DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Louisiana Department of Health and Human Resources
Docket No. 86-110
Decision No. 804
DATE: October 31, 1986
DECISION
The Louisiana Department of Health and Human Resources (DHHR,
State,
Louisiana) appealed a disallowance by the Health Care
Financing
Administration (HCFA, Agency) of $3,562,830 in federal
financial
participation (FFP) claimed under Title XIX of the Social Security
Act
(Medicaid). The claims were for the federal share of the cost
of
medical care provided to Medicaid recipients during the quarters
ended
March 31, 1981 through December 31, 1983. 1/
During that period, Louisiana's State plan limited payments under
Medicaid
for hospital outpatient services to three visits per recipient
per year and
payments for physician services to 12 visits per recipient
per year.
The issue here is whether charges billed by DHHR charity
hospitals for
certain costs associated with physician services provided
in hospital
outpatient clinics are subject to the three-visit limit or
the 12-visit
limit. In Louisiana Department of Health and Human
Resources, Decision
No. 731, March 21, 1986, we determined that such
charges were outpatient
services costs subject to the three-visit limit
and affirmed a disallowance
of FFP in charity hospital charges for
recipient visits in excess of that
limit.
The State here acknowledged our prior decision and adopted the
factual
record made and the arguments presented in that appeal, but asked
the
Board to address an issue which it contended had not been considered
by
the Board, and to weigh evidence which the State alleged the Board
had
overlooked. The issue as framed by the State is "whether the
State
should be held solely responsible for the Agency's
misinterpretation
1/ The State originally appealed a total of $5,473,537 in FFP
which
HCFA disallowed, but subsequently the State withdrew its appeal
of
$1,910,707 in FFP, which represented the federal share of the cost
of
miscellaneous outpatient hospital services..- 2 -
of the State plan amendment limiting outpatient services to three
visits
per year when the Agency had arbitrarily disapproved the
State's
original and more narrow amendment which would have limited
only
emergency room services." The evidence that Louisiana argued
we
overlooked related to the State's claim that the State
consistently
treated the costs in question as a component of physician
services and
thus subject to the limit of 12, not three, visits per recipient
per
year. Louisiana's August 6, 1986 letter.
For the reasons stated below, we conclude that our earlier decision
was
correct and affirm the disallowance.
1. HCFA's disapproval of the initial proposed State plan
amendment is
not a basis on which to reverse the disallowance.
Title XIX of the Social Security Act (Act) and implementing
Medicaid
regulations authorize FFP in expenditures for both physician
services
and outpatient hospital services furnished to Medicaid
recipients. A
state could provide in its state plan for limits on these
services.
Prior to 1979, Louisiana imposed a limit of 12 physician services
visits
and did not limit the number of outpatient hospital services
visits.
Because of DHHR's concern that Medicaid recipients were avoiding
the
12-visit physician services limit by unwarranted use of emergency
room
services, on January 19, 1979, Louisiana proposed a State plan
amendment
limiting paid use of emergency room services to three visits per
year.
This amendment was disapproved by HCFA, on the grounds that
Medicaid
regulation 42 CFR 440.230(c)(1) prohibited denying or reducing
the
amount, duration, or scope of a required service because of
diagnosis,
type of illness, or condition.
Shortly after HCFA's rejection of the amendment, the State proposed,
and
HCFA accepted, an amendment limiting payment to a hospital for
three
outpatient hospital visits per recipient per year, effective January
1,
1979. In a later amendment, approved by HCFA and effective September
1,
1983, the State set specific limits for four categories of
outpatient
hospital services. Under the category "Emergency room
services" it set
a limit of "three emergency room visits per calendar year
per
recipient." Under the category "Clinic services," it specified
that
"physician services provided in a clinic in an outpatient
hospital
setting" were to be "included in the limit.- 3 -
of twelve physician visits per year per recipient." 2/ Louisiana Ex.
8,
submission of February 8, 1985; see, Decision 731, p. 12, n. 6.
The State contended that the approval of the 1983 amendment,
which
contained virtually identical language limiting emergency room
services
to three paid visits per recipient per year, established that
HCFA's
rejection of the initial proposed amendment was arbitrary and
erroneous.
