GAB Decision 573
Docket No. 83-197
September 19, 1984
Alaska Department of Health and Social Services;
Ballard, Judith; Ford, Cecilia Settle, Norval
The Alaska Department of Health and Social Services (Alaska, State)
appealed a disallowance of $372,963 by the Health Care Financing
Administration (HCFA, Agency). The $372,963 was the amount of FFP in
excess payments by Alaska to skilled nursing (SNF) and intermediate care
(ICF) facilities for services to Medicaid recipients during the period
covered by cost reports for the quarters ended March 31, 1980 through
June 30, 1982. The Agency disallowed the amount that exceeded the rates
the State would have paid if routine service cost limits had been
applied in accordance with Medicare principles. The routine service
cost limits were published in the Federal Register and were applicable
to states that had adopted Medicare principles of reimbursement in the
administration of the Medicaid program.
Effective October 1, 1976, and throughout the period covered by the
disallowance, the Alaska State plan for long-term care provided to
Medicaid recipients read, in pertinent part:
Upper limits. Payments to skilled nursing and intermediate care
facilities shall not exceed that amount determined in accordance with
the principles of reimbursement of provider costs under Part A of Title
XVIII of the Social Security Act.
Because allowable rates will be determined using Medicare Principles
of Reimbursement (HIM-15), payments shall not exceed that upper limit.
Routine service cost limits for long-term case facilities were
promulgated for the first time effective October 1, 1979. 44 Fed. Reg.
51542 (August 31, 1979). The schedule of limits was updated and renewed
in 1980 and 1981. 45 Fed. Reg. 58699 (September 4, 1980) and 46 Fed.
Reg. 48026 (September 30, 1981).
The State contended that the disallowance should be reversed because:
(2) 1. The limits as promulgated were arbitrary and unreasonable
when applied to facilities in Alaska and thus should not bind the State;
2. If the limits did bind the State, they should be applied in the
aggregate, not on a facility-by-facility basis as HCFA did in figuring
the disallowance;
3. Even if the State were bound to apply the limits on a
facility-by-facility basis, HCFA should be estopped from imposing a
disallowance because HCFA misled the State into believing that the
limits did not apply.
4. The limits effective October 1, 1981, are not valid because they
were not preceded by notice and an opportunity for comment as required
by the Administrative Procedure Act.
5. If the limits did bind the State in general, it was entitled to
exemptions for these facilities.
We find against the State on each of these issues and we uphold the
disallowance.
Analysis
1. This Board will not examine the alleged arbitrariness or
unreasonableness of the routine service cost limits published in the
Federal Register.
The State argued that the routine service cost limits published in
the Federal Register were inadequate and unreasonable and thus arbitrary
when applied to facilities in Alaska and that the Board should set them
aside as contrary to the statutory mandate that payment rates be
"reasonable and adequate." Alaska Final Reply Brief, pp. 2-6; 42 U.S.C.
1396(a)(13)(A). HCFA contended that even if the Board were to find that
in some cases the limits impose a hardship, the Board was not empowered
to waive or amend the published limits where they, by their terms,
apply. 45 CFR 16.14.
The routine service cost limits were published after prior notice and
opportunity for comment in the same manner as regulations and under such
circumstances the Board generally gives deference equivalent to that
which we would give a regulation. /1/ See Indiana (3) Department of
Public Welfare, Decision No. 434, May 31, 1983. We give deference here
not only because the State received prior notice, but also because this
is a complex, highly technical matter developed by the Agency within its
expertise and with input from interested parties. See Tennessee
Department of Public Health, Decision No. 167, April 30, 1981.
It would be duplicative and inappropriate for this Board to examine
published routine service cost limits as applied to the Medicaid program
in Alaska where that State was given the opportunity to present any
objections to these limits prior to their publication. /2/ Thus, even
if the Board is not bound per se by the published cost limits, we would
not substitute our judgment for that of the Agency under these
circumstances.
