DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Massachusetts Department of Public Welfare
Docket No. 86-88
Decision No. 796
DATE: October 6, 1986
DECISION
The Massachusetts Department of Public Welfare (State) appealed
a
disallowance by the Health Care Financing Administration (HCFA)
of
$1,040,744 in federal financial participation (FFP) claimed under
Title
XIX (Medicaid) of the Social Security Act (Act). HCFA disallowed
State
claims filed on August 27, 1985 for the costs of services in
State-owned
intermediate care facilities for the mentally retarded (ICFs/MR)
for the
quarters ending September 30 and December 31, 1982. HCFA
determined
that the State had failed to comply with the requirements for
timely
claims submission.
The issue presented is whether the disallowed claims were
either
adjustments to prior year costs or resulted from an audit exception
and
thus were excepted from the two-year filing limitation in 45 CFR
95.7.
For the reasons discussed below, we find that these claims were
not
within the exceptions. Accordingly, we sustain the
disallowance.
Applicable regulations Section 95.7 of 45 CFR implements section 1132
of
the Act and provides that: 1/
. . . we will pay a State for a State agency
expenditure made after
September 30, 1979, only if
the State files a claim with us for
that expenditure
within 2 years after the calendar quarter in which
the State agency made the expenditure. . . .
1/ 45 CFR Part 95, Subpart A, Time Limits for States to File
Claims,
was published in 46 Fed. Reg. 3529 (January 15, 1981)..- 2 -
Section 95.19 of 45 CFR provides exceptions to the time limitation
in
section 95.7. The exceptions relevant here are:
(a) Any claim for an adjustment to prior year costs.
(b) Any claim resulting from an audit exception.
Factual Background
The State filed Quarterly Statement of Expenditure Reports (QERs) for
the
quarters ending September 30, 1982 and December 31, 1982 claiming
FFP for
services provided by State-owned ICFs/MR operated by the
Massachusetts
Department of Mental Health (DMH). (The QERs were timely
filed on
October 29, 1982 and January 31, 1983, respectively.) On April
26, 1985 DMH
submitted to the State reprocessed claims for these two
quarters. DMH
had reconciled the earlier claims with the State's Master
Eligibility File by
reprocessing the claims through the State's
computerized vendor payment
system. DMH learned that the State had
previously claimed for some
ineligible patients as well as not claimed
for some eligible patients.
On August 27, 1985, in the QER for the quarter ending June 30, 1985,
the
State submitted these reprocessed claims to HCFA. For the
quarter
ending September 30, 1982, the reprocessed claim increased FFP
by
$826,379 and decreased it by $1,235,004. For the quarter ended
December
31, 1982, the reprocessed claim increased FFP by $214,365 and
decreased
it by $1,646,162.
HCFA initially deferred action on the State's claims, noting that
DMH's
reconciliation of its ICF/MR claims identified 9,801 patient days
not
previously reported with total charges of $1,040,744 FFP. The
deferral
notice requested the State to make available all related documents
and
material necessary to determine the allowability of the State's
claims.
On April 10, 1986 HCFA disallowed the State's claim of $1,040,744
FFP
based on the two-year time limitation in 45 CFR 95.7. HCFA rejected
the
State's assertion that the claim resulted from an audit exception
and
concluded that claims for these expenditures should have been filed
by
September 30, 1984 and December 31, 1984, respectively.
Analysis
Section 95.7 of 45 CFR provides that HCFA will pay FFP for an
expenditure
only if the State files a claim for that expenditure within
two years after
the quarter in which the - 3 -
expenditure was made. 2/ Here the State did not file a claim for
9801
patient days from the quarters ending September 30, 1982 and
December
31, 1982 until August 27, 1985. The State did not argue that
its
billing system for ICFs/MR caused it to make the expenditures
in
question at some point after the quarters ending September 30
and
December 31, 1982. The State submitted no rebuttal to the
conclusion
reached by HCFA in its disallowance that, under the two-year
limitation,
the State was required to file a claim for these patient days
by
September 30 and December 31 of 1984, respectively. In fact,
HCFA's
deferral letter cited correspondence from DMH to an official of
the
State Medicaid Agency acknowledging that the State had exceeded the
two
year limitation but stating that "the Department [DMH] feels
justified
in filing this claim based on an audit by HEW . . . ." 3/ HCFA Ex.
A.
