GAB Decision 269
March 31, 1982 Texas Department of Human Resources; Docket No.
81-120-TX-HC Settle, Norval; Teitz, Alexander Ford, Cecilia
The Texas Department of Human Resources appealed a decision by the
Health Care Financing Administration, disallowing $1,487,841 in federal
financial participation claimed under Title XIX of the Social Security
Act. The disallowance was based on the results of a statistical sample,
taken by the State and analyzed by the Agency to determine whether
federal requirements were met for informed consent in Medicaid
sterilization procedures.
During Board proceedings, the State admitted that there was a
sufficient basis for the disallowance with respect to 76 items from the
sample. Transcript (Tr.), p. 4. The State contended, however, that an
Agency memorandum precluded the Agency from taking a disallowance for 3
of the sample items found to be in violation of 45 CFR 205.35. The
State further contended that 29 sample cases, in which the provider who
performed the sterilization did not respond to the State's request for
documentation, should have been dropped from the sample for purposes of
calculating the disallowance.
For the reasons stated below, we sustain the disallowance. Our
decision is based on the parties' submissions and on a hearing held
before the Presiding Board Member on March 4, 1982.
I. General Background
Congress provided in Title XIX that a State is entitled to federal
financial participation (FFP) in the costs of family planning services
meething certain requirements. Section 1903(a)(5). The Secretary has
interpreted family planning to include sterilization services, although
initially there were no specific rules or regulations governing
sterilizations. Congress had provided, however, that all family
planning should be on a voluntary basis. See, e.g., section 1905(a)(
4)(C). After national attention was drawn to the problem of needy
persons coerced to submit to sterilization by threat of loss of welfare
benefits, the Department (then Health, Education and Welfare, now Health
and Human Services) began to develop regulations to ensure informed
consent and voluntariness in federally funded sterilizations. The
history of these proceedings is discussed in detail in previous Board
decisions. See, e.g., Maryland Department of Health and Mental Hygiene,
Decision No. 85, February 28, 1979; California Department of (2) Health
Services, Decision No. 123, October 2, 1980. For purposes of this
decision, these issuances are relevant: a 1973 "moratorium" on FFP
in
certain sterilizations; the court's decision in the case of Relf v.
Weinberger, 372 F. Supp. 1196 (D.D.C. 1974); and regulations at 45 CFR
205.35, published April 18, 1974 (39 FR 13887).
The "moratorium" was a direction to heads of HEW components
administering family planning program to withhold FFP in sterilization
of individuals "under the age of 21" or legally incapable of giving
consent, pending issuance of regulations requiring informed consent in
federally funded sterilizations. The moratorium accompanied
Departmental guidelines for development of informed consent regulations,
and was published with the guidelines as a Federal Register Notice on
August 3, 1973. 38 FR 20930. Regulations issued pursuant to the
guidelines on February 6, 1974 were struck down in the Relf litigation.
The District Court in that case permanently enjoined the use of federal
funds "for the sterilization of any person . . . legally incompetent
under the applicable state laws to give informed and binding consent . .
. ." 372 F.Supp. at 1204. The District Court further found the February
6 rules to be defective because they authorized federal funds without
regarding that legally competent persons be advised that their federal
benefits could not be terminated by reason of a decision not to be
sterilized and without requiring that such advice "appear prominently at
the top of the consent document . . . ." 372 F. Supp. at 1205.
The April 18, 1974 regulations were published to replace those struck
down in Relf. Section 205.35 of 45 CFR contained requirements for Title
XIX state plans, including that no nonemergency sterilization could be
performed unless "legally effective" consent was obtained. In addition,
section 205.35 provided that no nontherapeutic sterilization could be
performed sooner than 72 hours following the giving of consent.
Further, the regulation defined informed consent, setting out the
basic elements which must be present, and provided for two possible
methods of documentation: either (1) a written document "detailing all
of the basic elements" or (2) a "short form written document indicating
that the basic elements of informed consent have been presented orally
to the patient." Paragraph 205.35(a)(2).
Each consent document had to --
. . . display the following legend printed prominently at the top:
NOTICE: Your decision at any time not to be sterilized will not
result in the withdrawal or (3) withholding of any benefits provided by
programs or projects.
Paragraph 205.35(a)(2)
This notice was derived from the court's opinion in the Relf case.
Although most regulations requiring state plan provisions also
contain a specific prohibition on FFP in payments violating the
provisions, section 205.35 does not address the availability of FFP in
sterilizations.
The Texas State Medicaid plan provided, effective July 1, 1974, that
"requirements of 45 CFR 205.35(a) are met . . . which include those
related to: (1) Voluntary request, legally effective informed consent,
time limits . . ., and written consent documents; . . . ."
