Georgia Department of Medical Assistance, DAB No. 798 (1986)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  Georgia Department of Medical Assistance

Docket No. 86-81
Audit Control No. 04-50211
Decision No. 798

DATE:  October 22, 1986

DECISION

The Georgia Department of Medical Assistance (DMA or State) appealed a
decision by the Health Care Financing Administration (HCFA or Agency) to
disallow $678,634 in federal financial participation (FFP), claimed
under Title XIX (Medicaid) of the Social Security Act (Act).  HCFA based
the disallowance on an audit of State records identifying amounts of
Medicaid payments made for recipients later determined to have been
ineligible (recipient overpayments).  The auditors found that the State
did not pay back the FFP claimed in the original payments until the
State collected the amounts from the recipients.  HCFA disallowed
$604,567 as the federal share of uncollected recipient overpayments made
prior to April 1, 1979, and $74,067 as the federal share of uncollected
recipient overpayments made from October 1, 1982 through March 31, 1983.
(During the intervening period, erroneous payments for ineligible
individuals were subject to special disallowance provisions related to
the.Medicaid quality control system.)

The State argued that section 1903(d)(3) of the Act precluded HCFA from
disallowing the federal share of recipient overpayments prior to the
State's recovery of the overpayment from the recipient.  The State also
raised a number of arguments based on the age of some of the identified
overpayments, including arguments based on a federal statute of
limitations, the equitable doctrine of laches, and general
considerations related to the fairness of the disallowance.  The State
alleged, for example, that because some of its records had been
destroyed or were not readily accessible, it would have difficulty in
collecting the payments at this late date or in documenting that the
amounts were not in fact overpayments or had already been collected.

For the reasons stated below, we conclude that HCFA is not precluded
from taking the disallowance here based on any of the arguments advanced
by the State.  Section 1903(d)(3)

       - 2 -

does not apply to payments for ineligible recipients, and neither the
statute of limitations nor laches apply here.  The State's other
arguments concerning fairness do not provide a basis for reversing the
disallowance.  HCFA's disallowance was based on State records and the
evidence presented by the State is insufficient to show specifically to
what extent those records were inaccurate or incomplete so that HCFA
could not reasonably rely on them.  For the reasons explained at pages
10-11, however, we have determined that the State should have an
opportunity to provide evidence for the limited purposes outlined below.
Accordingly, we uphold the disallowance, subject to reduction if the
State can make the requisite showing.


Discussion

1.   HCFA is not required to wait until the State recovers overpayments
from the recipient.

Title XIX of the Act provides for the payment of federal funds to states
for aid in financing state medical assistance programs for eligible
individuals.  Section 1903(d)(2) authorizes the Secretary of the
Department of Health and Human Services to pay grant funds to each
participating state for the federal share of quarterly expenditures in
amounts:

     reduced or increased to the extent of any overpayment or
     underpayment which the Secretary determines was made under this
     section to such state for any prior quarter and with respect to
     which adjustment had not already been made under this subsection. .
     . .

In numerous cases involving overpayments by states to medical assistance
providers, such as hospitals or nursing homes, the Board has held that,
under this section, the Agency may require adjustment of the grant award
for the federal share of improper or excess payments to providers, even
if a state has not yet recovered the amounts from providers.  See, e.g.,
Arkansas Department of Human Services, Decision No. 717, January 8,
1986; New York State Department of Social Services, Decision No. 311,
June 16, 1982.

The State argued that section 1903(d)(2) is limited by section
1903(d)(3), which states:

     The pro rata share to which the United States is equitably entitled
     . . . of the net amount recovered during any quarter by the State .
     . . with respect to medical assistance furnished under the State -
       3 -

     plan shall be considered an overpayment to be adjusted under this
     subsection.

The State asserted that, under section 1903(d)(3), an amount must have
been recovered from the recipient before it is an overpayment for
purposes of section 1903(d)(2).

In prior decisions, the Board rejected similar arguments that section
1903(d)(3) limits federal recoupment of the federal share of provider
overpayments until the state has recovered the funds.  Section
1903(d)(3) applies only to those amounts which would be allowable as
"medical assistance furnished under the state plan." The Board concluded
that section 1903(d)(3) does not preclude treatment as overpayments of
amounts which would be unallowable as "medical assistance," under
section 1905(a) of the Act, or are otherwise not in accordance with a
state plan.  See Arkansas, supra.  The Board's analysis has been upheld
in two United States Court of Appeals decisions:  Massachusetts v.
Secretary, 749 F.2d 89 (lst Cir. 1984), cert. denied, 105 S. Ct. 3478
(1985), and Perales v.  Heckler, 762 F.2d 226 (2d Cir..1985). 1/

The State argued that the Board's analysis leaves section 1903(d)(3)
without any effect.  This is incorrect; section 1903(d)(3) applies when
the State properly incurs costs of medical assistance, claims FFP in
those costs and, subsequently, recovers some of those costs.  For
example, the State may receive a payment by a recipient's relative or
from an insurance company.  Section 1903(d)(3) simply makes it clear
that in these situations the Agency can recoup the appropriate federal
share by means of an offset to the next grant award.

