Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: December 17, 1991
Docket No. 91-61
Audit Control No. A-02-90-01011
Decision No. 1284
DECISION
The New York State Department of Social Services (State) appealed
a
determination by the Health Care Financing Administration
(HCFA)
disallowing $44,750 in federal financial participation (FFP) for
family
planning services provided under Title XIX (Medicaid) of the
Social
Security Act (Act). The amount appealed is a portion of a
disallowance
totalling $1,158,375, which resulted from an audit report
reviewing the
State's claiming of inpatient family planning services.
The entire amount disallowed related to 180 claims for
sterilization
procedures. The State contested amounts disallowed in
relation to 8 of
these claims, which can be divided into two groups.
Six claims,
totalling $35,272, involved sterilizations performed during a
hospital
stay in which delivery of a baby had also occurred (sterilization
and
delivery situations). Two claims, totalling $9,478,
involved
sterilizations for which the State could not document informed
consent
as required (undocumented consent claims).
With respect to the first group of claims, we conclude that the State
did
not show any reasonable basis for allocating the hospital stays and
ancillary
costs entirely to family planning in the sterilization and
delivery
claims. With respect to the second group of claims, however,
we
conclude that since the required retention period for the consent
forms
expired before the review commenced, the disallowance for
undocumented
consents would unfairly prejudice the State. Therefore, we
uphold the
disallowance in part and reverse in part.
Background
The Medicaid program provides an enhanced matching rate of 90% to
the
State for sums expended for family planning services and supplies.
.
1903(a)(5) of the Act; 42 C.F.R. .. 433.10(c)(1), 433.15(b)(2). It
is
uncontested that sterilizations constitute family planning
services
under the State Plan. HCFA Brief (Br.) at 3.
In order to be eligible for FFP, sterilizations require written
consent
obtained from the patient at least 30 but not more than 180 days
before
the procedure is performed. 42 C.F.R. . 441.253(d).
Exceptions to this
waiting period are provided for premature delivery (if
consent was
obtained 30 days before the expected due date) and for
emergency
abdominal surgery, so long as 72 hours passed after consent was
given.
A physician must certify that the informed consent requirements
have
been met. 42 C.F.R. . 441.258.
The purpose of the audit was to review the effectiveness of the
State's
Medicaid Management Information System (MMIS) in ensuring that
the
enhanced rate of FFP was claimed only for eligible family
planning
services. HCFA Br. at 4. Of 180 claims reviewed, the
auditors found
that none related solely to family planning. In 162
claims, no
sterilizations or other family planning services were actually
provided
at all. Ten other claims involved sterilization and
delivery
situations, but delivery was listed as the primary procedure.
The State
agreed that enhanced FFP should not have been sought for these
172
claims. The other 8 claims are at issue here.
Issues
The State asserted that the remaining 8 claims should be eligible
for
FFP. First, in the six sterilization and delivery
situations,
sterilization was recorded as the primary procedure by the
attending
physicians. The State argued that its allocation
method, which it
alleged was reasonable and supported by a prior Board
decision,
permitted it to claim the enhanced rate for the entire hospital
stay in
those circumstances. HCFA did not disagree with the general use
of
primary procedure codes to allocate costs, but contended that
the
designation of sterilization as the primary procedure in
the
circumstances of these cases was so unreasonable as to be
clearly
erroneous. 1/
Second, as to the two undocumented consent cases, the State argued
that
the Board should presume that the consent forms were complete
and
correct when filed, because the three-year record retention
period
expired before the audit review was performed. HCFA responded
that the
State was obliged to document its costs and is not entitled to
a
favorable presumption when the documents involved were not lost
or
destroyed but copied incompletely on microfiche.
Analysis
A. Sterilization and delivery situations
On August 4, 1990, the State issued a directive to its district
offices
instructing them on the method of allocating inpatient claims when
only
part of a stay was attributable to family planning services.