In effect, the State has conceded that these claims are barred
by
section 95.7 unless the State can show that one of the exceptions
set
forth in 45 CFR 95.19 applies.
HCFA determined in its disallowance letter that the claims did not
result
from an audit exception. In the Board proceedings, the State
relied on
the exception for adjustments to prior year costs and argued
that its claim
should be determined by netting the overstated and
understated costs.
We will therefore examine whether either of the two
exceptions relied on by
the State applies.
I. Is the State's claim an adjustment to prior year costs?
The State argued that the claims at issue constitute an adjustment
to
previously filed claims, and are, therefore, not barred by
the.time
limitation in 45 CFR 95.7. The State explained that the claims
at issue
arose when DMH, in April 1985, reprocessed the previously filed
claims
through the
2/ "Claim means a request for Federal
financial participation in
the manner and format
required by our program regulations and
instructions
or directives issued thereunder." 45 CFR 95.4.
3/ The notice of deferral also stated that the
reconciliation data
for the claims were available in
December 1983, but noted that DMH
had not submitted
the reprocessed claims to the State until April
1985. The State has not provided any information to rebut
this
finding. Consequently, the record shows
that the State had more
than ample time to submit
the claims in a timely fashion.
- 4 -
State's computerized vendor payment system in conformity
with
recommendations from federal auditors. 4/
Rather than being new claims, the State maintained, the claims were
merely
the result of matching the patients from the original claim with
the Master
Eligibility File, as was recommended by the federal auditors.
The State cited
Maryland Department of Human Resources, Decision No.
483, November 30, 1983,
both for the general proposition that an
adjustment to a previous claim is
not barred by timely claims
limitations and as support for its argument that
FFP should be
calculated by netting its overstated and understated costs.
HCFA responded that the claims at issue were not an adjustment, but
were
new claims for ICF/MR patient days not previously reported. HCFA
argued
that the newly added eligible patient days discovered through use of
the
State's computerized vendor payment system did not constitute part
of
the State's original claim and therefore were not timely filed.
For purposes of the 45 CFR 95.19(a) exception, "adjustment to prior
year
costs" is defined as "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. The State's claim was not based
on a
change to an interim rate for ICF/MR services.
4/ Between November 1980 and April 1981, the Office of
Inspector
General, DHHS, conducted a field audit to review Medicaid payments
to
State-owned ICFs/MR for the period July 1, 1978 to December 21,
1980.
Audit Control No. 01-20201, issued March 5, 1982, State Ex. C.
The
audit report found that DMH had claimed reimbursement for
services
rendered to patients ineligible for Medicaid because DMH's
ICF/MR
billings were not processed through the State's computerized
vendor
payment system, which would automatically test to the State's
current
Master Eligibility File. Among the audit report recommendations
were
that the State integrate ICF/MR billings into the computerized
vendor
payment system in order to prevent future Medicaid payments
for
ineligible patients and that the State reprocess its billings for
ICF/MR
services from June 1, 1980 through June 30, 1981 to identify
ineligible
patients. The State had advised the auditors that it
expected to add
ICF/MR payments to the computerized system during the first
quarter of
the 1982 federal fiscal year. Audit Report, pp. 22-26.
- 5 -
What we are dealing with here, additional patient days, does not
fall
within this definition. The State did not increase the
amount
reimbursed for each patient day of service provided and
previously
claimed. The State's claims at issue here are related to its
earlier
claims for the same quarters only in that all the claims are for
ICF/MR
patient days. This alone will not qualify the latter claims
as
adjustments to prior year costs. The State has simply claimed costs
for
patient days not previously reflected on the State's QERs. As
such,
these claims are not adjustments to prior year costs, but are
wholly
independent of previous claims.
Additionally, we find the Maryland case cited by the State not relevant
to
the facts of this appeal. The issues before the Board in Maryland
did
not involve the two-year limitation at 45 CFR 95.7 and the
exceptions at 45
CFR 95.19. Maryland involved a claim for a $2,344 net
credit resulting
from an audit finding that claims for co-operative
agreement costs under
Title IV-D of the Act contained clerical errors
both understating and
overstating costs. (Title IV-D is entitled Child
Support and
Establishment of Paternity.) The Agency found that
Maryland's claim resulted
from an audit exception under 45 CFR 95.19(b)
but was nevertheless barred by
congressional funding restrictions in
certain fiscal year appropriations
statutes. The Board reversed the
disallowance on grounds that the
funding restrictions were not a bar to
payment of the credit since it "was
merely an adjustment to the total
amount of FFP allowable for specific cost
items for which the State had
previously [timely] claimed FFP." Maryland, p.
