New York State Department of Social Services, DAB No. 481 (1983)

GAB Decision 481
Docket No. 83-68

November 30, 1983

New York State Department of Social Services;
Ford, Cecilia; Settle, Norval Teitz, Alexander


The New York State Department of Social Services (New York, State)
appealed a $7,624,367 disallowance by the Health Care Financing
Administration (HCFA, Agency) of federal financial participation (FFP)
in the cost of services to Medicaid recipients claimed under Title XIX
of the Social Security Act. The services were provided during the
period March 1, 1980 through February 28, 1981, by Kings Harbor Care
Center, a skilled nursing facility (Kings Care SNF), and Kings Harbor
Manor, an intermediate care facility (Kings Manor ICF).

The principal issue is whether the provider agreements executed by
the State were valid where they were based on survey findings of
deficiencies, including repeat deficiencies. At issue also is whether
the authority of the Agency to "look behind" the provider agreement was
validly exercised here. The Board finds that the Agency properly
exercised its "look behing" authority and upholds the disallowance of
FFP in payments to the facilities during the terms of the provider
agreements in question. The record in this appeal includes a transcript
of a hearing held in New York City on September 30, 1983.

Background

* History

Most of the history of this case has been set out in New York
Department of Social Services, Decision No. 181, May 29, 1981. To
recapitulate, Kings Care SNF was terminated by the (then) Department of
Health, Education, and Welfare as a Medicare provider on March 31, 1978
and by New York as a Medicaid provider on May 23, 1978. Kings Manor ICF
was terminated by New York as a Medicaid provider on March 31, 1978.
After other proceedings not related to the issues in this case, the
Commissioner of the New York Department of Health was appointed receiver
for both facilities on March 13, 1979.

The State issued provider agreements to both facilities thereafter
for the periods involved in these disallowances (covering services
through February 28, 1981). The Agency (2) has shown, and the State
does not deny, that all of these provider agreements were based on
certifications with consecutive surveys showing the facilities to be
deficient. Some of the same deficiencies were found in survey after
survey (repeat deficiencies).

* The Regulations

This case involves mainly the application of 42 CFR 442.20 and 42 CFR
442.105. (1979 and 1980). Under 42 CFR 442.20, where a skilled nursing
facility has been terminated from the Medicare program and thus also the
Medicaid program, a state may not make another provider agreement with
that facility until:

(1) The conditions causing the termination are removed; and

(2) The SNF provides reasonable assurance that the conditions will not
recur.

Under 42 CFR 442.105, a state may certify a facility with
deficiencies only where the state finds that the deficiencies do not
jeopardize the patients' health and safety, nor seriously limit the
facility's capacity to give adequate care. In addition, the state must
find acceptable the facility's written plan for correcting the
deficiencies. Where a state had previously certified the facility with
a deficiency, and finds a different deficiency during this survey, the
state still must document that the facility:

(1) Was unable to stay in compliance with the standard for reasons
beyond its control, or despite intensive efforts to comply; and

(2) Is making the best use of its resources to furnish adequate care.

If a facility has the same deficiency it had under the prior
certification, the state must document that the facility --

(1) Did achieve compliance with the standard at some time during the
prior certification period;

(2) Made a good faith effort, as judged by the survey agency, to stay
in complaince; and

(3) Again became out of compliance for reasons beyond its control.

The Agency relied on its "look behind" authority in 42 CFR 442.30,
which states, inter alia, that a provider agreement (3) is not valid if
the Agency determines that the rules and procedures for certification
set forth in Subpart C of Part 442 (which includes 442.105) have not
been followed. The State is not entitled to FFP in payments under an
invalid certification or provider agreement.

* The parties' principal arguments

The Agency contended that the State had certified these facilities
with continuing and repeat deficiencies but had failed to show that the
deficiencies had been corrected in the interim since the previous
survey, as required in 42 CFR 442.105(c) and (d). In addition, with
respect to Kings Care SNF, HCFA argued that the State had not shown that
it complied with 42 CFR 442.20. The Agency relied on the Board's
affirmation of disallowances covering services rendered by these same
two facilities between March 1, 1979 and February 28, 1980, in Decision
No. 181, May 29, 1981, pp. 7-13.

