DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Maryland Department
of Health and Mental Hygiene
Docket No. 86-85
Decision No. 817
DATE: December 11, 1986
DECISION
The Department of Health and Mental Hygiene (State) appealed
a
determination by the Health Care Financing Administration (HCFA
or
Agency) disallowing $2,211,044.21 claimed under Title XIX of the
Social
Security Act (Act) for services rendered in two mental hospitals
(MHs)
for the quarter ended September 30, 1985 and in one intermediate
care
facility for the mentally retarded (ICF/MR) for the quarters ended
June
30 and September 30, 1985. 1/ The disallowance was taken pursuant
to
section 1903(g)(1) of the Act, which provides for the reduction of
a
state's federal medical assistance percentage of amounts claimed for
a
calendar quarter unless the state shows that during the quarter it
had
"an effective program of medical review of the care of patients . .
.
whereby the professional management of each case is reviewed
and
evaluated at least annually by independent professional review
teams."
The State did not dispute the Agency's findings that the State failed
to
complete reviews of each recipient in each facility required to
be
reviewed. The State, rather, disputed the propriety of the
Agency's
assessment of a penalty for the calendar quarter beginning July 1,
1985.
The State also disputed the propriety of the figures used by the
Agency
in calculating the disallowance.
Our decision below is based on the parties' written submissions.
We
sustain the disallowance in part and remand, in part, certain issues
to
the parties.
I. Whether HCFA Properly Assessed Disallowances Based on
Full Fiscal
Year Calculations.
The State claimed that HCFA incorrectly determined the time period
in
which reductions could be applied once a violation under section
1903(g)
of the Act has been determined. The State pointed out that
prior to the
Deficit Reduction Act of 1984 (DEFRA), enacted July 18, 1984,
Pub. L.
98-369, the Agency interpreted section 1903(g)(1) of the Act to
require
a grace period each fiscal year, beginning July 1, for purposes of
the
utilization control reductions. This grace period meant that
payments
attributable to the provision of ICF/MR services during the first
sixty
(60) days of the fiscal year and to MH services during the entire
first
quarter of the fiscal year were excluded from the calculations.
For
purposes of this appeal, the State explained that such a grace
period
would reduce the disallowance for the ICF/MR for the quarter
ended
September 30, 1985 by two- thirds and would eliminate entirely
the
disallowance for that quarter for the mental hospitals.
Prior to the DEFRA amendments, section 1903(g)(1) of the Act provided,
in
part:
[T]he Federal medical assistance
percentage shall be decreased as
follows: After an individual has received care as an
inpatient
in a hospital (including an
institution for tuberculosis),
skilled
nursing facility or intermediate care facility on 60
days
or in a hospital for mental
diseases on 90 days (whether or not
such
days are consecutive), during any fiscal year, which
for
purposes of this section means the
four calendar quarters ending
with June
30, the Federal medical assistance percentage
with
respect to amounts paid for any
such care furnished thereafter to
such
individual in the same fiscal year shall be decreased by
a
per centum thereof (determined under
paragraph (5)) unless the
State agency
responsible for the administration of the plan
makes
a showing satisfactory to the
Secretary that, with respect to
each
calendar quarter for which the State submits a request
for
payment at the full Federal medical
assistance percentage for
amounts paid
for . . . intermediate care facility
services
furnished beyond 60 days (or
inpatient mental hospital services
furnished beyond 90 days), there is in operation in the State
an
effective program of control over utilization of such services;....
(Emphasis added.)
The DEFRA amendments, section 2363(a)(2)(B), struck from
section
1903(g)(1) of the Act the language "which for purposes of this
section
means the four calendar quarters ending with June 30," and "in the
same
fiscal year," as underlined above. 2/ The Agency stated that
deletion
of this language means that section 1903(g)(1) no longer
precludes
assessment of disallowances for the first quarter of every fiscal
year.
According to the Agency, the deletion of "in the same fiscal
year"
removed the basis for concluding that long-stay status must
be
recalculated each year and, thus, removed the basis for the
grace
period.
We agree with the Agency that the amendments deleting this
language
changed section 1903(g)(1) so that the basis for the grace period
no
longer existed and a disallowance should be assessed in this case
for
the quarter ended September 30, 1985. Furthermore, we find that
the
statute, as amended, is clear: after an individual has received
ICF
services for 60 days (or MH services for 90 days), during any
fiscal
year, the reduction applies to amounts paid for "such care
furnished
thereafter" with respect to each calendar quarter for which the
State
submits a request for payment for amounts paid for ICF
services
"furnished beyond" 60 days (or MH services "furnished beyond" 90
days).
This language indicates that once an individual attains long-stay
status
in any fiscal year, the reduction applies to all future
services.
