DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State DATE: April 13, 1989 Department of
Social Services Docket No. 88-205 Decision No. 1036
DECISION
The New York State Department of Social Services (New York/State)
appealed a determination by the Health Care Financing Administration
(HCFA/Agency) disallowing $4,583,466 in federal financial participation
(FFP) claimed by the State under the Medicaid program for fiscal years
1985 through 1987. The disallowance involves $1,955,332 which the State
claimed for the purchase of everyday clothing provided to indigent
psychiatric patients and $2,628,134 in claims for New York's Youth
Opportunity Program (YOP), an employment program placing disadvantaged
high school students in a variety of jobs in psychiatric facilities.
HCFA disallowed the State's claims for clothing because it concluded
that the costs were not authorized as an allowable cost under Medicaid.
HCFA concluded that the claims for the Youth Opportunity Program were
not allowable because the State had not established that the program as
a whole directly related to patient care. HCFA also concluded that the
State was not entitled to partial payment of its YOP claims because,
while some of the participants in the program may have provided services
related to patient care, the State had failed to demonstrate the extent
to which this had occurred.
HCFA, however, did not rule out the possibility that the State might
still be reimbursed for program costs relating to individual
participants if the State could document that the participants had spent
time caring for patients. The State, in its reply brief, asked to have
the opportunity to present additional documentation on this issue in the
event the Board found that the costs of the program as a whole were
unallowable.
Based on the following analysis, we uphold the disallowance in full. We
find that the clothing costs were not authorized by the program and that
the costs of the Youth Opportunity Program as a whole were not
demonstrated by the State to be allowable. The State, however, will
have 30 days following receipt of this decision, or such additional time
as the Agency may allow, to submit documentation demonstrating that it
is entitled to partial reimbursement for the YOP costs. If the parties
are still unable to agree on what costs, if any, are allowable, HCFA
should promptly notify the State (in writing) of its decision and the
State may return to the Board on that issue alone within 30 days of
receiving HCFA's decision.
Background
In order to qualify for FFP under Medicaid, a state must submit a state
plan which meets the conditions specified in the Act. Section 1902 of
the Act. A State plan for medical assistance must provide for
reimbursement through the use of rates which are reasonable and adequate
to meet the costs incurred by efficiently and economically operated
facilities. Section 1902(a)(13)(A) of the Act. Among the services that
a state may elect to cover under its Medicaid State plan are inpatient
hospital services for individuals age 65 and over in institutions for
mental diseases and inpatient psychiatric services for individuals under
age 21. The costs which are the subject of this appeal were costs which
were included in the rates developed for payment to public psychiatric
hospitals for inpatient hospital services.
In June 1987, HCFA issued a SPECTRUM review of Medicaid payments for
inpatient services provided in public and private psychiatric hospitals
in New York. SPECTRUM is designed to examine the quality of a state's
actions in setting, adjusting, and monitoring Medicaid reimbursement
rates and to compare those activities with the methods and procedures
contained in the Medicaid State plan as approved by HCFA. HCFA's review
was comprised of two components. The SPECTRUM component reviewed New
York's Medicaid rate-setting procedures through an examination the
State's 1984/85 cost report. The FFP reconciliation component examined
payments made and costs included in the Medicaid reimbursement rate to
determine whether such costs were correctly claimed by New York. The
reconciliation covered costs claimed for the period April 1, 1984
through March 31, 1985. The FFP reconciliation revealed that New York
had included four categories of unallowable costs in its Medicaid rate
for public psychiatric hospitals. HCFA Br., pp.3-4. New York conceded
the disallowances pertaining to two of the cost categories and, as
discussed below, challenged the other two, involving clothing costs for
institutionalized patients and the costs of the State's Youth
Opportunity Program.
Analysis
I. Clothing Costs
New York claimed $1,955,332 for the costs incurred by OMH facilities in
providing day-to-day clothing to indigent patients. New York argued
that the therapeutic value of dressing psychiatric patients in "street"
clothing, as opposed to institutional clothing or pajamas, justified
this cost as a Medicaid expense. New York relied on the definition of
allowable costs as set out in the Medicare and Medicaid Provider
Reimbursement Manual (HIM 15) at section 2102.2 which defines allowable
costs as--
. . . necessary and proper costs which are appropriate and helpful
in developing and maintaining the operation of patient care
facilities and activities. Necessary and proper costs related to
patient care are usually costs which are common and accepted
occurrences in the field of the provider's activity. They include
personnel costs, administrative costs, costs of employee pension
plans, normal standby costs, and others.
In contrast, the State pointed out that HIM 15 at section 2102.3 defines
unallowable costs as--
Costs not related to patient care are those costs which are not
appropriate or necessary and proper in developing and maintaining
the operation of patient care facilities and activities. Such
costs are not allowable in computing reimbursable costs. They
include for example, costs of meals sold to visitors, costs of
drugs sold to other than patients; costs of operation of a gift
shop and similar items.
