GAB Decision 438
Docket No. 82-169
May 31, 1983
Massachusetts Department of Public Welfare;
Ford, Cecilia; Settle, Norval Garrett, Donald
The Massachusetts Department of Public Welfare appealed a decision by
the Health Care Financing Administration (Agency) disallowing $6,414,964
in federal financial participation (FFP) claimed under Title XIX
(Medicaid) of the Social Security Act. The bases for the disallowance
were that (1) the State had incorrectly claimed reimbursement for the
cost of vocational training and educational activities provided to
residents of intermediate care facilities for the mentally retarded
(ICFs/MR); and (2) the costs also were not allowable because the
activities are available free of charge to all children under
Massachusetts State law.
For the reasons stated below, we sustain the disallowance. /1/
I. Background.
In Massachusetts, Medicaid payments for ICF/MR services are based on
prospective pr diem rates. The rate paid to each ICF/MR in any given
rate year is based on the facility's operating costs for a year two
years prior to the rate year plus an inflation factor. The
Massachusetts Rate Setting (2) Commission (RC) audits the
cost-of-operation reports submitted by the Department of Mental Health
(DMH), the State Agency responsible for operating the State-owned ICFs/
MR, for the eight ICFs/MR and calculates the per diem rates used under
the Medicaid program. Appellant's Appeal File, Tab B, p. 1.
The HHS auditors' review of the RSC audits supporting the fiscal year
1981 per diem rates disclosed that the RSC did not audit $21 million in
costs that were added on to the ICFs/MR cost-of-operation reports. The
HHS auditors determined that $9.6 million of these "added on" costs
related to educational services provided to ICF/MR patients under the
age of 22 in state owned or supported institutions by the Department of
Education, Division of Special Education, Bureau of Institutional
Schools (BIS). The HHS auditors also examined rate years 1979 and 1980
and found that the per diem rates for ICFs/MR for all three years
reflected about $30 million in educational costs. The auditors
concluded that this resulted in $12,482,898 in Medicaid overcharges
($6,450,054 FFP) because Medicaid reimbursement for educational costs is
prohibited by federal regulation. /2/ Appellant's Appeal File, Tab B,
pp. 3-4.
The auditors determined that the BIS costs consisted of the
following:
1) Activities under Title I of the Elementary 8
and Secondary Education Act (Pub. L. 89-313) 2) Services delivery
contracts, the contract 68 vendors being
educational collaboratives (school committees or local boards of
education, formally joined to meet Massachusetts statute and
regulations Chapter 766 special education requirements) and one
regional vocational school. 3) Contracts to evaluate and monitor
functions 11 as required by Chapter 766. 4)
State-salaried personnel of the Department of 13
Education, including institution school teachers and institution
aides.
(3) Appellant's Appeal File, Tab B, p. 10.
In determining the disallowance amount, the auditors recalculated the
per diem rates for all eight ICFs/MR, excluding the reported BIS costs.
This calculation resulted in a decrease in the per diem rates. The
disallowance amount was calculated by multiplying the decreased per diem
rates by the number of Medicaid patient days claimed for the facilities
during the period from July 1, 1978 to December 31, 1980 and then
applying the federal medical assistance percentage used to determine the
federal share. This amount was then deducted from the amount actually
claimed by the State to arrive at the disallowed amount. /3/
HCFA, in its disallowance letter, concurred with the auditors'
findings that educational costs are not reimbursable under Medicaid.
HCFA cited 42 CFR 441.13(b) in support, which provides:
(4) Payments to institutions for the mentally retarded or persons
with related conditions... may not include reimbursement for vocational
training and educational activities.
Appellant's Appeal File, Tab A.
HCFA also cited Action Transmittal 78-104 which provides:
... if State statute extends responsibility for payment of health
services to the education agency, then the Medicaid agency cannot pay
for these services....
HCFA noted that Massachusetts law on educating children with special
needs, commonly referred to as Chapter 766, under section I provides:
In light of the policy of the commonwealth to provide an adequate
publicly-supported education to every child resident therein, it is the
purpose of this act to provide for a flexible and uniform system of
special education program opportunities for all children requiring
special education,....
HCFA then cited the Massachusetts Department of Education's Chapter
766 regulations at Chapter I, Section 122.0 which defines special
education as:
... everything which is required to be provieed to a child in need of
special education pursuant to the IEP (Individualized Education Plan)
for such child.
HCFA also concluded that "State law and regulations extend the
responsibility for payment of all related services (support services as
are required to assist a handicapped child to benefit from special
education) including health services identified under an individual's
IEP, to the State's educational agency." Appellant's Appeal File, Tab A.
II. Summary of Decision.
The State contended that the services provided by BIS are part of an
active treatment program required by section 1905(d) of the Social
Security Act and specifically intended (5) by Congress to be
reimbursable under that section. The State contended, therefore, that
the provisions of 42 CFR 441.13(b) which bar reimbursement for
educational activities necessarily conflict with the regulations
implementing section 1905(d) found at 42 CFR 442, Subpart G and 42 CFR
435.1009. The State also argued that at the very least the purpose of
42 CFR 441.13(b) was merely to prevent a state from claiming federal
funds under two or more different programs.
The Agency argued that Medicaid is a statutory program designed to
provide medical assistance and was never meant to encompass educational
services. The Agency further asserted that provision of "special
education" is the responsibility of the state education establishment
and for this reason as well would not be reimbursable under Medicaid.
According to the Agency, the only possibility for Medicaid reimbursement
would be for "related services" as defined in the federal education
regulations at 45 CFR 121a.13(a), now 34 CFR 300.13(a). The Agency,
however, contended that potential funding for Medicaid reimbursement for
"related services" is not at issue here because the State education
statute provides that "special education" will include all related
services, and therefore, Medicaid funding is not available for "related
services" either. The Agency also argued that even if the Board were to
find that "related services" (the Agency pointed out that examples
of
such services would be medical services, occupational therapy, physical
therapy, habilitative activities and psychological services) were not
included within the State's definition of "special education," that
in
this case such services were provided by trained and licensed DMH staff
and were not part of the costs disallowed. The Agency explained that
for the period in question, BIS costs were not incurred for these
services since the BIS staff consisted only of teachers and
administrative and clerical staff.
