GAB Decision 777
August 20, 1986
Pennsylvania Department of Public Welfare;
Docket No. 84-255;
Audit Control No. 03-40222
Garrett, Donald F.; Settle, Norval D. Ballard, Judith A.
The Pennsylvania Department of Public Welfare appealed a
determination by the Health Care Financing Administration (HCFA
or
Agency) disallowing $6,579,964 in federal financial
participation
claimed under Title XIX (Medicaid) of the Social Security Act.
The
claims were for services provided by Woodhaven Center, a
State-owned
intermediate care facility for the mentally retarded (ICF/MR),
during
the period July 1, 1979 through June 30, 1982. HCFA determined
that, in
calculating the Medicaid rates for the services, the State
had
improperly included the costs of educational activities and
vocational
training, a student intern program, and administrative overhead
fees,
and had improperly allocated to patient care at the facility
certain
other direct and indirect costs.
During Board proceedings, the State conceded that some of these
costs
(amounting to over $1 million) were unallowable, and we uphold
HCFA's
decision on these costs. The State raised numerous arguments
about why
the remaining costs were reimbursable, in whole or in part.
The State
submitted an appeal file documenting services to a representative
group
of Woodhaven residents. HCFA agreed to this approach, and
further
agreed that if the Board resolved any of the issues in the
State's
favor, the Board should remand the case to the parties to determine
the
precise dollar amount affected and to recalculate the reimbursement
rate
for Woodhaven.
Given the complexity and importance of the issues involved in this
case,
the Board provided the parties numerous opportunities to develop
their
respective positions through written submissions and at a
hearing. In
addition, the Board issued a draft decision, providing the
parties an
opportunity to comment on the Board's preliminary analysis of
the
issues. While our general conclusions remain the same, we have
modified
our analysis to respond to the parties' comments and have
also
reorganized and clarified parts of the decision to aid the parties
in
implementing it.(2) For the reasons stated below, we uphold
the
disallowance in part and reverse in part, remanding to the parties
to
implement this decision in accordance with the specific
guidance
summarized at pages 53-55 below. We have also provided, in the
first
section of this decision, a summary of the issues presented and the
key
legal conclusions we reach here.
I. Summary of our conclusions.
The major issue presented (which affects several categories of
disputed
costs) concerns whether certain services to Woodhaven
residents
constitute "educational activities and vocational training" for
which
Medicaid funding is prohibited under 42 CFR 441.13(b). The State
argued
that all of the services in question were reimbursable, offering
several
alternative bases for its position, including the following: that
the
services were required by the statute (which mandates "active
treatment"
of ICF/MR residents) or by the ICF/MR regulatory standards
(which
require provision of "training and habilitation" services); that (as
a
federal district court has found) the prohibition applies only
to
"traditional academic education," not to "rehabilitative" services;
that
the services were not the responsibility of the State education
agency;
and that the services were "training in self care," which
historically
was considered Medicaid reimbursable. The State argued
also that part
of the services were reimbursable on other grounds,
including: that
they were provided to adult residents, rather than to
school-aged
children; that they were provided outside of normal
school
responsibilities; or that they were pre-vocational services
which
merely provided a setting for modifying client behavior and which
would
not lead to competitive employment nor be funded under
federal
vocational programs. The State also presented a number of
subsidiary
arguments supporting these general propositions or supporting
the
allowability of a specific category of disputed costs.
As developed in Sections IV through IX below, our key legal
conclusions
and the primary reasons supporting them, are as follows:
* The prohibition at issue applies to "educational activities
and
vocational training" even if those services might otherwise qualify
as
ICF/MR services under Agency regulations or as "active treatment"
under
the Medicaid statute. Specifically, while "training and
habilitation"
is a required ICF/MR service, Medicaid coverage of this service
is
limited: such a service cannot be reimbursed by Medicaid if within
the
prohibition at 42 CFR 441.13(b). Since there is an overlap(3)
between
the concept of "habilitative" services and activities for which
funding
is prohibited, the key question governing allowability under Medicaid
is
not whether an activity is "habilitative" in nature, but whether
it
constitutes an "educational activity or vocational training."
(See
Section IV.D. below.)
* While the Medicaid statute specifically covers
"rehabilitative"
services, it does not specifically cover "habilitative"
services, which
are essentially non-medical in nature. Thus, regulatory
provisions
permitting coverage for "habilitative" services in an ICF/MR
should be
read narrowly. The prohibition at 42 CFR 441.13(b) ensures that
Medicaid
coverage of such exceptional services is not unnecessarily expanded
to
cover services otherwise available to the resident under other
programs.
(See Section IV.D. below.)
* The term "educational activities" includes not only so-called
"academic"
education, but also "special education" mandated for children
under the
Education for the Handicapped Act (EHA). The State's
traditional
obligation for educating its children extends not only to
"academic" courses
offered as part of the regular curricula, but also to
education appropriate
to the special needs of the mentally retarded.
(See Section IV.E. below.)
* The "habilitative" services provided to adults here were not
included
within the prohibition as "educational activities," even if similar
in
nature to services provided to children as part of "special
education,"
absent a showing that the State had a traditional responsibility
to
provide the services or that they were mandated by another
federal
program. The Agency's position to the contrary here is
inconsistent
with the Agency's own guidance, conflicts with the ICF/MR
regulations,
and is not necessary in order to effectuate the purposes of
the
prohibition. (See Section V.B. below.)
* Medicaid funding for "vocational training" is prohibited if provided
as
part of "special education" under EHA (even if it will not lead
to
competitive employment and contributes to a goal of modifying a
client's
behavior). Medicaid funding is not prohibited for vocational
training
for which no other federal funding is actually available. (See
Sections
V.B. and VI.H. below.)
* The prohibition applies regardless of what State agency
actually
provides the service. This avoids arbitrary results based
on
differences among the states. Here, the(4) State misplaced its
reliance
on a State statute treating certain individuals as "uneducable"
and
purportedly relieving educational authorities of responsibility for
such
individuals; this statute must be read in light of a court
case
construing it and the EHA, which mandates that the State
education
agency retain responsibility for "special education" for all
children,
even if they are otherwise the responsibility of another State
agency.
(See Section IV.D. below.)
* "Habilitative" services such as training in "activities of daily
living"
(toothbrushing, dressing, toileting, etc.) or other training in
self-care are
services within the prohibition if provided as part of a
"special education"
program, as they may be under Pennsylvania law.
Contrary to the State's
position, this conclusion does not conflict with
a longstanding
interpretation of the prohibition. The various
regulations and
documents which the State said supported this position
simply do not reflect
an Agency policy to fund these services in all
circumstances. Moreover,
the State made absolutely no showing that it
relied on these materials in
structuring its program; rather, the
record indicates that the State
simply ignored the prohibition (and
other requirements) in calculating the
Medicaid rates for Woodhaven
Center. (See Sections VI.C. and F.
below.)
* The mere fact that a service is provided by a special education
teacher
is not a sufficient basis to classify it as "special education,"
rather than
a reimbursable ICF/MR service. The ICR/MR regulations
contemplate that
special education teachers may have a role in providing
reimbursable ICF/MR
services. (See Sections V.B. and C. below.)
In Section Ii of this decision, we discuss the general background to
this
dispute and then, in Section III, discuss the background of the
"educational
activities and vocational training" prohibition, including
relevant statutory
and regulatory provisions, Agency guidance documents,
several previous Board
decisions, and the court decision on which the
State relied. In section
IV, we explain our general conclusions in
applying the prohibition to the
main category of costs at issue here,
including our reasons for not following
the court decision. We address
in Section V the reasons why we do not
completely agree with the
Agency's position here, and in Section VI explain
why we reject the
State's remaining arguments on the main category of
costs. The State's
arguments related to other categories of costs are
addressed in Sections
VII, VIII, and IX.
(5) II. Specific facts of this appeal.
Woodhaven Center is a state-owned ICF/MR. Woodhaven, however, is
unique
among the state-owned ICFs/MR, because it is operated by
Temple
University under a contract with Pennsylvania's Department of
Public
Welfare (DPW). Under the terms of the contract, DPW provided
Temple
with the use of Woodhaven Center and also provided maintenance, heat
and
utilities, security, groundskeeping, housekeeping, and
janitorial
supplies and services. Temple, on the other hand, agreed to
provide at
Woodhaven, and other locations, a comprehensive program consisting
of
(1) certain habilitative services for certain mentally retarded
persons
of all ages residing in the Southeastern Pennsylvania Region,
including
certain education programs approved by the Philadelphia
Intermediate
Unit, (2) education services and training of professional
personnel in
the care and education of mentally retarded persons, and (3)
research on
problems related to mentally retarded individuals.
Appellant's Appeal
File, p. 8a.
The auditors found that the State, in developing the reimbursement
rate
for Woodhaven Center, did not attempt to exclude contract costs
which
were ineligible for Medicaid; rather, the State included all
costs of
the Temple contract in the rate. Appellant's Appeal File, p.
8a.
Included in the rate were costs for a community living
arrangement
program and for training, research and evaluation activities
supporting
the State's regional mental retardation program and
administration,
wholly unrelated to services provided to the Woodhaven Center
patients.
Appellant's Appeal File, pp. 9a-10a. The Agency also disputed
the
inclusion of contract costs related to educational and
vocational
training provided to patients, and costs of a student intern
program of
Temple University's Developmental Disabilities Center, as well as
part
of an administrative overhead fee payable to Temple under the
contract.
Appellant's Appeal File, pp. 8.1a-10a.
The Agency contended in addition that the Medicaid program was
overcharged
because the State improperly apportioned costs for
operations, maintenance
and indirect costs, included improper State
agency costs in the rate, and
improperly calculated the per diem rate.
Appellant's Appeal File, p. 11a.
(6) The following is a brief description of the types of costs
disallowed
which we address here /1:/:
* Educational Activities and Vocational Training Expenses
($2,800,537
FFP);
* Student Intern Program Expenses ($610,204 FFP);
* Administrative Overhead Fee Expenses ($755,265 FFP); and
* Operations, Maintenance, and Indirect Costs ($539,462 FFP).
III. Background
A. The purpose of this section.
In this section, we set forth the background and purpose of the
Medicaid
program with specific regard to ICF/MR services and the
educational
activities and vocational training cost prohibition at 42 CFR
441.13(b).
Also, we define and explain the key terms related to this issue as
well
as the(7) relevant statutory and regulatory provisions and
pertinent
policy interpretations. By doing so, we intend to provide a
general
context for the issues involved in this appeal.
B. Relevant statutory and regulatory provisions.
Title XIX of the Social Security Act (Act) establishes a grant
program
(Medicaid) under which each state with an approved state plan
receives
federal financial participation (FFP) in expenditures for
"medical
assistance" to needy individuals. Under the Medicaid program,
covered
"medical assistance" may include payment for "intermediate care
facility
services." Subsection 1905(a)(15). The term "intermediate care
facility
services" also may include "services in a public institution
(or
distinct part thereof) for the mentally retarded or persons with
related
conditions" if certain requirements are met. Section
1905(d). Medicaid
funding is available only if the institution's
primary purpose is "to
provide health or rehabilitative services for mentally
retarded
individuals," the institution meets standards prescribed by
the
Secretary of Health and Human Services, and the individual for
whom
Medicaid payments are made is receiving "active treatment."
Subsections
1905(d)(1) and (2). In addition, any state claiming
Medicaid funds for
ICF/MR services must have agreed generally to maintain
non-federal
expenditures for services to ICF/MR patients. Subsection
1905(d)(3).
Originally, ICF services were included in a 1967 amendment to Title XI
of
the Act to provide a more appropriate placement for patients in need
of
institutional care but not care at the skilled nursing home level.
Under
Title XI, these services were available as an optional benefit
only to those
persons eligible under the various cash assistance
programs and the services
did not include ICF services provided in a
public institution for the
mentally retarded. In 1971, Congress
transferred the ICF program to
Medicaid (which would enable the
medically indigent to receive such care) and
included, for the first
time, federal matching under Medicaid for ICF
services for the mentally
retarded in public institutions. H.R. REP.
No. 231, 92d Cong., 1st
Sess. 111 (Ways and Means Report on H.R.1). The
inclusion of ICF/MR
services is an exception to the general Medicaid rule
that services in
public institutions (other than medical institutions) are
not to be
reimbursed. See section 1905(a) of the Act; 42 CFR
435.1008 (1978).
The legislative history indicates that the purpose for
including ICF
services in public institutions for the mentally retarded was
to improve
"medical care and treatment of the needy mentally retarded rather
than
to simply substitute Federal dollars for State dollars." H. R.
REP. No.
231, at 112.(8) Pursuant to the delegated authority under the Act,
the
Secretary promulgated regulations to implement the ICF/MR program
under
Medicaid. Section 1102 of the Act; section 1905(d) of the
Act.
Specifically, these regulations defined "active treatment" and
set
standards for ICFs/MR.
"Active treatment" is defined in 42 CFR 435.1009 (1979) as requiring
an
individual's participation, in accordance with an individual plan
of
care, in professionally designed and supervised activities,
experiences,
or therapies.