HCFA argued that its determination on the initial proposed
amendment was
not properly challenged in this proceeding since under section
1116(a)
of the Act a State has 60 days to request reconsideration of
the
disapproval of a plan amendment with a further right to judicial
review
of the reconsideration decision. We agree with HCFA (and the
State did
not dispute) that the Board does not have jurisdiction in
this
proceeding, under 45 CFR Part 16, to review the disapproval of
a
proposed State plan amendment. Furthermore, it would be
both
inappropriate and speculative, since this issue has not been
directly
addressed on the record here, for us to decide whether the
disapproval
of the first proposed plan amendment was correct. The State
did not
avail itself of the opportunity to appeal HCFA's rejection in 1979
and
is now precluded from challenging that determination. 3/
A comparison of the 1979 proposal and the 1983 amendment shows that
the
provision in the 1983 amendment on the emergency room category
of
outpatient hospital services places the same three-visit limit as in
the
1979 proposal. However, the 1983 amendment, unlike the 1979
proposal,
limited all outpatient hospital services. As noted
previously, the 1983
amendment limited the hospital billing related to
physician services
provided in hospital clinics to 12 visits per year.
It also
2/ DHHR contracts with the Louisiana State University School
of
Medicine (LSU) to have LSU provide physician services to
Medicaid
recipients in outpatient clinics located in State-owned
charity
hospitals. LSU bills separately for the physician services to
Medicaid
patients. A HCFA official testified that many states have
similar
arrangements. Decision No. 731, pp. 2, 3, and 13.
3/ However, the State insisted in its reply brief that it was
not
asking the Board to rule on the validity of HCFA's determination
since
the State's position is that simply the approval of the 1983
amendment
established that the rejection of the first 1979 proposed amendment
was
wrong. As we explain below, we do not agree with the State's
position
on the effect of the approval of the 1983 amendment. - 4 -
limited rehabilitation services visits to the number specified in
an
approved rehabilitation plan, and all other outpatient services
visits
to the number justified by the medical necessity for the
service. The
amendment rejected by HCFA in 1979 set a limit only on one
kind of
outpatient hospital services--those rendered in an emergency room.
4/
Thus, contrary to the State's allegation, the 1979 proposal and the
1983
amendment are not identical. The State's conclusory inference does
not
support a finding that HCFA reached the wrong result or that it
acted
unreasonably when disapproving the first proposal.
Furthermore, even if the 1983 amendment were deemed sufficiently
identical
to make HCFA's approval facially inconsistent with its
rejection of the 1979
amendment, this would not provide a basis for
reversing the
disallowance. Having selected what was obviously a "quick
fix" and
having amended its State plan to provide for a three visit
limit on all
outpatient services, Louisiana bound itself to operate its
Medicaid program
in accordance with that provision.
2. HCFA properly interpreted the 1979 approved amendment to cover
the
hospital services at issue here.
Louisiana argued both that it was not aware that HCFA considered
these
hospital billings to be for outpatient services and that
HCFA
misinterpreted the language of the approved 1979 plan amendment to
apply
to a category of services the State never intended to cover under
the
three-visit limit since they were in fact already covered by a
different
limit. 5/ As we explained in Decision No. 731, the disputed
billings
were covered by the plain language of the 1979 approved
amendment
because they were for services falling
4/ A DHHR official testified at the hearing that HCFA rejected
the
proposed amendment in 1979 because "we could not limit the
outpatient
emergency room visits without limiting the other outpatient
hospital
services" and indicated that she proposed the amendment with
"varying
limits in the outpatient hospital services" which was approved in
1983.
Transcript of Hearing (Tr.), pp. 436 and 438A.
5/ The State also contended that HCFA's disapproval of the
1979
initial proposed amendment misled the State into adopting
the
"unnecessarily broad language" of the amendment approved in
December
1979. Louisiana Reply Brief of October 1, 1986, p. 3.
However,
Louisiana did not argue that HCFA had been instrumental in
the
development of the language it chose for the approved amendment. -
5 -
within the regulatory definition of hospital outpatient services.
Decision
No. 731, pp. 13 and 14. There was no reason for HCFA to know
that the
State was not aware of the status of these billings under the
express terms
of the federal regulations. In fact, a DHHR official even
testified
that the State did not communicate to HCFA that Louisiana was
counting
hospital-based costs incident to a physician service visit
against a
12-visit, not a three-visit, limit. Decision No. 731, p. 12.
Moreover,
the plan provision setting the 12-visit limit on outpatient
physician visits
provided only for payments to licensed doctors. There
is no provision
for payment to a hospital for outpatient physician
services. The
physician's services were billed for by LSU. Thus, there
is no basis
here for a finding that HCFA should have informed the State
that it
considered the approved amendment to encompass the disputed
billings or that
HCFA misinterpreted the approved plan amendment.