Several of the issues raised by this dispute are identical or similar
to those the Board considered in Oklahoma Department of Human Services,
Decision No. 367, December 17, 1982. In Oklahoma, the Board noted that
states receiving federal education funds are required to provide to the
handicapped (including the mentally retarded) a free appropriate public
education, which means "special education" and "related services,"
which
are defined in federal education program (6) regulations. The Board
determined that "special education" costs may not be charged to
Medicaid, finding that "special education" is an educational activity
within the meaning of 42 CFR 441.13(b) as interpreted in the Agency's
Action Transmittal 78-104. The Board, however, noted that if a cost is
for a "related service" as defined in the education regulations, and
such service is otherwise reimbursable under Medicaid, it may be funded
under Medicaid unless such service is made the responsibility of the
State education agency by state statute.
Although the State disagreed with the Board's Oklahoma decision,
supra, and asked that we reconsider that decision, we believe that
Oklahoma was correctly decided. We conclude, therefore, on the basis of
the Oklahoma decision and the analysis set forth below, that the BIS
costs are "special education" costs and therefore, an "educational
activity" within 42 CFR 441.13(b).
III. Whether the services provided by BIS are the type of services
Congress intended to reimburse under section 1905(d) of the Social
Security Act.
a. The regulation denying Medicaid funds for "educational activities"
is consistent with the statute.
Under Title XIX of the Social Security Act (Act), "medical
assistance" to needy individuals may include payment for intermediate
care facility services. Section 1905(a)(15) of the Act. The term
"intermediate care facilities services" is defined so that it may
include "services in a public institution (or distinct part thereof) for
the mentally retarded or persons with related conditions" if certain
requirements are met. Section 1905(d). Medicaid funding is available
only if the institution's primary purpose is "to provide health or
rehabilitative services for mentally retarded individuals," the
institution meets standards the mentally retarded individual for whom
Medicaid payments are made is receiving "active treatment," and the
state claiming Medicaid funds has agreed to maintain non-federal
expenditures for services to ICF/MR patients. Subsections 1905(d)(1),
(2), and (3).
(7) Medicaid is a statutory program to provide funds for medical
assistance. The statute itself never refers to educational activities.
We agree with the Agency that even without the provision contained in 42
CFR 441.13(b), payments for educational activities or vocational
training generally would be unauthorized under Title XIX.
We cannot assume or infer that educational services are covered under
Medicaid for persons in an institution for the mentally retarded in the
absence of a clear Congressional mandate for such coverage. The absence
of any direct or indirect reference to such coverage in the Medicaid
statute is evidence of the lack of Congressional intent to cover such
services. The fact that Congress has enacted other federal statutes to
provide federal assistance for educational programs for the mentally
retarded conducted by the state educational establishment is further
evidence that Congress had no intention of funding these programs under
Medicaid.See, Pub. L. 89-313, known as Title I of Elementary and
Secondary Education Act of 1965; Pub. L. 91-230, known as the
Elementary and Secondary Education Amendments of 1970; and Pub. L.
94-142, known as the "Education for All Handicapped Children Act of
1975."
The active treatment requirement imposed as a condition for funding
under Title XIX, but not defined therein, does not remedy the lack of
authority for Medicaid coverage of educational services. The definition
of active treatment in 42 CFR 435.1009 can be seen as a description of
what should be provided individuals in an ICF/MR. This regulation
defines active treatment as requiring, among other things, an individual
plan of care, the overall purpose of which is "to help the individual
function ast the greatest physical, intellectual, social or vocational
level." The definition, however, does not purport to list specific
services which will be funded by Medicaid. The State is interpreting
the reference to "intellectual" in the regulatory definition as
requiring Medicaid to provide funding for all education services.
This is not so. The regulatory description merely provides that, for
ICF/MR services to be reimbursable, the individual must be receiving
treatment which will aid intellectual functioning. As we indicated in
Oklahoma, Agency regulations on ICF/MR standards do require qualifying
institutions to provide services which aid in the (8) "intellectual
development" of the mentally retarded, as part of "training and
habilitation services." 42 CFR Part 442, Subpart G. However, these
regulations must be read in conjunction with section 441.13(b), which
specifically limits payments for covered services by providing that
costs of "educational activities" may not be reimbursed.
The State has argued in its briefs and in the evidence presented that
the services provided by BIS are not educational activities but training
and habilitation services required to be provided by ICFs/MR. The
State, in its video tape presentation, showed the types of services
presently provided to ICF/MR residents under the age of 22. The State
would have us believe that because the services provided were not
traditional educational activities, the prohibition in 441.13(b) is not
applicable.
At the outset we note that traditional education, as we know it, is
not possible for many of the mentally retarded individuals the State
identified as being residents of the facilities at issue here.
Accordingly, in looking at the regulation barring reimbursement for
educational activities to institutions for the mentally retarded we
cannot agree that the regulation intended to prohibit merely traditional
educational activities. The limitation clearly encompasses the
appropriate type of education which would be given to the mentally
retarded. Thus, even though we agree with the State that the services
depicted in the video tape would not generally be considered traditional
educational activities, we nevertheless believe that these services are
representative of special educational services required to be provided,
as individual need dictates, to school age children under State and
federal education statutes and regulations.