Similarly, the ICF/MR standards require that a qualified facility
must
provide, among other things, professional and special programs
and
services to the residents based upon the individual's need for
such
services. 42 CFR Part 442, Subpart G (1979); 42 CFR
442.454. Besides
providing services such as dental services, food and
nutritional
services, and physical and occupational therapy, the facility
must
provide to all residents "training and habilitation services" which
are
included in the individual's plan of care and have been formulated
on
the basis of an individual evaluation of the resident. 42 CFR
442.457;
42 CFR 442.465; 42 CFR 442.486; and 42 CFR
442.463. (The term
"habilitation" in the regulation should not be
confused with the term
"rehabilitation" as used in the Act; as we
explain more fully below,
these terms mean two different things.)
In addition, the Medicaid regulations, at 42 CFR 440.2, provide that
FFP
is available under the state plan for ICF/MR services "except
as
specifically limited in Part 441." Section 441.13(b) provides:
Prohibitions on FFP: Institutionalized Individuals
* * *
(b) Payments to institutions for the mentally retarded or
persons
with related conditions . . . may not include reimbursement
for
vocational training and educational activities.
The regulations do not define "vocational training" or
"educational
activities." As discussed next, however, two Agency
interpretative
documents provided further guidance on the effect of the
funding
prohibition.
C. Relevant Agency guidance on prohibition.
On September 30, 1974, the Agency issued a program regulation
guide
(MSA-PRG-33) which discussed, among other things, the
prohibition
against Medicaid funding of educational activities and
vocational
training found in the(9) earlier version of the ICF/MR
regulations. /2/
This guide explained why these costs are not fundable under
Medicaid as
follows:
QUESTION 7:
Why are costs related to vocational training and
educational
activities not to be included in the computations? (Sec.
249.10(c)(2))
ANSWER:
These are not medical care costs (services) as defined under
title
XIX and are assumed to be financed by other Federal agencies or to be
a
traditional service of the State for all appropriate population groups.
QUESTION 8:
Sec.249.10(c)(2) states that payments may not include
reimbursement
for vocational training and educational activities. What
constitutes
"educational activity?" Would a camp or farm maintained by a
public
institution for use by residents be considered "educational?"
ANSWER:
Educational activity here means formalized class room
programs. It
excludes training such as toilet training, feeding,
dressing, etc.,
provided to patients by the staff of the IMR. . . .
MSA-PRG-33, September 30, 1974, p. 4 (emphasis in original).
On November 29, 1978, the Agency issued an action transmittal
(AT-78-104)
which discussed the relationship between federally funded
education services
under the EHA (as amended by the Education for All
Handicapped Children Act)
and Medicaid services in ICFs/MR. The purpose
of the transmittal was to
clarify issues concerning Medicaid coverage of
habilitation services in light
of the EHA. The transmittal is not a
model of clarity, but, as we
discuss below, the Board has previously
examined this transmittal(10) and has
found it sufficiently clear to
give notice that "special education" provided
under EHA would not be
reimbursable under Medicaid, even if that "special
education" consisted
of services which would otherwise be reimbursable as
habilitation under
the ICF/MR regulations.
D. The Education for All Handicapped Children Act.
The Education for All Handicapped Children Act of 1975, Pub. L.
94-142,
provided federal funding to states to assist state and local agencies
in
educating handicapped children. The legislative history indicates
that
the impetus for the Act was two "landmark court cases establishing
in
law the right to education for all handicapped children." /3/ S.
REP.
NO. 168, 94th Cong., 1st Sess. 5 (1975); see, also, H.R. REP.
NO. 332,
94th Cong., 1st Sess. 2 (1975).
These cases recognized that it was a state's traditional obligation
to
provide education appropriate to each child's needs. Thus,
Congress
provided that, in order to qualify for federal funding under EHA,
a
state must demonstrate that it has in effect a policy that assures
all
handicapped children the right to a free appropriate public
education.
20 U.S.C. 1412(1) (1975). The state also must meet the
substantive and
procedural requirements of EHA. Failure to comply with
the provisions
will result in federal funds being withheld from the
state. 20 U.S.C.
1414(b)(2)(A).
(11) EHA was not intended as an invitation to states to substitute
federal
dollars for state dollars. Rather, the Act provides (in
recognition
that the costs of providing special education to the
handicapped may be
expensive) that in order for a state to receive EHA
funds it must demonstrate
that it has spent the same average amount on
its handicapped children as it
does for its non-handicapped children.
Once this is established, a state may
then receive federal funds under
EHA to meet the excess costs of providing
special education and related
services. 20 U.S.C. 1402(2); 20
U.S.C. 1414(a)(1); and 45 CFR 121a.
183, 121a.184, and 121a.1866
(1977).
The definitions of "special education" and "related services"
are
particularly important under EHA. The regulations define
"special
education" as "specially designed instruction, at no cost to the
parent,
to meet the unique needs of a handicapped child, including
classroom
instruction, instruction in physical education, . . . and
instruction in
hospitals and institutions." 45 CFR 121a.14(a)(1). /4/
Moreover,
vocational education is also considered special education if it
consists
of an individually designed program. 45 CFR
121a.14(b)(3). "Special
education" also includes "speech pathology, or
any other related
service, if the service consists of specially designed
instruction, at
no cost to the parents, to meet the unique needs of a
handicapped child,
and is considered 'special education' rather than a
'related service'
under State standards." 45 CFR 121a.14(a)(2) (emphasis
added). The
regulation defines "related services" as "transportation
and such
developmental, corrective and other supportive services as are
required
to assist a handicapped child to benefit from special education,
and
includes speech pathology and audiology, psychological
services,
physical and occupational therapy, recreation. . . ." 45
CFR
121a.13(a).
E. Prior Board decisions.
In Oklahoma Department of Human Services, Decision No. 367, December
17,
1982, this Board concluded that, under the action transmittal, the
costs
of "related services" under EHA are not generally considered costs
of
"educational activities" under 42 CFR 441.13(b), even though
these
services are part of a free appropriate education and are included in
a
child's Individual Education Plan (IEP).
(12) The Board further determined that the action transmittal
clearly
implied that "special education," as defined under EHA, is
an
"educational activity" within the meaning of 42 CFR 441.13(b).
However,
the Board also indicated to the Agency that the mere fact that a
service
was assigned to a particular cost center labeled "education" was
not
determinative; rather, the key question is whether a
service
constitutes "special education" under state standards.
The Board also noted that the action transmittal set up exceptions to
the
general rule that "related services" are fundable under Medicaid,
where (1) a
state included related services within its definition of
special
education; and/or (2) a state, by state statute, extended
the
responsibility for payment of specific health services to the
education
agency. /5/
In Massachusetts Department of Public Welfare (Massachusetts
I),
Decision No. 438, May 31, 1983 and Decision No. 638 (Massachusetts
II),
March 29, 1985, the Board also was faced with the question of
whether
certain services provided in an ICF/MR were "educational activities."
In
those cases, however, Massachusetts law defined "special education"
as
including "everything which is required to be provided to a child
in
need of special education pursuant to the IEP (Individualized
Education
Plan) for such child." Massachusetts I, at p. 4. As a result,
the Board
concluded that, even if Massachusetts' claim included some services
that
might otherwise be considered "related services," these services
could
not be funded under Medicaid since state law made them part of
"special
education." The Board's holding, however, was not that anything
included
in a child's IEP and provided as part of a free appropriate
public
education is always an "educational activity" within 42 CFR
441.13(b).
Instead, the determination was limited to the particular facts in
the
Massachusetts appeals, including Massachusetts law.
(13) F. The United States District Court Decision in Massachusetts.
Massachusetts sought District Court review of the Board's decisions.
The
Court granted the State's motions for summary judgment.
Massachusetts v.
Heckler, 616 F. Supp. 687 (D. Mass. 1985) appeal filed
(1st Cir. Dec. 5,
1985); and 622 F. Supp. 266 (D. Mass. 1985), appeal
filed (1st Cir.
Feb. 5, 1986). The Court held that the services
provided by the
Massachusetts Bureau of Institutional Schools in ICFs/
MR were eligible for
reimbursement because the type of services provided
fell clearly within the
category of habilitative services, which the
Court concluded were explicitly
covered by Title XIX. As we explain
more fully below, we do not agree
with the State that we should reverse
the disallowance here based on the
District Court's holding in
Massachusetts.
IV. Our general considerations here concerning 42 CFR 441.13(b).
A. The purpose of this section.
In this section, we discuss our general approach here and why we do
not
follow the District Court's decision in Massachusetts. In
particular,
we state why we do not agree that the prohibition is limited
to
"traditional academic education."
B. The purpose behind the prohibition.
MSA-PRG-33 explains the prohibition on Medicaid funding by stating,
"These
are not medical care costs (services) as defined under title XIX
and are
assumed to be financed by other Federal agencies or to be a
traditional
service of the State for all appropriate population groups."
AT-78-104 states
that the limitation was included in the regulations "to
assure
non-duplication of Federal funds." AT-78-104 continues by
explaining that
State educational agencies receive federal funds "to
assist them in
fulfilling their responsibility for providing . . . basic
educational
services. . . ." Since AT-78-104 recognizes that federal
education funding
supplements the states' responsibility for educational
services, the purpose
statements are consistent.
We think that both parties here have failed to support their
positions
fully because their arguments lose sight of the purpose behind
the
prohibition.
C. The prohibition is consistent with the statute.
As we explained more fully in our previous decisions, the prohibition
is
consistent with the Medicaid statute because that statute provides
a
program of "medical assistance."
(14) While this includes ICF/MR services, those services are
exceptional
and in including them Congress stated that it did not intend
to
refinance state programs, but to improve the medical care and
treatment
in such facilities.
In Massachusetts the District Court did not find the regulation
invalid,
nor did it uphold the State's view there that the "active
treatment"
provision in the statute required reimbursement of all
services
constituting active treatment.
The District Court reversed the Board's decision in part on the
specific
facts of the Massachusetts case, where we concluded that all
services
provided by the State pursuant to an IEP were prohibited
"special
education" costs; the State provided descriptions of some of
the
services which the Court said made this view untenable. /6/ The
District
Court also based its decision on its conclusions that the
prohibition
was intended to apply only to "academic" activities; that
the Medicaid
statute specifically provided coverage for "habilitative"
services; and
that the Department had disavowed the position that the
purpose of the
prohibition was to assure non-duplication of federal
funds.
Contrary to what the State argued here, we do not think that the
District
Court decision compels us to conclude here that the costs of
all
"habilitative" services are allowable under Medicaid. Not only
is
Massachusetts distinguishable in certain respects on the facts
(and
under appeal by this(15) Department), but, more important, we
simply
cannot agree with the District Court's conclusions, as they are based
on
erroneous premises. We explain next why we conclude this.
D. The Court's conclusion that the statute explicitly
covered
"habilitative services."
In Massachusetts I, we supported the rationale for our decision by
stating
that the regulation at 42 CFR 441.13(b) was consistent with
Congressional
intent in Title XIX since that title established a program
of "medical
assistance" and that the ICF/MR services were an expansion
of that concept
which should be construed narrowly. Although we
emphasized that
Medicaid is designed primarily to provide "medical"
services, elsewhere in
the decision we recognized that certain services
are covered even if they are
not, strictly speaking, "medical" in
nature. But this does not
undermine our basic point. The District
Court disagreed with our
approach primarily on the basis that section
1901 of the Act included as one
of the broad purposes of Title XIX not
only provision of "medical assistance"
but also provision of
"rehabilitative and other services to help . . .
individuals attain or
retain capability for independence or self-care." What
the Court
overlooked is that section 1903(a) of the Act, which provides
for
payments to the states, does not specifically provide for FFP
in
services of the second type. Rather, section 1903(a) provides for
FFP
in "medical assistance," which is defined in section 1905(a) of the
Act
to include only specified services. None of those specific
service
descriptions uses the term "habilitative" or refers to services
to
attain a capacity for self-care. /7/
(16) Section 1905(a) (17), when read together with section 1905(d),
does
bring ICF/MR services within the definition of "medical assistance,"
but
does not specifically address the concept of "habilitative"
services.
Rather, it is only through the regulatory standards for ICF/MR
services,
and not the Act, that coverage for training and habilitative
services is
made available. As a result, this concept is exceptional
under Medicaid
and cannot be read without reference to the prohibition in 42
CFR
441.13(b). /8/ We see no basis for the Court's implication
that
"habilitative services" are equivalent to "rehabilitative"
services
under section 1903 and "health or rehabilitative" services under
1905(d)
(1).
In addition, the Court found that the focus in applying 42 CFR
441.13(
b) should be solely on whether the nature of the services
are
habilitative, without regard to whether they are provided pursuant to
a
special education program.
This approach does not make sense. As AT-78-104 stated and the
State's
experts recognized (see, e.g., Tr., p. 29), there is an overlap
between
the concepts of educational activities and habilitative
services
(indeed, this is true even if one interprets the term "educational"
in
its narrowest sense to mean only "traditional academic
education").
Consequently, for purposes of 42 CFR 441.13(b), it does not work
to
focus solely on the nature of the services as habilitative
or
educational. If a service is habilitative, it may also be
educational
and, if it is, it comes within the scope of the
prohibition. Indeed, if
an educational activity is not either(17)
habilitative in nature or
otherwise within the scope of ICF/MR services, the
prohibition would be
unnecessary because there would be no authority for
funding the activity
at all. The basis for the disallowance would
simply be that the
activity was not a covered service.