The State attempted to distinguish this case from prior Board decisions
on the basis that those cases involved provider overpayments and this
case involves recipient

 

1/   See also Florida v. Heckler, Civ. No. 82-0935 (N.D.  Fla. 1984).
The Eighth Circuit is currently considering the issue in an appeal of
Missouri Department of Social Services v. Heckler, No. 84-4106-CV-C-5
(W.D. Mo.  Sept. 27, 1984).  The district court in Missouri reversed a
Board decision, but based its holding on the Massachusetts district
court opinion at 576 F. Supp.  1565 (D. Mass 1984), which was reversed
on appeal in Massachusetts v. Secretary, supra.  In any event, the
rationale used by the district court would not apply to payments for
ineligible recipients.

       - 4 -

overpayments.  While the Board has not previously directly considered
whether adjustments due to recipient overpayments should be treated
differently, the State did not present any justification for doing so.
2/ Indeed, since 1905(a) defines "medical assistance" as payments for
eligible individuals, payments for ineligible recipients would fall
outside the scope of section 1903(d)(3) more clearly than some of the
provider overpayments which the Board has addressed in prior cases.

Although the State alleged that it had no notice that such an
interpretation of the statute would apply, 45 CFR 201.5(a)(3) clearly
requires states to report on quarterly statements of expenditures not
only amounts which have been recovered but also all acknowledged or
identified "expenditures not properly subject to federal financial
participation." 3/  The State presented no reason why this regulatory
requirement would not apply to expenditures acknowledged by the State to
be payments for ineligible recipients.

In sum, we do not find merit in the State's arguments that the Agency
can require adjustment of claims due to recipient overpayments only
after the State has recovered the funds.

 


2/   In one of the State's initial responses to the audit findings, the
State suggested that some of the recipient overpayments may have been
uncollectible, and that federal participation in such losses would be
consistent with the federal-state partnership concept implicit in the
Medicaid program.  The State did not point to any provision in the
applicable statute or regulations which would indicate that the federal
government agreed to fund such recipient overpayments as part of the
Medicaid program.  We incorporate here the discussion of this argument
contained in Arkansas, supra., pp. 15-16 and New York, supra., p. 7.  We
note that the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA), Pub. L. 99-272, contains a provision which would permit states
to retain FFP for overpayments to bankrupt providers or which are
otherwise uncollectible.  This provision is effective, however, only for
overpayments identified for quarters after October 1, 1985.

3/   This regulation, published in 1970, was a codification of
provisions which previously appeared in the Handbook of Public
Assistance Administration.  35 Fed. Reg. 12180 (July 29, 1970).  - 5 -

II.  The Board will not reverse a part of the disallowance merely
because of the age of the alleged overpayments.

The State argued that the Agency is precluded from requiring adjustment
for the part of the disallowance relating to alleged overpayments made
prior to April 1, 1979 because the disallowance was untimely.  The State
asserted that the statute of limitations set forth at 28 U.S.C. 2415
acts as a bar to the disallowance with respect to overpayments made
prior to six years before the Agency requested adjustment (e.g.,
overpayments made prior to March 19, 1980).  The State also advanced the
defense of laches, based upon the failure of the federal government to
pursue the federal share of the overpayments earlier.

Traditionally, statutes of limitations and laches did not apply against
the United States because of the historical privileges of the sovereign.
See, e.g., S.E.R., Jobs for Progress, Inc. v. United States, 759 F.2d 1,
6-8 (Fed. Cir.  1985).  Since 1966, however, the statutory provision at
28 U.S.C. 2415 has placed limitations on certain actions by the United
States for money damages.  The State alleged that this provision barred
the proceeding here because it is an action which was not filed within
six years after the right of action accrued.