3 (emphasis in original).
Here, the State's reprocessed claims decreased its FFP for the
two
quarters at issue by $2,881,166, while increasing it by $1,040,744.
The
State argued that HCFA should have reconciled these claims
by
subtracting the understated costs from the overstated costs,
resulting
in a net decrease of $1,840,422 in the FFP previously
claimed. The
State relied on Maryland as support for this.
We agree with HCFA that the previously unclaimed patient days do
not
represent previously understated cost items but rather are separate
cost
items. We regard it as merely fortuitous that the State's
earlier,
timely claims for the quarters in question included unallowable
costs
which exceeded the amount of the claims at issue here. There is
no
basis in the regulation excepting "adjustments to prior year costs"
or
in Maryland to require HCFA to calculate FFP as the State has
proposed.
To find that this is proper would in essence require HCFA to pay
for
unallowable claims which were timely submitted simply because the
State
later discovered, after the time for filing had run, that it had
not
claimed for at least as many eligible patient days. - 6 -
We therefore find that the exception for adjustments to prior year
costs
does not apply to the State's claims for patient days not
previously
reported.
II. Is the State's claim the result of an audit exception?
Although the State did not restate this argument in its briefing,
the
DMH/State Medicaid Agency correspondence cited in the notice of
deferral
took the position that the claim was justified based on a federal
audit
and the State's subsequent actions to follow the
auditor's
recommendations and reprocess its ICF/MR claims. The
disallowance
decision addressed the State's assertion and concluded that
these claims
did not result from an audit exception under 45 CFR
95.19(b).
Since the State initially relied on the audit exception, we will
briefly
discuss that exception. We also find no support for applying
this
exception here. Section 95.4 of 45 CFR defines audit exception as
"a
proposed adjustment by the responsible Federal agency to any
expenditure
claimed by a State by virtue of an audit." The only audit
mentioned in
the record is the audit covering the State's ICF/MR claims for
the
period July 1, 1978 to December 31, 1980, years before the claims
at
issue arose. The only relationship that audit has to the claims
at
issue was its recommendation that the State's ICF/MR billings
be
incorporated into its computerized vendor payment system in order
to
identify prior payments to ineligible patients. The auditors
also
recommended in the alternative that the State "manually screen"
its
ICF/MR billings to avoid claims for ineligibles. While the State
could
presumably have avoided the late claim submission here had it
followed
the auditors' recommendations, we find it unreasonable for the State
to
try to stretch those recommendations into an "audit exception"
covering
the claims at issue here.
III. Availability of the exceptions in general.
In New York State Department of Social Services, Decision No. 521,
March
6, 1984, the Board considered the exceptions discussed here. The
Board
stated:
. . . The purpose of this legislation [section 1132
of the Act] was
not on its face to save federal
money by depriving the states of
FFP in valid claims
for expenditures. The purpose was to prevent
the states from coming in many years after expenditures were
made
and claiming FFP, or transferring claims for
FFP from one program
to another, without any time
limit. Such delayed claiming made it
difficult
for the Department of Health and Human Services to
plan
its budget; claims - 7 -
for millions of dollars for expenditures in years
long gone by
could turn up at any time.
* * *
The exceptions . . . to the time limitations were
intended to cover
only extreme situations.
They were not intended to cover a routine
situation
where a state simply did not get around to getting
its
data together in time to file a claim within the
statutory
requirements. The exceptions are to
take care of those cases where
it would be patently
unfair to a state to outlaw its claim merely
because
of the passage of time.
New
York,
p.
8.
The points made by the Board concerning the design of the exceptions
"to
prevent manifest injustice" are equally germane here. New York, p.
9.
This record shows that the systems necessary to accurately and
timely
file claims for ICF/MR services were within the sole control of
the
State. There is no apparent reason for delaying until August of
1985 to
file the claims at issue. It is this type of casual approach to
the
submission of claims for FFP that section 1132 and the
implementing
regulations were designed to prevent.
Conclusion
For the reasons stated above, we sustain the disallowance of $1,040,744.
________________________________ Judith A. Ballard
________________________________ Alexander G. Teitz
________________________________ Cecilia Sparks Ford
Presiding
Board