New York argued that its claim for clothing costs was consistent with
these guidelines because these costs were similar to the listed
allowable costs and were not specifically identified as unallowable.
New York noted that the facilities in issue were not short stay
institutions. Consequently, providing patients with everyday clothing,
rather than institutional clothing, was a fundamental part of
establishing a therapeutic environment, and served the underlying goal
of a rehabilitative program by attempting to maintain patients at the
optimum level of independent functioning. New York Br., pp. 4-5.
The State offered citations to articles from various medical journals
and books on mental illness attesting to the value of allowing patients
to wear everyday clothing. New York also noted that at least one
federal court has held that the cost of laundry service for patients'
clothing is allowable. See JIGC Nursing Home Company, Inc. d/b/a/
Jewish Institute for Geriatric Care v. Bowen, 667 F. Supp. 949 (E.D.
N.Y. 1987). New York argued that the logic of this case should be
extended to provide clothing for patients. Finally, New York asserted
that the patients' right to wear their own clothes is mandated by both
the Joint Commission on Accreditation of Hospitals and OMH regulations.
New York Br., pp. 5-7.
We find that the clothing costs are not allowable costs properly
included in the calculation of rates charged to Medicaid. Contrary to
the State's assertion, the HIM provisions do not support these costs.
Under HIM 2102.2 an allowable cost must be necessary and proper.
Necessary and proper costs are described as "those costs related to
patient care" which "are usually costs which are common and accepted
occurrences in the field of the provider's activity." There is simply
no evidence that the duties of a psychiatric provider include supplying
everyday clothing to indigent patients. Moreover, clothing costs are
not among those specifically cited as examples of allowable costs.
Indeed, clothing costs do not bear any perceivable relationship to the
types of costs specifically cited as allowable.
Additionally, New York cited the definition of unallowable costs, at HIM
2102.3, as support for its argument that since clothing costs for
patients are not specifically included within the sphere of costs not
related to patient care (which are unallowable), they must naturally
fall within the sphere of allowable costs. This attempt to define a
cost as allowable by virtue of its omission from a category of
unallowable costs is unconvincing. The HIM provision merely cites
"examples" of unallowable costs and is not an exhaustive list. Clearly,
the omission of a type of cost from the list cannot be used as
affirmative evidence that the cost is allowable. Accordingly, we find
that the State's arguments do not warrant a finding that these costs fit
within the applicable HIM definition and that the Agency's position
excluding the costs from the definition is reasonable.
We also find that the Agency's application of the HIM provisions in this
case is supported by the regulation at 42 C.F.R. 435.725(c) which
provides that, in determining eligibility for Medicaid, states must
disregard specified amounts of money to be used as a personal needs
allowance from the income of institutionalized Medicaid recipients. As
the term suggests, a personal needs allowance is one which is reasonable
in amount for an institutionalized individual's clothing and personal
needs. The Agency reasonably concluded that the income disregard for a
personal needs allowance supports its interpretation of the HIM
provisions since the Medicaid eligibility rules effectively provide for
clothing and other personal needs of institutionalized recipients.
Further funding for clothing as part of a hospital's rate would likely
be duplicative.
Further, neither the State regulations nor the JCAH standards support
the premise that these costs are allowable charges to Medicaid. A State
regulation, setting out the rights of the mentally disabled, provides
that patients shall have the right to appropriate personal clothing.
See N.Y. Comp. Codes R. & Regs., title 14, sec. 527.5, subsection (a)(3)
(1987) at N.Y. Ex. 3. The State regulation does not indicate that the
State, or Medicaid, is responsible for providing the clothing. Rather,
the plain language of the regulation indicates that patients are allowed
to retain and wear personal clothing while in a treatment facility.
Moreover, even if the regulation could be read in the manner advanced by
New York, the State cannot unilaterally obtain Medicaid funds simply by
including such language in its regulations. Additionally, the JCAH
standards establish that if clothing is provided by the facility's
program, it will be appropriate and not dehumanizing. The JCAH
standards then outline certain guidelines for the type and care of such
clothing. New York Ex. 2. However, the standards do not mandate that
the facility's program provide clothing.