State
Exhibit (Ex.) 2. The directive provided two options: (1) claim
one day
of each stay as family planning or (2) claim the entire stay based
on
the primary procedure, defined as the most expensive procedure listed
in
the State Physician Fee Schedule. Id. at 8. The sterilization
and
delivery situation is specifically addressed. The directive
instructs
that the "major procedure (delivery) is not family planning
reimbursable
so the entire stay is non-family planning." Id. The
directive states
that the information contained in it "is now incorporated in
MMIS." Id.
The State argued that, since implementation of its MMIS in 1980,
the
entire cost of a hospital stay was allocated according to the
primary
procedure code entered by an attending physician. If the
delivery is
marked as primary, no claim for enhanced rate should be made for
any
portion of the stay relating to the sterilization. 2/ If
the
sterilization is marked as primary, the entire stay is claimed at
the
enhanced rate.
However, the State offered no authority to support the claim that
its
allocation method changed when MMIS went into effect. To the
contrary,
the directive states that the same method described therein
was
incorporated into MMIS. The review found that MMIS in fact failed
"to
have in place either a procedure to allocate the costs of an
inpatient
stay involving both family planning and other procedures or to
verify
which was the major procedure performed during the stay." State
Ex. 1
at 6. The portion of the disallowance which the State is not
contesting
demonstrates that MMIS was claiming enhanced FFP for
sterilizations
whether the procedure was marked as primary or secondary by
the
attending physician (so long as the family planning indicator was
marked
affirmatively). The distinction based on primary procedure code
(rather
than the definition of primary contained in the State directive)
thus
appears to have been created retrospectively to justify an enhanced
rate
for a sub-group of sterilization and delivery situations, but not
to
have been used prospectively as an allocation method.
The State rejected HCFA's position that sterilization was
entered
erroneously as the primary procedure in these cases, on the grounds
that
the State would be required to "second-guess a
physician's
determination." State Reply Br. at 3. Further, the
State complained
that HCFA was substituting the after-the-fact judgment of
auditors for
that of the attending physicians in an area requiring medical
training
and expertise. Id. at 6. However, the State conceded
that 159 of the
claims reviewed were claimed improperly at the enhanced rate,
because
providers erroneously marked the family planning indicator box
even
though the services were wholly unrelated (such as appendectomy
or
schizophrenia). Thus, the State itself recognized that provider
error
in preparing the forms occurred, had in fact caused improper
claiming,
and was appropriate for the auditors to address. Furthermore,
since the
directive defines "primary" as "most costly," the classification
would
seem to require more financial than medical expertise.
The records of these six cases reported in the review
undercut
dramatically the State's position that sterilization reasonably
could be
considered the primary procedure in these hospital stays. The
main
diagnoses related to pregnancy or delivery complications. State
Ex. 2
at 10. The patients were hospitalized an average of 24.8 days
before
sterilization and only 3.3 days afterwards, suggesting that the bulk
of
their treatment related to the pregnancy. Id. The only
difference
between these cases and those ten for which the State accepted the
lower
rate of FFP is that the forms for these six were marked
differently,
i.e. with sterilization as primary. Id. This
distinction is not a
medical difference in the conditions or treatments of
the patients. The
State has thus provided no basis, either in law or in
fact, for treating
sterilization as the primary procedure in these cases.
The State argued that the Board upheld that use of primary procedure
codes
to allocate the costs of multiple procedure hospital stays in New
York State
Dept. of Social Services, DAB 862 (1987). In that case, the
State's
method of allocating costs of hospital stays during which
patients underwent
abortions, as well as other procedures, was based on
excluding all costs
where abortion (a non-covered service) was listed as
the primary
procedure. HCFA argued that all costs of any stay during
which an
abortion was performed should be excluded. The State contended
that
abortion was rarely the main reason for a hospitalization, so most
of the
hospitalization costs were unlikely to be abortion-related. 3/
The Board held
that the State's method of allocating costs was not
prohibited by HCFA's
policy, citing a HCFA memorandum stating: "In the
absence of
regulations, any method of allocation adopted by a State,
which reasonably
allocates costs for the purpose of excluding the cost
of non-covered services
or claiming the appropriate rate of FFP, must be
found acceptable by
HCFA." New York at 8. The State relied on this and
similar
language in a letter from the Regional Medicaid Director in
1981, in regard
to sterilizations claims with multiple procedures, as
authority to use
primary procedure codes. State Br. at 9- 10; State Ex.
