GAB Decision 507
Docket No. 83-70
January 31, 1984
New York State Department of Social Services;
Ballard, Judith; Settle, Norval Teitz, Alexander
The New York State Department of Social Services (State) appealed a
decision of the Regional Administrator of the Health Care Financing
Administration (Agency) disallowing $10,697,028 in federal financial
participation (FFP) under Title XIX (Medicaid) of the Social Security
Act. The disallowed amount represents a "set-off" or reduction of
monies the State concededly owes the Agency against claims the State
believes it is owed by the Agency for expenditures in previous quarters.
There are no material facts in dispute. Therefore, our decision is
based on the written record in this case. Based on our analysis, we
sustain the disallowance.
I. Background
The State submitted to the Agency retroactive claims for FFP totaling
$49,366,266. The claims were for Medicaid services provided to patients
aged 22-64 in institutions for mental diseases (IMDs) for the period
from April 1, 1971 through September 30, 1978.
On June 23, 1981, the Agency notified the State tht the claim had
been deferred pursuant to 45 CFR 201.15 and requested the State to
submit additional documentation to support the State's claim. The State
provided the requested documentation.
The Agency did not process the claim in accordance with the deferral
regulations. These regulations require the Agency to pay or disallow
the State's claim within 90 days after receiving the State's
documentation. 45 CFR 201.15(c)(6). Instead of either paying or
disallowing the State's claim, the Agency notified the State on August
20, 1982, in a footnote to the State's third quarter grant award, that
the claim was suspended due to appropriation restrictions on FY '81
funds which the Agency stated precluded processing or payment of the
claim. /1/
(2) The State's quarterly expenditure report (QER) for the quarter
ended June 30, 1982 reported $10,697,028 as the amount of third party
collections received by the State and payable to the Agency pursuant to
Medicare Part B regulations at 42 CFR 433.140. The State acknowledged
that these third party collections are "creditable" to the Agency.
State Brief, p. 7. However, the State set-off an identical amount on
the same QER against the $49,366,266 of retroactive IMD claims "as a
result of HCFA's failure to pay the IMD claim . . . in accordance with
45 CFR Sec. 201.15(c)(6)." id.
The Agency disallowed the set-off in the amount of $10,697,028,
stating that "State agencies cannot use other funds to offset
expenditures that could not be paid to the State due to restrictions in
appropriation laws," citing the Board's decision in Vermont Agency for
Human Services, Decision No. 338, June 30, 1982.
II. Discussion
The State's argument is essentially that the Agency failed to process
the State's IMD claim in accordance with the deferral regulations and,
therefore, the State is entitled to recover the amounts allegedly owed
to the State by setting-off that amount against amounts concededly owed
by the State to the Agency. /2/
(3) The State asserted that it is merely exercising the right which
belongs to every creditor to apply funds of its debtor, in its hands, to
the debt due it. State Brief, p. 19. The State characterized the issue
before the Board as whether a state under the Medicaid program may
set-off funds it is legally entitled to receive from the Agency against
funds the State concededly owes to the Agency.
Before we can reach the broader issue of the appropriateness of the
use of set-off under the Medicaid program, a more basic question must be
answered: whether the State is legally entitled to the funds from the
State's IMD claim against which the State is attempting to set-off.
Without such an entitlement, there can be no set-off. E.g., Liberty
Sav. Ass'n v. Sun Bank of Jacksonville, 572 F.2d 591, 595 (7th Cir.
1978); see also, 80 C.J.S. Set-off and Counterclaim Sec. 29 ("a debt
due at a future time cannot as a general rule be set-off in equity
against a debt presently due.")
Following the court's ruling in Connecticut v. Schweiker, supra, the
Agency notified the State that the retroactive IMD claims which were
deferred and subsequently suspended were now disallowed. Agency Ex. 9.
The State appealed the disallowance to this Board. On May 31, 1983 the
Board issued a decision, Joint Consideration: IMD Admission/Discharge
Issue, Decision No. 436, which upheld the Agency's disallowance subject
to a reduction in amount to the extent the State could document what
portion of the rates was for the costs of services separately covered in
the State plans. Joint Consideration, supra, at p. 36. Final
resolution of what portion of these costs is allowable has yet to occur.
See, State Reply Brief, p. 3.
The State argued that Board Decision No. 436 recognized that the
State "is entitled to reimbursement for services rendered to otherwise
eligible patients between the ages of 22-64 in an institution for mental
disease during the partial months of admission and discharge to the
extent that such services are otherwise covered in the Medicaid State
Plan." State Reply Brief, p. 3. The State contended that it submitted
documentation showing that approximately $58,000,000 of the claims
considered in Decision No. 436 are allowable under the Board's decision.
Id. The State asserted that the question of allowability has not been
finally resolved and, therefore, the Board's Decision "does not
undermine the State's right to make the offset in question." Id.