HCFA also pointed out that the Medicare regulations "include numerous
avenues for reclassifications, exceptions, and exemptions-- where the
provider (or, here, the State acting on behalf of the provider) makes an
appropriate request." HCFA Response to State's Reply Brief, p. 4. Thus
the program from which the cost limits spring and of which they are a
part provides an avenue of relief from the problem complained of by
Alaska. For this reason also, we should not review the reasonableness
of the cost limits in this proceeding.
2. The limits apply in Alaska on a facility-by-facility basis.
The State argued that the cost limits should apply on an aggregate
rather than a facility-by-facility basis, citing 42 CFR 447.316(a)
(1979):
(a) If the agency pays a provider under a retrospective payment
system, it may not pay more than would be paid under the Medicare
principles of provider reimbursement under Part 405, Subpart D, of this
chapter. Payments meet this requirement -
(4) (2) If the average payment of all facilities within a class is
not more than the amount that would have been paid under Medicare. /3/
Reply Br. p. 19.
The State did not contend that the above cited regulation applied to
the period after September 30, 1981. /4/ Ibid. Instead, for the
subsequent period, Alaska relied on 42 CFR 447.253(c) (1981), which
states:
If the (State) agency chooses to apply the hospital or SNF services
cost limits established under Medicare (see Sec. 405.460 of this
chapter) on an individual provider basis, the plan must specify this
requirement.
The State noted that in its State plan it had not specified that the
cost limits should apply on an individual provider basis and therefore
the State was bound to apply them in the aggregate. Final Reply Br. p.
10.
(5) HCFA did not dispute that if the State aggregated its payments to
all of the facilities, the average payment would not exceed the cost
limits per facility. HCFA argued that the State was required to apply
the cost limits on a facility-by-facility basis in the calculation of
its rates because they are applied that way under Medicare and the State
had bound itself in its State plan to pay no more than the limits
established under Medicare. HCFA Response to State's Reply Brief, p.
7; Tape of Telephone Conference, July 24, 1984. /5/
The State's reliance on the above cited regulations is misplaced.
Whether we limit 42 CFR 447.316(a) to the post-September 30, 1981 period
(as the State did) or not, the State was bound to apply Medicare cost
limits on a facility-by-facility basis.
The reference to average payments had its origin in the 1970
regulations imposing Medicare payments as upper limits. The 1970
regulation (then codified at 45 CFR 250.30(b)(3)(ii)) read, in pertinent
part:
Schedules of payments established by the State agency . . . will be
acceptable if within the upper limits either on a facility by facility
or on the basis of average payments according to a reasonable
classification of facilities based on levels of care.
Effective July 1, 1976, the regulation was amended to allow states to
provide for payment of long-term care services on a reasonable
cost-related basis. States which had "fully adopted Medicare principles
and standards" (with Alaska cited as an example) were distinguished from
other states which "use selected Medicare principles and standards."
41
Fed. Reg. 27302 (July 1, 1976). For those other states, 45 CFR
250.30(b)(6)(i) provided in pertinent part:
Schedules of payments established retrospectively by the State agency
or established prospectively with retrospective adjustment shall not
exceed an (6) upper limit determined in accordance with the principles
of reimbursement for provider costs under Part A of Title XVIII of the
Act. This requirement will be deemed met . . . if the average payments
to all facilities within a class do not exceed amounts which would have
been determined under Medicare. . . . /6/
Thus, a state which used some but not all of the Medicare principles
and standards was given this flexibility to ease the administrative
burden of determining what would have been paid if the State had fully
embraced the Medicare principles and standards. 41 Fed. Reg. 27302
(July 1, 1976); 46 Fed. Reg. 47968 (September 30, 1981). By fully
adopting the Medicare principles and standards, Alaska necessarily chose
a facility-by-facility application and did not qualify for a flexibility
intended for states that devised their own systems.
The second regulation on which Alaska relied, 42 CFR 447.253(c)
(1981), was added as part of the revisions implementing section 962 of
the Omnibus Reconciliation Act of 1980 and section 2173 of the Omnibus
Budget Reconciliation Act of 1981. 46 Fed. Reg. 47964 (September 30,
1981). The preamble paraphrases but does not otherwise explain this
part of the 1981 amendments. Id. at 47968.