Finally, contrary to the State's assertion, the rationale of the court
in JIGC v. Bowen does not lead to the conclusion that Medicaid funds
should pay for clothing for the indigent. Among other issues, the court
in that case was faced with a highly specialized rehabilitation
facility's claim for federal funding for laundry service costs. The
plaintiff provided the court with "substantial . . . evidence"
supporting the premise that a patient's ability to wear personal
clothing was essential to the rehabilitative process. This evidence was
presented in the context of teaching patients recovering from strokes
and amputations how to dress themselves. The court also noted that the
plaintiff "adduced evidence" regarding the importance of allowing
psychiatric patients to wear their own clothing, but did not address the
merits of that issue. While the court found that the plaintiff had not
demonstrated that laundry expenses for all Medicare patients were
allowable, the court remanded the issue to allow the plaintiff to show
what percentage of its Medicare patients, receiving rehabilitative care,
required laundry services. Id. at 962-963. The provision of federal
funds for laundry service has some logical basis, as there is no purpose
in allowing long-term patients to wear their own clothing if that
clothing cannot be reasonably maintained. However, we do not read that
case as providing support for the State's claim for the clothing costs
themselves.
Accordingly, on the basis of the foregoing, we conclude that Agency
reasonably disallowed the $1,955,332 in FFP for clothing costs.
II. Youth Opportunity Program
HCFA disallowed $2,628,134 associated with the administration and
supervision of the Youth Opportunity Program. The YOP provides
on-the-job training to disadvantaged youths. The program's goal is to
prevent high school dropouts and enable participants to gain regular
employment.
The State asserted that although the YOP is basically an employment
program, that fact does not diminish the nature of the services at
issue. New York indicated that YOP participants are employed at various
OMH facilities providing services which would otherwise be performed by
regular staff at a greater cost to Medicaid. Thus, the State argued,
the YOP clearly enhanced the quality of patient care by providing
additional (and inexpensive) staff to the facilities. New York Br., pp.
8-9; New York Reply Br., p. 5.
The State conceded that the YOP is an employment program for
disadvantaged youth. New York Br., p. 8. The program description,
provided by New York, indicates that the YOP's primary aim is to train
students needing "positive stimulus" thereby encouraging "disadvantaged
youth to complete their education by providing employment opportunities
that have been denied them previously." New York Ex. 4. The State's
monthly composite statistics for February 1987 showed a total of 468 YOP
participants employed in various clinical, rehabilitation, and support
services. New York Ex. 5.
The State's case for the allowability of YOP costs is contradictory.
The State claimed that the benefit provided to the Medicaid program
justified charging its costs to Medicaid funding, yet the program's
primary purpose is to assist disadvantaged youth. Notably, the State
provided a YOP Budget Request for fiscal year 1984-1985 which indicated
that, at least in its early stages, the YOP was funded through the
Department of Labor. HCFA Ex. R-4. The State's claim was based on
administrative, supervisory, and training costs of the program as a
whole, not on reasonable charges for any patient care services provided
by the participants.
We have previously recognized that certain services provided to patients
in a long term care facility by student nurses might be recognized as
allowable charges to Medicaid when properly documented. See Arkansas
Dept. of Human Services, DAB No. 998 (1988), pp. 6-10. The
participants noted in New York's February 1987 statistical breakdown for
YOP are dispersed through 34 job categories. New York has provided job
descriptions for each category. New York Ex. 4. While, as HCFA noted,
some of these job descriptions "suggest" that some YOP participants
may
have performed patient-related tasks, there is clearly insufficient
documentation to support the conclusion that they all did. Indeed, the
evidence indicates that some of these individuals clearly would not have
provided allowable services. New York claimed some costs for Community
Store trainees, yet as part of this overall disallowance New York
conceded that costs associated with Community Stores were properly
disallowed. See note 1. Further, one job category within the YOP is
the Advanced Peer Program, where participants are YOP graduates who act
as assistants to YOP supervisors and assist in student activities such
as tutoring. New York Ex. 4. On the face of it, these costs could not
be considered allowable charges to Medicaid.
It is well recognized that a state bears the burden of documenting the
allowability of costs submitted for federal funding. New Jersey Dept.
of Human Services, DAB No. 899, (1987). The State's general arguments
have not satisfied that burden in this case. Therefore, these costs
were properly disallowed.
However, HCFA has conceded that some of the YOP costs, if properly
documented, may be allowable and has indicated that it would be willing
to reexamine claims which the State could adequately and timely
document. HCFA Br., pp. 13-14, n. 6. Therefore, upon receipt of this
decision New York should promptly contact HCFA so that the Agency can
establish guidelines for submission and review of any documentation
relevant to the YOP costs. If the parties are unable to agree on the
allowability of documented YOP costs, the State may return to the Board,
within 30 days of receipt of HCFA's final written decision, for our
assistance on that limited issue.
Conclusion
Based on the above analysis we sustain the disallowance of $1,955,332
claimed for clothing costs. We also sustain the disallowance of the
$2,628,134 claimed for the YOP. The disallowance for YOP funding is
subject to possible reduction to the extent that the State can, to
HCFA's satisfaction, document the allowability of YOP costs that are
appropriate charges to Medicaid (in accordance with the schedule on page
2 above).
________________________________ Cecilia Sparks Ford
________________________________ Norval D. (John) Settle
________________________________ Donald F. Garrett Presiding
Board