3. The Board's finding in Decision No. 731 on the lack of
evidence to
support the State's contention that these costs were
consistently
treated as physician services was not erroneous.
The State challenged the Board's finding that the State did not
provide
any evidence of a contemporaneous, written interpretation or
a
consistent administrative practice to support its contention that
the
hospital billings at issue here were not outpatient services
costs
subject to the three visit limit. The State cited the testimony
of a
DHHR official and documents in the appeal record for Decision 731
which
it alleged the Board had overlooked. Letter of August 6,
1986. The
documents are a November 6, 1978 letter from the Director of
the State's
Medical Assistance Program (a part of DHHR) to the State's
Medicaid
fiscal intermediary, a November 6, 1978 memorandum from the Director
of
the State's Planning and Policy Formulation Section, a January 19,
1979
memorandum from the fiscal intermediary to the State's
charity
hospitals, and a September 10, 1979 letter from the fiscal
intermediary
to the Director of the State's Medical Assistance Program.
Louisiana
Exs. 10, 11, and 13 to submission of November 7, 1985, and Ex. C
to
submission of August 23, 1985.
The DHHR official testified that the 12-visit limit on
physician's
services had been in the State plan for several years prior to
1979,
possibly as early as 1975, but also indicated that the State did
not
begin to use a procedure code (90045) to associate the
hospital
outpatient clinic costs with a physician services visit until 1979.
6/
6/ We cited this testimony as authority for the State plan
provision
on physician services visits, as the State acknowledged here.
Decision
No. 731, p. 2, n. 1. - 6 -
Tr., pp. 434-436. She also testified that at the time the
State
proposed the three-visit limit for outpatient services, "it was
intended
that the facility costs that were associated with the clinic, where
the
physicians went to see their patients could be counted along [with]
the
physician visit, along with the facility usage fee at the same
time."
Tr., pp. 434-435. She cited the January 1979 memorandum in
support.
We think that the DHHR official may have confused the two
1979
amendments--the rejected one and the approved one--in her testimony.
7/
The correspondence which she cited--the January 19, 1979 memorandum
by
the fiscal intermediary advising charity hospitals to use code 90045
"in
order that you receive payment for the hospital component for
the
maximum number of physician clinic visits"--was contemporaneous with
the
January 31, 1979 submission of the proposed amendment rejected by
HCFA
in September 1979. The approved amendment was not proposed
until
December 1979. (Both were proposed effective as of January 1,
1979.)
The November 6, 1978 documents are also contemporaneous with the
rejected
amendment. The letter from the Director of the Medical
Assistance
Program (not the same DHHR official who testified at the
hearing, although at
another time the witness held the position of
Director) stated that "it is
our intent to allow the charity hospitals
to bill for outpatient clinics
which are really physician group
settings. This includes the physical
component of twelve physician
visits per year in addition to three emergency
room visits." The
November 6, 1978 memorandum also referred to the three
visit limit on
emergency room services and stated that "[v]isits of a
non-emergency
nature will be counted as one of the twelve (12) physician
visits
allowed per calendar year for outpatient services. Patient
visits to
outpatient physicians' clinics or offices fall in this
category."
The September 10, 1979 letter from the fiscal intermediary listed
cost
savings during August of 1979 from a number of computer edits,
including
one for a 12-visit payment limit for "Non-emergency outpatient
visits."
To whatever extent these documents and the DHHR official's
testimony
reflect the State's intent when it proposed the rejected amendment,
the
State did not show that it had the same intent almost 12 months
later
when it proposed an
7/ This same official submitted an affidavit identifying the
rejected
amendment as the approved version. Decision No. 731, p. 6,
n.3. - 7 -
amendment which on its face limited all outpatient services.
More
importantly, these documents are not evidence of an official
State
interpretation of the approved amendment which would exclude
these
hospital billings from the general limit on outpatient services
costs.
As we discussed in Decision No. 731, there was other evidence in
the
record that the State treated these costs as outpatient services
costs.
Decision No. 731, p. 5. Moreover, to the extent the State
actually
applied a 12-visit limit to the hospital billings, it made no effort
to
conform the State plan provisions to this practice or to review
with
HCFA the propriety under federal regulations of equating the
hospital
costs with the physician services. Also, a June 1980 DHHR
interoffice
communication reported that services billed as 90045 and other
services
reimbursed to hospitals on an outpatient basis were not being
subjected
to any limits and indicated that there was general confusion about
how
to implement any limits at all for outpatient services. Louisiana
Ex.