An ICF/MR is required by 42 CFR 442.463 to provide "training and
habilitative" services intended to aid the intellectual, sensorimotor,
and emotional development of a resident. The Agency did not disallow
for any services the State's Department of Mental Health provided under
the requirement of 42 CFR 442.463. To the extent that the services
provided by BIS are similar to those contemplated by that regulation,
those services nevertheless enabled BIS to carry out its mandate for
providing special education. This is especially true where the costs
disallowed here specifically relate to (9) the provision of services
mandated by both federal education law and state education law to be
provided to school age children. The Agency correctly pointed out that
the DMH staff carried out the Medicaid requirements whereas the BIS
staff carried out the requirements of the special education law. Where
a possibility for overlap between training and habilitation services and
special education may exist, we believe that the Agency reasonably drew
the line as to what is reimbursable by recognizing what functions the
DMH and BIS staffs are required to carry out on a daily basis. In this
case, under the Education For All Handicapped Children Act and its
predecessor acts cited above, as well as under Massachusetts State Law,
Chapter 766, the State is mandated to provide special education programs
designed to meet the mentally retarded individual's needs. BIS, not
DMH, is the state educational agency responsible for fulfilling the
special education mandate at the public ICFs/MR.
Therefore, we conclude that 42 CFR 441.13(b) is consistent with the
Medicaid statute.
b. The regulation denying Medicaid funds for "educational activities,"
is consistent with legislative intent.
The State disagreed with the Board's finding in Oklahoma, that 42 CFR
441.13(b) properly interprets Congressional intent. The State took
exception to the Board's characterization of Senator Bellmon's remarks
at the time the 1971 amendments were introduced. See, Oklahoma, supra,
p. 5.
We determined that Senator Bellmon's remarks, which we will not
repeat here (see, Oklahoma, supra, at 5), were "vague at best and
certainly cannot be read as support for a conclusion that Congress was
requiring funding of all such (educational) activities under Medicaid."
We concluded in Oklahoma that Senator Bellmon's reference to
"educational activities" was part of his description of the types
of
institutions which exist. We still agree with that characterization.
Further, the fact that Senator Bellmon chose to omit "educational
activities" from his later description of public institutions which
should be funded by Medicaid would not allow us to read into that
description "educational services" fwhere that language is not included
in the statute or prior legislative history. Finally, we conclude that
Senator Bellmon's remarks go to the question (10) of what type of
institutions will qualify for Medicaid funding, as opposed to describing
the costs in which the federal government will participate.
Further, as we stated in Oklahoma, our conclusion that the regulatory
prohibition on Medicaid funding for educational activities is consistent
with Congressional intent is supported by other considerations. The
first is that ICF/MR services are an exception to the general Medicaid
rule that services in public institutions (other than medical
institutions) are not to be reimbursed. See, section 1905(a) of the
Act. The second is that Congress specifically expressed in section
1905(d)(3) an intent to enhance services to ICF/MR residents through
Medicaid funding and not to replace funding from non-federal sources.
Finally, we have already noted that Congress has specifically provided,
in other legislation, federal funding for educational services to
residents of state institutions. See, Pub. L. 89-313 and Pub. L.
94-142. Therefore, there is ample reason to interpret the restriction
in 441.13(b) by considering whether the activities are normally the
local government's responsibility and are potentially reimbursable from
other federal programs.
The State also disagreed with our finding that 42 CFR 441.13(b) is a
long-standing interpretation of Congressional intent and that the
legislative history does not indicate a Congressional intent which is
inconsistent with the regulation.
The State argued that "Congress intended to improve the condition of
the mentally retarded by requiring active treatment, not the warehousing
of people, before the federal government would reimburse ICF's for the
care of the mentally retarded through the Medicaid program." Appellant's
Post-hearing Brief, p. 5. This statement merely reinforces what the
Board has already concluded in Oklahoma - that in order to receive
Medicaid funding, an institution must meet certain requirements, such as
previding "active treatment." This statement does not describe the
costs
in which the federal government will participate. The "active
treatment" requirement is a recognition of the concept that
institutionalized mentally retarded individuals must be involved in
different types of programs and therapies and not just left alone and
forgotten. To the extent that 42 CFR (11) 442, Subpart G may implement
that concept by listing services that are required to be provided in
ICFs/MR, it must be read with the limitation contained in 42 CFR
441.13(b).
The State cited Connecticut v. Schweiker, 557 F. Supp. 1077 (D.
Conn. 1983) in which the court found that a long-standing agency
interpretation does not deserve deference where the issue of statutory
construction involves not technical details but the statute's broad
purpose. The State alleged that 441.13(b) purports to interpret the
Medicaid statute's broad purpose and therefore no deference need be
given to the regulation based on its alleged longevity. The fact,
however, that an agency promulgates an interpretation and Congress does
not act to change it, in spite of having the opportunity, implies that
the administrative interpretation is consistent with legislative intent.
Regardless of whether 42 CFR 441.13(b) is viewed as interpreting the
statute's broad purpose, we believe that it is fully consistent with the
statutory framework and legislative intent. The purpose of that
regulation as stated in 42 CFR 441.1 is to set forth "limits on FFP for
specific services defined in part 440." The regulation implements the
basic design of Title XIX of covering medical assistance, not
educational activities.
We also cannot agree with the State's assertion that prior to the
Oklahoma disallowance there was no indication that the Agency
interpreted 42 CFR 441.13(b) to exclude from reimbursement the type of
services provided by BIS. On the contrary, the State has not presented
any evidence that the Agency has interpreted this regulation in any
other way. Furthermore, the State has not convincingly demonstrated why
the regulation is not clear on its face as barring reimbursement for the
activities in question. Therefore, we cannot accept the State's
argument that legislative inaction should not infer approval, where
Congress has had ample opportunity to react to the regulatory
prohibition by way of subsequent amendment even after the Oklahoma
disallowance was taken, and has chosen not to do so.
Therefore, we conclude that there is ample evidence of Congressional
intent to support the Agency's regulation.
c. The regulation does not merely preclude duplicate funding.