The need for the prohibition arises precisely because there are
some
educational activities which would be covered under the
ICF/MR
regulations but for the prohibition. Duplication of federal
funding is
a problem to be avoided only because there is a potential for
such
duplication, i.e., an overlap between Medicaid and
educational
activities. Thus, we conclude that the relevant question
concerning the
nature of the services is whether the services are
educational, since
FFP is prohibited in such services whether or not they are
also within
the scope of Title XIX. This result is not inconsistent
with section
1901 of the Act: it does not mean that the ICF/MR
residents will not
receive services which would promote the goal of attaining
independence,
but only that Medicaid will not always pay.
E. The Court's conclusion that the prohibition covered only
"academic"
education.
The District Court's conclusion that the "educational
activities"
prohibition extended only to "traditional academic education" was
based
on the notion that the states' traditional obligation for
education
extended only to this type of education and not to specialized
services
for the severely retarded.
We think that this view misconstrues the scope of the prohibition, for
the
following reasons:
* The prohibition must be read in the context in which it
appears:
educational activities that would be provided to mentally retarded
(and
other developmentally disabled) individuals who
require
institutionalization.
* The Court's view is inconsistent with various court cases and the
EHA,
which were based on the assumption that the states'
traditional
obligation to educate their children meant that states could
not
discriminate against a child on the basis of handicap, but had
to
provide each child an education appropriate to that child's needs.
* The responsibility of states to provide education appropriate to
a
child's needs was not a new concept. Indeed, Pennsylvania
statutes
provided as early as 1919 that the mentally retarded should
receive
specialized education, even when residing in specialized
institutions.
See Att. B and C to Appellant's Brief in Response to Board's
Order of
June 25, 1985.
(18) * The social services regulations which the State said were
the
predecessor of the educational activities prohibition refer to
obtaining
educational services for clients "most appropriate to their
capacities."
* Most important, this view ignores the stated purpose of the
prohibition
and the Agency guidance telling states that they could not
receive Medicaid
funds for special education since other federal funds
were already available
to support that activity.
We also note that the Court criticized the Department position as
placing
too much emphasis on administrative convenience. While we did
not base
our conclusions in Massachusetts I and II solely on
administrative
convenience, we continue to think that it is a relevant
factor to be
considered. States must be able to administer their
programs;
using the definition of special education as developed under
EHA and state
education standards provides a measure of certainty in
implementing the
prohibition, which is not there if one simply tries to
decide what is an
"habilitative" or "educational activity." The concept
of "traditional
academic education" is also, in our view, a difficult
one to implement in the
context of ICFs/MR. For example, one Woodhaven
Center resident had a
program for learning to "read" certain "survival
words." It is virtually
impossible to determine whether this should be
considered a "traditional
academic education" program, since reading is
an academic discipline, or
whether the client is simply being trained to
recognize words which will help
the client live independently.
F. The Court's belief that the purpose of non-duplication had
been
rejected.
The Massachusetts District Court stated that the defendants (HHS)
"now
rejected non-duplication of funding as the purpose behind
the
regulation." 616 F. Supp. at 692, n. 4. The Court's statement
was
apparently based on a statement in an HHS brief noting that
the
prohibition, by its own terms, prohibits Medicaid funding for
any
educational activity, whether or not other federal funds are
available
for that activity. This statement, in turn, was based on
wording in the
Board's Massachusetts I decision, but misconstrued the effect
of that
wording. In the Board's decisions, the Board simply held that,
contrary
to the States' arguments, the purpose statement in the
action
transmittal did not mean that the prohibition applied only if a
state
had actually received federal funds under another program for
the
specific costs at issue. Federal funds are generally provided as
an
incentive to states to operate programs providing assistance or
services
to eligible individuals. If a particular type of service is
covered by
one program for an individual, then providing(19) federal funds
under
another program is duplicative even if the state has not
actually
claimed funds under both programs. We also note that, in a
program like
EHA, federal funds are not available to match every expense
incurred by
a state but are available only after the state has itself met
certain
threshold costs. Services paid for solely by the state or
localities
are nonetheless mandated by the federal program. (See our
discussion in
Section III.D. above.)
The Board's holding in its previous decisions was in no way intended as
a
rejection of the purpose statement in the action transmittal. In
a
footnote in the Massachusetts II decision, we specifically noted that
we
did not reach the issue of whether the action transmittal created a
rule
excluding Medicaid funding even in some circumstances where no
federal
funding elsewhere is potentially available. The parts of the
action
transmittal to which we were referring, however, were statements
that
qualified the general rule that Medicaid funding would be available
for
"related services" by stating an exception for health or
supportive
services available free to all children. We now think that
these
statements simply mean that if a state statute specifically
provides
that the state education agency will pay for specific health
services to
all children or some other state agency provides health services
such as
vaccinations or hearing testing to all children, Medicaid will not
pay.
But the reasons for this would be that it would be unnecessary for
the
ICF/MR to incur the cost in these circumstances, and that denying
these
services to ICF/MR residents when they should be available to
all
children, regardless of handicap, would be discriminatory.
These
statements are talking about when health or supportive services
should
not be considered "related services" because they are available to
all
children, regardless of handicap. We do not think that these
statements
were intended to broaden the terms "educational activities"
and
"vocational training."
Thus, we now conclude that these statements are consistent with
the
purpose statement in the action transmittal and were not intended
to
broaden the scope of the prohibition itself. We explain in the
next
section how this conclusion leads us to evaluate the Agency's
position
in this case.
In summary, we reaffirm our previous conclusion that Medicaid funding
is
not available for services provided as part of a child's
special
education under EHA. We reject the conclusions that Congress
intended
to fund all habilitative services, even if part of special
education,
and that the prohibition extends only to "traditional
academic
education." We also conclude that, in applying the prohibition,
the
Agency must consider the purpose behind it.
(20) V. The Agency's position here.
In this section, we explain why, while we uphold the Agency's position
on
the prohibition in general, we conclude that the Agency's application
of the
prohibition here was unreasonably overbroad in certain
particular
respects. In order to put the discussion into context, we
first provide
a description of the main category of costs at issue here.
A. Facts specific to Pennsylvania.
The audit report recommended disallowing $5,045,812 ($2,800,535 in FFP)
in
direct and indirect costs which the auditors identified as costs of
"client
education and vocational training." According to the auditors,
the disallowed
costs related to the program which was the responsibility
of Woodhaven's
Department of Education and was provided by trained
special educators in
classroom settings either in the "school complex"
or in classrooms on the
living units. /9/ The auditors also stated that,
as part of the classroom
training, residents received pre-vocational
skills training to assist them in
advancing to off-site handicapped
employment programs, such as a Goodwill
workshop. Audit Report,
Appellant's Appeal File, p. 8.1a.
Woodhaven's Department of Education staff were employed by
Temple
University and provided services to both school-aged children
and
adults. Appellant's Brief, p. 4. The auditors allowed the
costs of
habilitative services provided to Woodhaven patients by the
facility's
client care workers, but recommended disallowance of costs charged
to
the Department of Education.
In analyzing this issue it is important to note that the State did
not
attempt to evaluate the contract costs to determine whether the
costs
were allowable for Medicaid reimbursement. On the other hand,
the
auditors identified unallowable education activities and
vocational
training costs primarily on the basis that they were charged to a
cost
center labeled "education," without fully considering the effect of
the
Agency's guidance documents.
(21) B. Services to adults.
The Agency disallowed services to adults (who comprised approximately
half
of the population at Woodhaven) on the ground that the services
were for
non-medical services provided in classroom settings by special
education
teachers. The Agency argued that the "fact that these
services were
'qualitatively identical' to those provided to children at
Woodhaven
precludes reimbursement under the statute, regulations and
governing policy
issuances, albeit that alternative sources of funding,
such as under the
EHCA, are not available for individuals over the age
of 21." Respondent's
Brief, p. 8. The Agency pointed out that the
regulatory prohibition at
42 CFR 441.13(b) is not age-specific. The
Agency also said that the
State, in its argument, was "again positing
the theory of "non-duplication"
(i.e., that so long as no other federal
funding is available for an expense
incurred by a Medicaid provider,
federal Medicaid funds are a fortiori
allowable), which has been
rejected time and again by this Board in its
decisions interpreting 42
CFR Sec. 441.13." Ibid. The Agency further
stated that the "Board has
also consistently held that a Medicaid provider
may furnish services as
part of a program of 'active treatment' which do not
necessarily qualify
for Medicaid reimbursement." Ibid.
First, we note that the services in question were required to be
provided
to adult residents of Woodhaven pursuant to their individual
program
plans. (Although the Agency alleged generally that some of the
services
were not required ICF/MR services, the Agency provided no
specific example of
this, and the State's documents indicate that the
services would qualify as
"training and habilitation.") The services
were indeed similar in some
respects to services provided to children
who were residents at Woodhaven
(for example, either an adult or a child
resident might have a program to
train the resident in toothbrushing
skills). The record shows that the
services to adults were
distinguishable from services to children in several
key respects,
however: they were not provided to meet State "special
education"
requirements; they were not part of the State's traditional
obligation;
and they were not mandated by another federally funded program
(with the
possible exception of vocational training, which we discuss below).
In
our view, these distinguishing features logically lead to
different
conclusions about whether the services are reimbursable under
Medicaid.
AT-78-104 provides a standard by which states can determine
whether
"habilitative" services are also prohibited "educational
activities;"
that standard is linked to the definition of "special education"
under
the EHA. Contrary to what the Agency argued, AT-78-104 did not
merely
contain(22) narrow statements about when services to children would
or
would not be funded under Medicaid. Part of the transmittal
addresses
the prohibition in much broader terms, discussing ICF/MR services
in
general and stating about the prohibition:
This limitation was included in the regulation to
assure
non-duplication of Federal funds. State educational agencies
receive
Federal funds to assist them in fulfilling their responsibility
for
providing, to the extent possible, basic educational
services
(elementary through secondary levels) to all of their children
within a
compulsory age group set by each state. Implementation of P.L.
94-142
(the Education for All Handicapped Children Act) will result in
a
greater delivery of educational services to ICF/MR residents.
Appellant's Appeal File, p. 60a.
States could reasonably read this as meaning that services provided
to
individuals not within the compulsory age group covered by
federal
education programs were not educational services within the
prohibition.
Even if AT-78-104 is read more narrowly to address only funding
for
habilitative services to children, states could have reasonably
thought
that the prohibition would not apply here. MSA-PRG-33 speaks
of
services which are not "medical care services" as defined under
Title
XIX and which "are assumed to be financed by other Federal agencies
or
to be traditional service of the State for all appropriate
population
groups." (emphasis added) Training and habilitation services are
within
the scope of "medical assistance" under Title XIX because they
are
required ICF/MR services (which the Agency has acknowledged here may
be
reimbursed when provided by the client care workers).
More importantly, the fact that these services were not a
traditional
obligation of the State when provided to the adult population
group and
were not financed by other federal agencies undercuts the validity
of
applying the prohibition to them. While we have stated in
previous
decisions that it is not inconsistent with the "active
treatment"
requirement or the ICF/MR standards to prohibit Medicaid funding
for
"special education," the rationale for this was that the residents
would
still receive the required services because funds were available
from
another source. Likewise, as we discuss below, Medicaid
regulations
stating that providers will be reimbursed for costs they must
incur in
providing covered services are not inconsistent with
denying
reimbursement for services to children where other sources of funds
are
available. This rationale is wholly inapplicable to adult services
for
which no other funds are available.
(23) The Agency itself has stated the purposes of the prohibition in
terms
of a state's traditional obligation or the possible duplication of
federal
funding. While we have declined to read this narrowly as
limiting the
prohibition solely to instances where a state has claimed
and received funds
from more than one program, we simply did not in our
previous decisions reach
the issue of whether the prohibition could
reasonably be applied where there
is no evidence of a traditional
responsibility nor of federal funding under
another program. /10/ We
hold that this it is unreasonable for the Agency to
apply the
prohibition in those circumstances. Given the stated purposes
of the
prohibition, the references in Agency guidance to services to
children
or appropriate(24) population groups, and Agency regulations
which
indicate that the provider will be reimbursed for the costs of
these
services, the Agency cannot reasonably rely, as a basis for
a
disallowance, on the mere facts that the regulation is not
age-specific
and that these services may be similar to "special education"
services
provided to children.
Finally, while the fact that some of these services were provided in
a
classroom setting by special education teachers may be sufficient
to
call the services into question, we do not think these factors
are
determinative. The Agency relied in part on the notion that
special
education teachers are "non-medical" personnel. Yet, as the
State
pointed out, the ICF/MR regulations include special education
teachers
among the professionals who can function as a "qualified
mental
retardation professional" (QMRP) in an ICF/MR. These
professionals
would be qualified to design and supervise "training and
habilitation"
programs under the ICF/MR regulations, and properly have a role
(outside
of providing EHA-mandated "special education" to children) in
assisting
ICF/MR residents to attain independence. This benefits the
Medicaid
program by enabling clients to move out of institutional care.
In commenting on the Board's preliminary analysis of the adult
services
issue, the Agency charged that it was "logically inconsistent."
The
Agency stated:
The Board's draft decision fails to explain how, in light of
the
regulatory prohibition at 42 C.F.R. Sec. 441.13(b), the same
EHA-funded
services can be designated appropriate Medicaid services once
an
individual attains the age of 22 with a consequent loss of EHA
coverage.
The regulations advance a basic predicate of Medicaid, namely, that
it
is a medical services program. As such, Medicaid should no more
be
available to supplement the coverage gaps of EHA than EHA is
to
subsidize Medicaid's mission.