We conclude that this change in the regulation also was not intended
to apply to states which, like Alaska, had fully adopted Medicare's
principles and standards. As with the other amendments promulgated on
September 30, 1981, this regulation applies to those states which took
advantage of the opportunity to develop their own payment methods and
standards, subject to limits based generally on Medicare rates. Thus,
for Alaska, there was no change from the Medicare (7) requirement that
cost limits apply on a facility-by-facility basis. In effect, Alaska
had specified facility-by-facility application of cost limits when it
made the Medicare principles of reimbursement part of its Medicaid State
plan in 1976. The amendment did not change this, nor did the State show
that it was intended to.
3. Alaska has not established a basis to assert estoppel against the
Agency.
Alaska contended that HCFA should be estopped from imposing this
disallowance because in reliance on a 1980 Action Transmittal, the
regulations which were the subject of the Action Transmittal, and
representations of HCFA officials in Region X, the State failed to
impose Medicare cost limits on long-term care providers. Reply Br. pp.
15-16.
Robert Reed, an accountant for HCFA's Division of Financial
Operations in Region X, acknowledged that in early 1981 he had responded
to a question by a State official by telling him that the cost limits
did not apply and that Mr. Reed would verify this with HCFA's central
office. Mr. Reed stated that central office staff advised that the
limits did apply and, within one or two days of the State official's
initial inquiry, Mr. Reed advised him that the limits applied. HCFA
Response to State's Reply Brief, p. 2; Affidavit of Robert Reed, P12.
The Action Transmittal in question was issued February 22, 1980 and
attached a Federal Register of the same date containing regulations
described as removing the requirement that Medicaid payment for
long-term care facility services be subject to the cost limits
applicable to Medicare. Exhibit B, HCFA-AT-80-11. The State alleged
that this publication left its agents with the "impression that Medicare
limits would not apply to reimbursement under Medicaid." Reply Br. p.
13. However, the State acknowledged that the preamble to the
regulations (included in the attachment) stated that Medicare upper
limits did apply to Medicaid payments for long-term care services "in
the two states that pay for those services under exactly the same method
as Medicare." Ibid., Ex. B. /7/ The State alleged, however, that "as
a
result of HCFA's changing policy and poor notice drafting, (8) the State
of Alaska mistakenly informed SNF and ICF providers that the limits
would not apply." Ex. C. /8/
The State also alleged that at a meeting in Seattle in late October
or early November 1981, Robert Reed met with two State officials and at
that meeting assured them that the cost limits did not apply in Alaska.
Final Reply Brief, p. 7; Second Affidavit of Robert Ogden, Chief of
Medical Assistance, Division of Public Assistance, Alaska Department of
Health and Social Services, P6. According to the State, "later in
November, 1981, and perhaps . . . on November 10, 1981" Mr. Reed
informed the State that the HCFA central office had advised him that
cost limits did apply in Alaska. Second Affidavit, supra, P8. At Mr.
Reed's suggestion, the State put its request for advice in writing and
HCFA responded in writing on March 24, 1982 that the cost limits applied
in Alaska.
HCFA did not dispute that for a few days in 1981 the State was left
with Mr. Reed's mistaken conclusion that the cost limits did not apply.
HCFA contended that the State knew well before receipt of HCFA's March
1982 letter that the cost limits did apply and denied that the State had
a reasonable basis on which to contend that it relied on Mr. Reed's
statement. /9/
(9) The principle of equitable estoppel is that one party to a
dispute (here, HCFA) may not prevail on the basis of actions by the
other party (Alaska) where those actions are induced by HCFA's conduct.
In order to invoke estoppel as a defense to the disallowance, Alaska had
to show that:
1. HCFA knew that cost limits applied in Alaska;
2. HCFA intended that Alaska act on HCFA's representations
concerning the application of those cost limits;
3. Alaska was unaware that the cost limits applied;
4. Alaska reasonably relied on HCFA's representations, to Alaska's
detriment.