The State argued that 42 CFR 441.13(b) merely prohibits a State from
claiming under Title XIX for services for which (12) the State also
received payment under Title I or other federal statutes. The State
contended this was HCFA's interpretation as expressed in Action
Transmittal HCFA-AT-78-104, dated November 29, 1978. The State argued,
however, that in this case HCFA is intepreting the regulation to mean
more than avoidance of duplication of federal grants. The State also
contended that the regulation at 42 CFR 441.13(b) conflicts with the
Education for All Handicapped Children Act, unless the regulation is
interpreted only as preventing double payments. The State argued that
because of this conflict, the Action Transmittal is an attempt to
reconcile the differences.
We do not agree that 42 CFR 441.13(b) serves only to prevent
duplication of federal funds. As we stated in Oklahoma, the plain
language of this regulation is that it prohibits Medicaid paticipation
in any "educational" activity, whether or not other federal funds
have
already been paid for that activity. We also do not agree that the
State's interpretation is necessary to avoid conflict between the
Medicaid statute and the Education for All Handicapped Children Act. As
we discussed above, the statutory purpose of Medicaid is the provision
of medical assistance. There is no language in the statute providing
Medicaid funding for educational activities. Moreover, we have not
found any legislative intent requiring the Secretary to fund
"educational activities" under Medicaid. Furthermore, we cannot assume
or infer Medicaid reimbursement for such activities in the absence of
any such legislative intent, particularly when Congress has enacted
other laws dealing with special education. Therefore, we do not find
any conflict between Medicaid and the Education for All Handicapped
Children Act.
If the purpose of the regulation was merely to ensure that federal
matching under Medicaid would not extend to services reimbursed by
federal education funds, the Agency could have done so explicitly by
prohibiting Medicaid funding for services actually funded through the
federal educational program. However, section 441.13(b) prohibits
funding for any activities potentially covered by another program. This
not only prevents duplication of federal funding but also prevents
Medicaid funding for educational activities which are not reimbursable
under education statutes.
(13) We also question the validity of the State's argument that prior
to the Education for All Handicapped Children Act, most physically
handicapped children did not have any other financial help to get an
education, whereas individuals residing in ICFs/MR were eligible to
participate in an active treatment program. This argument overlooks the
fact that States received federal education funds for physically
handicapped as well as mentally retarded children in state operated and
state supported schools for the purpose of special education programs
under Pub. L. 89-313. Furthermore, the State here is equating
"education" with an "active treatment program" and using
these terms
interchangeably, whereas, in fact, under Pub. L. 89-313, the same
federal education funds would be used to provide special education to a
mentally-retarded individual residing at an ICF/MR as a physically
handicapped child attending a State operated or supported school. The
State's analogy here between the physically handicapped and the mentally
retarded only reinforces our position that the mentally retarded
individual, like the physically handicapped, is not entitled to receive
Medicaid funding for that person's special educational needs.
Therefore, we conclude that the State's interpretation of 42 CFR
441.13(b) is not supported by the plain meaning of the regulation or by
statutory intent.
d. The distinction between "special education" and "related
services"
in the Action Transmittal is consistent with the statute and
regulations.
One of the bases for the Agency's disallowance here was that the
State, under its state standards, must provide all services, including
"related services," free of charge to children in need of special
education. The State however argued that state standards may not
reasonably be used to determine which services are included in "special
education." The State further argued that the Board's distinction
between "special education" and "related services" in Oklahoma
in
interpreting 42 CFR 441.13(b) is unsupportable because these concepts
did not become part of federal education law until almost two years
after 42 CFR 441.13(b) was published in final form. We disagree on both
accounts.
(14) Prior to the enactment of the Education for All Handicapped
Children Act, the limitation against reimbursement for educational
activities provided to individuals in an institution for the mentally
retarded, contained in 42 CFR 441.13(b), could be read to have included
any service provided to an institutionalized child which was provided by
the State education agency. The Education for All Handicapped Children
Act, however, set forth distinctions between the services provided by a
state educational agency to handicapped children. Therefore, at the
time that this statute was enacted, it was necessary to look at its
requirements in order to interpret the limits of the exclusion contained
in 42 CFR 441.13(b). In view of the distinctions between "special
education" and "related services" in this Act, the Agency issued
an
action transmittal discussing the effect of the Act on Medicaid
reimbursement, allowing reimbursement for certain educational support or
"related" services under Medicaid. If anything, this interpretation
of
the regulation liberalized its effect. Therefore, we believe that our
conclusion in Oklahoma was correct. The action transmittal, which
interprets the Education for All Handicapped Children Act and its
regulations and how it relates to the prohibition set forth in 42 CFR
441.13(b), makes a distinction under which "special education" is
considered an "educational activity" within 42 CFR 441.13(b) and is
therefore not reimbursable under Medicaid, but "related services"
may be
funded under Medicaid.
As we explained in Oklahoma, the federal education regulations which
define "special education" and "related services" provide
guidance as to
whether an activity is within the scope of the Medicaid prohibition.
Although the action transmittal contains language about providing
flexibility to states in deciding what funding sources apply to certain
activities, that language is used within the limited context of services
which are reimbursable under Medicaid and also qualify as "related
services" under the Education for All Handicapped Children Act and the
regulations. It is within this very limited context that certain
funding choices may be made. However, the action transmittal also
states that even these limited choices may not exist where related
services are provided by the State educational agency free of charge to
all children as part of "special education." See, 45 CFR 121a.14(a)(2)
now recodified as 34 CFR 300.14(a)(2).
(15) We disagree with the State that state standards may not
reasonably be used to determine the services included in "special
education." The federal education regulations provide that a state, in
providing a free appropriate public education, is free to choose to
provide all, some, or no "related services" within the state's own
definition of "special education." If it chooses to include some or
all
"related services" in its definition of "special education,"
then those
services would be available free of charge to all children. The federal
education regulation sets forth that if related services are considered
part of "special education" under state standards then they will also
be
considered part of "special education" under federal standards. See,
34
CFR 300.14(a)(2). Therefore, after the enactment of the Education for
All Handicapped Children Act, state standards provided a reasonable and
appropriate vehicle for determining whether Medicaid may provide
reimbursement for "related services."
e. Massachusetts state standards include "related services" within
the
definition of "special education."