Respondent's comment, p. 2 (footnote omitted).
As we have explained above, "training and habilitation" services may
be
covered under Medicaid as ICF/MR services; regardless of whether
they
can be accurately characterized as "medical" in nature, these
services
have been included as ICF/MR services (one type of "medical
assistance"
fundable under Medicaid). Our conclusion flows from these
regulations.
We are not expanding Medicaid to cover services falling in a
"gap" of
the EHA. The significance of the EHA is that, while the Agency
guidance
made it clear that the prohibition applied to "special
education"
provided to(25) children under the EHA, Agency guidance did not
give
sufficient notice that Medicaid funding would be denied for services
to
adults, not within the EHA. /11/ Indeed, distinguishing
between
"habilitative services" when provided to children as part of
"special
education" and "habilitative services" when provided to adults
flows
from the stated purpose of the prohibition: duplication of
funding is a
problem in the first instance, but not in the second.
Thus, we see no
logical inconsistency in determining that the prohibition
applies in the
first instance, but not in the second. /12/
Accordingly, we conclude that services to adults which qualify
as
"training and habilitiation" are allowable, except to the extent
that
they were for vocational training covered by a federal program (see
our
discussion in Section VI.H. below).
C. Services to children.
The Agency also took an unreasonable position contrary to its
own
regulations and guidance when it implied that all of the services
to
children here should be disallowed simply on the basis that they
were
for activities provided by special education teachers. The key
question
is whether the activities were "special education" --
AT-78-104
specifically permits Medicaid funding for "related services" even
if
covered under EHA and provided free of charge. (As we discuss
below,
however, we do not agree with the State that (26) all services
involving
activities of daily living or training in self-care should be
considered
"related services".)
The State pointed out in testimony that the special education teachers
at
Woodhaven sometimes provided services outside the classroom setting
or during
the summer or otherwise outside or normal school hours. To
the extent
that the State can show that the special education teachers
here performed
this type of service for any Woodhaven resident, and this
was outside the
scope of "special education" for that child, the costs
would be reimbursable
under Medicaid. /13/
In addition, the State argued that a special education teacher
would
qualify as a QMRP under 42 CFR 442.401. The Agency did not deny
that
this was a possibility, but pointed out that the State did not
establish
that any of the teachers in question in fact functioned as
QMRPs. Since
the State did present testimony that the teachers
performed functions
outside of their classroom duties, however, we think that
the State
should have the opportunity to show whether any part of a teacher's
time
was spent as a designated QMRP during the period in question,
performing
functions peculiar to that role. To the extent the State can
make such
a showing, the disallowance of the related costs should be
reversed.
In summary, we reverse the disallowance to the extent the State can
show
that the costs are for --
* Services to adults which are reimbursable as ICF/MR services
and
which are not vocational training covered by a federal program;
* Services to children which are reimbursable as ICF/MR services
and
which were provided outside of normal school responsibilities and
not
included in a child's IEP.
(27) VI. The State's position here.
A. Overview.
In this section, we discuss why we do not accept elements of the
State's
position in this case, explaining our findings and conclusions
with
respect to the State's numerous arguments not addressed above.
We
explain why we think our application of the prohibition on
Medicaid
funding for educational activities makes sense in view of
the
Congressional intent and the respective roles of the State in
providing
educational and ICF/MR services. In evaluating the State's
arguments,
we have also considered the specific circumstances presented
here: the
record shows that the State simply failed to consider the
prohibition in
designing its CFR/MR program and calculating its Medicaid
rates. The
state claimed Medicaid reimbursement for all costs of its contract
with
Temple. Further, the State failed to show it relied on any
stated
Agency policy in structuring its ICF/MR program at Woodhaven. In
our
view, the State's arguments are largely an after-the-fact attempt
to
characterize as non-educational and non-vocational costs which
were
included in a program of special education at Woodhaven.
We discuss here three major arguments, as well as several
subsidiary
arguments which tie into these major arguments. First, the
State
contended that training in self care services, even if provided
pursuant
to a program of special education, were meant to be excluded from
the
prohibition. The State pointed to prior social service regulations
and
Agency guidance documents in support of its position. Second, the
State
claimed that, in any event, AT-78-104 allows Medicaid to pay for
all
costs of special education where DPW has the responsibility
for
providing those services pursuant to State law. Third, the
State
asserted that Medicaid had to pay for any service required as part
of
"active treatment."
Before analyzing the State's specific arguments, we note some
general
flaws which we perceive in the State's position. The State
emphasized
that DPW had "responsibility" under State law for Woodhaven
Center
residents, but did not allege that responsibility for the
residents'
education was not shared with educational authorities. As we
discuss
below, the record supports the finding that it was.
In other respects as well, the State's arguments are flawed because
of
what the State left out. The State made a number of arguments
intended
to show that Medicaid had agreed to fund all "activities of
daily
living," "training in self care," "functional education," "skills
to
enable the resident to attain independence," or
"habilitiative
services," without really defining these terms. The
State used them as
though they were interchangeable although some appear to
be used in(28)
the ICF/MR regulations to encompass a broader range of
activities than
others and the term "functional education" is not used at
all.
Whichever term is used, however, the concept of "life skills" (which,
as
we discuss below, State law requires as part of "special education")
is
broad enough to encompass them all.
At the hearing, the State presented testimony by Woodhaven Center
staff
intended to draw a distinction between client programs with
"exit
objectives" (designed to move an ICF/MR resident to a less
restrictive
environment) and "service objectives" (which the State said
were
educational). The testimony indicated that Woodhaven Center
employees
currently use this distinction in determining what should be in
a
resident's IEP and what should be in the IPP (but did not do this
during
the disallowance period). The State did not relate this
testimony to
its arguments, but suggested that this distinction could perhaps
be used
now to move some of the programs with "exit objectives" out of the
IEPs.
The testimony also indicated, however, that the distinction is not
as
clear cut as the State would have us believe, and we fail to see how
one
can attain an "exit objective" without providing services.
Moreover,
the witnesses testified that most of the Woodhaven Center residents
had
as their "exit objective" reduction of aggressive or
maladaptive
behaviors. Under ICF/MR regulations, behavior modification
programs
must be designed and supervised by a qualified professional
in
psychology. The costs of these professionals were not
disallowed. The
mere fact that the special education teachers would be
working at
modifying behavior at the same time that they are teaching other
skills
as "special education" under an IEP is not, in our view,
sufficient
cause for Medicaid to pay. In any event, under the
circumstances here,
we do not think that the State should be permitted to
make
after-the-fact determinations as a basis for removing from IEPs
programs
which were found to be appropriate "special education" programs for
the
residents at the time the IEPs were developed.
Finally, as we discuss next, we think that the State's position that
all
of the Woodhaven services should be funded by Medicaid is flawed
because
it fails to consider the separate roles of the State as educator and
as
provider of health-related institutional care in an ICF/MR.
B. The roles of the State as educator and as provider of
ICF/MR
services.
By enacting the EHA and the ICF/MR Medicaid provision (which also
provides
services to school-aged children), Congress did not intend that
the states
should abdicate their responsibility to provide and pay for
education.
Instead, it was(29) intended that states continue to pay for
the education of
their children, including the handicapped. As a
result, the Agency
reasonably provided in AT-78-104 that Medicaid would
not pay you services
children are provided in a program of special
education.
If a mentally retarded school-aged child is living at home, it is
the
responsibility of the State to provide that child with an
education
appropriate to his or her needs, even if the child is profoundly
and
severely retarted. That program of education may begin at teaching
the
child such basic skills as toilet training, grooming, and other
such
activities, because those skills are appropriate to the child's
needs.
When that child is at home outside the normal school hours, however, it
is
reasonable to assume that the parents reinforce those basis skills.
This is
especially true with the profoundly retarded where consistency
and
reinforcement of skills is necessary to prevent a loss of learned
skills and
development.
The situation of a child living in an ICF/MR is annalogous except for
the
fact that the residential staff is acting in loco parentis. A
state
must still provide the school-aged child with an education
appropriate
to the child's needs. The residential staff, however, is
obliged to
provide reinforcement of those skills in the place of the
child's
parents. Consequently, the special education program for the
child
(which, depending on the severity of the child's handicap, may be
a
basic as a program in self-help and social skills) is the
State's
responsibility and Meicaid cannot pay. On the other hand, the
ICF/MR
services provide in addition to the education program by the
residential
staff or client care worker outside school hours are not
considered
educational activities and, therefore, are reimbursable.
In addition, the reason that "related services" under EHA generally may
be
fundable as ICF/MR services under Medicaid, is that services such as
physical
and occupational theraphy are health-related services which are
funable under
Medicaid whether they are provided in an institutional
setting or not.
Section 1905(a)(110 of the Act.
These considerations, as well as those we have outlined previously
in
discussing the purposes of the prohibition, provide the context in
which
we evaluate the State's arguments presented here.
(30) C. The State's arguments that training for self care and
other
"functional" skills are not educational activities.
The State presented a complex history intended to show a
direct
relationship between provisions in prior social service
regulations
prohibiting FFP in educational services and the provisions
prohibiting
educational activities in ICFs/MR under Medicaid.
Specifically, the
State relied on language in the social services regulations
at 45 CFR
221.9(b) (12) and (19) (1973), which the State contended meant
that
training in self care and other functional educational services were
not
educational activities within the meaning of the
prohibition.
Applellant's Brief, pp. 5-12; Appellant's Appeal File, pp.
36a-50a;
Appellant's Response to the Board's Statement of the Issues dated
August
8, 1985, pp. 3-4; and Tr., pp. 148-150. The State argued
that these
provisions were relevant because ICF services were originally
provided
as social services.
One defect in the State's argument is that the State presumes that the
ICF
program under the cash assistanct titles was transferred to Title
XIX without
substantial change. Under those titles, however, ICF
services were not
available for individuals in a public institution.
See, e.g., section 6(a) of
the Social Security Act as in effect in 1970;
Appellant's Appeal File, p.
39.1a; 45 CFR 234.130(b). The exception to
the general
prohibition of FFP for services in a public institution was
not enacted until
the transfer, when Congress provided for the first
time the FFP in ICF/MR
services in a public institution in certain limit
circumstances. As the
State pointed out, standards for ICFs development
prior to the transfer to
Medicaid were used for a short period of time
for ICDs under Medicaid.
MSA-PI-72-7, Applellant's Appeal File, pp.
39.3a-39.9a. It does not
necessarily folow, however, that the social
services provisions applicable to
ICF care as a social service should be
read as applying to ICF care in
ICFs/MR as a Medicaid sercice, without
considering the differences between
the two programs. Moreover, once
guidance was issued interpreting the
educational prohibition in
Medicaid, the State could no longer reasonably
rely on any conflicting
interpretation of the social services provision.
In any event, even if the two prohibitions are historically linked,
our
conclusions would not be altered; the social services regulations
do
not support the result the State advocated.
The State relied primarily on the fact that the revised socaial
services
regulations include as a social service which could be provided
the
category "special services for the mentally retarded," which
could
include "special training for self (31) care" and "home management
and
other functional educational services." Appellant's Appeal File, p.
41a;
45 CFR 221.9(b) (19) and (12).
The State's position ignores the following:
* The general rule under the social services regulations is that FFP
is
not available in a social service if it is an educational program
or
service, with limited exceptions. Appellant's Appeal File, p.
42a; 45
CFR 221.53(g).
* The exceptions are that FFP is available in an educational service
which
consists of "helping individuals to secure educational training
most
appropriate to their capacities from available community resources
at no cost
to the (social services) agency" and helping them "to obtain
vocational
education or training at no cost to the (social services)
agency." 45 CFR
221.9(b) (4) and (5), Appellant's Appeal File, p. 41a.
Thus, the regulations
clearly contemplate that, if funding for an
activity is available as an
educational service (appropriate to the
individual's capacities), social
services funding will not be available.
Indeed, the regulations specify that
"(there) must be a maximum
utilization of and coordination with other public
and voluntary agencies
providing similar or related services which are
available without
additional cost." 45 CFR 221.3; Appellant's Appeal
File, p. 40a.
* The specific mention of a type of activity does not automatically
mean
that funding is available for it. For example, the definition
of
"special services for the mentally retarded" includes "evaluation of
the
individual through necessary medical and psychological services,"
yet
the regulations provide that "medical or psychological
services
necessary to evaluation of a mentally retarded individual" are
available
"only to the extent not otherwise available from Medicaid,
Medicare, or
other public or private sources including insurance or other
resources."
45 CFR 221.53(h) (4); Appellant's Appeal File, p.
42a. Similarly, the
social service regulations can be read to provide
funding for training
in self care and other functional education only to the
extent that
these activities are not also educational services for which
funding is
specifically prohibited.
In other words, upon close examination the social services
regulations
support a position consistent with the result we reach
here: Medicaid
funding is available for training in self care and
functional education
in an ICF/MR, but only to the extent these services are
not provided as
part of required "special education" or as vocational
training for which
other federal funding is available.
(32) The State also argued that MSA-PRG-33, Question 8 and Answer
(see,
Background section above), specifically excludes from the definition
of
"educational activity" training such as toilet training even if it
is
provided in a classroom setting. Appellant's Brief, pp. 11-12;
Reply
Brief, p. 8; and Appellant's Response to the Board's Statement of
the
Issues, pp. 5-7.