Consequently, the only exception would be for any individual who
has not
yet received the requisite days of service "during any fiscal
year."
Therefore, if the State could show that any individual included in
the
calculation had not received the requisite days of service "during
any
fiscal year," then the disallowance would have to be
adjusted
accordingly.
The State contended that the DEFRA amendments relevant here, in and
of
themselves, did not constitute sufficient notice to the State that
the
grace period no longer existed. The State argued that the
amendments
were a drastic change which required notice by rulemaking.
We agree
with the Agency, however, that where an amended statute is clear,
the
amended statute is sufficient notice to the states of the
mandated
change. The amendment,
therefore, applies immediately upon the effective date of the statute,
and
the change is not dependent on Agency rulemaking. 3/
The Agency submitted a 1983 memorandum of the Department's Office
of
Legislative Affairs to support its contention that the Agency
thought
that the grace period resulted from poor draftsmanship, unintended
by
Congress, which needed to be corrected. Agency's brief, Att.
2. The
State argued that this memorandum actually undercut the
Agency's
position since Congress did not adopt the Agency's suggested
language
change. While the suggested language more explicitly addresses
the
question of a grace period, we do not agree that the mere fact that
this
language was not adopted undercuts the Agency's position; we think
that
Congress accomplished the same result through a much simpler means
by
deleting language on which the grace period was based to begin
with.
Moreover, absent any other evidence showing why Congress made
these
deletions, the memorandum provides some support for a conclusion
that
this action was a response to a problem pointed out by the
administering
agency.
In addition, we reject the State's contention that the continued
existence
of regulations implementing the former grace period makes the
subsequent
statutory amendment any less clear. The State contended that
the
continued existence of the grace period is supported by the language
in 42
CFR 456.651 (1984), which defines "long-stay services" as
"services provided
to a recipient after a total of 60 days of inpatient
stay (90 in the case of
mental hospital services) during a 12-month
period beginning July 1 . . .
." The State's reasoning is flawed.
First, it is a fundamental
principle that statutes have precedence over
regulations. Consequently,
to the extent a statutory amendment may make
part or all of a regulation
obsolete, the newly amended statute takes
precedence. Moreover, the
source of 42 CFR 456.651 is section 1903(g)
of the Act; therefore, this
regulation must be read to be consistent
with the amended statute. In
this case, this requires that we limit the
definition of "long-stay services"
to "services provided to a recipient
after a total of 60 days of inpatient
stay (90 in the case of mental
hospital services)." Furthermore, as a
practical matter, when changes
are made in a statute by Congress, the
corresponding changes that should
be made to the Agency's regulations are
subject to delays inherent in
the rulemaking process.
Therefore, we find that HCFA may properly calculate the disallowance
for
each calendar quarter using amounts paid for ICF services
"furnished
beyond" 60 days and for MH services furnished beyond 90 days,
i.e., for
services to patients who have achieved long-stay status. We
must,
however, remand this case to the parties to determine whether
the
individuals included in the calculation received the requisite days
of
service during any fiscal year. See page 3 above. If the State can
show
that any individual has not received the requisite days of service,
the
disallowance should be adjusted accordingly. If the parties cannot
come
to an agreement on remand, they may return to the Board.
II. Whether HCFA Properly Calculated the Disallowance.
a. HCFA Used the Correct Denominator.
The State contended that HCFA improperly applied its
disallowance
calculation formula because it used the wrong denominator
representing
the total number of facilities. As a result, the State
argued, it was
assessed an incorrect, much higher disallowance.
The formula for computing the reduction in FFP requires the Agency
to
multiply expenditures for a particular level of care by a fraction,
"the
numerator of which is the number of facilities for which a
satisfactory
showing was not made for the level of care and the denominator
of which
is the total number of facilities for the level of care" (Step
Three).
State's Appeal File, Exhibit (Ex.) 2, Attachment to Disallowance
Letter;
see also 42 CFR 456.657(b) (1984). The State contended that at
Step
Three for both the June 30, 1985 and September 30, 1985 quarters,
the
Agency used as the denominator the number of ICF/MR facilities only,
8,
not the number for all intermediate care facilities, 210. The
State
argued that the fraction derived for Step Three should have been
1/210,
not 1/8.
We do not agree. As the Agency pointed out, 42 CFR 456.657(b)
requires
the denominator to be "the total number of facilities for which
a
showing is required under this subpart." 4/ The regulations at 42
CFR
456.650(c)(2) (1984) provide that the required reductions do not
apply
to services provided in facilities for which a Professional
Standards
Review Organization (PSRO) has assumed binding review
responsibility.