HCFA also cited the earlier New York decision as res judicata for the
period March 1, 1980 - July 31, 1980, which overlapped the two cases.
Although the disallowances in the earlier case covered services only
through February 28, 1980, one of the certifications held invalid in
that case extended to July 31, 1980.

The State did not deny that these facilities had deficiencies at the
times that the State certified them and issued provider agreements. The
State contended that in the judgment of its survey agency the
deficiencies did not, individually or in combination, jeopardize the
health or safety of the patients. The State argued that HCFA seldom, if
ever, disallowed FFP on the basis of a state's failure to comply with 42
CFR 442.105(c) and (d), and cited comments by Agency officials,
published in the Federal Register in 1980, proposing to eliminate those
requirements. /1/ Thus, the State concluded that HCFA had been
arbitrary and capricious in issuing a disallowance based on the State's
noncompliance with the repeat deficiency regulation.


New York also argued that as receiver it should be treated as the new
owner of a facility and not be subject to the repeat deficiency
regulation.

(4) New York contended that HCFA's action of looking behind the
provider agreement to declare the certification invalid was governed by
a December 1980 amendment to the Social Security Act, section 916 of
Public Law 96-499. That amendment authorized HCFA to terminate a
facility's participation in the Medicaid program after giving the
facility notice of, and opportunity for, a hearing. The State alleged
that the facilities here did not receive such notice or hearing and
concluded that the attempted exercise of look behind authority should be
set aside.

The State also argued that HCFA was extopped from exercising its look
behind authority because HCFA had waited too long to act after receiving
copies of the allegedly invalid certifications and auditing New York's
administration of the Medicaid program. New York relied on
Woodstock/Kenosha Health Center v. Schweiker, 452 F. Supp. 1210 (E.D.
Wisc. 1982), in which a federal district court held the Secretary of the
Department of Health and Human Services estopped from "retroactively"
disallowing FFP in payments by a state to a facility found unqualified
to participate in the Medicaid program.

New York objected to HCFA's reliance on Decision No. 181, contending
that New York had not been given a requested hearing by the Board on the
repeat deficiency issue in that case.

Analysis

* HCFA property exercised its look behind authority

We examine first whether HCFA had the authority to look behind the
provider agreements issued by the State, and whether HCFA properly
exercised that authority. HCFA relied on 42 CFR 442.30, not the
statutory provision referred to by New York.

The Board previously has upheld HCFA's use of its authority under 42
CFR 442.30 to examine the validity of the certification upon which a
provider agreement is based. HCFA cited several of these decisions,
such as Pennsylvania Department of Public Welfare, Decision No. 270,
March 31, 1982; New Jersey Department of Human Services, Decision No.
164, April 30, 1981; and Nebraska Department of Public Welfare,
Decision No. 111, July 16, 1980.

The December 1980 look behind authority which New York discussed did
not even exist until shortly before these facilities were validly
recertified at the end of Fabruary, 1981. Moreover, it gives the Agency
authority prospectively (5) to terminate payments to a facility, which
the Agency did not have under the regulation. The statute created a
right to a hearing for a facility threatened with termination.

The action taken by the Agency here was against the State, not the
facility, and did not threaten the prospective termination of payments.
Congress conferred a new and different authority upon the Agency and
surrounded it with procedural safeguards, but the State has not shown
that Congress preempted the authority previously held by the Agency and
imposed a hearing requirement on the exercise of that preexisting
authority. Thus, HCFA's exercise of its look behind authority did not
entitle the State to the hearing provided for by the December 1980
amendment.

* HCFA is not estopped

We conclude also that HCFA is not estopped. New York's reliance on
the Woodstock case is misplaced. That case was reversed, the Court of
Appeals holding that the publication of a regulation defeats the
reasonableness of a party's reliance on estoppel. 713 F.2d 285, 289,
290 (7th Cir. 1983). /2/


In addition, the Board has previously held that a party alleging
estoppel must satisfy each of the following criteria:

1) the party to be estopped must know the facts;

2) that party must intend that its conduct be acted upon; or must so
act that the party asserting estoppel has a right to believe it is so
intended;

3) the latter must be ignorant of the true facts; and

4) that party must rely on the former's conduct to its injury.