The language contained in MSA-PRG-33 is entirely consistent with
our
analysis. The statement in MSA-PRG-33 that "educational
activity"
excludes training such as toilet training, feeding, dressing, etc.
is
qualified in two ways: it appears in juxtaposition to
formalized
classroom programs and refers to training provided by "staff of
the
IMR." Our decision here permits Medicaid funding for such training
in
self-care when provided by the resident living staff (client
care
workers) at Woodhaven Center and also when provided by a
health
professional such as an occupational therapist; we uphold
the
disallowance for such services only when provided in a classroom
setting
as part of a child's special education. In context, we think
that the
reference in MSA-PRG-33 to such training was meant only to make it
clear
that the mere fact that it was "training" did not render it a
prohibited
educational activity in all circumstances.
Even if this was not entirely clear from MSA-PRG-33, however, we do
not
think that the State can ignore the effect of the amendments to EHA
and
the issuance of AT-78-104, which defined more clearly which
educational
activities fell within the prohibition. Moreover, in light of
that
guidance, we do not think that the State can obtain Medicaid funding
for
all of the activities here simply on the basis that, in one sense,
all
of the Temple University special education teachers functioned as
the
staff of Woodhaven Center and were providing activities that
could
generally be characterized as training in self-care. The
special
education teachers clearly performed functions that were pursuant to
the
State's responsibilities for special education under EHA, not
pursuant
to Woodhaven Center's function as an ICF/MR.
As a result, we see no inconsistency in distinguishing between
services
rendered by the client care staff as training and habilitation
outside
of the "special education" program and services provided by
special
education teachers to school-aged residents as part of
"special
education."
In summary, we find no support for the State's position that the
Agency
meant to exclude services such as training in self care from
the
prohibition in all circumstances. If these services are provided
as
part of a child's special education, they are not fundable
under
Medicaid.
(33) D. The State's arguments regarding AT-78-104.
In addition to its previous arguments, the State contended that
AT-78-104
left open an exception to the prohibition when educational
services are
provided, under State law, by the Medicaid provider (i.e.,
DPW). The
State reasoned that, in those circumstances, there was no
financing of a
traditional education agency responsibility, and that,
consequently, since
Pennsylvania fit into this exception, Medicaid could
pay for all special
education services. The State also argued, based on
materials from
Congressional oversight hearings on EHA, that AT-78-104
should not be read as
support for cutting off Medicaid funding for EHA
activities that Medicaid had
previously been paying for. In any event,
the State questioned the
continuing validity of AT-78-104.
Before we proceed to discuss the State's other arguments, we must
decide
as a preliminary matter whether the State is correct that AT-78-104
had
no continuing validity in light of an Agency memorandum
(Information
Memorandum 81-11) which lists "action transmittals" still in
effect, but
does not include AT-78-104. IM-81-11, dated July, 1981;
Appellant's
Appeal File, p. 61a. While the memorandum infers that
action
transmittals not listed could be discarded, it does not say
the
interpretation of the regulation, 42 CFR 441.13(b), is no longer
valid.
Indeed, the Agency did not issue any contrary policy statement on
which
the State could have relied. Consequently, there is no indication
that
the Agency intended to abandon its interpretation. Further, the
State
did not show that it relied on IM-81-11 at the time it developed
its
reimbursement rate for Woodhaven; rather, the record indicates that
the
State had been submitting its claims this way since at least fiscal
year
1980, a full year before the issuance of IM-81-11. Audit Report, p.
3-4;
Appellant's Appeal File, pp. 6a-7a. Thus, we find that
the
interpretation in AT-78-104 can be applied fairly here.
Having determined this, we now turn to the State's argument that
the
action transmittal provides an exception to the prohibition where
the
state Medicaid agency is required to provide education to the
mentally
retarded.
We find that the action transmittal does not permit the
exception
suggested by the State. The State read the provision in
AT-78-104 that
"educational services provided in a traditional classroom
setting by
trained special educators usually will be treated as educational
costs"
as providing for this narrow exception. AT-78-104, p. 4;
Appellant's
Appeal File, p. 56a (emphasis added). That this language
permits an
exception does not compel the result the State advocated
here; our
decision recognizes other exceptions, such as when the
services are
habilitative services provided to(34) adults. In our view, the
word
"usually" here means no more than that a service is not conclusively
an
educational activity just because it is provided to a resident of
an
ICF/MR by a special education teacher in a classroom setting.
Furthermore, we do not agree with the State that because of its
unique
special education statute (see, 24 P.S. 13-1375 at Appeal file,
p.
100.2a), there was no refinancing here of traditional State
education
responsibilities. The State's arguments virtually gloss over
the
federal and State law in effect during the disallowance period.
The
State's position ignores the following:
* The decision and consent agreement in the PARC case, supra,
interpreted
24 P.S. 13-1375 to require that "insofar as DPW is charged
to arrange for the
care, training and supervision of a child certified
to it, DPW must provide a
program of education and training appropriate
to the capacities of that child
subject to the State Department of
Education's standards and
supervision. PARC, supra, at 313-314. /14/
* The EHA as amended in 1975 provides that all states with state
plans
under the Act, like Pennsylvania, must provide a free appropriate
public
education to all handicapped children.
(35) * EHA and the implementing regulations stress that the
state
education agency is responsible for ensuring that the requirements
of
the EHA are carried out. /15/ Thus, where a child might be placed in
an
ICF/MR managed by DPW, the state education agency has the
primary
responsibility for ensuring that the child is provided a
free
appropriate public education in accordance with state
educational
standards. 20 U.S.C. 1412(6) of the Act; 45 CFR
121a.600.
* Interpreting application of the prohibition to depend on what
state
agency provides the service could lead to arbitrary results based
on
differences among the states in how they organize their programs.
Also,
this would permit a state to shift costs to Medicaid simply by
shifting
responsibility for providing educational services to its
Medicaid
agency.
* The mere fact that DPW renders the services does not make it any less
an
educational activity which the State has a traditional responsibility
to
provide.
* The fact that some residents of Woodhaven attended public school
outside
the facility indicates that residency at Woodhaven did not
necessarily mean a
child came within the provisions of 24 P.S. 13-1375
as uneducable or that DPW
was solely responsible for that resident's
education.
* The fact that school-aged residents at Woodhaven had IEPs developed
in
accordance with EHA and state educational standards indicates that
the
fact a child was a resident of Woodhaven for other reasons did
not
lessen the state educational agency's responsibility to provide
that
child with special education. /16/
(36) Thus, we conclude that the action transmittal did not provide
an
exception to the prohibition for special education applicable to
the
circumstances in Pennsylvania.
Finally, we do not agree with the State that materials from
Congressional
oversight hearings on EHA support the State's position
here. The State
said these materials indicate that AT-78-104 was a
reaction to an attempt by
HCFA to cut off Medicaid funding for certain
EHA activities that Medicaid
normally would pay for. This may well be.
Nothing in the materials
suggests, however, that the compromise we found
was reached in AT-78-104 --
that Medicaid would pay for "related
services" if they were otherwise
reimbursable -- was inconsistent with
what Congress (or the education
officials commenting during the
hearings) intended. The State's
argument based on these materials is
premised on the theory that ICFs/MR were
providing (and Medicaid was
paying for) the services in question here prior
to the EHA amendments in
1975. The State provided no evidence to
support this theory. Moreover,
we cannot presume that the ICFs/MR were
providing such services to
children, even though the regulatory standards for
ICF/MR services were
originally published in 1974, since states were given
three years (and
ultimately longer) to meet those standards. Nor can we
presume that
Medicaid paid for such services, even if provided, since
education funds
were available under Title I of the Elementary and Secondary
Education
Act to support educational activities in public institutions for
the
handicapped.
While AT-78-104 envisions interagency agreements which will
maximize
services to the mentally retarded, it also recognizes that
funding
options may be limited by applicable laws, including the
educational
activities prohibition in Medicaid. /17/
(37) E. The State's argument on whether Medicaid must pay for all
costs
of active treatment.
The State also argued that section 1902(a)(13)(A) (1981) and 42
CFR
447.279(a) (1980) require Medicaid reimbursement for all costs
incurred
by an ICF/MR to provide care in accordance with federal and state
law.
As a result, the State contended, services provided by Woodhaven to
meet
the active treatment requirement or to provide services in
accordance
with the ICF/MR regulatory standards are not excluded from
Medicaid
reimbursement, even though they also may be considered
special
education.
We do not agree. Section 1902(a)(13)(A) provides that a state
plan
under Medicaid must provide for payment of ICF services through the
use
of rates which the state finds, and makes assurances satisfactory to
the
Secretary, are reasonable and adequate to meet the costs which must
be
incurred by efficiently and economically operated facilities in order
to
provide care and services in conformity with applicable state
and
federal laws, regulations and quality and safety standards.
The
regulation at 42 CFR 447.279(a) provides that:
Allowable costs for . . . ICF's include all items of
expense
providers must incur --
(a) To meet the definition of . . . ICF services in Sec.
440.40(a) or
Sec. 440.150 of this subchapter.
Under both the statutory and regulatory provisions, the key words
are
"must incur." Consequently, the Agency is not bound to participate
in
any cost a provider incurs, only necessary costs. Moreover,
the
provision at 42 CFR 447.279(a) must be read together with 42
CFR
441.13(b). Special education is not a necessary provider cost in
view
of this prohibition and since there is another source for funding
those
services.
In addition, as we have previously stated, the requirement that
residents
of ICFs/MR be "receiving active treatment" does not mean that
Medicaid must
pay for every element of that treatment.
F. Agency documents the State said supported its position.
The State submitted several internal Agency documents as well as a
letter
from the Agency to California, alleging that these documents
showed that the
Agency's policy on the prohibition at 42 CFR 441.13(b)
was unsettled and that
training in self care should be excluded from the
prohibition. Below,
we discuss these documents in chronological order
and indicate why we do not
agree with the State.
(38) The first document is a memorandum dated 1981 from an attorney in
the
Office of the Inspector General, HHS, to one of the Inspector
General's staff
who was assigned to audit HCFA programs. Att. to
Appellant's letter
dated May 29, 1985. We conclude that this memorandum
does not establish
HCFA policy, nor evidence an unsettled policy. Since
neither the
Inspector General nor his staff are employed by HCFA, they
have no authority
to set or determine policy for the Medicaid program.
While the memorandum
states that training in activities of daily living
and other self-help skills
is reimbursable under Medicaid, the
memorandum also states that federal
funding must be sought under EHA for
education provided under that
program. Moreover, it appears as though
the Attorney was relying on a
Policy Interpretation Question (PIQ)
issued prior to AT-78-104, which would
have superseded that PIQ to the
extent they were inconsistent.
The State also argued that a letter from the Director of the
Agency's
Office of Coverage Policy indicates that the Agency
construed
instruction in self-care and functional education to be
"related
services" under EHA. Appellant's Reply Brief, p. 10, referring
to
Appellant's Appeal File, pp. 71a-72a. The State misreads this
letter.
The letter merely says, in response to a question from California,
that
Medicaid can pay for transportation to obtain related services if
the
related services are reimbursable as "training and
habilitation"
services under the ICF/MR regulations (such as training in
activities of
daily living). The letter does not address the question
of whether
Medicaid funding is available for training in activities of daily
living
if those activities are provided as part of special education
under
State law, rather than as "related services."
The third document is an internal memorandum dated April 11, 1984 from
the
Acting Regional Administrator, HCFA, to the Deputy Associate
Administrator
for Operations, HCFA. Appellant's Reply Brief, pp.
4a-6a. The
State submitted this document to show not only that the
Agency's policy
regarding 42 CFR 441.13(b) had been unsettled, but that
the Agency
consistently excluded training in self care from the
prohibition. We do
not agree. First, the Acting Regional
Administrator's remarks are not
official Agency policy. This employee
is making the remarks in a
pre-decisional internal Agency memorandum.
It was not issued to the states
and is not an authoritative statement of
Agency policy.
We do note, however, that this memorandum was a response to
auditors'
overbroad actions in Region IV; apparently, they
recommended
disallowing all training in self care as education. The
Acting Regional
Administrator explains that in the past such training may not
have been
considered part of special education and that, as a result, states
may
have(39) relied on this when they determined what state agency
should
fund these services. But, in Pennsylvania, state standards
included
life skills as part of special education (at least from 1977).
See, 22
Pa. Code 341.55(c). Moreover, the State did not show it ever
made the
kind of funding arrangement contemplated by AT-78-104.
Consequently,
even if we were to accept that this document evidences a
contrary Agency
policy, the State has not shown it relied on such a policy
in
structuring its program. In these circumstances, then, the
memorandum
is not inconsistent with what we are saying here: to the extent
that
training in self care services are not included as part of
special
education, Medicaid may pay.
The State also pointed to a statement in an Agency letter dated January
9,
1985, to the effect that activities to develop appropriate personal
social
behaviors and training in independent living skills provided
primarily for
recipient habilitation (as opposed to work skills such as
sorting and
assembling performed primarily as preparation for a more
advanced stage of
vocational adjustment) would be covered under a home
and community-based
services waiver granted to Alleghany County,
Pennsylvania. State's
pre-hearing submission, pp. 27c-28c. We do not
think this letter
supports a conclusion different from that we reach
here: it is limited
to the specific waiver involved; that waiver was
to provide adult
services; and, contrary to what the State said, the
letter cannot be
read as an interpretation of the prohibition at 42 CFR
441.13(b) since that
prohibition addresses only two types of services
(ICF/MR services and
inpatient psychiatric services to individuals under
age 21).