The Board has previously rejected arguments that this statute of
limitations is applicable in administrative proceedings.  See Community
Action Commission of Belmont County, Ohio, Decision No. 565, August 28,
1984.  Although the statute does not specify that it applies only to
judicial actions, the Board found that the context of the statute, the
separate treatment of administrative proceedings within the statute, and
the legislative history indicate that the statute refers to actions in
federal court.  Id., pp. 6-8; S. Rep. No. 1328, 89th Cong., lst Sess.,
(1966) reprinted in 1966 U.S. Code Cong. & Ad. News, 2502-2514. 4/

 

4/   The State argued that the applicable provision is in 28 U.S.C.
2415(b).  We note that 28 U.S.C. 2415(a) may be more apposite.  See
Community Action Commission.  We do not find it necessary to determine
which provision is pertinent, since we conclude that neither applies.
We note that section 2415 contains an exception where "otherwise
provided by Congress," which might be a further basis for determining
that section 2415 does not apply here.  Section 1903(d)(2) of the Act
provides for adjustments of the federal share of an overpayment "for
(Continued on next page) - 6 -

Since the State has not presented any authority for the application of
the statute of limitations in an administrative forum, we again conclude
that this limitation does not apply in cases before the Board.

Similarly, laches is unavailable against the federal government in cases
before the Board.  Laches is an equitable doctrine under common law
which traditionally does not apply to the federal government, and that
immunity has not been waived here by statute.  United States v.
Summerlin, 310 U.S. 414, 416 (1940); Chevron U.S.A. v. United States,
705 F.2d 1487 (9th Cir. 1983).

We note that our decision here does not imply agreement with the State
that, if applicable, either the statute of limitations at 28 U.S.C. 2415
or the doctrine of laches would bar the action here.  The State's view
appears to be premised on the notion that HCFA was obliged to act within
six years of the time the payments were made for ineligible recipients.
Yet, the State was responsible for determining eligibility for Medicaid
and for recovering overpayments it identified.  While HCFA may adjust
the federal share of an overpayment prior to recovery, HCFA also has
discretion to permit the State an opportunity to first recover the
overpayment.  Even if HCFA could have discovered earlier that the State
was not timely adjusting the federal share of overpayments it was unable
to collect, there is a question of whether this delay prejudiced the
State.  As discussed below, the State has not yet established such
prejudice.  Moreover, any delay by HCFA in requiring the State to adjust
the federal share gave the State additional time to recover the amounts
from the recipients, as well as use of funds which otherwise would have
had to be paid back.


III. The State has not shown any other reason why the disallowance was
unfair.

The State presented several general arguments alleging that it would be
unfair to uphold a disallowance at this time for such old overpayments
because the State may be unable to

 

4/      Cont.  any prior quarter." In addition, Congress has now imposed
     limits on the time period for states to submit claims for prior
     quarters (i.e., proposed adjustments for underpayments to the
     states), but did not indicate any corresponding time limit for
     adjustments for overpayments made to the states.  See section 1132
     of the Act.  - 7 -

respond by recouping money from recipients at this time, because the
supporting documentation may be unreliable or unavailable, or because
the cost of verifying the accuracy of the disallowance is very high.

As we discuss below, we find little merit to the State's arguments
regarding its ability to collect from the recipients or regarding the
cost to the State to obtain documentation which may be relatively
inaccessible.  Further, we find that the State's arguments that the
disallowance was based on unreliable or unavailable documentation were
unsupported by the type of evidence necessary to overcome the audit
findings.  Nevertheless, we have determined that there are reasons why
the State should be given an opportunity to present more specific
evidence relating to particular parts of the disallowance. 5/

 a.   The disallowance does not affect the State's ability to
 recoup identified overpayments from recipients in a timely
 manner.

The State alleged it was unfair to impose a disallowance when "the lapse
of years makes it unlikely that any of the recipients that HHS asserts
were ineligible can be located so that DMA can recoup any overpayments."
State's Brief, p. 3.  The Agency's right to adjust the federal share of
payments to ineligibles is not contingent on the ability of the State to
recover the payments from the recipients.  Moreover, the State should
have been seeking to recoup any recipient overpayments as an ongoing
matter, as soon as the overpayments were discovered.  In fact, the State
did collect some of the overpayments from at least 20 percent of the
ineligible recipients; the State must have understood that there was no
need to wait for a disallowance from the Agency to recoup.  Agency's
Brief, p. 4; State's Ex. 4.

 

5/   The disallowance was based on State or local records identifying
amounts as overpayments for ineligible recipients and the auditors'
general finding that the State was not crediting the federal share of
these overpayments prior to recovering from the recipients.  The Board
has previously held that when HCFA is relying on a determination made by
a state, that state must be given an adequate opportunity to show that
that reliance is not reasonable.  See, e.g., Ohio Department of Public
Welfare, Decision No. 637, April 2, 1985, p. 11-14.  Our analysis below
takes into account the fact that HCFA was relying here on State
determinations.


