DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: North Carolina Department of
Human Resources
Docket No. 88-106
Decision No. 997
Date: December 6, 1988
DECISION
The North Carolina Department of Human Resources (North
Carolina/State)
appealed a determination by the Health Care Financing
Administration
(HCFA/Agency) disallowing $90,150.90 in federal funding
claimed by the
State under the Medicaid program of the Social Security Act
(Act) for
the quarter ending March 31, 1988. 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 for long-stay services where the state fails to
show
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."
HCFA alleged that North Carolina did not conduct an on-site inspection
of
care review at Forsyth-Stokes Mental Health Center (Forsyth-Stokes),
an
institution for mental diseases, during an 18-month period ending
March 31,
1988. North Carolina admitted that it had not reviewed
Forsyth-Stokes
during that period, but argued that no review was due.
North Carolina also
asserted that if this disallowance is sustained by
the Board, the amount of
the disallowance should be recalculated based
on exact recipient data.
Based on the following analysis, we find that the State was required
to
perform an on-site review at Forsyth-Stokes. Therefore, we sustain
the
disallowance in full subject only to HCFA's possible recalculation
of
the disallowance based on consideration of any exact recipient
data
which North Carolina may submit.
Applicable Law
The general requirement for an effective program of annual medical
review
in section 1903(g)(1) is treated more specifically in sections
1902(a)(20)
and 1902(a)(31), which establish the requirement for a
periodic inspection
"of the care being provided to each person receiving
medical assistance."
The statutory annual review requirement is implemented by regulation at
42
C.F.R. 456.652 which provides --
(a) General requirements. In order to
avoid a reduction in FFP,
the Medicaid agency must
make a satisfactory showing to the
Administrator, in
each quarter, that it has met the following
requirements for each recipient:
* * *
(4) A regular program of reviews, including
medical evaluations,
and annual on-site reviews of
the care of each recipient, . . . .
(b) Annual on-site review requirements.
(1) An agency meets the
quarterly on-site
review requirements of paragraph (a)(4) of this
section for a quarter if it completes on-site reviews of
each
recipient in every facility in the State, . . .
by the end of the
quarter in which a review is
required under paragraph (b)(2) of
this section.
(2) An on-site review is required in a
facility by the end of a
quarter if the facility
entered the Medicaid program during the
same
calendar quarter 1 year earlier or has not been reviewed
since
the same calendar quarter 1 year
earlier. If there is no Medicaid
recipient in
the facility on the day a review is scheduled, the
review is not required until the next quarter in which there is
a
Medicaid recipient in the facility.
* * *
(c) Facilities without valid provider
agreements. The
requirements of paragraphs (a)
and (b) of this section apply with
respect to
recipients for whose care the agency intends to
claim
FFP even if the recipients receive care in a
facility whose
provider agreement has expired or
been terminated.
Additionally, regulations at 42 C.F.R Part 441, Subpart D, set
out
standards for services provided as inpatient psychiatric services
for
individuals under the age of 21 in psychiatric facilities or
programs.
Among other criteria, the general requirements for that subpart
indicate
that inpatient psychiatric services for recipients under age 21 must
be
provided --
By a psychiatric facility . . . which is accredited
by the Joint
Commission on the Accreditation of
Hospitals . . . .
42 C.F.R. 441.151 (b).
Background
Forsyth-Stokes is a 40-bed institution for mental diseases that, prior
to
April 1, 1985, had 38 Medicaid-certified beds. On April 19, 1985,
the
Joint Commission on the Accreditation of Hospitals (JCAH) withdrew
its
accreditation of the facility retroactive to April 1, 1985. As
a
consequence, the facility was decertified as a Medicaid provider and
had
its provider agreement terminated. The JCAH resurveyed
Forsyth-Stokes
on October 29-31, 1986. On July 10, 1987, the JCAH
notified the
facility that it was again accredited retroactive to October 31,
1986.
