GAB Decision 159
March 31, 1981 California Department of Health Services; Docket No.
79-105-CA-HC Ford, Cecilia; Settle, Norval Garrett, Donald
The California Department of Health Services (State) appealed a
decision by the Director, Medicaid Bureau, Health Care Financing
Administration (HCFA), disallowing $215,602 claimed under Title XIX
(Medicaid) of the Social Security Act for certain payments to Los
Angeles County (County).
Based on the parties' submissions and briefing, and on arguments made
by the parties at an informal conference with the Panel Chair, we have
concluded that there is an insufficient basis in the record to support a
finding that the payments to the County represent unallowable costs.
Accordingly, we reverse the disallowance.
Background
Los Angeles County is a provider of services under the Medicaid
Program (called Medi-Cal) in the State of California. Under an
agreement with the County, the State performed a series of audits for
the primary purpose of determining whether payments to the County were
for eligible services and individuals. The HEW (now HHS) Audit Agency
then conducted an audit to determine whether the State was making timely
adjustments for the Federal share of payments questioned by the State
auditors. The HEW auditors specifically stated that their audit did not
include an evaluation of the State audits (HEW Audit Report ACN
80222-09, p. 3). *
(2) HCFA's decision to disallow was based on its determination that
the State had not refunded $215,602 of the $16,565,668 which HCFA
considered to be the Federal share of the "(total) overpayment
identified by the (HEW) audit." (Disallowance letter p. 1.) HCFA
computed the disallowance by subtracting amounts which the State had
refunded on its expenditure statements from the "total overpayment."
The
State had explained that it had not refunded the $215,602 since the
County was disputing that amount through the State's provider appeal
procedures and had not repaid the State. HCFA did not inquire as to the
basis for the County's appeal. Nowhere in the HEW Audit Report or in
the State audits is the $215,602 separately identified or related to
specific audit exceptions.
In applying to this Board for review of HCFA's disallowance, the
State submitted the County's letter appealing the State audit findings.
That appeal letter indicates that at least a significant part of the
dispute is over which rate of reimbursement applies to certain services
provided in County hospitals.
The Issue
Section 1903(d)(2) (first sentence) of the Social Security Act (the
Act) provides that Title XIX payments to the states, based on estimated
quarterly expenditures, shall be reduced "to the extent of any
overpayment . . . which the Secretary determines was made . . . ." The
State originally contended that there could be no "overpayment"
determination here until the State actually recovered funds from the
County. The State now concedes that, reading Section 1903(d)(2)
together with the disallowance provision at Section 1116(d) of the Act,
the Secretary may make adjustments prior to recovery from the County if
there has been a final disallowance determination. (State's
Pre-conference Brief, pp. 2-3; Transcript, pp. 5-6; 94.) The parties
further agree that, if the State recovered Medi-Cal payments from the
County, the Federal Government's pro rata share would be an
"overpayment" under Section 1903(d)(2), whether or not the Secretary
had
made a determination that the payments were unallowable. (See Section
1903(d)(3) of the Act; State's Pre-Conference Brief, p. 3; Transcript,
pp. 6; 96-97.) Since the State has not recovered the payments here, the
issue in this case, as developed during Board proceedings, is whether
there has been a supportable Federal disallowance determination so that
there should be an adjustment for an "overpayment" under Section
1903(d)(2).
Discussion
There are several factors which lead us to conclude that the
disallowance determination here is not adequately supported by the
record.
(3) The State audits cover $32 million in questioned costs and do not
separately identify the amount disputed by the County, and therefore do
not provide a basis for determining on what legal grounds the auditors
questioned these particular payments. The HEW Audit Report lists
general grounds which one of the State audits showed as a basis for
questioning some of the payments. (HEW Audit Report, p. 7.) These
include grounds such as ineligibility of recipients and lack of medical
necessity for the services, which would indicate that FFP was not
available in the payments. The HEW Audit Report does not, however,
separately identify the amount disputed by the County, nor relate it to
the listed grounds. HCFA merely relied on the audits, adjusted for
refunds by the State subsequent to the HEW audit, as a basis for
identification of the $215,602 as the Federal share of an "overpayment"
to the County. HCFA determined that the amount unrefunded related to
unallowable costs based on the grounds listed by the HEW auditors, but
never examined how the $215,602 relates to specific findings in the
State audits, nor evaluated the legal basis for those findings.
This failure, by itself, might not mean that the disallowance should
be overturned. If State auditors, using reliable accounting methods,
had identified overpayments, all of which were questioned on the ground
that specified Federal or State plan requirements were not met, HCFA
might be justified in calculating a disallowance by subtracting refunded
amounts from the total amount questioned. Here, however, the County's
letter appealing the State audit findings raises serious doubt as to
whether the amount in dispute relates to payments in violation of
Federal program requirements or solely to the rate which should apply to
certain services, where various rates might be allowable. According to
the State, "The extended care rate issue appears to have been picked up
by the state auditors as part of their review of whether the level of
care billed was in fact provided," but does not relate to the original
Federal purposes for performing the audits. (State's Pre-conference
Brief, p. 11.) This position is supported by an examination of the
State's amended audit report which indicates that in addition to
questioning payments for reasons such as those listed in the HEW Audit
Report, the State auditors made certain "billing rate adjustments."
(Exhibit C to State's Application for Review.) HCFA has presented no
evidence to show that the $215,602 disallowed relates to the grounds
listed in the HEW Audit Report rather than to this rate issue.
HCFA contends that the Board should uphold this disallowance unless
the State shows that its auditors were incorrect and that no
overpayments were made. The State argues that to require this showing
would put the State in the untenable position of jeopardizing its
litigation with, and possible recovery from, the County. While we (4)
understand the difficulties of the State's position when litigating with
a provider as well as HCFA, the fact that the State is litigating an
issue would not alone provide a basis for overturning a disallowance.
We think, however, that we may legitimately consider this factor in
determining the burden we will place on the State to come forward with
evidence as to the specific nature and scope of its provider dispute.
Here, the State has come forward with evidence sufficient to question
the legal basis stated for the disallowance and HCFA has provided no
evidence to the contrary.
In view of the lack of specificity in HCFA's findings, the
uncertainty as to whether these payments violated Federal or State plan
requirements, and the fact that the State auditors' findings are
disputed by the County, we cannot say, based on the record before us,
that the State claimed $215,602 in FFP for payments to the County for
unallowable costs.
Conclusion
For the reasons stated above, we reverse the disallowance. This
decision does not preclude HCFA from disallowing these payments to the
County if HCFA does make a factually and legally supportable
determination that the payments were for unallowable costs. Further, if
the State recovers these payments, it must return the Federal share. *
HCFA also concedes that it did not subject the State audits to any
testing for reliability (Transcript of Informal Conference, p. 45).
Federal Management Circular (FMC) 73-2 sets forth policies to be
followed in the audit of Federal programs by executive departments, and
sets forth certain conditions for use of a non-Federal audit in lieu of
a Federal audit. HCFA argued that FMC 73-2 does not apply to the
circumstances here and does not set a standard for use by program
agencies of non-Federal audits. We do not find it necessary to reach
this issue here since we base our decision on other grounds.
MARCH 19, 1985