Thus, CMS originally focused not on the nature of the services, but on how they were billed and paid.

9. We thus find factually unsound CMS's argument that Alaska, like the States in our prior decisions, "did not inquire of CMS whether its re-interpretation of Section 1905(b) was proper," before filing amended claims based upon it. CMS Br. at 23.

10. We discuss the specific language of the May 1997 Memorandum further in relation to its application to the facts here below.

11. The air ambulance team members based in the Anchorage ANMC hospital also work in that ER and intensive care unit and receive training. Tr. at 44.

12. CMS correctly asserted that Medicare's treatment of such costs is not decisive of their treatment under the Medicaid program. CMS Br. at 19. Nevertheless, since CMS relied on the Medicare-based concept of providing services "under arrangement" in its own interpretation of what constitute facility services under section 1905(b), the inclusion of hospital-operated ambulance service in Medicare coverage lends further reasonableness to Alaska's understanding absent clear guidance to the contrary from CMS.

13. Gwen Obermiller worked for the Alaska Medicaid program as tribal health liaison providing technical assistance to the tribal health organizations. Tr. at 123. She was formerly a medevac and ER nurse and had worked as business manager for Providence Hospital, including developing its air ambulance rates. Tr. at 124-25, 129-30.

14. The definitions of "inpatients" and "inpatient hospital services" are analogous. An inpatient is one admitted to a hospital by a physician or dentist to receive room and board as well as professional services for a period anticipated to exceed 24 hours. 42 C.F.R. � 440.2(a). Inpatient hospital services are those "ordinarily furnished in a hospital for the care and treatment of inpatients," under medical direction, and in an institution meeting requirements as a hospital (except mental hospitals which are governed by a separate regulation on inpatient services). 42 C.F.R. � 440.10(a).

15. This fact also contradicts another argument raised in these proceedings by CMS, i.e., that any hospital costs for providing air ambulance services were included in the payment of the IHS rate and reimbursing them in any other way would be duplicative. CMS Supplemental Statement at 6, 10-11. The weight of the record evidence is that air ambulance services were not included in the hospital per diem rates or IHS all-inclusive rates paid to hospitals. CMS originally relied for its claim in part on a declaration from R. Thomas Talbott, Director of the Division of Cost Reporting. CMS Ex. 53 (Talbott Decl.). CMS was unable to produce Mr. Talbott for cross-examination, however, and his declaration was therefore stricken and CMS was permitted to present a substitute witness. Board Summary of Telephone Conference, June 3, 2003. Larry Stevenson, the substitute witness, testified that the ambulance service costs were not a part of the all-inclusive rate paid to YK Delta Hospital, while acknowledging that he had "limited knowledge" of the rules covering costs for hospital ambulance services and none of tribal organizations or air ambulances. Tr. at 258, 261-62, 268, 272. He was not sure why the costs were backed out of the cost report but stated that if they had been included they would have become part of the IHS payment rate. Tr. at 257. Mr. Stevenson did state that if the "service was reimbursable, it would be included in the all-inclusive [i.e., IHS] rate" and "would not be separately reimbursable." Tr. at 271. On cross-examination, however, he acknowledged that he had not dealt with cost reports for IHS facilities and had little familiarity with Medicaid and its reimbursement rules. Tr. at 261, 265, 272-73. We therefore give little weight to his unsupported assertion that the air ambulance costs of YK Delta Hospital would not have been reimbursed separately from the IHS payment rate when they were backed out of the cost report.

16. Ms. Weller also stated, and CMS did not deny, that the scope of services included in the IHS published rate for inpatient and outpatient services is not defined by IHS or CMS in any published form. Alaska Ex. 21, at 2. "For that reason, Alaska submitted (and CMS approved)" the state plan attachment quoted in the text which sets out what services Alaska considers to be reimbursed by payment of the IHS published rate, according to Ms. Weller. Id.

17. CMS stated that it was unable to account for either the reported costs or the significance of their having been backed out of this report, but nevertheless contended that the report showed that the tribal hospital was not claiming ambulance services. CMS Supplemental Statement at 11; CMS Br. at 19.

18. Thus, the cost report shows that the question of whether ambulance costs are being claimed is answered in the negative. Alaska Ex. 9, at 4.

19. Thus, Ms. Weller testified that when Alaska Regional Hospital submits an air ambulance claim, it does so under the hospital's TR number. Tr. at 103.

