GAB Decision 595
November 13, 1984
Michigan Department of Social Services;
Ford, Cecilia; Settle, Norval Garrett, Donald
Docket Nos. 83-230; 84-64
The Michigan Department of Social Services appealed two penalty
disallowances taken by the Health Care Financing Administration under
section 1903(g) of the Social Security Act. The Agency determined that
during the fourth quarter of 1982 and the second quarter of 1983, the
State did not meet the utilization control requirements because certain
intermediate care facilities (ICFs) contained patients determined to
require skilled nursing care. The amount of the disallowances
originally totalled $636,036.43; however, the Agency determined that
documentation submitted by the State during the initial stages of this
appeal showed that the State did meet the requirements of section 1903(
g) for three facilities, and the Agency has agreed to reduce the
disallowances accordingly. We uphold the disallowances subject to
modification by the Agency. /1/
The issue in this appeal is whether the State violated section 1903(
g) if patients determined to require the care of a skilled nursing
facility (SNF) remain in ICFs under a waiver system created by the
State. We conclude that section 1903(g) has been violated where
patients remain in a facility not certified to provide the level of care
the patients need.
This decision is based on the written record as well as the
transcript of an evidentiary hearing.
(2) How the Cases Arose
The Agency conducted a survey of independent review team (IPR)
findings and initially determined that there were violations in 25 ICFs.
In each of 15 ICFs, the Agency found one patient who the IPR team had
determined needed SNF level of care. In each of another 8 ICFs there
were two to three patients who needed SNF level of care. One other
facility retained at least five patients who needed SNF care and another
retained over 20. /2/ In each instance, the State had waived the
patient's transfer to an SNF. The disallowance now involves 22
facilities. See also fn. 1.
The SNF patients were permitted to remain in ICFs under waivers
granted by the State through a process the State developed for patients
who did not dispute their need for a higher level of care but, for a
variety of reasons, wished to remain in lower level facilities. This
waiver process was used as an alternative to the appeals process
available to Medicaid recipients contesting transfers because of
determinations that they needed a higher level of care. The waiver
process could be initiated by a patient or his next of kin, with
agreement of the patient's physician and the facility in which the
patient resided that it would be in the patient's best interest to
remain in the facility rather than be transferred to a higher level.
Tr., p. 59.
After a patient submitted a request for waiver, a registered nurse
working for the State reviewed the patient's request, his medical
condition and the care he received in the facility (generally by means
of on-site visits, although the State acknowledged that in 1982 many of
these reviews were conducted by telephone because the office was
understaffed). Tr., p. 90.
(3) A physician who reviewed the waiver requests and information
filed by the reviewing nurse testified that the factors taken into
account when determining whether to approve a request for a waiver were:
the patient's medical condition as noted on the forms by the nurse; the
facility's ability to care for the patient, as determined by the nurse;
and the patient's potential for transfer trauma, as determined either by
the reasons included in the patient's request, if any, or the nurse's
evaluation of such potential, where such an evaluation was included.
Tr., p. 133.
The State did not dispute the review teams' determinations that the
patients needed SNF level of care. Both parties agreed that State and
federal standards required reclassification to SNF level of care for the
type of medical conditions exhibited by the patients. Tr., p. 138. The
State argued, however, that the patients could receive the necessary
care in the ICFs because they needed only "episodic skilled care"
or
minimal SNF services. Tr., p. 152. As examples of the type of
conditions involved, the State referred to serious bedsores (Stage III -
IV decubitus ulcers) and diabetes. The State alleged that bedsores
could improve with proper care so that the patients would no longer need
SNF services and that some patients with diabetes need only a daily
injection, which the State alleged could be administered at the ICF
level. Tr., p. 74. The State also emphasized that its waiver process
included an evaluation by a registered nurse that the patients were
receiving the care necessary for their medical conditions.
Statutory and Regulatory Requirements
Section 1903(g) of the Act requires that the state agency responsible
for the administration of a state's Medicaid plan under Title XIX of the
Act show to the satisfaction of the Secretary that the state has an
"effective program of control over utilization" of long-term inpatient
services in certain facilities (including intermediate care facilities
and skilled nursing care facilities). This showing must be made for each
quarter, or the federal medical assistance percentage (FMAP) requested
for amounts paid by the state for long-term care services will be
decreased according to the formula set out in section 1903(g)(5).
Section 1903(g)(1) provides that the showing must include evidence
that --
(A) in each case for which payment is made under the State plan, a
physician certifies . . . that such services are or were required to be
given on an inpatient basis because the individual needs or needed such
services; . . . .
(4) (D) such state has an effective program of medical review of the
care of patients in mental hospitals, skilled nursing facilities, and
intermediate care facilities pursuant to section 1902(a)(26) and (31)
whereby the professional management of each case is reviewed and
evaluated at least annually by independent professional review teams.