16 to submission of November 7, 1985. That confusion, or lack of
clear
direction by DHHR, is also reflected in the annual assessment
reports,
in 1980, 1981, and 1982, discussed in Decision No. 731 at pages
8-11.
These documents show that the State had not put into effect
computer
edits which would have limited outpatient services other than
emergency
room services to the three-visit limit.
When HCFA was made aware of the State's practice, it promptly sent
the
State a recommendation that the State should count all
services
performed in an outpatient setting toward the three-visit
limit.
Decision No. 731, p. 10. 8/ Prior to this time, the State had
repeatedly
assured HCFA that all claims showing the place of service as
an
outpatient hospital were subject to a three-visit limit even though
the
type of service was not viewed as an outpatient service. Decision
No.
731, pp. 9 and 10.
8/ The State argued here that the fact that HCFA's August
1982
recommendation was given 20 months into the January 1981--December
1983
period of this disallowance amounted in effect to a lack of notice
for
at least part of the disallowance. The State had sufficient
notice,
however, that FFP was available only in payments made according to
the
State plan. Where a state makes payments contrary to its own
plan,
specific notice from HCFA that the payments are unallowable is not
a
prerequisite for a disallowance. We also note that, during the
time
period involved in Decision No. 731, the State had this notice for
the
entire period and yet did not discontinue its erroneous practice. -
8 -
The State also argued that the costs at issue here were "the equivalent
of
the overhead costs incurred and charged by private physicians when
they
provide care out of their own offices." Louisiana Brief of August
6, 1986, p.
3. The record does not bear out such an analogy, however.
The
implication the State would have us draw from this argument is that
these
hospital costs are properly regarded as a component of the
physician services
cost and that, unless they are covered by the
12-visit limit, the State would
be deprived of recovering the same costs
that a private physician would
recover. As we pointed out in Decision
No. 731, (1) hospitals use
cost-based reimbursement methods whereas a
physician is reimbursed on a fee
basis, which only in a very general
sense would reflect the physician's
underlying costs, and (2) the
hospital costs here cover hospital employees,
hospital facilities, and a
range of hospital supportive services.
Decision No. 731, p. 6. n. 3 and
p. 14. n. 8. Also, the record shows
that the combination of the
hospital billing and the LSU physician billing
resulted in reimbursement
"at a considerably higher level than is allowed for
services (office
visits) in private physicians' offices." Louisiana Ex. 16 to
submission
of November 7, 1985. Thus, it would be reasonable to cover
the
physician's fee under one limit and the hospital's costs under a
lower
limit. As we pointed out in Decision No. 731 at page 14, it
was
important that the State communicate to HCFA what limits applied
to
enable HCFA to determine whether federal requirements had been met
and
to permit HCFA to properly monitor the reasonableness of payment
levels
for the services in question.
Even if the State had shown that it consistently applied the
12-visit
physician services limit to the hospital billings, it would not
be
entitled to FFP where the wording of the approved State plan
amendment,
using terms defined by the Medicaid regulations, precluded the
State's
practice. As the drafter of the amendment, the State bears the
burden
of the risk of ambiguity, lack of clarity, and the absence of
proper
warning to HCFA as the party which could have "forestalled
the
controversy." See Arkansas v. United States, U.S. Cl. Ct. No.
150-85C,
February 20, 1986, p. 14.
In the Arkansas case, the Court upheld a Board decision (No. 357) that
a
State plan provision requiring a prospective rate determination
for
services to Medicaid recipients in certain State-owned facilities
was
binding even though the State presented testimony that all along
it
intended under its plan to assure full reimbursement of the actual
costs
to operate these facilities. The Court held that it was
not
unreasonable for HCFA to require that a state plan set forth clearly
the
method of cost determination used, even though "at
- 9 -
first blush, this might appear to be an elevation of form over substance
.
. . [the State] drafted the Plan in question and must now live with
it." Id.
at 16.
As in Arkansas, this is a dispute which need not have occurred had
the
State taken greater care in the preparation and implementation of
its
State plan. Having failed to do this, the State must bear
the
consequences.
Conclusion
For the reasons stated above, we affirm the disallowance.
________________________________ Judith A. Ballard
________________________________ Norval D. (John) Settle
________________________________ Cecilia Sparks Ford
Presiding
Board