GAB Decision 609
December 14, 1984
New York Department of Social Services;
Ballard, Judith; Ford, Cecilia Garrett, Donald
Docket No. 83-249
The New York Department of Social Services (State) appealed a
disallowance by the Health Care Financing Administration (Agency) of
$5,381,843 in federal financial participation in the Medicaid program.
The disallowance was based on statutory and regulatory time limitations
for filing claims.
After several rounds of briefing, $289,804 remained in dispute. The
Board issued an Order to Show Cause dated October 19, 1984 which
discussed the component parts of this amount, and both parties submitted
responses. This decision will track the organization of the Order as it
discusses the disposition of each component. The Order is attached to
this decision and made part of it.
$116,296 in Pre-1979 Costs.
1. The $98,559
The Agency stated that it would not contest the Board's view of these
costs as set forth in the Order and has withdrawn this portion of the
disallowance. (Letter dated November 26, 1984)
2. The $15,811
The Agency stated that it would not concede the correctness of the
Board's view of these costs as set forth in the Order, but it has
withdrawn this portion of the disallowance. (Letter dated December 10,
1984)
3. The $1,926
The Agency withdrew this portion of the disallowance. (Letter dated
November 26, 1984)
$173,508 in 1979-1980 Costs
The State agreed that the facts and law pertaining to this portion of
the disallowance were identical to those discussed in New York
Department of Social Services, Decision No. 521, March 6, 1984. We
therefore adopt the reasoning in that decision (and reiterated in our
Order) and uphold this portion of the disallowance.
(2) Conclusion
Therefore, of the $289,804 remaining in dispute, the Agency has
withdrawn the disallowance of $116,296, and we uphold the disallowance
of $173,508.
(3) ORDER TO SHOW CAUSE
We have examined the numerous rounds of briefing in this case which
include several shifts of position by the State as to the nature of some
of the costs.
As we understand the parties' positions at the conclusion of the
briefing now in the record, a total of $289,804 remains in dispute.
This figure can, first, be broken into three segments: $116,296
pertaining to expenditures which the Agency asserts were made in FY 1978
and before, $157,415 which the Agency asserts were made in FY 1979, and
$16,093 which the Agency asserts were made in FY 1980.
$116,296 in Pre-1979 Costs.
According to the State, the $116,296 can further be broken into three
segments of $98,559, $15,811 and $1,926.
1. The $98,559
According to the State, the $98,559 claimed after May 15, 1981 did
not represent expenditures made prior to FY 1979. Rather the claim was
for a retroactive rate adjustment for the Gerrit E. Smith Infirmary
which became effective on August 17, 1981. As such, the claim submitted
on December 17, 1981 came under the "adjustments to prior year costs"
exception to the two-year claiming limitation found in Section 306 of
Pub. L. 96-272.
The primary basis for the disallowance here 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 (4) 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 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).
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.
Here, the State alleged that the $98,559 involved adjustments to
prior year costs and the Agency did not deny that allegation.
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 portion of the disallowance raises the additional
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 agency
incurs the costs, rather than when the State agency adjusts the
reimbursement rate as a result of a cost settlement.
(5) 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 why the Board
should not reverse this portion of 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.
2. The $15,811
The expenditures in question were made in 1975 and 1976 by a facility
which, according to the Agency, had an invalid provider agreement. The
Agency disallowed the costs, and the State did not seek reconsideration.
A later disallowance for the same facility on the same ground was
appealed. Shortly before the Board rendered a decision in the second
disallowance, the State resubmitted its $15,811 on May 14, 1981, based
on "advance knowledge of the Board's ruling." State's July 27, 1984
letter, p. 3. * The Board decision found that pursuant to State court
orders, FFP should be paid in costs incurred during the period for which
the $15,811 also relate. (See New York Department of Social Services,
Decision No. 181, May 29, 1981, p. 20)
Even though the second claim was made before May 15, 1981, the
reasoning in the Joint Consideration does not automatically lead to the
conclusion that the payment of the $15,811 was proper. There is a
question whether the May 14, 1981 claim may be barred for other reasons.
One could argue that by not appealing the original disallowance of
the $15,811, that disallowance determination became the final Department
decision on the allowability of the underlying costs. The State would,
therefore, be precluded from reclaiming the costs.
(6) Alternatively, one could argue that the May 14, 1981 claim was a
new claim, submitted within the section 306 time limits, and that
between the time of that claim and the disallowance Agency policy
changed to permit the claiming of those costs for the time period
covered by the disallowance. Nothing in the regulations prohibit a
reclaiming of those costs, and they should now be paid.
The State should show cause why the disallowance of the $15,811
should not be upheld because failure to appeal the initial disallowance
precludes it from reclaiming those costs.
The Agency should show cause why the disallowance should be upheld
because a new claim was made in a timely manner and Agency policy prior
to its disallowance was to pay the costs for the time period in
question.
As part of their submission, both parties should discuss the issue of
administrative res judicata, any other relevant administrative law
principles, and any relevant court or administrative board decisions.
3. The $1,926
According to the record, the $1,926 represents expenditures from
January 1, 1978 through September 30, 1978 that were claimed on March 2,
1981. The effect of the Joint Consideration is to find that this claim
is payable since the claim was made on or before May 15, 1981.
$173,508 in 1979-1980 Costs
The costs in this portion of the disallowance were all claimed after
May 1981. For those expenditures incurred after September 30, 1979, we
assume they were claimed after the two-year time limitation set forth in
Section 306 of Pub. L. 92-272 had been passed.
The State's argument relating to these costs is that Section 306 (as
well as the relevant regulations) cannot be given effect retroactively
so as to bar payment of claims based upon expenditures incurred prior to
its effective date. The State has put forward these same arguments in
prior appeals, and the Board rejected them in Decision Nos. 521 and 578.
In Decision 521, we pointed out that the limitation provision on filing
claims in Section 306 was not truly a (7) retroactive statute since
there was a transition period where time was allowed after passage of
the statute for filing claims for expenditures made before the law was
enacted. In addition, for those costs incurred after September 30, 1979
but before June 17, 1980 (the date of enactment of Section 306), the
states would have had at least into the third quarter of 1981
(stretching into the second quarter of 1982) to file their claims under
the general two year time limit.
The State should (1) set forth in detail the dates the costs were
claimed, and (2) show cause why the disallowance should not be upheld
based on similar grounds as set forth in Decision Nos. 521 and 578.
Order
Within 30 days of receipt of this Order:
(1) Both parties should notify the Board whether our understanding of
the amounts and nature of the costs left in dispute are correct as well
as our statements of the parties' arguments.
(2) The Agency should show cause why the disallowance pertaining to
the $98,559 should not be overturned. 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. 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.
(3) The State should show cause why the disallowance pertaining to
the $15,811 and the $173,508 should not be upheld.
(4) The Agency should show cause why the disallowance of the $15,811
should be upheld.
We will notify the parties after receiving their submissions whether
there will be any further proceedings in this case.
(8) The $1,926 segment is no longer in dispute in that the effect of
Decision No. 576 was to find the claim payable. * We are assuming that
the State means that it examined Ohio Department of Public Welfare,
Decision No. 173, April 30, 1981 which set forth certain legal
principles that would be the basis for determinations to be made in the
New York appeal.
MARCH 19, 1985