The regulatory requirements for utilization control are set out at 42
CFR Part 456 (1982). In particular, section 456.2(a) requires that a
state plan must provide that the requirements of Part 456 are met;
section 456.3 provides that the Medicaid agency must implement a
statewide surveillance and utilization control program that safeguards
against unnecessary or inappropriate use of Medicaid services and excess
payments, assesses the quality of those services, and provides for
control of utilization of all services provided under the plan in
accordance with Subparts B through I of part 456.
Part 456, Subpart F sets out the utilization control requirements for
intermediate care facilities. Section 456.360 implements section
1903(g)(1)(A) and section 456.600 et seq. implement section 1903(g)(1)(
D).
Part 440 sets out definitions of skilled nursing facility services in
part by requiring that the services by provided by a facility that is
certified to meet the SNF requirements set out in federal regulations at
Part 442, Subpart C. Finally, skilled nursing facility standards are
set out in detail at sections 405.127, 405.128 and 405.128a.
Analysis
Whether it is a violation of section 1903(g) if SNF patients remain
in ICFs under a waiver system created by the State
The State argued that nothing in section 1903(g) requires the State
to certify that a patient is receiving the services he needs. The State
argued instead that the purpose of section 1903(g) was to prevent
overutilization of unnecessary care. The State asserted that the
statute did not evidence any intent that the federal government should
not pay for necessary services simply because the patient needed other
services as well. The State argued that its use of the waiver system
met the statutory goal here because the ICF care the patients received
was necessary for their conditions, and that the retention of patients
at the ICF level was more efficient, in view of the medical conditions
exhibited by the patients.
(5) A. Statutory and Regulatory Requirements
Section 1903(g)(1)(A) requires that each patient be certified that he
needed the services he received. The Agency has promulgated regulations
implementing this provision which require that patients in ICFs be
certified as needing ICF care and patients in SNFs be certified as
needing SNF care. 42 CFR 456.260 and 456.360. This interpretation is
emphasized in Action Transmittal 80-68, issued October 1, 1980, in which
recertification is defined as the process by which a physician attests
to an individual's need for continued placement at a specific level of
care. A physician cannot certify this if the patient is placed at a
level of care which is not the one he needs.
Moreover, section 1903(g)(1)(D) requires that states conduct
independent professional reviews (IPRs) of each patient on an annual
basis. These reviews must assure the quality of care the patients are
receiving. See section 1902(a)(31). The Agency's regulations
implementing section 1903(g)(1)(D) require the IPR teams to make
recommendations with specific findings for individual recipients. 42
CFR 456.611. The state agency must then "take corrective action as
needed based on the report and recommendations. . . ." 42 CFR 456.613.
Thus, clearly the utilization control requirements intend that the
states do more than simply prevent overutilization of unnecessary
services.
This Board has previously concluded that section 1903(g) requires
Medicaid patients receiving long-term inpatient care to reside in
facilities which provide the level of care which those patients need.
The Board held that the certification requirement of section 1903(g)(
1)(A), although referring expressly only to a certification that the
services received were needed, is met only if the patient is in a
facility which provides the level of care which the patient's
recertification indicates that he needs, and that the facility must be
certified to provide those services. The Board stated that the
utilization control requirements would be meaningless if they simply
required a paper certification that a patient needed a specific level of
care and did not also require the State to ensure that the patient
received that level of care. Wisconsin Department of Health and Social
Services, Decision Nos. 482, 525 and 547, November 30, 1983, March 30,
1984; and June 27, 1984; Georgia Department of Medical Assistance,
Decision No. 575, October 25, 1984.
The statutory provisions of section 1903(g), when read together,
contemplate a system which reviews the care (6) provided in each
facility as well as to each patient. /3/ The purpose of utilization
control is not only to prevent overutilization of unnecessary services
but also to ensure that patients receive the "right care in the right
place." S. Rep. No. 92-1230, 92nd Cong., 2nd Sess., September 26, 1972,
p. 44.
B. ICF and SNF Levels of Care
This Board has also stated that the Act "clearly differentiates
between skilled and intermediate care based on a qualitative, rather
than solely an economic, basis." Decision No. 508, p. 12. The entire
statutory and regulatory scheme indicates that there is a difference
between the two levels of care. Section 1905(c) defines an ICF as a
facility for individuals who do not require the degree of care or
treatment which a skilled nursing facility is designed to provide. This
is implemented at 42 CFR 44.251(a). Section 1905(f) defines SNF
services as those which are required to be given an individual who needs
on a daily basis SNF care which as a practical matter can only be
provided in an SNF on an inpatient basis. This is implemented at 42 CFR
409.31(g)(3). Section 440.40(a)(ii) requires that SNF services be
provided by a facility certified as an SNF. Moreover, a congressional
report which discussed the purpose of the amendment that created an
intermediate level of care said:
Your committee's amendment is designed to make it clear that
intermediate care coverage is for persons who require care in the entire
range from just above simple (7) boarding home arrangements up to, but
not including, (emphasis added) the skilled nursing home level.
H.R. Rep. No. 92-231, 92nd Cong., 2nd Sess. (1972), reprinted at 1972
U.S. Code & Cong. Ad. News 5097.