On October 26, 1987, the facility initiated the process of
obtaining
Medicaid certification from the State. By January 6, 1988 the
State and
Forsyth-Stokes had executed a provider agreement under which
the
facility was once again Medicaid certified, retroactive to October
31,
1986, the day the JCAH resurvey had been completed. The Agency
alleges
and the State does not deny that during the period October 31, 1986
to
March 31, 1988, the facility provided services to
Medicaid-eligible
patients, and that following the execution of the provider
agreement,
the State made claims to HCFA on behalf of these patients.
The basis for the Agency's disallowance is that under the statute
and
regulations the State had the obligation to perform an on-site review
of
the care of each Medicaid patient in Forsyth-Stokes by the
quarter
ending March 31, 1988 and did not do so. The State did not deny
that it
had not performed an on-site review throughout the period October
31,
1986 through March 31, 1988. North Carolina argued, however, that
an
on-site review was not required in a facility which had lost its
JCAH
accreditation. The State noted that accreditation was essential
for the
facility's participation in Medicaid. The State argued that it
could
not have anticipated that the facility would receive
retroactive
accreditation and therefore could not have intended to claim
federal
funding for Medicaid patients in the facility for services provided
back
to the retroactive effective date of October 31, 1986.
Analysis
The primary regulation in support of the disallowance, 42
C.F.R.
456.652(b), requires an on-site review in a facility by the end of
the
calendar quarter, one year later, from the calendar quarter in which
the
facility entered the Medicaid program. Here, Forsyth-Stokes
executed a
provider agreement on January 6, 1988 under which it reentered
the
Medicaid program effective October 31, 1986. Thus, the State
was
clearly in violation of section 456.652(b) for the quarter ending
March
31, 1988 for not having performed an on-site review.
It should be emphasized that the important date insofar as
section
456.652(b) is concerned is the date the facility enters the program,
not
the date that it executes a provider agreement. The clear purpose
of
the statute and regulations implementing the utilization
review
requirements is to insure an effective program of review of medical
care
for the periods of time for which the patients receive
Medicaid
coverage. Here the retroactive effect of the provider
agreement placed
the facility in the program effective October 31, 1986, and
imposed the
medical review requirements as of that date. The State
cannot avoid
responsibility for the requirements merely because the effective
date of
the provider agreement was implemented retroactively. In fact,
the
State should have been on notice as far back as the time of the
October
1986 JCAH survey that the facility might be certifiable as of the
date
of the survey. In any event, the facility was notified on July 10,
1987
that it had received JCAH accreditation retroactive to October 31,
1986.
On November 3, 1987, the State sent a provider agreement, retroactive
to
October 31, 1986, to the facility, which in turn executed the
agreement
on December 18, 1987, and returned it to the State. Thus, it
was
evident to the facility and presumably to the State by July 10,
1987
that the facility might be reentering the program as of October
31,
1986, and that an on-site review would be necessary during the
year
following entry and during subsequent quarters. Of course, once
the
execution of the provider agreement was completed January 6, 1988,
there
could be no doubt in anyone's mind of the date the facility
reentered
the program and the State still had until March 31, 1988 under
the
Agency's application of section 456.652(b) to complete its
on-site
review.
Another regulation, 45 C.F.R. 456.652(c), also supports the
Agency's
application of the utilization review requirements to
these
circumstances. Section 456.652 requires on-site reviews with
respect to
recipients "for whose care the [State] agency intends to claim FFP
even
if the recipients receive care in a facility whose provider
agreement
has expired or been terminated." This regulation makes it
clear that if
there is any expectancy that there will be claims for FFP made
for
recipients during an interim period when a facility's status
is
uncertain, the State should proceed with the on-site reviews. This
is
precisely the situation we are faced with here. Under
section
456.652(c), the State was obligated to continue on-site reviews as
long
as there was any possibility that the provider agreement would
be
reinstated retroactively and Medicaid claims made for services
provided
in the facility during the interim period when the status was
uncertain.