II. Case Background
The HEW Audit Agency performed a review to evaluate the effectiveness
of the State's methods used to ensure that nontherapeutic sterilizations
under Title XIX were provided to eligible recipients "within the
parameters of program restraints" and to determine the adequacy of
program surveillance by the State. Audit Report ACN 06-80206, p. 4;
Joint Appeal File (JAF), p. 27. The auditors found that the State had
allowed its fiscal agent to process and pay sterilization claims which
did not meet federal requirements. The auditors attributed the
deficiencies to the State's "total reliance on the providers and/or the
fiscal agent to protect the rights of Title XIX patients." Audit Report,
p. 5; JAF, p. 28. Although the auditors did not recommend disallowance
of a specific amount of costs claimed for improper sterilizations, the
auditors recommended that the State review certain claims and make
appropriate adjustment for those which were not eligible for FFP.
In response to the audit, the State acknowledged that claims had
probably been paid in some instances where there was less than fully
informed consent by the patient, that documentation of informed consent
was inadequate in some instances, and that in certain instances the
72-hour waiting period probably was not observed. JAF, p. 52. The
State explained that it had established a procedure to require providers
to include a copy of the consent document when billing for
reimbursement. Regarding the audit recommendation that a financial
adjustment for improper claims be made, the State proposed to "review a
statistically valid sample of all family planning sterilization claims
for the presence and adequacy of an informed consent document back to
April 18, 1974; . . . ." JAP, p. 52. The State also agreed that it
would make an adjustment for claims paid for patients sterilized when
under the age of 21. (4) Although the letter proposing that the State
would sample sterilization claims was dated March 28, 1977, the actual
sampling was delayed, apparently due to the State's conversion to a
computerized data system. JAF, p. 63. Following discussions with
Agency regional staff, however, the State agreed to some target dates
for the sampling. JAF, p. 64. A statistical methodology was developed
which was acceptable to both parties. /1/ A representative sample of
292 paid sterilization claims was drawn from the universe of such claims
for the period January 1973 through December 31, 1976. Since, during
this time period, the sterilization consent forms remained in the
possession of the physicians performing for the sample sterilizations by
sending them a written request for documentation. Follow-up letters
were sent to physicians who did not respond to the first request.
By letter dated January 3, 1982, the State reported on the results of
its survey. The State divided the sample claims into the following
categories:
- Services performed before regulations became effective; consent
form not required.
- Therapeutic steriliziation or diagnostic laparoscopy; consent form
not required.
- Consent form present and deemed adequate.
- Consent form present; technical deficiencies noted.
- Provider stated consent form not available.
- Letters returned by postal service; physician deceased and records
unavailable; payment refunded by physician; no claim information
available.
- No reply received.
The State proposed an adjustment of $224,652.37, based on its view
that only those claims where the provider had stated that a consent form
was not available should be considered unallowable.
The Agency then performed its own analysis of the sample and of the
documentation provided, making adjustments for several items it (5)
determined had been incorrectly categorized by the State /2/ and
calculating a disallowance based on its view of which claims were
allowable. The Agency counted as improper all claims except those where
a consent form was not required, a consent form was present and deemed
adequate, or the payment was refused by the physician (voided claim).
Subsequently, the Agency adjusted its calculations, including as
allowable 14 sample items for sterilizations performed prior to July 1,
1974, the date the informed consent regulations were incorporated into
the State plan. The Agency then computed the disallowance on the basis
that 108 of the sample claims were unallowable, expenditures for these
claims represented 38.6% of the total sample expenditures, and 38.6% of
the expenditures for the universe of claims was $1,487,840.58.
With respect to some of the sample items, the Agency reviewers found
that proper notice concerning benefits had not been given to the
patient. The State originally contested this finding but later conceded
that these claims did not meet the terms of the Relf order and thus were
improper. During Board proceedings, the State stipulated that, of the
108 sample items found to be unallowable, the State contested 32 items
but did not contest the remaining 76. Tr., p. 4.
The State did not claim that it had documentation for any of the 32
contested cases adequate to meet the requirements of 45 CFR 208.35.
Instead, the State challenged the Agency determination with respect to 3
sample items where the sole deficiency was failure to meet the 72-hour
waiting period requirement of section 205.35, relying primarily on an
Agency memorandum which stated that the regulation could not be used as
a basis for disallowance. The State also contested the Agency's
treatment of 29 sample cases where the State had not received a reply
from the provider surveyed. We discuss these issues separately below.
We also discuss a further issue which the State raised by way of an
offset to the disallowance.