Under the requirements for contents of showings, the
regulations
indicate that a showing need not be made for facilities for
which
binding review authority has been assumed by a PSRO. 42 CFR
456.655(4)
(1984). The Agency pointed out that in Maryland a showing
for ICFs
other than ICFs/MR is not required since these other ICFs are
under
review by PSROs. The State did not deny this. Therefore, under
the
provisions of 42 CFR 456.657, the correct denominator is 8, the
total
number of facilities for which a showing was required.
b. Whether the Calculations Are
Correct Because of
Amounts
Representing the Total Expenditures Per Quarter for
the
Applicable
Level of Care.
The Agency conceded that it had used incorrect dollar amounts for
ICF/MR
expenditures in its notice of disallowance. The Agency indicated
that
instead of using only the expenditures for ICFs/MR, it used
expenditures
for all ICFs. The Agency stated that only the expenditures
for ICFs/MR
should be used since, as discussed above, showings for ICFs other
than
ICFs/MR in Maryland are not required here because they are reviewed
by
PSROs.
The State, in its reply, disputed the revised amount the Agency used
in
its response for the ICF/MR expenditures for the two quarters at
issue
here. The State contended that due to normal fluctuation in its
ongoing
reporting process, its reported expenditure of $8,970,389 for
ICFs/MR
for the quarter ended June 30, 1985 was artificially high and that
the
State reported no expenditures for the quarter ended September 30,
1985.
The State contended that if it is to suffer the consequence
of
artificially high reported expenditures in the June 30th quarter,
then
it should receive a corresponding benefit for the September
30th
quarter. The State suggested that the revised ICF/MR penalty for
the
September 30th quarter be zero or that "average" figures for
the
quarters at issue be used.
The State has not indicated why the expenditures reported for the
quarter
ended June 30, 1985 were artificially high, nor has it explained
how it is
possible not to have any expenditures for ICFs/MR for the
quarter ended
September 30, 1985. Moreover, we question this
unexplained fluctuation
in ICF/MR expenditures given our understanding
that claims made on HCFA Form
64.9 are supposed to represent actual
expenditures. See generally 45
CFR 201.5.
In the absence of this information, the Agency's method here
appears
entirely reasonable; in fact, the attachment to the
disallowance
specifying the calculation procedure indicates that if the
Agency does
not have information regarding the expenditures for the level of
care
subject to reduction for the quarter out of compliance, the Agency
can
use the expenditures for the most recent calendar quarter prior to
the
quarter out of compliance. In this instance, where no expenditures
were
reported for the September 30, 1985 quarter, the Agency would be
allowed
to use the expenditures for the June 30, 1985 quarter. See also 42
CFR
456.657 (which states that HCFA may use an estimate if any of the
data
required to compute the reduction is unavailable).
The Agency, however, in the attachment to its disallowance as well as
in
its brief before the Board, indicated that if the State could
supply
certain data, specifically, the number of long-stay recipients and
total
number of recipients in all facilities at each level of care in
fiscal
year 1985, HCFA would make the appropriate recalculations.
While
expenditure information is different from information regarding
the
number of recipients, we conclude that since the Agency viewed
the
calculation as an estimation for which the State later can
supply
specific data, it is reasonable to allow the State an opportunity
to
present documentation showing its actual ICF/MR expenditures for
the
quarters in dispute. Therefore, we remand this issue to the parties
to
allow the State to submit sufficient documentation showing the
State's
actual expenditures for ICFs/MR for the two quarters in
dispute. If the
State is unable to do so, we sustain HCFA's use of the
reported ICF/MR
expenditures of $8,973,389 for each quarter in dispute.
Conclusion
We uphold the disallowance, subject to further adjustment, to the
extent
the State makes the requisite showing in accordance with our guidance
at
pages 5 and 7 above.
_________________________ Cecilia
Sparks
Ford
_________________________ Alexander G. Teitz
_________________________ Judith
A.
Ballard Presiding Board Member
1. In its brief, the Agency conceded that the ICF/MR
penalty should
be reduced to $747,782.42 from $2,206,386.39. Consequently,
the amount
in dispute here is $752,440.24 ($747,782.42 for ICF/MR services
for two
quarters plus $4,657.82 for MH services for one quarter).
2. These DEFRA amendments are applicable to calendar
quarters
beginning on or after July 18, 1984.
3. We note that the State did not need advance notice
of the change
in question here in order to operate its utilization control
program.
Although the amendment could make a drastic change in the amount of
a
disallowance for the July through September quarter of each year,
the
states were clearly obligated to perform timely medical reviews
under
the statutes and their state plans. It would have been
appropriate for
the Agency to bring to the states' attention an amendment
applying to a
state- operated program, particularly where the Agency
apparently
motivated the change. However, such considerations cannot
change the
binding effect of an unambiguous statutory provision.
4. Under the regulations at 42 CFR 456.657(b), total
number of
facilities may be used as an estimate in lieu of the total number
of
recipients who received services in facilities if this latter amount
is