Having determined that "related services," which otherwise may be
reimbursable under Medicaid, are excluded from reimbursement if state
standards include such services as part of a free appropriate public
education, it is necessary to look at the Massachusetts law and
regulations to determine whether its state education standards extended
responsibility for "related services" to the state education agency
as
part of its definition of "special education."
State standards mandate the State Department of Education to pay for
"related services" provided by BIS. The State regulations implementing
the State special education laws, known as Chapter 766 regulations,
promulgated by the State Department of Education, define at Section
122.0 "special education" as everthing that is required to be provided
to a child in need of special education pursuant to the IEP for such
children. Strictly speaking, under this definition if a service is
required to be provided to a child pursuant to its IEP then it must be
considered special education and is not reimbursable under Medicaid.
However, a further review of the State's education regulations indicates
that the State, in section 503 of the education regulations, provides
that the certain services as set forth in paragraphs 503.1(a) through
503.1(k) must be provided by each school (16) committee for each child
in need of special education, and pursuant to section 322.1, the IEP
must indicate specifically which of the services are necessary for the
child.The services described include a vocational education program
including pre-vocational and vocational training programs, all services
which the various categories of certified or approved special education
teachers are professionally qualified to provide, nursing services,
peripatology, occupational therapy, physical therapy, speech and
language therapy, limited social and psychological services, the
services of physician in prescribing, or referring a child for physical
and occupational therapy, and parent and child instruction to enable the
parents to participate in educating their child. Because these
"services" are included within the definition of "special education,"
they are not fundable by Medicaid. Therefore, even if the disallowance
here included costs attributable to the provision of "related services,"
we conclude that because "related services" are included within the
State's definition of "special education," the State could not receive
reimbursement under Medicaid for these services.
IV. Whether the disallowance of specific items of BIS costs is
supportable.
The State also made arguments relating to specific cost items of the
disallowance taken.
a. Service delivery contracts.
The auditors determined that BIS costs included costs related to
contracts issued by BIS in order to provide specific services required
by Chapter 766 regulations but which could not be met through existing
State personnel. The auditors found that in FY 1979, the cost year on
which the 1981 reimbursement rates were based, the recipients of such
contracts were several educational "collaboratives," which are defined
in Chapter 766 regulations at section 104 as school committees joined
under written agreement to satisfy any of the requirements of Chapter
766 regulations, and one regional vocational school.
Clearly, as set forth in the State's Chapter 766 regulations at
section 503, a vocational education program is considered part of the
delivery of a special education program and would be included, where
appropriate, in the child's IEP.
(17) Therefore, the BIS costs for the contract with the vocational
school are not reimbursable under our analysis. Furthermore, the
prohibition contained in 42 CFR 441.13(b), independently of the
restriction for educational activities, prohibits reimbursement for
vocational training. Therefore, based on these two factors, we conclude
the BIS costs related to the contract with the vocational school were
properly disallowed.
As to BIS costs related to contracts with educational collaboratives,
we conclude that these costs also were properly disallowed. School
committees under Massachusetts State law and regulations are ultimately
responsible for the provision of special education programs for school
age children residing in its area. See, Massachusetts Laws Annotated,
Chapter 71B, section 3 and Chapter 766 regulations, section 202. Under
the Chapter 766 regulations at section 201.1(b), school committees have
the option of entering into a written agreement or contract to satisfy
the requirements of the regulations through a collaborative approved by
the State Department of Education. The State, here, has not provided
any evidence or testimony indicating that the type of services provided
by these collaboratives were services other than those required by the
Chapter 766 regulations. Since under State regulation, the purpose of
the collaborative was to deliver special education services as mandated
by law and regulation, we conclude that under our analysis above, the
costs were not reimbursable by Medicaid.
b. Evaluative and managerial personnel contracts.
The auditors also determined that BIS costs included costs related to
contracts for personnel to evaluate and monitor functions required by
Chapter 766 regulations. Contracts were issued for Evaluation Team
Liaisons (ETL) and Program Manager Projects (PM) services.
ETL refers to personnel who, in response to Chapter 766 requirements,
participate in annual reviews, develop educational programs, and
coordinate communication between the variety of agencies delivering
services to BIS children. Many of these contracts were performed by
educational collaboratives. The PM contract was for a PM team to
monitor BIS service delivery contracts and ETL activities.
(18) Both of these types of contracts were for the purpose of
evaluating and monitoring the services required to be provided by
Chapter 766 and were inextricably related to the provision of special
educational services. Therefore, under our analysis above, we conclude
that these costs were not reimbursable under Medicaid.
c. State-salaried personnel of the Department of Education, including
institution school teachers and aides who conducted school programs in
the ICFs/MR.
The State claimed that the costs for these personnel were part of the
provision of an active treatment program. As we have determined above,
the active treatment requirement does not extend to reimbursement for a
special education program, and the State has not demonstrated that the
services provided by BIS should not be considered special education.
Moreover, the Agency here did not disallow any costs incurred for
potentially "related services" performed by DMH staff. The disallowance
related only to costs incurred by BIS for the State-salaried personnel
involved in providing the special education program services.
Our conclusion is fully supported by the evidence. For example, an
IEP is required by federal and State education law. BIS is obligated to
provide services to those individuals 21 years old or under, as also
required by federal and State education laws, whereas Medicaid services
to an individual residing in an ICF/MR must be provided regardless of
age. In addition, the testimony presented characterized the BIS program
as an "educational program," provided by "educational staff."