3.
The critical language in this letter and in the New York decision is
that
the method "adopted" by a state must "reasonably" serve to claim
the
"appropriate" rate of FFP. While a method based on physician coding
of
primary procedures is not unreasonable, the State cannot even be said
to have
"adopted" such a method here, since it reflects neither the
State's own
directive nor the method (or absence of a method) actually
used by
MMIS. HCFA is not bound to accept as reasonable the results of
an
allocation method based on implausible factual assertions. A
method
resulting in claiming an appendectomy as a family planning service
is
not reasonably resulting in claiming the appropriate rate.
Similarly,
the State cannot claim as reasonable the designation of
sterilization as
primary in contradiction to undisputed facts and its own
instructions.
The State claimed that HCFA's disallowance amounted to an improper
change
of policy, in that HCFA was forcing the State to use a different
allocation
method than it had selected. In this regard, the State
relied on Office
of Management and Budget (OMB) Circular A-87, Att. A,
A.2.c, allowing
grantees "primary responsibility for employing whatever
form of
organization and management techniques may be necessary to
assure proper and
efficient administration." The State also insisted
that such a
substantive change of policy required formal rulemaking and
could not be
applied retroactively, relying on several cases. State Br.
at
11-13. The State asserted that it was only made aware that
HCFA
objected to its allocation methodology when it received a copy
of
internal HCFA audit review guidelines for financial review of
family
planning claims. State Br. at 10; State Ex. 4. The State
objected to
HCFA's use of such an audit guide to "change long standing
regulations
or policy regarding allocation of family planning costs."
State Br. at
10.
All of these arguments miss the point. HCFA has not dictated any
change
in the State's allocation methods, but rather the State has failed
to
use its MMIS to implement a reasonable, consistent method to claim
FFP
appropriately. Nothing in the audit guide on its face claims to
make
any change in policy. Rather, the guide "reflects current law
and
policy decisions . . . as referenced" in a list of sections of the
Act,
policy memoranda including the one relied on by the State, and a
State
Medicaid Manual provision, not relating to the issue here. The
State
has pointed only to the statement that when "multiple procedures
are
performed during a single hospital stay and submitted as a
single
inpatient claim, a State claim for FFP must distinguish between
those
costs attributable to family planning services . . . and those
costs
attributable to other covered services." State Reply Br. at 7;
State
Ex. 4 at 4. However, this language is quoted from the 1980
HCFA
memorandum cited in New York and relied on by the State, and which
goes
on to say that the State may use any reasonable method for
accomplishing
this allocation. Thus, no substantive change of HCFA
policy has
occurred which could trigger the issues of rulemaking procedure
or
retroactivity raised by the State. Nor is the OMB Circular
provision
relevant, since HCFA has not disputed the State's discretion to
adopt
any reasonable method of allocation, absent a specific policy
or
regulation being issued by HCFA.
Thus, the State failed to reasonably distinguish costs for family
planning
from costs for other services. Without a reasonable method to
make this
allocation properly, the State is not entitled to FFP at the
enhanced rate
beyond that allowed by HCFA. Therefore, the claims for
enhanced FFP in
the sterilization and delivery situations at issue were
properly denied.
B. Undocumented Consents
Two of the cases disallowed involved microfiche copies of consent
forms
that do not evidence compliance with the 30-day waiting period or
the
conditions required for waivers. However, the State asserted that
the
portions of the forms which would have reflected such conditions
were
omitted inadvertently from the microfiche because the forms were
on
larger than standard paper. The original copies were no
longer
available. The State argued that it should be entitled to a
presumption
that the original forms were complete and supported its claim for
FFP,
since the period during which federal law required the State to
retain
the records expired before the review was commenced. 4/
HCFA responded that the State retained the burden of proof in
documenting
its costs, including compliance with the consent
prerequisites for
sterilization funding. The State failed to show that
the forms were
once correctly completed, but then lost or destroyed.