The Agency recognized that when the State submitted the requisite
documentation "a claim may exist for FFP pursuant to (Board) Decision
No. 436." Agency Brief, p. 10. (Agency emphasis) The Agency argued that
until that time the State does not have an allowable claim for FFP and,
therefore, the State cannot set-off (4) funds "admittedly due the
Federal government as a form of payment for a claim for FFP which has
been disallowed." Id.
We find that the State has no present entitlement to the claimed
funds which are the subject of Board Decision No. 436 and, therefore,
the State is not entitled to set-off funds against them. The State's
argument ignores the clear wording of the Board's finding in Decision
No. 436. The Board's holding in Decision No. 436 was that:
(We) uphold the disallowances, subject to reduction to the extent
that the States can show the Agency what portion of the rates were for
the costs of services separately covered in the State plans.
Joint Consideration, supra, at p. 36.
The Board specifically upheld the Agency's disallowance. Although
the amount of the disallowance is subject to reduction, such reduction
will take place only if the State is able to document the extent of
services separately covered in the State plan. Until such time as the
State's documentation is reviewed by the Agency and the documentation's
sufficiency is finally resolved, either by the Agency, or by this Board,
through an appeal of any resulting disallowance by the Agency, the
disallowance stands against the State and, therefore, the State has no
present entitlement to the claimed costs. /3/
To accept the State's argument, that the State is entitled to the IMD
money until such time as the question of the allowability of the IMD
claims is finally resolved, would effectively invert the Board's holding
in the Joint Consideration, supra, to be: "We overturn the disallowance
subject to reinstatement to the extent the Agency can show that the
State failed to document what portion of the rates were for costs of
services separately covered in the State plans." Clearly, this is not
what the Board held.
In addition, the State's argument presumes the allowability of the
State's IMD claim subject to the Agency showing otherwise. It is a
basic principle in grants law that the burden of documenting the
allowability of costs is on the grantee. E.g., New York State
Department of Social Services, Decision No. 407, April 14, 1983; (5)
New York State Department of Social Services, Decision No. 204, August
7, 1981; see also, 1 Cappalli Fed. Grants & Coop. Agreements Sec. 4:30
(1982). To require the Agency to show any deficiencies in the State's
claim, as opposed to the State showing the sufficiency of its claim, is
to shift the burden of documentation from the State to the Agency. The
State presented no arguments to support such a redical shift in burdens
and we see no reason to sanction such a shift. Therefore, since we
found above that the State is not entitled to the IMD monies which are
the subject of the Board's decision in Joint Consideration, supra, it
necessarily follows that the State's set-off against the IMD monies is
improper.
Since we find that the State did not have a present entitlement to
the IMD monies against which it could set-off, we do not reach the other
issues raised in this case concerning the appropriateness of set-off
under Title XIX of the Social Security Act. /4/
III. Conclusion
Based on the analysis above, we find that the State's use of set-off
was improper and, therefore, we uphold the disallowance of $10,697,028.
/1/ Refusal to pay state claims based on the restrictive
language the Agency claimed applied to FY '81 appropriations has been
ruled to be erroneous. Connecticut v. Schweiker, 684 F.2d 979 (D.C.
Cir. 1982), cert. denied, 103 S. Ct. 1197 (1983). /2/ The State
asserted that the set-off question arose because of the Agency's failure
to pay the IMD claim in accordance with the Agency's deferral
regulations. State Brief, p. 2. The Agency argued that, even assuming
the Agency erred in not acting in accordance with the deferral
regulations, it was harmless error since the Agency ultimately
disallowed the claim. Agency Brief, p. 8. We do not necessarily accept
the Agency's argument. The State was deprived of use of the $49,366,266
from approximately the middle of December, 1981 (90 days after the State
submitted its documentation) until at least August 20, 1982, date of the
Agency's disallowance letter. The latter date could in fact be as late
as May 31, 1982, the date of the Board's decision sustaining the
Agency's disallowance of the IMD claim, Joint Consideration: IMD
Admission/Discharge Issue, Decision No. 436, depending on whether the
State decided to retain the monies and agree to pay interest on any
amount ultimately determined on appeal to be properly disallowed. It is
conceivable that deprivation of use of such a large sum for such a
period of time could be considered more than "harmless error." However,
the State did not argue that it is presently entitled to the IMD monies
because of the deferral regulations and the State in fact recognized
that a "final disallowance determination" would supersede any
entitlement to the claimed funds under 45 CFR 201.15(c)(6) (State Brief,
p. 4). Therefore, we need not decide the questions of whether the
Agency improperly suspended payment of the deferred claim or whether the
Agency's action amounted to "harmless error." /3/ We note that,
by letter dated December 15, 1983, the Agency has informed the State
that it has determined that some of the costs for which the State
provided documentation were for services which were unallowable. The
State has appealed that determination to the Board (Docket No. 84-8).
/4/ We note that the Board issued a decision on the same day as this
decision which found that the state's use of the self-help remedy of
set-off was inappropriate under Title IV of the Social Security Act. New
York State Department of Social Services, Decision No. 506, January 31,
1984.
NOVEMBER 14, 1984