       - 8 -

 b.   The State has not shown that the disallowance was based on
 unreliable or unavailable documentation.

The disallowance was based upon an audit examining central State records
and data, as well as information obtained through on-site visits to some
county offices, and telephone and mail inquiries to other county
offices.  The auditors calculated net overpayments to 412 recipients
identified by a computerized recipient overpayment data base obtained
from the State.  The auditors validated from State and county records
the reason for the overpayment determination, the amount, and the status
of any collection efforts.  Audit Report, State's Ex. 5, p. 3.  The
auditors did not make independent determinations of overpayments, but
relied on the State's own determinations that overpayments had been
made.  Id.

The State argued that the Board should reverse the part of the
disallowance relating to alleged overpayments made prior to April 1,
1979 because of the unavailability or unreliability of the supporting
documentation.  The State alleged generally that "records on
overpayments refunded to the State are retained for four years only."
State's Brief, p. 2.  The State also indicated that the disallowance was
based on information in the State's automated client tracking system
which the State alleged was unreliable because the automated system as
revised in 1983 did not reflect closed cases.  The State contended that
the lack of documentation affected the merits of the disallowance and
prejudiced the State by diminishing its ability to respond to the
disallowance.

The mere existence of a record retention period in the State does not
necessarily indicate that documentation retained beyond that period is
unreliable or unavailable.  Nor is the Agency precluded from requiring
documentation beyond that time period, if such documentation exists.
Community Health and Counseling Services, Decision No. 557, August 2,
1984.  Although the Board has recognized that a state need not keep
documentation for claims indefinitely, the Board has consistently found
that record retention requirements are not equivalent to limitation
periods on challenges to state claims.  See California Department of
Health Services, Decision No. 666, June 28, 1985.

We recognize, however, that when records are destroyed pursuant to an
overall records management plan, the State cannot be held to
documentation requirements otherwise applicable.  We have found that the
general requirement to provide documentation to support a claim does not
apply when a state can show that the relevant records had been
maintained but were, in fact, destroyed, after a reasonable - 9 -

retention period not shorter than the period required by regulation, as
part of a regular program of record destruction unrelated to the
disallowance.  California, pp. 2-3.  We specifically stated that the
expiration of a record retention period could not enable a state to
"retain program funds which were not authorized by statute and which
were received solely by virtue of its erroneous claiming practices."
Id., pp. 2-3.

The State presented no evidence that adequate documentation had actually
been maintained, no evidence of any regular program of record
destruction, and no evidence that any records in question here were, in
fact, destroyed.  The affidavit the State cited in support of the
statement that relevant records had been destroyed merely indicates that
the State record retention schedule allows recipient refund records to
be destroyed after four years.  State's Ex. 10, p. 2.  The affidavit
states that the records "had either been destroyed or were not readily
accessible." Id., pp. 1-2. 6/

Even if DMA has destroyed some records, the relevant information may be
available from the local county offices or other State offices.  The
auditors sought validation of DMA overpayment records at county offices.
If the relevant information is available, then the State would not be
harmed even if DMA did destroy some records.

The State failed to indicate any specific parts of the disallowance
which may have been inaccurate because of unreliable or partial
documentation.  Although the State alleged that recipient refunds may
not have been entered into the automated client tracking system, the
State did not provide a single example of a recipient refund which had
not been so recorded, or provide evidence that the State had accounted
to HCFA for a greater amount of refunds than those recorded on the
automated system.  Certainly, the automated printout submitted by the
State has some recipient refunds entered on it.  We think it was
reasonable for the Agency to assume, without any evidence to the
contrary, that all such records were included.  Furthermore, the audit
report indicates that the auditors did not rely exclusively upon the
automated system, but validated data with county offices.  Audit Report,
State's Ex. 5, p. 2.

 

6/   In California, the Board found an added reason to reverse the
disallowance because the Agency had been aware of problems with the
claiming practices and had not given any notice that the records might
be questioned.