The next document is a letter dated April 26, 1985 from the
Inspector
General, HHS, to a U.S. Senator, Chairman of the
Labor/HHS/Education
Subcommittee. Appellant's Reply Brief, pp.
1a-2a. Although the letter
indicates that questions from the Senator
prompted the Office of
Inspector General to review its audit policies with
respect to ICF/MR
vocational and educational expenditures, the Inspector
General stated
that he believed these costs were properly questioned by his
auditors
and that he thought the prohibition in 42 CFR 441.13(b) was
sufficiently
clear. Moreover, we do not agree with the State that this
document
indicates the Agency's policy is unsettled. As we stated
previously,
the Office of the Inspector General is not responsible for
administering
the Medicaid program.
Further proof of this is HCFA Program Memorandum No. 85-2 (August
1985).
Agency Hearing Ex. A. That memorandum provides that
disallowances under
42 CFR 441.13(b) which have been appealed (and are
pending in either
administrative or judicial forums) are being pursued, as
HCFA had issued
a final determination in those instances. Unlike the
Inspector
General's letter, the Administrator's Memorandum does not(40) imply
that
HCFA would never take similar disallowances for those cases in which
no
final determination has been issued. Rather, the Administrator
stated
merely that those cases would be suspended until further notice.
In summary, we find that these documents do not support the
State's
position.
G. State standards for special education.
In our discussion above we indicated that determining whether a
particular
service is considered "special education" or a "related
service" under EHA is
dependent on the State's educational standards.
The State argued that training in self care is not considered
special
education under Pennsylvania law. The State reasoned that the
State's
special education regulations make a distinction between "training"
and
"education." The State cited 22 Pa. Code 13.1, which
defines
"appropriate program" as a "program of education or training
for
exceptional school-aged persons. . . ." The State further contended
that
special education is defined in that same section as "a basic
education
program adjusted to meet the educational needs of exceptional
persons."
As a result, the State concluded that if a program is training,
rather
than education, it is not special education under
Pennsylvania
regulations.
We do not find this argument convincing for the following reasons:
* Section 13.1 defines handicapped school-aged persons as
including
"mentally handicapped persons who are educable mentally
retarded,
trainable mentally retarded, severely and profoundly retarded,. . .
."
* The State's standards for education of exceptional children at 22
Pa.
Code 341.1 also define exceptional persons entitled to special
education
as the mentally retarded who are (a) educable mentally retarded,
which
is determined by having an IQ score of 80 and higher (b)
trainable
mentally retarded, which is determined by an IQ score of 55 and
higher,
and (c) the severely and profoundly mentally retarded, those with an
IQ
score lower than 30.
* Thus, the use of "education and training" in the definition
of
"appropriate program" in 22 Pa. Code 13.1 was not meant to
exclude
training from an education program. Rather, these terms merely
refer
back to the definition of the mentally retarded, which is couched
in
terms of the person's capabilities.
(41) As a result, we find that the State regulations did not
consider
training to be different from education. Indeed, the State
education
standards provide that special education shall include these types
of
services.
Under 22 Pa. Code 341.1(vii)(G), the State defines the "severely
mentally
retarded" as:
(those) persons whose adaptive behavior is so severely impaired
that
educational programming is directed to behaviors that require
closely
supervised simple self-help and very simple work skills requiring
full
dependence upon others. . . .
(Emphasis added).
Futhermore, the State regulations defining the mentally retarded
provide
that "(the) degree of retardation and the level of social and
academic
functioning, not deviant behavior patterns, shall be the factors
in
determining the individualized program." 22 Pa. Code 341.1( v)
and
(vii)(G).
Also, the State standards specifically provide that while
special
education curricula shall be designed to meet the needs of
special
persons and adapted, where possible, from regular curricula,
the
integration of school-aged exceptional persons into regular
education
programs is dependent solely on whether the individual's needs
dictate
that a regular education curricula is more appropriate. 22 Pa.
Code
341.55(a) and (b). This section then specifically provides that
special
education curricula shall be designed to stress general life skills
and
to maximize independence for those school-aged handicapped children
who
differ to such an extent that their needs dictate curricular
offerings
different from those in regular education. 22 Pa. Code
341.55(c).
Thus, the State standards support a conclusion that programs
for
training in self care were provided to residents as part of
their
special education. This conclusion is further supported by the
record
here, which shows that these types of programs were included in IEPs
for
Woodhaven residents. /18/
(42) Moreover, we do not agree with the State that training in self
care
should always be considered a "related service" under 45 CFR
121a.
13(a). The State seized on the use of the term "developmental" in
the
definition of "related services." However, the use of
"developmental"
alone is not determinative of whether a particular service is
a related
service. The definition lists the type of services considered
to be
related services but does not specifically include "activities of
daily
living" or "training in self care." 45 CFR 121a.13(b)(1), (5), (7),
and
(12). The regulation further provides that related services
are
services "required to assist a handicapped child to benefit from
special
education." Thus, even if in some circumstances training in self
care
could be considered a "related service," it cannot be considered
a
"related service" under the circumstances here where State law made
such
training part of the "special education" itself. Moreover,
"related
services" cannot exist without "special education." Some of
the
Woodhaven clients had IEPs including only training in self care, and
to
designate this as a "related service," rather than as special
education
would be absurd.
We agree with the State that it has not specifically included in
its
special education curricula any of the related services listed in
the
EHA regulations. As a result, a related service such as
speech
pathology, physical or occupational therapy, or leisure education in
an
IEP may be fundable by Medicaid so long as it qualifies as an
ICF/MR
service. /19/
(43) H. Vocational training costs.
The State also provided a complex history intended to show a
direct
relationship between provisions in prior social services
regulations
prohibiting FFP in vocational rehabilitation services and the
provisions
prohibiting vocational training services in ICFs/MR under
Medicaid.
Specifically, the State relied on language in the social
service
regulations at 45 CFR 222.88 (1970), which the State concluded
meant
that only vocational rehabilitation (VR) services as defined in
the
Vocational Rehabilitation Act (VRA), were prohibited as
vocational
training within the meaning of the prohibition. Appellant's
Brief, pp.
26-29; Appellant's Appeal File, p. 82.8a. The State,
on this basis,
reasoned that only vocational rehabilitation services provided
to
persons expected to benefit in terms of employability were
excluded.
The State proposed that Woodhaven clients did not come within
the
prohibition because they were unemployable.
The State, rebutting the Agency's arguments, also contended that
the
disallowed vocational expenditures are not included within the
State's
definition of special education and, in any event, are not
"vocational"
within the meaning of the federal education regulations at 45
CFR 121a.
14(b)(3). The State argued that the federal education
regulations
require that in order to be vocational, the services must be
designed to
prepare the clients for employment. The State, therefore,
disagreed
with the Agency's position that all vocational services,
whether
provided to children or adults, are unallowable because they are part
of
special education.
While the State admitted that some clients at Woodhaven were
receiving
services related to employment at sheltered workshops, the
State
indicated that sheltered employment can be provided as a VR service
only
if the client is expected to move to the next level of
employability,
namely, competitive employment. The State presented
argument and
testimony (see, Appellant's Response to Board's Statement of the
Issues,
pp. 20-21; Tr., p. 55 and pp. 60-62) on the fact that VR
services were
unavailable to Woodhaven because of funding limitations
established by
the VR Agency. As a result, the State admitted that
sheltered workshop
services would normally be considered VR services, but
contended that
the prohibition for funding vocational training in 42 CFR
441.13(b)
should be read as disallowing only those costs which are
actually
available from a VR agency.
First, we conclude that the vocational services in question here
are
unallowable to the extent they are part of special education.
Special
education is defined in 45 CFR(44) 121a.14(a)(3) as including
vocational
education if it consists of specially designed instruction, at no
cost
to the parents, to meet the unique needs of the handicapped
child.
"Vocational education" is defined as meaning "educational programs
which
are directly related to the preparation of individuals for paid
or
unpaid employment. . . ." 45 CFR 121a.14(b)(3). Although the
State
argued otherwise, we find that the services in question were
directly
related to preparation for unpaid employment. The fact that
a
prevocational type of service may have purposes, such as
behavior
modification, in addition to the vocational purpose, does not make
the
service non-vocational. Thus, if the nature of the activity could
lead
to acquiring skills necessary for employment, paid or unpaid, we
find
that it is vocational education program to be provided to
school-aged
children as part of special education. Consequently, to the
extent that
a specially designed vocational education program is included in
an IEP,
the Medicaid prohibition applies.
Further, in circumstances where a vocational service is included in
an
IEP, we find no reason for interpreting vocational training in light
of
the VRA, rather than the provisions of EHA, as meaning only
vocational
services which lead to gainful employment. If we were to do
so, we
would render the definition of vocational education in 45 CFR
121a.14(
b)(3) a nullity. Moreover, it makes sense to interpret the
term
vocational training in light of the EHA regulations where the
purposes
of the Medicaid prohibition were to prevent funding of a
state's
traditional obligation to provide education and to prevent
duplication
of other federal funds. Under the VRA, as opposed to EHA,
there is no
obligation on the State to provide VR services to all
appropriate
population groups and there is no federal mandate that the
services be
provided, like under EHA.
Conversely, where a service is not included in an IEP, particularly
for
adult clients, we cannot conclude that Medicaid funding is
prohibited
for the service simply because it may fit within a broad concept
of
being "vocational." The Agency has not shown that funding for all
such
services is a traditional obligation of the State or that federal
funds
are available for these services under another program.
For these reasons, we conclude that vocational training services
provided
pursuant to an IEP are unallowable, but services provided to
adults are
allowable, even if they may fit within the general concept of
vocational or
pre-vocational(45) training, so long as they qualify as
ICF/MR services and
federal funding under another federal program was
not actually available.
/20/
VII. Summary of findings on educational activities and
vocational
training.
* Educational services which are also ICF/MR services and
vocational
services which are also ICF/MR services and for which no federal
funds
are available are not prohibited when provided to adults.
* Vocational training services provided pursuant to an IEP
are
prohibited.
* Training in self-care services provided in Pennsylvania by
a
special education teacher pursuant to an IEP are prohibited.
* Services outside normal school responsibilities and not
included in
an IEP are not prohibited even where they may be provided by a
special
education teacher.
(46) * Related services provided pursuant to an IEP are
not
prohibited, but for services such as swimming, the State must show
that
the services were provided as leisure education rather than
physical
education.
Therefore, we remand the disallowance relating to educational
and
vocational costs back to the parties to allow the State the
opportunity
to show, consistent with our findings here, what part of the
disallowed
costs are related to allowable services.
VIII. Student Intern Program.
Based on the auditors' findings, the Agency disallowed
$1,099,560
($610,204 in FFP) in costs associated with a student intern
program
operated by Temple University at Woodhaven Center. The
disallowed costs
included student tuition and stipend costs related to the
development
and coordination of the student intern program, and related
indirect
costs and administrative overhead fees. The Agency disallowed
these
costs on the basis that 42 CFR 441.13(b) "specifically
excludes
reimbursement for educational activities and those activities
associated
with education, which would include the student intern
program."
Disallowance letter, dated November 28, 1984, p. 3.
The State initially argued that 42 CFR 441.13(b) is inapplicable
here
because it prohibits educational services provided to clients of
the
ICF/MR and the regulation was not meant to prohibit a student
intern
program which is educational only for the students in the
program.
Appellant's Brief, p. 30. The State also argued that the costs
of the
student intern program are allowable under the Medicare
regulations,
which the State adopted for determining allowable costs in its
ICFs/MR.
Specifically, these regulations provide that the "net costs" of
a
student intern program may be included in a provider's allowable
costs.
42 CFR 405.421(a) and (b). The student intern program, however,
must be
licensed or approved by a national professional organization for
the
particular activity.
The Agency argued that the State was trying to shift to
Medicaid
non-medical care expenses which do not qualify for Medicaid
funds. The
Agency argued that 42 CFR 405.421 was inapplicable because
the
regulation requires that the student intern program contribute to
the
quality of patient care and be necessary to meet the community's
needs
for medical and paramedical personnel. The Agency claimed that
the
Medicare regulation provides for programs which are health-related
and,
therefore, cannot be applied to the Temple University programs,
which
are not.
(47) Based on our analysis of the legal issues here, we conclude
the
following:
* The mere fact that these costs relate to an intern program
for
university students does not render them unallowable as
educational
activities within the meaning of 42 CFR 441.13(b). To the
extent that
the student interns were providing services that were part of
the
special education of Woodhaven residents, however, the costs do
fall
within the prohibition and are unallowable. Similarly, if the
student
interns were providing vocational training falling within
the
prohibition (see our discussion above), the costs are unallowable.
* The record does not support the Agency's position that all of the
costs
are unallowable because they did not contribute to patient care or
the need
of the community for medical or paramedical personnel. /21/
There is some
evidence that there were student interns in pharmacy or
medical records,
which are specifically recognized in 42 CFR 405.421(e)
as programs which
might be allowable.
* The regulation states at section 405.421(f) that
appropriate
consideration should be given to costs incurred for programs
other than
those specifically mentioned if those programs "come within the
purview
of the principle."