20. CMS's position on this point after the hearing was less than clear. On the one hand, CMS continued to deny that "ambulance service" is a "medical service," citing Alaska Medicaid regulations defining "medical transportation" as "transportation to and from a source of medical care or between medical facilities." CMS Post-Hearing Br. at 6-7 (emphasis in original). CMS argued that this state law should control over "statements to the contrary made in declarations by state officials," but did not elucidate where such a conflict exists, and we find the regulatory reference consistent with the testimony. The CMS brief concluded, rather cryptically, as follows:

Alaska's argument is also at odds with historical practice. Mr. Armbrust testified that, prior to 1999, IHS paid, under its contract health services program, an ambulance rate that included medical costs. Ex. 52, Tr. 231. The fact that all costs, including associated medical costs, are in one ambulance rate supports the view that it is primarily a transportation service.

Id. at 7 (footnote omitted). Certainly, no one questions that ambulance service is about transporting patients for medical care, as well as providing care and treatment during transport. CMS did not explain, however, why its new position that the single rate for air ambulances does include associated medical costs also supports its view that such services may not be considered as received through tribal hospitals.

21. In addition, some evidence here suggested that transportation of a patient admitted at one hospital to another hospital is considered an inpatient service, even though the patient is obviously not "in" the facility the whole time. CMS Ex. 55, at 2 (Declaration of Dianne Harvey).

22. The Alaska Native Tribal Health Consortium is a tribal consortium formed with representation from the tribal health corporations and operates the tertiary-level hospital, ANMC, in Anchorage, which is the highest level of in-state care in the Alaska Native health care system. See CMS Post-hearing Br. at 11-12. CMS criticized Ms. Weller for referring to ANTHC as a "Compact," rather than a consortium, in her statement for Alaska, since there exists an Alaska Tribal Health Compact which is not an organization but an agreement under the ISDEA by which tribes undertake operation of an IHS function. Id. While Ms. Weller may well have misstated what the acronym "ANTHC" stood for, CMS did not dispute her declaration that ANTHC operated ANMC and that both formed part of the tribal health care network that took over the functions of IHS in Alaska. The weight of the testimony was that the relationship of ANTHC to ANMC was essentially parallel to that of YKHC to YK Delta Regional Hospital, but at the next higher level of centralization and care. Tr. at 59-60.

23. CMS did not question that the claims at issue here involved only Native Alaskan beneficiaries, noting that the 100% rate is claimed based on optional racial information and cross-referencing with IHS records. Tr. at 75-76; CMS Post-Hearing Br. at 16.

24. We have earlier discussed the evidence that the private provider from which IHS obtained the services was, in fact, hospital-based, that Providence Hospital indeed considered its air ambulance service to be a service of the hospital, and that Providence was a private hospital, not an IHS or tribal facility.

25. The record does not disclose the precise date of this change, but it was not disputed that the new arrangement was in place by the time of the earliest claims here, i.e., October 1, 1998.

26. We note that Ms. Weller testified to extensive experience working with Native American health care policy issues, including serving at CMS's request on the work group implementing the 1996 MOU between IHS and CMS concerning 638 facilities and chairing the work group on Indian health policy of the National Association of State Medicaid Directors. Tr. at 66-67.

27. CMS submitted a declaration from Ms. Pinder (now Wilkins) which did not deny Ms. Weller's report. CMS Ex. 62. The declaration adopted a letter from another CMS Central Office official, Richard Chambers, to Nancy Weller as conveying the CMS policy that no transportation costs, emergency or non-emergency, were eligible. Id. at 2; CMS Ex. 64. That letter was dated September 14, 2001, a year after the latest costs involved here were incurred and a year after the first deferral was issued. CMS Ex. 64. The letter specifically apologizes for "any confusion on this issue." Id. If anything, this appears to confirm that, at the time Alaska was wrestling with how to claim these costs, the guidance from CMS was either supportive of the higher rate or at least confusing about CMS's position. Furthermore, while CMS asserted in this letter and during the present litigation that transportation is not a facility service, it is still not clear whether this interpretation would treat all the costs at issue here as ineligible for 100% FMAP. The testimony and briefing here demonstrated that, in referring to transportation costs, CMS officials thought in terms of vehicles and fuel, and did not believe that any medical costs were included. Thus, it is not evident whether CMS's present interpretation that transportation services are not services of a facility also means that medical services and staffing are also ineligible when provided during the course of transporting a patient.