See Community Action Commission of Belmont County, Ohio, Decision No.
565, August 28, 1984; and Montana Department of Social and
Rehabilitative Services, Decision No. 171, April 30, 1980.
The State relied principally on Community Health Services of Crawford
County, Inc. v. Califano, 698 F.2d 615 (3rd Cir. 1983). Final Reply
Brief, pp. 8-9. In that case a fiscal agent specifically designated by
the Secretary to advise the grantee gave erroneous advice on five
separate occasions over a two-year period. The court of appeals found
that the advice not only was erroneous, but the actions of the fiscal
agent (who failed to refer the grantee's question to the Department as
was required) constituted affirmative misconduct. Id. at 624. Noting
that several circuits had held that affirmative misconduct would entitle
a party to invoke estoppel, and that the Supreme Court had given the
theory "tacit recognition," the court of appeals held that the Secretary
was estopped from recouping an alleged overpayment. Id. at 621.
Alaska apparently was unaware that on May 25, 1984, four days before
it filed its Final Reply Brief, the Supreme Court reversed the Community
Health Services case precisely on the estoppel issue. Heckler v.
Community Health Services of Crawford, U.S. , 104 S. Ct. 2218.
Pertinent to the circumstances here, the Court observed that "there is
simply no requirment that the Government anticipate every problem that
may arise in the administration of a complex program such as Medicare."
Id. at 2226. The Court also found the appropriateness of the grantee's
reliance on the fiscal agent's advance was undermined because the advice
was oral, especially where that advice was given by someone who was "not
in the business of making policy." Id. at 2227.
(10) The Court's ruling and its reasons therefor leave no room to
find estoppel in the case here. As in Crawford, the advice (if it was
even that) that the cost limits did not apply in Alaska was both oral
and given by someone who was not authorized to make policy. Moreover,
the March 1980 detrimental action taken by the State of telling at least
one provider that the cost limits did not apply preceded the early 1981
"advice."
On this record, we do not have an adequate basis to determine whether
Alaska actually knew at the outset of the covered period that the cost
limits applied there. It should have known. HCFA knew and finally so
advised the State in writing in March 1982. But HCFA was not required
to anticipate that Alaska would misread the February 1980 Action
Transmittal, especially where the preamble accompanying the attached
regulation contained a caveat that should have alerted the State.
Alaska did not even attempt to show, nor could they have shown, that
HCFA intended that the State act on HCFA's representations concerning
the application of cost limits in those states which, unlike Alaska, had
not fully adopted the Medicare principles and standards. Thus, Alaska
was not reasonable in its reliance on representations addressed to other
states and not Alaska.
The State also relied on 42 U.S.C. 1395gg, which deems adjustment or
recovery of an incorrect Medicare payment to be "against equity and good
conscience" if the incorrect payment was for an expense incurred
subsequent to the third year following the year in which notice of such
payment was sent to the beneficiary (or provider on behalf of the
beneficiary). Reply Br. p. 18. The State did not show that this
provision was intended to, or could, apply to states in the
administration of the Medicaid program, merely because those states were
bound to apply Medicare principles and standards of reimbursement,
including cost limits.
Accordingly, we find that the Agency is not estopped from disallowing
the amount in excess of the cost limits.
4. The 1981 Medicare cost limits apply even though the publication
of those limits was not preceded by a specific notice and opportunity
for comment.
In its Notice of Telephone Conference dated June 13, 1984, the Board
asked, among other queries, whether it made any difference that the
schedule of limits effective October 1, 1981 was not preceded by its own
notice and comment period. The issue was discussed briefly during the
two telephone conferences and subsequently the State submitted a written
restatement of its argument, parts of which had been omitted from the
recording when (11) the tape was being changed and also because of the
poor telephone connection. Tape, supra; State letter of August 13,
1984.
The State argued that it was prejudiced by the lack of opportunity to
comment because the State and its providers allegedly could demonstrate
that the cost limits were lower than the reasonable cost of providing
long-term care under circumstances unique to Alaska. August 13 letter,
supra.