(48) We do not think that the Agency reading of the regulation,
which
would exclude programs for student interns specializing in
residential
care of the developmentally disabled (such as the mentally
retarded), is
reasonable. Even if such programs are not, strictly
speaking, medical
or paramedical in nature, they relate specifically to the
services in
question here, which are unique to the Medicaid program.
Thus, these
costs come within the purview of the cost principle. /22/
Accordingly, we remand the disallowance of student intern costs.
The
State should be given a reasonable opportunity to show what part of
the
costs are for programs which are specifically mentioned in 42
CFR
405.421(e) or for other programs which contributed to the quality
of
patient care at Woodhaven and are not prohibited under 42 CFR
441.13(
b). The State also must show that it has charged only net costs
of the
student intern program and that the student interns were
providing
allowable services as part of a licensed or nationally approved
intern
program as required by 42 CFR 405.421(b).
IX. Administrative Overhead Fee.
The auditors found that Temple University was reimbursed an
administrative
overhead fee of 9 percent of total contract costs
excluding student tuition
costs. The auditors found that 4.05 percent
of the overhead costs
related to unallowable activities and that .84
percent of the costs could not
be supported. The auditors allowed an
administrative overhead(49) fee
of 4.11 percent and recommended
disallowance of the difference between this
amount and the amount
claimed. On the basis of the auditors' findings,
the Agency disallowed
$755,265 in FFP.
The State argued it was entitled to the entire 9 percent fee under
two
theories: (1) the 9 percent fee is a management fee under
Medicare
principles of reimbursement, so Temple is not required to account
for
its indirect costs; and (2) the management fee was per se
reasonable
because it was lower than the indirect cost rate Temple had
negotiated
for its federal grants and contracts. In arguing its first
theory, the
State contended that the Medicare Provider Reimbursement Manual,
Part I,
section 2135.3, provides guidelines for determining the
reasonableness
of pruchased administrative support services. The State
contended that
these guidelines indicate that, in determining reasonableness
of the
fee, the auditors should have looked at the marketplace price
for
similar services or should have determined if the total guaranteed
cost
of Temple's services was less than the State's cost for providing
such
services. The State argued that the auditors erred by,
instead,
analyzing the components of the administrative overhead fee to
determine
whether Temple's indirect costs supported the fee.
In addition, the State contended that, even assuming the auditors
were
correct in analyzing Temple's costs to determine the reasonableness
of
the fee, the 4.05 percent related to the student intern program
should
be allowable as compensation for the indirect cost of the
allowable
student intern program. Moreover, the State reasoned that the
.84
percent of the fee found by the auditors to be unsupported by
incurred
indirect costs should be allowable as a reasonable fee for
Temple's
undertaking the management responsibility of Woodhaven Center.
At the outset, we question whether section 2135.3 of the Medicare
Provider
Reimbursement Manual applies here. That section relates to
fees paid
exclusively under a contract for management and administrative
support
services. Here, the State contracted with Temple to provide
services to
patients, not merely to provide management services to aid
in the clerical
and administrative functions of the facility. There is
nothing in the
record of this appeal to indicate that Temple University
considered the 9
percent "fee" as a fee for managing the program.
Instead, the record
indicates that the State and Temple University were
trying to measure
Temple's indirect costs for providing the services at
Woodhaven and did so by
establishing this flat percentage rate; the
State chose not to
reimburse Temple for its indirect costs at Temple's
higher indirect cost rate
negotiated pursuant to OMB Circular A-88. See
Appellant's Hearing Ex.
1; Appellant's Appeal File, pp. 97a-98a.
(50) In any event, in order for section 2135.3 of the Medicare
Provider
Reimbursement Manual to apply and thereby a presumption
of
reasonableness of the administrative fee to be established
without
resort to scrutiny of the individual cost components,
certain
circumstances must be present. The Manual section indicates
that
certain factors (such as whether the contract resulted from
competitive
bids and whether the fee is reasonable based on marketplace
prices for
such services) must be shown. The State argued that the
auditors were
responsible for establishing that these circumstances were
present, but
the Manual section states that this determination should be made
by the
"intermediary." We do not agree that the auditors are in the same
role
as the intermediary in Medicare. Rather, it was up to the
State
(specifically, the Office of Fiscal Management within DPW) as the
rate
determiner, to look at the factors listed in that section and
the
marketplace prices to determine if the "fee" was entitled to
the
presumption of reasonableness. /23/ There is no evidence in the
record
that the State office did this.
In fact, the record indicates that the State did not fulfill its
duties
as a rate determiner. There were costs included in the per diem
rate
which specifically related to activities under the contract which
the
State admitted should not have been included, i.e., the community
living
arrangement program costs, training and research evaluation costs,
and
equipment costs. Under these circumstances, the auditors
acted
reasonably in analyzing the individual costs comprising
the
administrative fee.
The State also argued, however, that the 9 percent fee was per
se
reasonable because Temple University had an OMB Circular
A-88
negotiation agreement which established a higher indirect cost rate.
We
do not agree. The fact that Temple's negotiated indirect cost rate
was
higher does not establish that the 9 percent contract fee was per
se
reasonable unless there is proof that the negotiated indirect cost
rate
and the 9 percent fee applied to the same cost base. The State
here(
51) presented no evidence that the bases were comparable.
Consequently,
we cannot accept the State's assertion that the 9 percent fee
was per se
reasonable.
Having determined that the auditors' analysis of the indirect
costs
comprising the overhead fee was reasonable and that the State has
not
provided support for its allegation that the 9 percent was per
se
reasonable, we now turn to whether the auditors' findings concerning
the
individual components of the fee were correct.
The two components of cost presently in dispute are: (1) 4.05
percent
related to administrative indirect costs of Temple's student
intern
program at Woodhaven Center; and (2) .84 percent which the
auditors
found could not be supported. The auditors determined the
components of
cost by subtracting the percentage of allowable costs under
the
contract, 4.11 percent, from the 9 percent fee. Based on the
records
maintained by Temple, the auditors determined that of the 4.89
percent
difference representing alleged unallowable costs, 4.05 percent
related
to the student intern program. The remaining .84 percent
represents
reimbursement to Temple in excess of supported indirect costs.
The allowability of the administrative overhead costs related to
the
student intern program is largely dependent on whether the
direct
student intern program costs are found to be allowable.
Accordingly,
the determinations made by the parties on remand on the student
intern
costs will determine whether none, part, or all of the
administrative
overhead fee is allowable.
As for the .84 percent of the 9 percent fee found unsupported, we do
not
agree with the State that this can be considered Temple's "fee"
for
undertaking the management responsibility at Woodhaven and
not
compensation for indirect costs. The same reasons for finding that
the
9 percent fee could not be presumed a reasonable management fee
under
the Medicare cost reimbursement principle apply here. There is
no
indication in the record that the State intended the .84 percent as
a
management fee. Rather, the 9 percent fee, of which the .84 percent
is
a part, was intended to reimburse Temple only for its indirect
costs,
and the State has not shown that the guidelines for an
allowable
management services fee were met. The auditors were correct
to limit
the State to actual, allowable indirect costs. This is
especially true
where the State, in operating its other public ICFs/MR, would
not be
able to receive Medicaid reimbursement for a management fee or
increment
of "profit" which the State argued should be permissible here.
(52) In commenting on the Board's preliminary analysis of
the
administrative overhead fee, the State suggested that the
appropriate
course for the Board would be to remand this matter to HCFA to
determine
whether the .84 percent fee is reasonable and allowable under
the
Medicare Provider Reimbursement Manual, Part I, section 2135.3.
In
support, the State said that the applicability of this section
was
raised late in the case and was not developed to the extent of
other
issues, and also that HCFA had access to information collected by
fiscal
intermediaries on this issue. The State also argued that
Medicare has
chosen to provide some profit to contractors, even if owners
cannot
receive the same profit.
We conclude that the State had adequate opportunity to address the
Manual
section during Board proceedings. Even if it might have
been
permissible for the State, under applicable Medicare principles, to
have
paid a management fee to Temple which afforded Temple some
reasonable
profit, this does not mean that HCFA is now required to allow such
a
profit. The agreement was that the State would reimburse Temple for
its
overhead costs, not for a management fee, and HCFA properly
disallowed
the payments to Temple to the extent it did not represent costs
actually
incurred by Temple.
Therefore, we remand back to the parties to determine what part, if
any,
of the 4.05 percent of the administrative overhead fee is allowable
and
sustain the disallowance relating to the .84 percent of
the
administrative overhead fee.
X. Operations, Maintenance and Indirect Costs.
Except for the apportionment of the swimming pool at Woodhaven, the
State
had no objection to the method of apportionment of these
disallowed
costs. However, to the extent that the challenged direct
costs are
determined allowable, the apportionment of the operation,
maintenance and
indirect costs should change.
The State, however, disputed the apportionment of the costs of the pool
to
allegedly unallowable educational activities. The State argued that
the
activity of swimming is not special education, but instead would
constitute
recreation or physical therapy. The State, therefore,
contended that
since recreation and physical therapy are related
services under 45 CFR
121a.13, these services are allowable under
AT-78-104.
The auditors agreed with the State that to the extent the pool was
used
for recreation and physical therapy, the services are allowable and
did
not disallow for these activities. However, under the federal
education
regulations, special education must include physical education
and
physical education is(53) defined as including the development
of
"skills in aquatics. . . ." 45 CFR 121a.14(a) and (b)(2) (i)
(C).
Therefore, costs allocable to the use of the swimming pool for
physical
education pursuant to an IEP are unallowable. Thus, we remand
this
issue to the parties to give the State an opportunity to show
whether
the proportion of the pool costs disallowed for physical education
were
in fact allocable to recreation and physical therapy.
Conclusion
We uphold the disallowance of those costs which the State conceded
were
unallowable. Our specific holdings regarding the remaining
categories
of disallowed costs are as follows:
Costs of special education teachers and school building space
disallowed
on the basis that they were costs of prohibited "educational
activities
and vocational training" ($2,800,535 FFP):
* We uphold the disallowance of costs of all services required to
be
provided to school-aged residents of Woodhaven as part of
"special
education" including services for vocational education or training
in
self-care.
* We reverse the disallowance of costs for required ICF/MR
services
provided to school-aged residents outside normal school
responsibilities
and not required under the residents' "special education"
plans (IEPs).
* We reverse the disallowance of costs of required ICF/MR
services
provided to adult residents, except to the extent the services were
for
vocational training for which funding was available under
another
federal program (regardless of whether the services would lead
to
competitive employment).
* On remand, the State must show, within a reasonable time period set
by
the Agency, how much of the disallowed costs relate to
services
allowable under this decision.
Costs of a student intern program disallowed on the basis that the
costs
were for "educational activities and vocational training"
($610,204
FFP):
* We uphold the disallowance to the extent the student interns
were
performing services prohibited from reimbursement under the guidance
set
out above regarding costs of special education teachers.
* We reverse the disallowance to the extent the costs were
for
reimbursable ICF/MR services and met the requirements for student
intern
programs at 42 CFR 405.421.
(54) * On remand, the State must show, within a reasonable time period
set
by the Agency, how much of the disallowed costs relate to services
allowable
under this decision and must document that the requirements at
42 CFR 405.421
were met.
Costs of an administrative overhead fee disallowed on the basis that
the
costs were indirect costs related to the student intern program or
were
unsupported ($755,265 FFP):
* We uphold the disallowance of the part of the fee unsupported
by
documented indirect costs.
* We uphold the disallowance of the part of the fee related to
indirect
costs of the student intern program to the extent the direct costs
of
the program were unallowable under our guidance set out above.
* We reverse the disallowance of the part of the fee related to
indirect
costs of the student intern program to the extent the direct costs
of
the program were allowable.
* On remand, the parties should calculate what part of the indirect
costs
of the student intern program are allowable based on the direct
costs of that
program shown by the State to be allowable.
Operations, maintenance and indirect costs reallocated on the basis of
the
auditors' findings ($539,462 FFP):
* We uphold the disallowance of these costs to the extent that they
are
allocable to activities which we have found not to be
reimbursable,
including those costs of the Woodhaven swimming pool allocable
to
physical education provided as part of school-aged residents
special
education.
* We reverse the disallowance of these costs to the extent that they
are
allocable to activities which we have found to be Medicaid
reimbursable,
including swimming pool costs related to recreation or physical
therapy.
(55) * On remand, the parties should recalculate the amount of
the
disallowance to the extent the State has shown these costs are
allocable
to reimbursable services. /1/ The State did not appeal the
following
disallowed costs:
community living arrangement program costs,
training, research and evaluation
costs, equipment costs, regional
office payroll costs, and costs not reduced
by federal grant funds
received to cover the costs. The State initially
appealed the
disallowance of salaries and benefits for five State
employees,
conceding the disallowance related to ten other employees. During
the
pre-hearing conference call, the parties indicated they were
in
agreement on the governing legal principles on this issue and
therefore
agreed to negotiate this issue on their own. Summary of
Pre-Hearing
Conference Call, dated August 9, 1985. The State also appealed
the
disallowance related to calculation of the per diem rate. The
State,
however, indicated that it did not challenge the auditors' method
of
calculation. Instead, the State appealed this amount of
the
disallowance for the reason that the amount of the disallowance
may
change if the total allowable costs change. Consequently, there is
no
legal dispute for us to decide. The Agency, however, should note
that
the rate calculation will be affected by the determinations on
remand.