      - 10 -

The State did not even provide any evidence which would indicate that
the State itself did not rely on the documentation and the underlying
State overpayment determinations used to calculate the disallowance.
See Pennsylvania Department of Public Welfare, Decision No. 765, July
10, 1986, pp. 11-13.  The State apparently used these records itself as
a basis for seeking recoveries; the State obtained partial recoveries
from some of the ineligible recipients. 7/  See State's Ex. 4.  Although
some of the "sample" documentation submitted by the Agency appears not
to be the final action in the case, but merely a report of a suspected
overpayment, the State presented no evidence that any alleged
overpayments had not been considered to be final determinations.
Agency's Supplement to Appeal File, Att. A. 8/

As we discuss below, the fact that some of the records in question are
not "readily accessible" does not excuse the State from the burden of
establishing how the State records relied on by HCFA are inaccurate or
incomplete.  Here the State did not contest that it failed to credit the
federal government by adjusting claims for FFP received in prior
quarters for payments it identified as overpayments for individuals
ineligible under the Medicaid program.  Had the State been properly
adjusting its claims at an earlier stage, it would not now face a
difficult task in proving its case.

 


7/   We note that the State alleged, in a letter responding to the
audit, that one of the difficulties was in verifying whether recipients
had met "spenddown" requirements by using sufficient funds for medical
expenses to become eligible for Medicaid.  The State should have
considered these requirements in making the initial determinations
regarding overpayment amounts.  Since the State presented no evidence to
suggest that these State determinations were incorrect, we have no
reason to think that documentation relating to "spenddown" amounts would
make a difference here.

8/   The State alleged that the determinations were not final because
the recipients had not been afforded any administrative appeal
procedures.  State's Ex. 6.  However, it is clear that the State used at
least some of the determinations as the basis for collection and
considered them final.  Whether the State offered appeal rights to
recipients could affect the State's right to enforce collection, but
does not affect the validity of the determination.

      - 11 -

Although we find that the State has not presented sufficient evidence to
show that specific records were destroyed or were unreliable, in such a
way as to establish that HCFA could not reasonably rely on the existing
state records, we have determined that the State should have 30 days
from receipt of this decision (or such longer period as the Agency
determines to be appropriate) to present evidence to the Agency of
specific instances of destroyed or unreliable records, or of refunds
already made.  The reasons why we have determined that the State should
have this opportunity are as follows:

o    The State based its presentation here primarily on the broad legal
issues on which it hoped to prevail, and encountered difficulties in
making its factual presentation in part because of the need for one
State agency (DMA), to obtain information from another State agency (the
Department of Human Resources).

o    Issues concerning the effect of prior Board decisions on record
retention were not developed until late in the proceedings.

o    The State's presentation raises some questions about whether all of
its overpayment determinations were sufficiently final and whether the
State may have already adjusted the federal share of some amounts
included in the disallowance.  HCFA has generally been willing in
overpayment cases to examine state documentation in these areas.

Any evidence the State presents, however, should not be the generalized
evidence the State has already presented, but should relate to specific
parts of the disallowance.  If the State can identify particular records
which have been destroyed and not entered in the automated client
system, or overpayments which had not been finally determined or had
already been credited to the federal government, then we agree that the
disallowance should be reduced to the extent that this shows that the
State records used by HCFA were inaccurate or incomplete.  We note,
however, that the destruction of records is not a sufficient defense if
the records were destroyed after the State had notice of the audit
inquiry, or if the information that was on those records is available
from other sources.

 c.   The high cost to the State of verifying the accuracy of the
 disallowance is not a ground for reversal.

The State alleged that it was shouldering an unfair burden in being
required to use "the limited resources of the Georgia Department of
Human Resources" to verify findings on - 12 -

overpayments going back to 1968, at the same time as those resources
were needed to keep current error rates at a level low enough to avoid
further disallowances.  State's Initial Reply Brief, pp. 2-3.  The State
alleged that because the documentation was not readily accessible and
because the research required labor-intensive reviews of the
documentation, verification would be difficult if not impossible.

Under the Medicaid program, the State bears the burden of documenting
its claim for FFP.  See California, supra.  The State is responsible to
keep accurate records, and to file claims consistent with those records.
Had the State been properly adjusting its claims in a timely fashion,
the State would not have to review its earlier records.  Had the State
kept those records in a careful manner, and updated the status of all
cases as it should, it would not have to examine each case to defend
against this disallowance.

The State's staffing or administrative difficulties in managing the
quality control program are not a basis for reversing the disallowance.
If the State has chosen to use all its resources for current program
needs and not to devote any resources to defending against this
disallowance, the State must accept the consequences of that management
judgment.

Conclusion

We uphold the disallowance of $678,634, subject to reduction if the
State chooses to present evidence to the Agency consistent with this
decision (see pp. 10-11 above).  If the parties cannot agree on the
extent, if any, to which the disallowance should be reduced, the State
may return to the Board for a further determination.


 ________________________________ Cecilia Sparks Ford

 ________________________________ Donald F. Garrett

 ________________________________ Judith A. Ballard Presiding
 Board