In its publication of the cost limits, the Department of Health and
Human Services noted that the 1981 revised limits used the same basic
methodology used to develop the cost limits published in 1980 and that
the 1980 publication was preceded by a notice that described in detail
the methodology for developing and applying those limits. 46 Fed. Reg.
48026, 48028 (September 30, 1981). The 1981 publication further stated
that the 1980 notice provided a 60-day period for comments, and that
comments were received and considered in the final publication in 1980.
Ibid. The 1981 publiucation concluded that it would be neither necessary
nor useful, but contrary to the public interest, to request comment on
the methodology again. Ibid. The 1981 publication also pointed out that
by their terms the 1980 limits were in effect until the 1981 limits were
final and concluded that in the interest of permitting the earliest use
of the adjusted limits there was good cause to waive publication not
only of the notice (with opportunity for comment) but also the customary
30-day delay between publication of the limits and the effective date.
/10/
(12) HCFA also argued that the Board was not authorized to decide
this issue, citing 45 CFR 16.14, by which the Board is specifically
"bound by all applicable laws and regulations." The Presiding Board
Member noted at the telephone conference that the Board would indeed be
proscribed if the published cost limits were the same as a "regulation."
Tape, supra. The parties did not present briefing or oral argument on
the question of whether the publication of the cost limits was a
"regulation" within the meaning of 45 CFR 16.14.
Without deciding the latter question, we find that it would be
inappropriate for the Board to review the validity of the
Secretary-approved decision to publish the 1981 cost limits in final
without a specific new 1981 notice and period of opportunity for
comment. The State proviously did have an opportunity to comment on the
methodology. Moreover, in accordance with the Administrative Procedure
Act, the Department made "good cause" findings and published them
with
the cost limits. 5 U.S.C. 553(d)(3). If Alaska felt wronged by this
procedure, it should have sought an exemption or immediate judicial
relief.
5. Until HCFA determines whether an exception or exemption should be
granted, there is no basis for Board review.
The State argued that the various facilities involved in this appeal
qualified for exemptions or exceptions from the cost limits as provided
in the Medicare regulations.See 42 CFR 405.460; Reply Brief, pp. 6-11;
Final Reply Brief, pp. 12-14. HCFA countered by noting that neither the
State nor any of the facilities had ever requested an exception or
exemption and argued that the Agency was not required to anticipate or
initiate such a request. HCFA Brief, p. 6.
At the telephone conference, HCFA took the position that the record
here was not complete enough to permit consideration of a request, but
indicated that it would consider such a request made directly to HCFA.
We find that in the absence of a request for exemption or exception
having previously been made to HCFA, and a denial, there is no basis for
this Board (or any other forum) to review this matter. /11/
(13) Conclusion
For the reasons above stated, we uphold the disallowance. /1/ The
limits effective October 1, 1981 were not preceded by specific
notice. See discussion, pp. 10-12, infra. /2/ The State
acknowledged that it received both the proposed limits and the final
notice promulgating the limits in 1979 and "began to research the effect
of applying the limits in Alaska." Appeal Brief, exhibit labelled
"Chronological Review of Issues." /3/ This was the language in
the regulation at the start of the disallowance period (January 1,
1980). In the version cited in the State's Reply Brief (p. 19, n.10),
the first sentence of (a) continues, (after "chapter"), "except
that any
cost limits published under Sec. 405.460 will not apply." When this
phrase was added to the regulation in 1980, the preamble stated that the
limits would apply in the two states (one of which was Alaska) that pay
for those services under exactly the same method as Medicare. 45 Fed.