III. Whether the Agency Is Precluded from Disallowing for the 3
Items where the 72-hour Waiting Period Requirement Was Not Met
On May 12, 1975, the Administrator of the Social and Rehabilitation
Service (SRS), then responsible for administering the Medicaid program,
issued a memorandum to SRS Regional Commissioners. The memorandum (6)
concerned the legal authority for disallowing FFP in sterilizations.
According to the memorandum, such authority was found in the Relf court
order and in the funding "moratorium." The memorandum stated:
The current SRS regulation (45 CFR 205.35) on sterilization does not
include any specific provision for disallowance of FFP in sterilizations
performed in violation of the State plan requirements established in
that regulation, or in violation of the court ordered requirements. . .
. in the absence of an FFP provision in the current regulation, we do
not have the authority to disallow FFP for sterilizations that conform
to the court order, and are outside the scope of the moratorium, but
fall short of meeting the requirements of the regulation. One such
requirement for example, is the 72 hour hiatus period . . . . we cannot
correctly disallow FFP solely because the 72-hour waiting period was not
observed.
JAF, pp. 93-94.
The State relied primarily on this memorandum as a basis for
challenging the disallowance related to 3 sample items found to be in
violation of the 72-hour waiting period requirement only. The State
pointed to previous Board decisions, which recognized that there was
some confusion at the time the moratorium and regulations were issued.
The State argued that the requirements in the regulations which go
beyond the Relf order are an inadequate basis for a disallowance action
because of the conflicting information which was provided to the State
on this issue, particularly the May 12, 1975 memorandum.
The State presented testimony at the hearing regarding how the State
Department operated during the time period in question. The State's
witness, who worked at the time as a budget analyst under the Deputy
Director for Medical Administration, testified that the Deputy Director
(now deceased) was the person who made the decisions as to what family
planning claims would be paid. The witness testified that the Deputy
Director was responsible for enforcing federal regulations and policy
interpretations. When asked whether the Deputy Director had taken any
actions which would show that he had received some kind of information
that would indicate that a disallowance would not be taken on any part
of the sterilization requirements, the witness replied:
Well, he gave direction that we continue to pay and pay for the
claims the way that we were paying them and I would say that that would
give indication that he had some knowledge of what he was . . . doing.
Tr., p. 15. (7) The witness also testified as to how the State
Department responded to Agency transmittals interpreting regulations.
The State submitted a recent interpretation of a waiting period
requirement for hysterectomies to illustrate the kind of correspondence
that might be received and on which the State Department might rely.
The witness further testified that, based on his knowledge of the Deputy
Director's method of operation, it was likely that the Department would
have taken action based on the May 12 memorandum. He stated that, in
meeting with Agency officials on the audit involved here, Department
staff indicated, concerning the Deputy Director's decisions (presumably
relating to claims payment), that "that was the course of action that he
wanted to take." Tr., p. 20.
The State asserted that its evidence demonstrated that "there was
sufficient question about the notice that the state had of (the 72-hour)
requirement being used as a basis for disallowance to justify not using
those three cases in the calculation of the disallowance." Tr., p. 84.
Discussion
We are not convinced by the State's argument or evidence that the
Agency should be precluded from disallowing claims which fail to meet
the 72-hour waiting period requirement of section 205.35. Although that
section does not contain a specific provision concerning the
availability of FFP in sterilizations not meeting the regulatory
requirements, these requirements were incorporated into the State plan.
Thus, payments in violation of the requirements cannot be considered
payments under the State plan, and are therefore unallowable. See
section 1905(a) of the Act; 45 CFR 201.2 and 201.5.
The State's reliance on the Agency's memorandum of May 12, 1975 is
misplaced. While that memorandum misconstrues the Agency's legal
authority to take a disallowance based on the 72-hour provision, it is
not a formally issued policy interpretation, but merely an internal
memorandum. The State presented no evidence concerning how or when the
State Department received a copy of the memorandum.
Even if the State did receive a copy at some time during the
disallowance period, however, we do not think the State could reasonably
rely on this type of document as a basis for violating its own State
plan.
Moreover, the State's evidence that, in fact, it did rely on the
memorandum is not persuasive. The testimony presented by the State was
little more than speculation as to why the State had continued to pay
improper claims. This evidence is contradicted by the audit report,
which states that, following an SRS review in August 1975, the State had
instructed its fiscal agent to correct deficiencies in (8) meeting the
sterilization requirements, including the 72-hour waiting period. JAF,
p. 37. The record also shows that the State's fiscal agent sent out
newsletters to Medicaid providers in June and December 1975 (after the
date of the May 12 memorandum), warning the providers that they must
meet the federal regulatory requirements to receive Medicaid
reimbursement for sterilizations. JAF, pp. 121, 128. The June
newsletter specifically mentions the 72-hour waiting period, and the
December newsletter references federal requirements described in
previous newsletters. On cross-examination, the State's witnesss
acknowledged that he did not have any first-hand knowledge that the
Department's Deputy Director had relied on the May 12 memorandum and
that the witness had himself first seen the document subsequent to the
audit. Tr. pp. 37-38; see, also, Tr., p. 74.