Transcript, Vol. II, p. 182. Furthermore, testimony of the Assistant
Superintendent of Education at the Belchertown State School indicated
that she as well as BIS employees at the school are employees of the
State Department of Education, that her educational background and
professional experience is in teaching and education, and that her
responsibilities are to ensure that special education services are
provided to eligible (meaning children 21 years old or under) residents
of the ICF/MR. Transcript, pp. 104-105, p. 158. The fact that the
development of the IEP and ISP, which is required by Title XIX, are
prepared jointly between the Department of Education and the Department
of Mental Health, would not alter our conclusion. As testimony
indicated, although (19) developed jointly, the IEP is prepared by
Department of Education staff, and as the State's brief indicated, the
plans are developed jointly to avoid duplication of effort. Transcript,
p. 107, and Appellant's Brief, p. 43. Therefore, we conclude that the
costs disallowed for BIS personnel were for the costs of providing a
special education program and are unallowable.
V. Collateral Arguments.
a. Whether section 1902(a)(25) of the Social Security Act is a basis
for state liability for the costs disallowed.
The Audit Report at page 9 stated that the authority for the
statement in the action transmittal, that Medicaid cannot pay for
specific health services if a state statute extends responsibility to
the education agency, was the third party liability section contained in
section 1905(a)(25) of the Act. The State argued in its brief that the
State Department of Education could not be a liable third party within
the meaning of this section. We need not reach that issue here. As we
explained in depth above, "special education" is considered an
"educational activity" under 42 CFR 441.13(b). We also determined
that
if state standards include related services under its definition of
special education, than those services are also considered an
educational activity within 42 CFR 441.13(b). We determined here that
under Massachusetts State standards, related services are included under
the definition of "special education" and therefore, are not
reimbursable under Medicaid because of the limitation in 42 CFR 441.13(
b).
b. Whether the Developmentally Disabled Assistance and Bill of Rights
Act impacts on this disallowance.
The State has argued that in determining what services are included
in the active treatment concept, the Board should consider the
provisions of the Developmentally Disabled Assistance and Bill of Rights
Act of 1975, 42 U.S.C. Sec. 6000. The State points to the definition of
the term "services for persons with developmental disabilities" at
42
U.S.C. 6001(8), which states that such term includes, among other
things, education. The State pointed to this reference and concluded
that since this Act related to rights of the mentally retarded for
certain services, BIS services therefore should be reimbursable. The
State also cited (20) the Supreme Court decision in Pennhurst State
School v. Halderman, 451 U.S. 1 (1981) as support for the position that
the Developmentally Disabled Assistance Act and Medicaid were part of a
package of laws to improve the way in which this nation treats the
mentally retarded.
In our view, the provisions of the Developmentally Disabled Act are
not directly applicable to this dispute. This Act established a
federal-state grant program whereby the federal government would provide
assistance to states to aid them in creating programs to treat the
mentally retarded. This Act is separate and distinct from the Medicaid
Program. Furthermore, the reference to education in 42 U.S.C. 6001(8)
merely parallels a later provision of the Act, section 6063(b)( 2),
which recognizes that services are being provided by states under other
federally assisted programs including education for the handicapped,
vocational rehabilitation, public assistance, medical assistance, and
other acts, to name a few. The Act in no way provides that educational
services should be considered fundable by Medicaid.
The State's reference to the Court's statement in Pennhurst at page
1547 that "Congress in recent years has enacted several laws designed to
improve the way in which this Nation treats the mentally retarded" and
to the Court's citation of those acts in footnote 25 at page 1547 adds
little or no support for its argument that educational services are
reimbursable by Medicaid. The State failed to recognize that among the
Acts besides Medicaid cited by the Court was the Education for All
Handicapped Children Act of 1975. Therefore, we do not find the State's
citation to Pennhurst persuasive.
c. Whether the regulation at 42 CFR 441.13(b) is an interpretive rule,
and if so, whether the regulations at 42 CFR 442, Subpart G, and 42 CFR
435.10009 take precedence over 42 CFR 441.13(b).
The State argued that when Congress amended Title XIX of the Social
Security Act to include intermediate care facility services for the
mentally retarded, it authorized the Secretary to set standards relating
to services provided in an ICF/MR. Section 1905(d)(1) of the Act. The
State pointed out that pursuant to this authority, the Secretary
promulgated the regulations at 42 CFR 442, Subpart G. The State argued
that Congress contemplated that any such (21) regulations would be
"legislative rules" because they would be the product of an exercise
of
delegated legislative power to make law through rules.
The State argued, citing provisions of Kenneth Culp Davis'
Administrative Law Treatise, Chapter 7, section 8 (supp. 1982), that in
contrast, the reguation at 42 CFR 441.13(b) is an interpretive rule
because it was issued without delegated legislative power to make law
through rules. The State asserted that the court in Connecticut, supra,
recognized the distinction between legislative and interpretive rules,
when it decided that courts, better than agencies, can determine the
broad purpose behind a statute. The State, therefore, concluded that
because section 441.13(b) is an interpretive rule, when there is a
conflict it must fall before the legislative regulation set forth in 42
CFR 442, Subpart G which describes the standards for services required
to be provided in an ICF/MR and 42 CFR 435.1009, which defines active
treatment. The State implied that if the prohibition against
reimbursement under Medicaid was no longer effective, then the costs in
question could be reimbursable under Medicaid as training and
habilitation services.
Contrary to the State's assertions, 42 CFR 441.13(b) was issued
pursuant to delegated power to make rules. The Social Security Act, of
which Title XIX is a part, at section 1102 authorizes the Secretary of
Health and Human Services to "make and publish such rules and
regulations, not inconsistent with this Act, as may be necessary to the
efficient administration of the functions with which (the Secretary) is
charged under the Act." The Secretary issued the regulation at 42 CFR
441.13(b) pursuant to his delegated authority in section 1102 of the
Act. The State has acknowledged in its post-hearing brief at page 3
that the regulation was properly promulgated. Also, the Connecticut
decision can be distinguished from the instant dispute, in that, the
court, in substituting its judgment for the Agency's there, determined
that the regulation was not consistent with the statute and legislative
history. We have determined here that the regulation is consistent with
the statute and legislative intent, as well as finding that this
regulation does not conflict with 42 CFR 442, Subpart G and 42 CFR
435.1009.