Montana Department of Social and Rehabilitation Services, Decision
No. 171, April 30, 1981. Montana asked the federal district court to
review the Board's decision. The court upheld the Board, including
finding that on the estoppel point the Board had correctly held that the
State had failed to prove the essential elements of an estoppel claim.
The court went on to say: "(if) estoppel does lie against an agency,
however, the essential elements of estoppel listed (6) previously are
modified and 'must be read as requiring an affirmative misrepresentation
or affirmative concealment of a material fact by the government.' United
States v. Ruby Co., 588 F.2d 697, 703-03 (9th Cir. 1978)." Montana
Department of Social and Rehabilitation Services v. United States
Department of Health and Human Services, et al., CV-77-78-H, Decided
November 9, 1983 (D. Mont.). See also Schweiker v. Hansen, 450 U.S.
787 (1981) and I.N.S. v. Miranda, 103 S. Ct. 281 (1982).

New York has not shown that it meets these criteria. It is not
enough for a party to allege, as the State did here, that the Agency was
aware of the situation in 1979 but did not issue this disallowance until
1983. /3/ Moreover, certifications of facilities with repeat
deficiencies as we had here are prohibited by regulation, a stricture
impliedly agreed to by New York in its State plan. Agency Hearing
Exhibit 5. Accordingly, HCFA is not estopped.


* HCFA was not arbitrary and capricious

HCFA did not deny that it had once proposed to abolish the repeat
deficiency regulation, although, as New York admitted, Congress
prevented its repeal. New York challenged HCFA to produce other
instances where the Agency had based a disallowance on the repeat
deficiency regulation.

HCFA argued that it should not have to show that it had previously
enforced this regulation, but did offer some examples without conceding
its right to exercise discretion in enforcing regulations. In addition
to Decision No. 181, which we described earlier in this decision, HCFA
cited the Pennsylvania case (Decision No. 270) and Tennessee Department
of Public Health, Decision No. 143, January 26, 1981, as well as
disallowances in New York, the District of Columbia, and New Jersey.
Agency Hearing Exhibits 7-13, 16.

New York distinguished the New Jersey disallowance because it was
based on an Agency determination that the facility was ineligible to
participate in Medicare, but it did not distinguish (7) the others. /4/
The Board did not require the Agency to point to other instances of
enforcement of the repeat deficiency regulation, but it voluntarily
provided the examples referred to above. Moreover, New York did not
offer a single specific example of the Agency waiving this requirement,
even after the general statement of its witness had been rebutted by the
Agency's examples. /5/ Thus, the State failed to show that HCFA was
arbitrary and capricious and we conclude it was not. /6/


* New York is not excused from compliance as receiver

We are not persuaded by New York's argument that as receiver it
should have been treated as the owner of a new facility and thus not
burdened with a history of earlier survey findings of deficiencies.
Even after the State was named receiver, some deficiencies found in
earlier surveys continued to repeat in survey after survey until the
facilities were recertified in 1981.

(8) New York contended that the deficiencies which repeated would not
have caused the State to decertify the facilities if those had been the
only deficiencies at the time of the original survey in November, 1977.
This is self-serving and speculative. Moreover, the repeat deficiency
regulation does not distinguish between deficiencies that are excusable
and those that are not.

The Board held against the State on this issue in Decision No. 181,
but New York objected to that decision as precedent here. See
discussion infra. In addition to Decision No. 181, HCFA also relied on
Missouri Department of Social Services, Decision No. 175, April 30,
1981; and New Jersey Department of Human Services, Decision No. 164,
April 30, 1981. In those cases, the Board held that as receiver or
agent of a court a state was not exempt from compliance with Medicaid
regulations, including the repeat deficiency regulation. New York cites
no authority to the contrary, and we find that here the State was bound
by that regulation, even as receiver.