With respect to the State's general argument that it should be
excused from failing to meet the requirement because of the confusing
situation in which the regulation was issued, we think that the State
has misread previous Board decisions. The Board has reversed several
disallowances based solely on the "moratorium" on FFP in sterilizations
of "individuals under the age of 21" in states where the age of majority
was 18 and where the states interpreted the "moratorium" as referring
to
age of majority. The rationale for this was, in part, that reading the
"moratorium" as a strict prohibition on sterilization of individuals
under age 21 was in conflict with the language of the published
regulation, which merely required "legally effective" informed consent.
Maryland Department of Health and Mental Hygiene, Decision No. 85,
February 28, 1979; California Department of Health Services, Decision
No. 123, October 2, 1980, and Decision No. 209, August 31, 1981. The
Board has also found that in some respects section 205.35 lacked
clarity, and upheld a state's reasonable interpretation of an ambiguous
provision. Decision No. 209, p. 11. However, the Board has upheld
disallowances based on the clear terms of the regulation, where the
regulation was applied through the State plan. See, e.g., Decisions 123
and 209. The 72-hour waiting period requirement is such a provision,
and the State has presented nothing which would lead us to conclude that
the State should not be held to it. We also note that this provision is
not a mere technicality concerning the format of the consent document or
the like, Rather, as the auditors noted: "The intent of such provision
is to protect patients' rights by precluding the possibility of a woman
giving consent to sterilization while not in complete control of her
total mental and emotional faculties -- during labor or shortly after
delivery." JAF, p. 37. Thus, the requirement can be viewed as an aspect
of the statutory condition that a federally funded family planning
services should be voluntary.
Accordingly, we uphold the disallowance based on the 3 sample cases
where the 72-hour waiting period requirement was not met. (9) IV.
Whether the Agency Improperly Included the 29 "No-reply" Cases as
Unallowable Claims
The State's Position
Of the 292 items in the sample, 29 are considered "no-reply" cases.
In 5 of these, the State's letter requesting documentation from the
provider was returned by the Postal Service as "undeliverable." In
the
remaining 24, the letter was not returned, but the State received no
response from the provider. The Agency calculated the disallowance by
including amounts paid for the sterilizations in the 29 cases as
unallowable costs. The State contended that this was improper and that
the Agency should have dropped the 29 cases from the sample.
At the hearing, the State presented testimony, from a witness with
some training in statistical sampling, concerning treatment of the
no-reply cases. This witness testified that there is a specific method
of statistical sampling, called "double sampling," which takes no-reply
cases into account, but that this method was expensive and not used
here. The witness discussed why he thought the 29 cases should be
dropped from the sample, testifying that a sample size as low as 207
items from the relevant universe would still have had a result with a
90% confidence level. He then presented his figures, recalculating the
disallowance using generally the same method as the Agency had used.
Tr., pp. 20-28; State Exhibit B.
In response to questioning, however, the State's witness acknowledged
that the proposed recalculation actually treated the 29 cases as
allowable claims rather than as items "dropped" from the sample. Tr.,
pp. 44-46. The State offered as justification for this the explanation
that this was comparable to how the Agency had treated the 14 items for
sterilizations performed prior to the effective date of the State plan
provision. Further questioning elicited from the State's witness the
acknowledgment that a possible reasonable treatment of the 29 cases
would have been to assume that the proportion of allowable to
unallowable claims in the 29 cases was the same as that in the remaining
sample items. He then presented a calculation purportedly based on this
assumption.
The Agency's witness, a regional official who had been involved in
review of the sample, stated that under some circumstances it might be
reasonable to assume that no-reply cases in a sample survey had the same
error rate as the reply cases but that the Agency considered these as
"no documentation" cases, where the State had not met its burden to
produce adequate consent forms. (10)
Discussion
We agree with the Agency that the 29 cases should be treated the same
as other cases where the State has failed to provide adequate
documentation of informed consent. In response to an audit finding that
the State had failed to sufficiently monitor its program to ensure that
informed consent was given, the State undertook to determine the extent
of unallowable costs through means of a sample. Under these
circumstances, the sample results provide an appropriate basis for the
disallowance.