Reg. 11807 (February 22, 1980). The phrase was deleted in 1981. 46
Fed. Reg. 47971 (September 30, 1981). The State did not rely on the
phrase in this discussion, but did make it a part of its estoppel
argument. See pp. 7-10, infra. /4/ The State did not explain
why it made a distinction there. As mentioned in the preceding
footnote, the only change in that section on September 30 was to delete
a phrase that the State did not rely on in its argument on this issue
and which was not intended to apply to Alaska. Also, at a telephone
conference on July 24, 1984, Robert G. Ogden, a key witness for the
State, contradicted the position taken in the State's brief by asserting
that application of cost limits in the aggregate was "not available"
prior to October 1981. Mr. Ogden has since January 1980 been Chief of
Medical Assistance, Division of Public Assistance, Alaska Department of
Health and Social Services. Mr. Ogden's statement of July 24 is
corroborated by his letter to HCFA of November 27, 1981 in which he
noted that regulatory amendments dated September 30, 1981 "seem to allow
the States the prerogative of establishing rates within 'aggregate
limits.'" Ex. E. /5/ The Board's usual practice is not to
transcribe tapes of telephone conferences. Because the telephone
transmission from Juneau and Seattle was erratic and sometimes
inaudible, the Board furnished the parties with copies of the tapes of
the July 24 telephone conference (and its continuation on August 2) and
gave the parties an opportunity to advise the Board if any inaudible or
missing parts were important to their case. Board letter of August 3,
1984. Alaska did provide some comments, but none pertaining to this
issue. /6/ In 1981, Medicare cost limits were extended to states
with prospective as well as those with retrospective systems. The
successor regulation, recodified as 42 CFR 447.272, reads, in pertinent
part: An agency may not pay more in the aggregate for . . . long-term
care facility services than the amount that would be paid for the
services under the Medicare principles of reimbursement. . . . Payments
meet this requirement -- * * * (2) If the average payment to all
providers in a class is not more than the average amount that would have
been paid under Medicare. . . . /7/ Although the State
characterized the preamble statement as "buried on page three," we
note
that the preamble twice makes reference to the two state plans which are
the exceptions that made Medicare upper limits apply, on two of the
three pages of the preamble. /8/ The exhibit which the State
offered in support of this allegation was a March 27, 1980 response by
the State to a request by St. Ann's Nursing Home (one of the facilities
named in the disallowance) for an exemption from the cost limits. The
response advised the facility that the cost limits were suspended,
attaching a copy of the Action Transmittal. /9/ The telephone
conference of July 24, 1984 (continued on August 2, 1984) included
participation by both Mr. Ogden and Mr. Reed to provide an opportunity
to discuss their affidavits. June 13, 1984 Notice of Telephone
Conference. Mr. Reed stated at the conference that he had a notation on
a "contact sheet" to the effect that at the meeting in November 1981
he
told Mr. Ogden that the cost limits did apply. Mr. Ogden admitted under
questioning that he could not recall being told by Mr. Reed that cost
limits were not to be applied, but the State interpreted Mr. Reed's
comments to mean that the cost limits did not apply because that was the
conclusion the State wanted to reach. Tape of August 2, 1984 Telephone
Conference. /10/ The wage index for rural areas in Alaska increased
from 1.5197 (1980) to 1.5579. The wage index for Anchorage (the only
Alaska urban area listed) increased from 1.5136 to 1.6461. In addition,
the 1981 publication increased the non-labor part of the limits for SNFs
in Alaska by a cost-of-living-adjustment factor of 1.25. 45 Fed. Reg.
58699, 58704-05 (September 4, 1980); Id. at 48030-31. Thus, the State
benefitted from the 1981 changes. The Administrative Procedure Act
exempts matters relating to grants from its notice-and-comment
requirements. 5 U.S.C. 553(a)(2). However, the Department of Health and
Human Services voluntarily subjects itself to the public participation
procedures of 5 U.S.C. 553, except where the Department makes a good
cause finding that such procedures would be impracticable, unnecessary
or contrary to the public interest. 36 Fed. Reg. 2532 (February 5,
1971). These are the exceptions allowed by the Administrative Procedure
Act. 5 U.S.C. 553(B). /11/ It was not mentioned, but there may
also be the possibility that the State plan has a provision (explicit or
implicit) for exceptions and exemptions from the cost limits, available
to Medicaid providers.
MARCH 19, 1985