* HCFA properly disallowed FFP in payments to Kings Care SNF

New York acknowledged that in order for the State to validly certify
Kings Care SNF, HCFA had to have approved it for participation as a
Medicare provider. However, New York contended that HCFA's refusal was
improper because the State survey agency found that the health and
safety of the patients was not threatened by the deficiencies, nor was
the facility limited in its capacity to give adequate care.

HCFA showed that the facility had dropped its appeal from the
Medicare termination. Agency Hearing Exhibits 1-4. Moreover, as HCFA
pointed out, the Board is not authorized to review Medicare terminations
because a hearing process for review of those determinations is
established pursuant to 42 U.S.C. 1395 ff(c). See 45 CFR Part 16,
Appendix A. /7/ Thus we did not review the Medicare termination, and
even using the State's criteria we find that Kings Care SNF was not
validly certified during the period in question.


* The res judicata issue

HCFA argued that at least with respect to the State-as-receiver issue
and the overlapping period March 1, 1980 through July 31, 1980, the
Board's holdings in Decision No. 181 should be treated as controlling
precedent. These issues were litigated and decided in that case, but
New York raised an objection in this appeal because it was not given an
opportunity for oral argument as allegedly promised.

At the time of Decision No. 181, New York did not ask for
reconsideration, nor did it call to the Board's attention (9) that the
State had not been given a hearing which it thought the Board had
promised. However, the matter is now academic, as the preceding
analysis shows that our decision in this case parallels but does not
depend on the earlier one. Moreover, here New York was given a full
evidentiary hearing and a telephone conference subsequent to the filing
of post-hearing briefs. Whatever missed opportunity there may have been
in the earlier proceeding has been afforded in this one. /8/


Conclusion

For the reasons above stated, we uphold the disallowance. /1/ The
comments, signed by the Administrator of HCFA, declared that the
repeat deficiency regulations were "overly mechanistic, expensive, and
unnecessary." 45 Fed. Reg. 16505 (March 14, 1980). /2/ The Court did
remand the case to allow the District Court to determine if the
Agency was authorized to "retroactively disallow" FFP. /3/ HCFA
issued a disallowance for noncompliance with the repeat deficiency
regulation involving these same facilities on February 15, 1980.
Decision No. 181, p. 9 and Appendix, p. 2. /4/ New York did not mention
the Tennessee case, but alleged that in Pennsylvania, (Decision No.
270), as in Decision No. 181, the Agency had not cited the repeat
deficiency regulation in its disallowance letter, although in both cases
the Agency had relied on that regulation during the appeal. New York
said that it was not in a position to comment on the District of
Columbia cases because it had not seen the files; and that it was
inappropriate for the State to comment on the recent New York case
because it was on appeal to this Board. The State did note that in the
recent case, which involved 67 facilities, New York was first notified
of the Agency's position on July 22, 1981, subsequent to the events in
this appeal. Decision No. 181 is discussed separately below in this
decision. /5/ New York's sole witness at the September 30
hearing was the Director of the Bureau of Health Facility Coordination
of the Office of Health Systems Management, New York State Department of
Health. /6/ The State offered proof that its survey agency found
that the health and safety of the patients was not in jeopardy. The
repeat deficiency regulation requires that, in addition to that finding,
the State must document that the facility came into compliance, even
temporarily. This showing was lacking here. The Board is bound by
applicable laws and regulations. 45 CFR 16.14. New York did not show
why it should not have complied with both parts of the repeat deficiency
regulation. /7/ New York did not dispute that it was not until
February 25, 1981, that the State survey agency made the required
finding under 42 CFR 442.20 that the deficiencies causing termination
had been corrected and would not recur. /8/ New York argued that
as the proponent of a ruling in HCFA's favor on the basis of res
judicata (infra, p. 3), the Agency should bear the burden of proving why
res judicata applied. Since we do not rely on res judicata, there is no
need to decide the issue of which party bears the burden of proof.

NOVEMBER 14, 1984