The State did not attack the statistical sampling methodology, and
had, in fact, chosen the method used. Rather, the State's assertions go
to the issue of whether a particular category of sample claims should be
counted as unallowable.
The State has the responsibility in the first instance to demonstrate
the allowability of its claims and to document its costs. Geogia v.
Califano, 446 F. Supp. 404, 410 (N.D. Ga. 1977); California State
Department of Health, Decision No. 55, May 14, 1979. Moreover, in this
case we are dealing with more than the general requirement to document
grant costs. Section 205.35 established a specific type of
documentation as a prerequisite to FFP in sterilizations. Indeed, the
informed consent document is integral to the process of informed
consent, ensuring that the proper information and notice has been given
to the patient.
Thus, the 29 cases are clearly distinguishable from those where
adequate documentation has been provided, or was not required, and
should not be treated the same for statistical purposes.
Regarding the State's suggestion that the 29 cases could be treated
as having the same error rate as the remainder of the sample, we are
also not convinced. Such an assmption might be reasonable if it were
shown that the characteristics of the no-reply cases were the same as
the characteristics of the rest of the sample. Stated differently, the
proportion method might be appropriate if there was nothing which tended
to make it more likely that the no-reply cases lacked documentation than
the cases in which the provider replied. See, Decision No. 55, p. 5.
Here, however, we think it is more reasonable to assume that the
no-reply cases were cases where no documentation was available, and the
State has presented nothing to indicate the contrary. In most of the
cases, the State sent two requests for documentation to the providers,
and it appears as though the providers received the requests. If they
had the documentation available, the providers would have had an
incentive to submit it since otherwise the State might have determined
that the claim was improperly paid.
(11) This reasoning is somewhat less compelling with respect to the 5
cases where the State's request was returned as "undeliverable."
However, there are additional factors which lead us to conclude that
these should also be treated as "no documentation" cases. The State
itself chose the manner of its survey and the cost it was willing to
bear to obtain the documentation. The State could have chosen other
methods to trace and contact the providers and, apparently, did not.
Moreover, the State itself delayed in performing the sample, which
enhanced the difficulties of reaching the providers. It also appears
that the State may have considered the "no-reply" problem in designing
the sample. In its report on the sample results, the State noted that
the rate of response to the survey was "judged to be exceptionally high
especially in consideration of the time lag between the date of surgery
and the date of survey." JAF, Tab 28.
Therefore, we conclude that the 29 cases were properly included as
cases representing unallowable claims because the State has failed to
provide documentation, or another reasonable basis, on which to conclude
that they should be treated any differently.
V. The State's Set Off Claim
The audit from which the disallowance appealed here arose also
examined the State's Medicaid claims to determine whether claims had
been paid for sterilization of individuals under the age of 21.
Subsequent to the audit, the State took a separate sample of claims
solely to establish the amount of FFP in payments for sterilizations of
such individuals. The State voluntarily made an adjustment based on
these sample findings. /3/
In the pre-hearing conference call and at the hearing, the State
questioned whether it could set off the adjustment for individuals under
age 21 against the disallowed amount here. The State took the position
that, under Board decisions issued after the adjustment was made, the
claims should have been considered allowable since the State age of
majority was 18.
The Agency took the position that the claims associated with
individuals between the ages of 18 and 21 should not be considered by
the Board in the disposition of this case. When questioned by the
Presiding Board Member, the Agency stated that, if the State further
pursued the matter, the Agency would not merely rely on the (12)
previous agreement by the State to adjust the claims but would reexamine
the question in light of current circumstances. Tr., p. 21.
Since the State has not submitted its contention concerning the
allowability of claims for the sterilization of individuals between 18
and 21 to the Agency, we do not consider the question ripe for our
review. See, 45 CFR 16.3(b). Accordingly, we do not reach the merits
of this issue. /4/ If the Agency considers this question and then issues
an adverse final decision on the allowability of these claims, the State
can appeal that decision to the Board.
Conclusion
For the reasons stated above, we uphold the disallowance in full.
/1/ See JAF, p. 4 for an explanation of the methodology. /2/
The State did not dispute the Agency's findings as to how the
sample claims should be categorized. Also, the State's errors are
apparent from the January 3, 1980 letter since the State's figures add
up to more than 292, the number of items in the sample. /3/
Although the State could not point to the specific statement of
expenditures on which the adjustment was made, the Agency witness stated
that, to the best of his knowledge, the adjustment had been made. Tr.,
p. 74. /4/ This conclusion is not meant to imply that the State
is properly reading our previous decisions concerning FFP payments for
sterilization of individuals between the ages of 18 and 21.
OCTOBER 22, 1983