Oregon Department of Human Resources, DAB No. 604 (1984)

GAB Decision 604

December 12, 1984

Oregon Department of Human Resources;
Ford, Cecilia; Garrett, Donald Ballard, Judith
Docket No. 83-262


The Oregon Department of Human Resources (State) appealed a
disallowance of $138,266 made by the Health Care Financing
Administration (Agency) pertaining to a claim made for Medicaid
reimbursement for payments to two State hospitals for mental diseases.
The claim was made on a Quarterly Statement of Expenditures for the
quarter ended December 31, 1982.

The primary issue raised in this appeal was decided in the State's
favor in Joint Consideration - Timely Filing of Claims, Decision 576,
October 5, 1984. The sole remaining issue is whether the State's claim
was timely filed under section 306 of Public Law 96-272.

Based on a preliminary review of the record, it appeared to the Board
that the claim fell within an exception to the section 306 filing
deadlines an adjustment to prior year costs and, therefore, was timely
filed. The Board issued an order, dated October 19, 1984, directing the
Agency to show cause why the disallowance should not be reversed based
on the analysis set out in the order. The Agency subsequently notified
the Board that it did not intend to respond substantively to the order.
(Confirmation of Telephone Conversation dated December 4, 1984)

Accordingly, for the reasons stated in the order, which is attached
to this decision and made part of it, we conclude that the disallowance
should be reversed.

(2) ORDER TO SHOW CAUSE

The Health Care Financing Administration disallowed $138,266 in
federal financial participation claimed by the Oregon Department of
Human Resources on February 1, 1983 for payments made to two State
hospitals for mental diseases. The primary basis for the disallowance
was that the State's claims were not timely filed under certain
appropriations act provisions which the Agency interpreted as
permanently barring payment for any pre-fiscal year 1979 expenditures
not filed within a one-year time limit. In Joint Consideration - Timely
Filing of Claims, Decision No. 576, October 5, 1984, the Board held that
the appropriations act provisions relied on by the Agency did not
permanently extinguish claims for pre-fiscal year 1979 expenditures.

Given the Board's holding in Decision No. 576, the question of
whether a claim has been timely filed is governed by section 306 of
Public Law 96-272. Under section 306(b), claims for pre-fiscal year
1980 expenditures must be filed by May 15, 1981.

Section 306(b)(4) provides, however, that the time limits should not
be applied so as to deny payment with respect to any expenditure
involving "adjustments to prior year costs."

HHS regulations define the exception for an adjustment to prior year
costs as follows:

Adjustment to prior year costs means an adjustment in the amount of a
particular cost item that was previously claimed under an interim rate
concept and for which it is later determined that the cost is greater or
less than that originally claimed.

45 CFR 95.4 (1981).

(3) The relevant preamble explained that this exception was "limited
to claims for services or medical assistance based on interim rates that
subsequently are determined to be higher or lower than originally
claimed." 46 Fed. Reg. 3528, January 15, 1981. The preamble also noted:
"It has been our experience that in these areas subsequent adjustments
are unforeseen and unavoidable." Id.

In this case, a preliminary review of the record indicates that the
disputed claims fall within the HHS definition of an adjustment to prior
year's costs.

The State described the claims as adjustments to previously claimed
interim payments to reflect final audited actual allowable costs. In
its response, the Agency did not deny that these claims represented the
difference between interim and final rates, but contended that the term
"prior year" as used in section 306(b)(4) meant federal fiscal year 1979
or later. The Agency based this argument on the use of the singular
"year" and on the references to the date October 1, 1979 in section
306(b). The Agency also reasoned that the purpose of section 306 was to
impose reasonable time limits on states for filing claims and that
Congress could not have intended to permit a claim to be deemed timely
filed four or five years after the cost in question when the generally
applicable rule set a two-year time limit.

The Agency's restrictive reading of the exception in section 306(b)(
4) advanced in this proceeding appears to be in conflict with the HHS
regulations on timely filing of claims. Those regulations define the
exception without limiting the "prior year" to fiscal year 1979 or later
as the Agency would now have the Board limit it. Also the regulations
treat the exceptions the same as applied to pre- and post-fiscal year
1980 costs. 45 CFR 95.19. While Congress did intend to impose filing
limits on states, Congress recognized an exception for adjustments to
prior year costs for both the two-year limit on current claims and for
the deadline for pre-fiscal year 1980 costs. Thus, permitting payment,
under the exception, for costs related to services provided four or five
years previously does not appear to conflict with the two-year limit.

Moreover, the use of the singular "year" does not compel the reading
the Agency advanced here; any cost item previously claimed would have
been claimed in only one prior year. The Agency has pointed to nothing
in either the wording of section 306(b) or in its legislative history
which would lead us to conclude that we should adopt the restrictive
reading of the exception advanced here.

(4) Thus, based on our preliminary analysis, it appears that the
exception applies and that the claim should be considered to be timely
filed under section 306(b).

We note that this case also raises the question of when the
expenditures were incurred. Various states have disputed the Agency
position that an expenditure related to a public provider of Medicaid
services is incurred when the provider incurs costs, rather than when
the State agency adjusts the reimbursement rate as a result of a cost
settlement. However, in view of our preliminary analysis that the costs
in question here fall within the exception for "adjustment to prior year
costs," it does not appear at this time that it will be necessary for
the Board to reach the issue of when the expenditures were incurred.

Accordingly, the Agency is directed to show cause, in writing, why
the Board should not proceed to decision in this case, reversing the
disallowance on the basis of Decision No. 576 and the further conclusion
that the costs in question here fall within the exception for an
"adjustment to prior year costs" and, therefore, the State's claim was
timely filed under section 306 of Public Law 96-272 and the HHS
implementing regulations. If the Agency determines that the Board's
preliminary analysis is correct, the Agency may wish to simply notify
the Board and the State that it is withdrawing the disallowance on that
basis. Otherwise, the Agency's response to this order should be filed
within 30 days of the date the Agency receives this order.The Agency
representative may wish to note that the Board is issuing similar orders
in the Board cases identified on the attached list. The Agency may, if
it wishes, submit a coordinated response.

The State is not required to respond to this order. If the Agency's
response to this order raises any new issue, the State will be given an
opportunity to reply, if fairness requires.

MARCH 19, 1985