/2/ The original prohibition on funding under Medicaid
educational
activities and vocational training in ICFs/MR was found at 45
CFR
249.10(c)(2) (1974). This regulation essentially was unchanged when
it
was recodified at 42 CFR 449.10(c)(2) and then at 42 CFR 441.13(b).
/3/
The first case, Pennsylvania Association for Retarded Children
v.
Commonwealth, 334 F. Supp. 1257 (E. D. Pa.) 1971) and 343 F. Supp.
279
(1972) (PARC), was a suit on behalf of retarded children challenging
the
constitutionality of Pennsylvania statutes which excluded such
children
from programs of education and training in public schools. This
case
resulted in a consent agreement which enjoined Pennsylvania from
denying
to any mentally retarded child access to a free public program
of
education and training. The second case was Mills v. Board of
Education
of District of Columbia, 348 F. Supp. 866 (D.C. 1972), in
which
handicapped children had been excluded from the District's
public
schools. The Court held that a handicapped child, eligible for
public
education, may not be excluded from a regular school assignment
unless
the child is provided adequate alternative educational services
suited
to the child's needs.
/4/ We cite here to the EHA regulations as
codified at the time AT-78-104 was
issued. The regulations are
currently codified at 34 CFR Part
300. /5/ The first
exception
refers to the situation where a state may wish to include a
specific
related service in its definition of special education so that a
child,
who would not normally be considered handicapped because he or
she
needed this service, would be considered handicapped under EHA.
(See
the comment to 45 CFR 121a.13(a).) The second exception refers to
the
situation where the state has provided, for example, that the
state
education agency will provide and pay for a school vaccination
program
or for eye tests. /6/
The District Court was greatly influenced
by a video tape and a description
of services provided to one ICF/MR
resident who had severe multiple
handicaps. The Court apparently
thought that the videotape represented
a "sample" of the services
provided. Massachusetts v. Heckler, supra,
at footnote 1. We had
noted, however, that Massachusetts had not shown
to what extent the
services depicted were the same as the specific services
at issue in the
disallowance. The District Court also mistakenly thought
that, when
Massachusetts received AT-78-104, it was accompanied by a
transmittal
letter which stated that training in self-care was allowable.
Actually,
this statement appeared in an internal memorandum, drafted by
an
attorney advising the Inspector General's Office (which is not part
of
HCFA) in 1981 -- after the audit period and well after AT-78-104
was
issued to the states. /7/
The Administrator of HCFA provided a
detailed explanation of the terms
"rehabilitation" and "habilitation" in
IN RE Reconsideration of the
Disapproval of Ohio Medicaid State Plan
Transmittal, Appellant's Pre-Hearing
Submission, pp. 11c-23c. In that
decision, the Administrator determined
that rehabilitative services,
which are defined in 42 CFR 440.130(d) as "any
medical or remedial
services recommended by a physician or other licensed
practitioner of
the healing arts, . . . for maximum reduction of physical or
mental
disability and restoration of recipient to his best possible
functional
level," are specifically included within the definition of
"medical
assistance" in the Act and, therefore, are covered under the
Medicaid
program irrespective of the setting in which provided. The
reason is
that these services are designed to restore skills lost as a result
of
disease or injury. The Administrator found that
"habilitative
services," which are defined only within the ICF/MR regulations
(as
services intended to aid the intellectual, sensorimotor, and
emotional
development of a resident) are not included as a separate or
discrete
category of services within the statutory definition of
"medical
assistance." Rather, the Administrator found that
"habilitative
services" are reimbursable only in two circumstances:
when provided to
residents in an ICF/MR as part of an inter-disciplinary plan
of care or
when provided as part of home-and-community-based services under
a
waiver of normal Medicaid
requirements. /8/ The
"interpretive
guidelines" issued for use by surveyors applying the ICF/MR
standards
indicate that the facility's program in "training and
habilitation"
should be coordinated with the facility's educational and
vocational
programs. Appellant's Appeal File, p. 8c. We think
that this indicates
an intent that habilitative services would not replace
such programs,
but merely supplement
them. /9/ During the hearing,
the Agency
auditor clarified that the disallowance here focused on personnel
costs
and that the auditors did not disallow for classrooms in the
living
units. The auditor stated that, except for the swimming pool,
the only
disallowed facility space was the separate education facility
building.
Tr., p. 108. /10/
When the Agency was provided an opportunity to
support its allegation that
the Board's draft decision in this case was
inconsistent with its previous
decisions, the Agency quoted from a
statement in the draft that the Board had
not previously reached the
issue of whether Medicaid funding would be
precluded for services not
covered by another federal program. The
Agency asserted that this
statement "conflicts with Agency, Department of
Justice and judicial
interpretations of Board precedent." Supplemental Agency
Statement, p.
1. The Agency did not affirmatively allege, however, that
the issue was
reached in previous decisions, and we think that the fact that
the issue
was not reached is clear on the face of the decisions and not a
matter
of "interpretation." Moreover, several of the specific statements
the
Agency cited as inconsistent with our draft are in fact consistent:
we
reaffirm here that Medicaid funding may not be available for all
"active
treatment;" that the purpose of the provision is not solely to
avoid
actual payment by more than one program; and that Medicaid
funding is
not available for educational activities or vocational training
which
are the traditional obligation of the State. The difficulty is that
the
Agency relied on language in Massachusetts I which went beyond
the
issues raised there. Although the Board clarified in Massachusetts
II
that it did not reach the issue of funding for services which qualify
as
ICF/MR services for which no non-Medicaid funding is
available
(Massachusetts II, p. 7), the Agency tried to use Board decisions
to
support the proposition that non-duplication of funding is
irrelevant.
This is inconsistent with the Agency's own policy statements,
which
indicate that the regulation was meant to include within
prohibited
"educational activities" only those which were a traditional
state
obligation or duplicated by another federal
program. /11/ In
September
1985, the Agency promulgated section 4396 of the State
Medicaid Manual as a
"clarification" of the educational activities
prohibition. Letter from State
dated September 19, 1985. This guidance
document indicates: "For
persons over the age of 22, educational
services would not be eligible for
FFP. . . ." The document is
ambiguous, however, on whether the services to
adults here would be
"educational services." The document defines this term
by listing four
criteria, joined by the conjunction "and". The third of
these criteria
is that the services be "included in an IEP . . . or required
by federal
and State educational statutes or regulations." We have no
evidence that
the services here met this
criterion. /12/ Conversely, as
we
discuss below, we see no logical inconsistency in the Agency's
position
that "training in self-care services" can be funded by Medicaid
when
provided by the residential living staff of the ICF/MR, but not
when
provided as part of "special
education." /13/ We note that
the
EHA regulations do not require a state to provide year round
education
services or services beyond the normal school hours. While there
is
relevant case law that more than the typical 180-day school year may
be
appropriate, (see Battle v. Commonwealth of Pennsylvania, 629 F. 2d
269
(3rd Cir. 1980), cert. denied 449 U.S. 1109 (1981)), the
determination
as to whether a child needs more than the regular services must
be made
on the basis of an individual assessment of the child's needs.
This
assessment should be reflected in the child's
IEP. /14/ The
State, in its
brief, stated that under 24 P.S. 13-1375, the public
schools are relieved of
their obligation to provide education or
training for a child certified as
uneducable. As a result, DPW must
assume responsibility for that
child. The State, however, failed to
mention how this section was
re-interpreted by the consent agreement in
PARC and what effect this section
has since the enactment of EHA. In
addition, the State contended that, when
DPW assumes responsibility for
providing special education (including DPW's
responsibilities under 24
P.S. 13-1375 and Paragraph 37 of PARC), the state
statute at 50 P.S.
4503(c) designates Medicaid as the primary payee.
This statute provides
that the "state" is not required to expend funds on
behalf of a mentally
disabled person until that person has exhausted his
eligibility and
receipt of benefits under all other existing or future,
private, public,
local, state or federal programs. The State did not
show why this
section, by its own terms, is not applicable to federal and
state
funding under EHA. As a result, we cannot presume that this
state
statute makes Medicaid the primary payee for educational
services
provided in an
ICF/MR. /15/ Regulations at 45
CFR Part 84
(1978), which implement section 504 of the Rehabilitation Act of
1978,
also provide that, while a state welfare agency operating a program
for
institutionalized children must ensure that each child in its
program
receives an appropriate education, this does not alter the obligation
of
the state educational agency to provide these services under the
EHA.
45 CFR 84.53 and 45 CFR Part 84, Subpart
D. /16/ The State
argued
that, while it agreed with the Board's approach in Massachusetts
I and II,
this case was distinguishable because Woodhaven provided not
only ICF/MR
services but also educational services. For the reasons
stated above,
we do not agree that a determination of what is an
unallowable educational
activity is dependent solely on who provides the
service. Rather, the
determination of what is an unallowable
educational activity is dependent on
whether the service is provided as
part of a program of special
education. /17/ As we have
noted
elsewhere, the State presented no evidence that it had entered
into
interagency agreements as contemplated by AT-78-104, much less that
it
entered into such agreements based on an interpretation of
AT-78-104
inconsistent with our interpretation
here. /18/ The
State
suggested that it might be appropriate on remand to determine if
any
services should be moved out of the child's IEP and into the
child's
Individual Program Plan (IPP) under Medicaid. See, Appellant's
Response
to the Board's Statement of the Issues, p. 18. Here, the State
itself,
by failing to consider the educational activities prohibition
in
fashioning its program at Woodhaven, has caused any potential
problem
which might arise from the IEPs being overbroad. In
these
circumstances, we do not think that HCFA should be requird to review
the
IEPs to determine whether services were improperly included. We
also
note that both the IEP and IPP must be formulated in accordance
with
very strict procedures involving the presence of the patient, in
some
cases, or the parent or guardian, as well as representatives from
the
disciplines providing the services. It would be inappropriate
to
second-guess the results of this process many years
later. /19/
That is not to
say that the State may provide leisure education or
recreation services as a
child's physical education and receive
reimbursement. The EHA
regulations specifically state that a state must
provide physical education
as part of special education. Consequently,
if recreation is provided
as a child's physical education under an IEP,
Medicaid cannot
pay. /20/ In its comment on this
section of the
Board's draft decision, the Agency stated that the Board's
discussion of
vocational training failed to deal explicitly with the concern
that such
services be consistent with the definition of 'medical assistance'
at
Sec. 1905, and with the non-duplication of funding requirement of
Sec.
1902(a)(25)." Agency's comment on draft decision, p. 3. To
the
contrary, the Board did point out that funding would be available
for
such services only if they qualified as ICF/MR services (which the
Board
had previously stated was the basis for finding that
"habilitative"
services are within the section 1905(a) definition of
"medical
assistance"). With respect to the provision at section
1902(a)(25), the
Board had not dealt with this section explicitly because the
Agency had
not raised it previously in this case. Section 1902(a)(25)
pertains to
the "legal liability of third parties to pay for care and
services"
provided under Medicaid. The Agency made no finding here that
third
parties had a legal liability for any of the services (and we have
some
questions about the applicability of section 1902(a)(25) here). If
the
Agency determined that this provision applied, however,
this
determination might provide an independent basis for
disallowance;
absent such a finding, we do not need to consider the
provision.
/21/ In the Board's statement of the issues, we indicated that the
State
had failed to submit any documentation representative of what
individual
student interns were doing at Woodhaven. Instead, the State
had
presented general information on the student intern program which
was
contradictory. One letter from Temple described student interns
working
under the Director of Education at Woodhaven in the areas of
special
education or paraprofessional training for work as supervisors
in
sheltered workshops. Appellant's Appeal File, pp. 83a-84a.
Other
information, however, suggested that student interns may have
provided
services in disciplines such as computer information, medical
records,
and pharmacy. Appeal File, pp. 86a-87a and pp.
99.2a-99.3a. At the
hearing, the State provided uncontradicted
testimony that during the
audit period, there were student interns providing
services in the areas
of pharmacy, computer information and medical
records. Tr., pp. 67-68.
The record lacks the information
necessary to make specific findings,
however, and the parties agreed that, if
we held for the State on the
legal issues, a remand would be
appropriate. Summary of Telephone
Conference and Statement of the
Issues, dated July 23, 1985. /22/
In
our draft decision, we stated
that the Medicare principles could
be adapted to fit the Medicaid program,
which funds a broader range of
facilities than Medicare. The Agency
objected that this was
inconsistent with the Board's decision in New Jersey
Department of Human
Services, Decision No. 396, March 8, 1983. We have
modified our
analysis to delete language which was over-board and
unnecessary, but we
have not changed the result since we think this case is
distinguishable
from New Jersey. There, New Jersey was attempting to
use a cost
apportionment method for determining hospital costs which
conflicted
with the method specified for hospitals in the Medicare
regulations.
Here, we are considering application of a cost principle to a
type of
institution which is required to provide a range of services not
covered
under Medicare. We have determined that the principle can
reasonably be
read to permit the State to recover costs associated with
those
services. /23/ We note
that the audit report indicates that the
auditors did compare the costs of
services, including administrative
costs, at Woodhaven Center with the costs
of four other public ICFs/MR
in Pennsylvania. While the auditors were
comparing total facility costs
and not just the cost of administration, the
auditors found that
Woodhaven's costs were significantly higher than the
other facilities.
The auditors indicated that one of the reasons for this was
that "both
DPW and Temple University staffs were responsible for
accounting,
personnel and other administrative functions." Audit Report, p.
12.
APRIL 25, 1987