(22) VI. The Plan Compliance/Disallowance Issue.
In its notice of appeal, the State challenged the Board's
jurisdiction to act in this matter, contending that a plan compliance
hearing was required pursuant to section 1904 of the Act and the
regulations at 45 CFR Part 201. The Board Chair reserved accepting
jurisdiction over the dispute until the parties had an opportunity to
further brief the issue. The State devoted a substantial portion of its
brief to the issue. For reasons stated below, we conclude that the
Board does have jurisdiction over this matter. In New Jersey Department
of Human Services, Decision No. 259, February 25, 1982, the Board
discussed the relevant statutory and regulatory provisions, as well as
court decisions on the issue. That discussion will not be repeated here
except as necessary to indicate why we disagree with the State's
analysis and how subsequent court decisions have viewed the issue.
Compliance procedures apply only when the Secretary finds substantial
noncompliance in the administration of the state plan sufficient to
justify invoking the potential sanction of denying all future federal
funding from the State's program. The sweeping nature of this sanction
is also the reason for allowing a state, after it has exhausted its
administrative appeal remedies set forth at 45 CFR Part 213, to seek
review of a final determination of noncompliance directly in the Court
of Appeals. In general, however, a disallowance represents an isolated
and highly focused inquiry into a State's operation of the assistance
program. It is a finding that specific expenditures claimed by the
state for a discrete time period are unallowable. The disallowance
determination that improper expenditures were claimed by a state is
retrospective in impact. No prospective sanctions are imposed as a
result of a disallowance determination. As we stated in New Jersey,
noncompliance issues and disallowance issues are not mutually exclusive,
so that the same set of facts conceivably could call for either of the
procedures. Therefore, the Secretary might determine that a particular
set of circumstances requires only a "disallowance" when, arguably,
a
finding of noncompliance would also have been possible. For example, a
particular state action or policy may not constitute substantial
noncompliance with federal (23) requirements requiring the severe
sanction of denial of all future funding, but may nevertheless merit a
disallowance of federal funds.
The State argued that the Secretary would always prefer a
disallowance action rather than compliance proceedings, because it
enables the Secretary to impose a retrospective denial of funds and
maximizes the Secretary's chance of a favorable outcome "because the
Secretary may not sanction a state prospectively for the manner in which
it administers its program unless there is substantial noncompliance
with its plan." State's Brief, p. 21. The State further argued that the
disallowance here did not contest specific individual items or a class
of items but implicated the administration of the program as a whole and
that the entire public ICF/MR program is affected by this disallowance
inasmuch as reimbursement for habilitative services as part of an active
reatment program in Massachusetts' public ICFs/MR is disallowed.
State's Brief, p. 18.
There has been no finding of substantial noncompliance in the
administration of the State plan by the Secretary here and we have not
been persuaded that a fidning of substantial noncompliance would be
justified. We conclude that the disallowance does not implicate the
administration of the State's medical assistance program as a whole.
It, in fact, relates to a specific identified class of unallowable costs
related to a specific time period and represents a proportionally small
amount of the State's total Medicaid expenditures.
Furthermore, as we have noted above, the only costs identified as
unallowable were the costs attributable to BIS provision of educational
services. The Agency indicated that the cost of services provided by
DMH staff, which included reimbursable habilitative services, was paid
by Medicaid. Therefore, contrary to the State's assertion, the Agency
did not determine that all services potentially cognizable as
"habilitative" were unallowable, but, instead, stated that only services
provided by BIS are unallowable because the costs relate to "special
educational" activities provided by BIS under State education statutes
and regulations. The issue does not involve the broader question that
the ultimate beneficiaries are being deprived of required Medicaid
services. The disallowance denied reimbursement for cost of activities
included by the State in its Medicaid (24) per diem rates which are
outside the scope of the Medicaid program. Therefore, we do not find
this dispute involves substantial noncompliance.
The State has also asserted that the present dispute is
distinguishable from the New Jersey decision. The State argued that in
New Jersey the question of whether a compliance hearing was required was
rendered moot by New Jersey subsequently coming into compliance. The
State here argued that the issue is not moot. We disagree with the
State that this is a critical distinction.
The question of whether a compliance hearing is necessary is
determined in the first instance by whether the alleged noncompliance is
substantial. Moreover, the compliance procedures and the disallowance
procedures are not mutually exclusive. The fact that a State may later
come into compliance would not necessarily preclude the Agency from
disallowing for previously claimed unallowable costs. The State argued
that the Secretary must choose between the procedures, implying that the
Secretary may either impose a prospective sanction or a retrospective
sanction. This argument assumes that if the Secretary finds substantial
noncompliance and initiates compliance proceedings, that the Secretary
may not take a disallowance action to recover unallowable costs
previously claimed by the State under Medicaid. The argument
effectively ignores section 1903(d)(2) of the Act which allows the
Secretary to reduce the amount paid to a state for Medicaid to the
extent of any overpayment the Secretary determines was made to a state.
(NOTE: The Federal Government's authority to recovermisspent funds by
means of a disallowance pursuant to an overpayment provision was just
affirmed by the Supreme Court in Bell v. New Jersey and Pennsylvania, 51
U.S.L.W. 4647 (May 31, 1983).)
Furthermore, the State mistakenly relied on several statements taken
from court decisions or legislative history. Although a few courts have
distinguished (25) compliance issues from "clerical mistakes," we
do not
think that disallowance procedures are appropriate only where a State is
alleged to have made a computational or similar error in claiming FFP.