Rather, they were
retained in microfiche form and do not show compliance
on their face, because
they lack physician certifications explaining
their signing less than 30 days
before the procedures. HCFA pointed out
that the other cases reviewed
had consent forms that were also
microfilmed, but were found
acceptable. If the reason for the lack of
compliance was careless
microfilming, HCFA contended that the State
violated federal rules for
substitution of microfilm for originals which
require the copies to be
adequate for audits and reviews. 42 C.F.R. .
431.17(d).
The resolution of this issue depends on whether the delay in reviewing
the
documents prejudiced the State because of the loss of the original
source
documents. We have articulated the legal standard previously
as
follows:
It is well established in Board precedent that
grantees
have a fundamental obligation to account for
federal
funding which is not defeated per se by passage of
the
record retention period. . . . It is also
clear,
however, that this Board will take into account
the
prejudice a grantee can prove which is attributable
to
the loss of records resulting from their innocent
loss
or destruction after expiration of the record
retention
period.
California Dept. of Social Services, DAB 855 at 3 (1987)
(citations
omitted). In this case, the State has reasonably
demonstrated that its
inability to substantiate compliance with the informed
consent
requirements resulted from loss of original forms after the
expiration
of the record retention period.
Despite HCFA's contention that the records were copied rather than
lost,
original forms existed which were lost at some time after
being
microfilmed (a loss which the State asserted was caused by the
passage
of time). The regulation on substitution of microfilm copies
does not
impose a duty to retain those copies beyond the period during which
the
originals would have been required to be retained. It would
be
anomalous to punish the State for having retained incomplete copies,
if
it would not be penalized had it erased the microfiche entirely.
HCFA argued that other forms were copied on microfilm in a manner
which
sufficed to show compliance with consent requirements. However,
the
portions of the forms which are lacking here are the
physicians'
certifications to document conditions permitting waiver of the
30-day
waiting period. Possibly, the other forms were sufficient
because they
demonstrated compliance with the waiting period and therefore
the
omission of the portion of the form with the physician's
waiver
certification was irrelevant, since no waivers were required in
those
cases.
We conclude that the expiration of the record retention period
did
prejudice the State here. Had the review occurred during the
record
retention period, the State presumably would have had access to
the
original forms to verify whether or not they contained
physician
certifications adequate to support waivers of the waiting
periods. The
State has proffered an explanation of the incompleteness
of the partial
microfiche copies. In this case, we will not uphold a
disallowance
based solely on the State's failure to retain complete copies of
consent
forms beyond the required record retention period.
Conclusion
For the reasons explained above, we uphold $35,272 of the
contested
disallowance relating to sterilization and delivery situations
and
reverse $9,478 of the disallowance relating to undocumented consents.
_____________________________ Cecilia
Sparks
Ford
_____________________________ Norval D.
(John)
Settle
_____________________________ Donald F.
Garrett
Presiding Board Member
1. The auditors did not disallow the claims entirely. Rather,
they
concluded that delivery was the primary procedure in all of
the
sterilization and delivery situations, but that in each some portion
of
the costs was attributable to sterilization. The auditors allowed
the
enhanced rate for two days of each hospital stay, on the basis that
two
days is the length of stay listed in New York's diagnostic
related
groups for payment of sterilization procedures.
2. In practice, the State claimed the family planning rate when
the
physician coded the sterilization as secondary but the facility
marked
"yes" on a family planning indicator. However, the State did
not
contest the disallowance relating to the ten cases where
sterilization
was coded as the secondary procedure. See State Br. at
4.
3. By contrast, only rarely, if ever, would sterilization be the
main
reason for a hospital stay that coincided with delivery of a baby.
In
New York, the auditors did not suggest that the designations of
which
procedure were primary were erroneous, but rather that no claim for
a
stay which included an abortion should be paid.
4. The forms involved dated from early 1984 and November 1985.
State
Exs. 5 and 6. The review occurred in