The State makes the weak argument that it did not "intend" to
claim FFP
during the period before January 6, 1988, the date the
provider
agreement was finally executed by it. Even if the State did
not track
the status of this facility after it was decertified on April 19,
1985,
(and it arguably had the responsibility to do so under 42
C.F.R.
456.652(b) and (c)), it clearly was on notice well before January
6,
1988 that the agreement might be reinstated retroactively and that
the
State could be making claims on behalf of Medicaid patients in
the
facility for the retroactive period. In any event, the Agency gave
the
State an additional grace period until March 31, 1988 to complete
its
on-site review. During this almost three month period, there
was
absolutely no question that the State would be making Medicaid
claims
for services provided to eligible patients back to October 31,
1986.
The State also argued that section 456.652(c) only applied to
periods
where a provider agreement was in the process of being
reinstated,
either through appeal or new survey. As part of this
argument, it cited
language from the preamble to the final rule which stated
in part:
We proposed in the NPRM to hold States accountable
for assuring
that the UC requirements are met for
facilities without valid
provider agreements if the
State claims or intends to claim FFP for
payments to
those facilities. This situation usually occurs when
a
facility continues to provide services while
appealing a denial or
termination of its
agreement.
44 Fed. Reg. 56334 (October 1, 1979).
The State then noted that at the time the provider agreement
for
Forsyth-Stokes was terminated effective April 1, 1985, there were
no
Medicaid patients at the facility. The facility did not appeal
the
termination and more than two years elapsed before the
facility
requested a new provider agreement. The State implied that
these
circumstances should explain its failure to provide the review.
There are several difficulties with the State's argument, however.
We
are not concerned with the period immediately following April 1,
1985,
but rather with the period after the JCAH resurvey, when the
possibility
of a retroactive certification existed and Medicaid eligible
patients
apparently had been admitted to the facility. Further, while
the
preamble gives examples of when the regulation would apply, the
language
of the regulation expressly states that it applies to facilities
whose
provider agreements have been terminated, which is precisely the
case
here. The preamble also notes that the regulation applies in
instances
where a state "claims or intends to claim" FFP for payments to
those
facilities. This further bolsters our conclusion that section 42
C.F.R.
456.652(c) applies since the State clearly has claimed FFP for
the
retroactive period and had the intent well before the quarter at
issue
expired.
Accordingly, we find that the State failed to make a satisfactory
showing
as required by the statute and regulations that it had an
effective program
of medical review for the quarter ending March 31,
1988.
The State also argued that even if the Board upheld the Agency's
finding
concerning the State's failure to make a satisfactory showing, the
State
still should be entitled to a recalculation of the penalty based
on
exact recipient data. The State noted that submission of the data
in
the format requested by HCFA would be expensive. It then argued:
Since North Carolina strongly contests the propriety
of any penalty
in this matter, it believes that it
should not be required to incur
the costs of
providing the data requested by HCFA, at least until
after final resolution of the issue of whether North
Carolina
should be penalized at all.
State Reply Brief (Br.), p. 5.
While HCFA reiterated the need for North Carolina to provide the data
in
the precise format it had specified (see, e.g., Chapter 9 of the
State
Medicaid Manual and the HCFA Br., pp. 7-8 and Reply Br., pp.3-4), it
did
not object to having the State provide the material after the
Board
issued its decision. The State therefore will have 30 days after
it
receives the Board's decision, or such additional time as HCFA
may
allow, in which to supply the necessary data in the format required
by
HCFA. If the State supplies the material within the time frame
allowed
and the parties still disagree as to the calculation of the
penalty
amount, the State may return to the Board on that issue alone.
The
State, however, must notify the Board within 30 days of receiving
HCFA's
recalculation based on the exact recipient data it provided.
Conclusion
On the basis of the foregoing, the disallowance is upheld in full,
subject
only to HCFA's possible recalculation of the disallowance amount
based on
exact recipient data provided by the State.
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz
________________________________ Donald F. Garrett
Presiding
Board