The relevant legislative history refers to "audit exceptions." The
basis
for an audit exception is often the failure to comply with a federal
requirement. The compliance procedures do not have to be invoked in any
case involving significant legal questions. /4/ Such questions can
arise from disallowances based on audits or similar reviews even though
there are only discrete items of cost in dispute and no finding of
substantial noncompliance by a state in administering its program.
The State's reliance on its diligence in claiming that the dispute
here is a compliance dispute is also misplaced. Although court
decisions indicate that failure to raise the (26) issue may contribute
to a court finding that a disallowance is involved, nothing in the court
decisions indicates that a state's diligence in insisting that a
compliance dispute is involved is sufficient.
Finally, comity and equity do not require a compliance hearing here.
Appeal Brief, pp. 25-26. The State relied for this argument on a
statement (made by Senator Javits on the Senate floor) which relates to
the need for hearings and judicial review to avoid disruption in an
existing state plan. See, 116 Cong. Rec. 3068 (1965). This refers to
provisions for review of denial of approval of state plan amendments and
was used by the court in the case of State Department of Public Works of
the State of Texas v. Califano, 556 F.2d 326, 332 (5th Cir. 1977),
cert. denied, 439 U.S. 818 (1978), as support for its view that that
dispute was over plan conformity. There is no question here about the
State's plan conforming to applicable requirements. Moreover, the Texas
Court's statement that the compliance-type hearing put a state on a
"more equal basis" than a disallowance reconsideration was premised
in
part on the Court's view that the latter procedures were "summary."
The Board's procedures for reconsidering disallowances provide
substantially the same protections as the compliance procedures. /5/
(27) Moreover, the U.S. Court of Appeals for the Seventh Circuit
decided in State of Illinois v. Schweiker, Nos. 82-1175 and 82-1752 (7th
Cir. May 6, 1983), that the problem with the functional approach to
interpreting whether a dispute is properly a compliance proceeding used
by the other courts, including the Third Circuit, is that it is
complicated and uncertain in application. The court indicated that a
jurisdictional test should be clear in order to allow a litigant to know
in which court he belongs. Therefore, the court determined that
clearest way of deciding the jurisdictional issue in these disputes is
to take a literal approach. Under this approach, the court determined
that if the Secretary processes a matter as a disallowance matter, then
it will be treated as such and the Court of Appeals will not have
jurisdiction.
Accordingly, we conclude that this dispute is a disallowance action
over which this Board has jurisdiction.
Conclusion
For the reasons stated above, we uphold the entire disallowance of
BIS costs for educational activities. /6/
/1/ The record in this appeal consists of the parties' briefs
and appeal files, documents submitted by the State prior to the hearing
in this matter, the transcript of the hearing, exhibits submitted by the
parties during the hearing, and the parties' post-hearing submissions.
One of the exhibits submitted by the State was a video tape depicting
the services currently provided by the Bureau of Institutional Schools
(BIS) to residents of the public ICFs/MR. The video tape was shown
during the hearing with the Presiding Boasrd Member present. The other
panel members viewed the video tape in Washington, D.C. /2/ Of
the $6,450,054 FFP in Medicaid overcharges, the auditors found $35,090
FFP involved Title I expenditures under the Elementary and Secondary
Education Act for which the State had already been reimbursed. The
State has, however, returned this amount to HCFA and this cost was
excluded from the disallowance. Appellant's Appeal File, Tab A, p. 3.
/3/ The State argued in its brief that the audit report and disallowance
letter did not adequately explain how the amount of the disallowance was
determined. The State, in its brief, requested the Agency to supply the
State with the methodology used to recalculate Medicaid per diem rates.
State's Brief, p. 54. At the hearing, the State asked the Agency to
explain exactly how the actual amount of the disallowance was arrived
at. Transcript, Vol. I., p. 68. The parties agreed to meet after the
hearing to work out the exact calculations, and to submit them to the
Board. Transcript, Vol. I, p. 98. The Board has not received any such
submission. However, the record indicates that the HHS auditors met
with the State on August 5, 1981, after the draft audit report was
issued to the State. During that meeting, the auditors explained how
they calculated the disallowance and supplied the State with a copy of
the auditors' calculation worksheet. Agency's Appeal File, Tab 2.
Therefore, we believe that the State had been fully informed as to how
the amount of the disallowance was calculated. /4/ Section 1904 of the
Act sets forth the criteria for compliance proceedings as when
the Secretary finds "(1) that the plan has been so changed that it no
longer complies with the provisions of section 1902; or (2) that in the
administration of the plan there is a failure to comply substantially
with any such provision." (Emphasis added.) The U.S. Court of Appeals
for the First Circuit, in its decision in Commonwealth of Massachusetts
v. Departmental Grant Appeals Board, 698 F.2d 22 (1st Cir. 1983)
indicated that if the language, "any such provision" in section 1904
of
the Act is read as meaning any provision of federal law, the result
would be that (1) every refusal of FFP becomes a determination of
noncompliance, that (2) the idea of a disallowance is read out of the
statute, and that (3) the "any such provision" language becomes
meaningless. The Court stated that "(s) imply accepting that there is a
dispute about some sort of federal requirement cannot suffice to make
this a compliance question." Supra, at pp. 28 and 29. /5/ The
U.S. Court of Appeals for the Third Circuit, in its decision in State of
New Jersey v. Department of Health and Human Services, 670 F.2d 1284
(3rd Cir. 1981), indicated that the Board's action there was after an
"opportunity for a hearing" sufficient to satisfy statutory requirements
for compliance proceedings.At note 13. /6/ The State requested
the Board to issue certain rulings in its favor concerning issues in
this case. Based on our decision here, we need not specifically rule on
the requests because they go to the substantive issues which we have
decided above. See, Appellant's Request for Rulings.
JULY 07, 1984