Thus, the statute and legislative history, as well as the Agency's
regulations, clearly indicate that ICFs are not intended to provide SNF
level of care. The Agency characterized its utilization control
policies as "prophylactic." Tr., p. 198. The requirements set uniform
standards which signify through certification that a facility will
provide certain basic elements deemed important for patients'
treatment.If an individual nurse or physician is permitted to determine
that an uncertified facility nevertheless provides appropriate care for
patients at a particular level, the entire statutory scheme would be
negated because it would be subject to discretionary variation.
Personal whim or a facility's desire not to lose patients could operate
to bypass the safeguards intended to protect patients. Thus, we believe
that the Agency's position here is supported not only by the statutory
scheme, but also by compelling policy factors.
C. Authorization to Use a Waiver System
With respect to the State's waiver system, neither the statute nor
the regulations authorize waivers in the operation of utilization
control. Furthermore, we have already concluded that permitting SNF
patients to remain in ICFs does not meet the purpose of the statute or
the regulatory policy implemented by the Agency, and that individual
determinations outside the regulatory framework about the adequacy of
care provided particular patients do not satisfy the statutory
requirements. /4/ Moreover, 42 CFR (8) 456.2 requires the State to
indicate in its State plan the procedures it will use to comply with
section 1903(g). The State has never attempted to amend its State plan
to include the waiver procedures it alleged it was following here. /5/
In fact, the record shows that the State amended its Medicaid manual
after the time that it allegedly began using the waiver system, but did
not include any information about the waiver system in the manual. Tr.,
p. 30.
Whether section 1902(a)(23) prevents the Agency from taking this
disallowance
The State asserted that it met federal utilization control
requirements when it notified patients that they needed a higher level
of care and that they must move to SNF facilities. The State argued
that it need not force patients to move and that if it did, it would be
in contravention of section 1902(a)(23) of the Act. Section 1902(a)(
23) provides, in part:
. . . any individual eligible for medical assistance. . . may obtain
such assistance from any institution, agency, community pharmacy, or
person, qualified to perform the service or services required . . . .
(9) The State argued that this provision gives patients the freedom
to remain in an ICF even though they need SNF care. In support of this
argument, the State cited a Supreme Court opinion, O'Bannon v. Town
Court Nursing Center, 447 U.S. 773 (1980).
The issue in this appeal is whether a utilization control penalty
should be imposed against the State when patients who have been
determined to need SNF care remain in an ICF. Section 1902(a)(23)
provides patients with a right to choose their provider within certain
limits; it does not require the Agency to act in a particular manner
nor does it address the State's responsibilities with regard to patients
or utilization control. Indeed, the Agency has asserted that the
appropriate persons to raise this issue are the patients themselves, not
the State. Agency Brief, p. 52. Nevertheless, we believe that the
Agency's application of utilization control requirements here is clearly
compatible with the requirements of section 1902(a)(23) and the Supreme
Court decision in O'Bannon.
The O'Bannon case involved a challenge by Medicaid recipients to
their transfer from the facility in which they resided because the
facility lost its certification to provide the services they needed.
The recipients argued that section 1902(a)(23) permitted them to choose
to remain in the facility, regardless of whether it was certified to
provide the services they needed. The Court rejected their argument and
held that section 1902(a)(23) gives Medicaid recipients the right to
choose among "qualified" facilities. At p. 785. The State, however,
referred to a footnote in the decision which addressed federal
regulations which protect patients by limiting the circumstances under
which a patient may be transferred or discharged from a home. /6/ In
that footnote, the Court said,
. . . we may assume that the Government could not order a patient
transferred out of a qualified facility simply because it believed such
a transfer was medically indicated. In other words, we assume that the
statute (10) referred to above would prohibit any such interference with
the patient's free choice among qualified providers.
At p. 785, fn 18.
The State argued that this meant that if the Agency required the
State to transfer a patient from an ICF to an SNF because the patient
needed SNF level of services, even though the patient did not wish to be
transferred, it would violate section 1902(a)(23).
The Agency has interpreted section 1902(a)(23) to mean that a patient
has the right to choose among facilities which are certified to provide
the level of care the patient needs. This interpretation is compatible
with section 1903(g) and its application here. We also think the
O'Bannon decision is distinguishable because it did not involve
transfers between different levels of care but merely transfers from
decertified to certified facilities at the same level of care. The
decision indicated that patients have the right to choose among
"qualified" facilities. An ICF that is not certified to provide SNF
services is not qualified under federal standards to provide those
services. When the Court said in a footnote that a patient could not be
transferred from a qualified facility for medical reasons, it did not
contemplate transfer from a facility that could not provide the
necessary level of care. The statute and regulations do not recognize
the possibility that an ICF can provide skilled care services.
Therefore, the patients involved here were not in "qualified" facilities
and did not have the right, under O'Bannon, to remain in those
facilities. Thus, section 1902(a)(23) does not prevent the Agency from
taking these penalty disallowances.
In summary, then, the statutory framework of section 1903(g) requires
that patients receive appropriate care in facilities which are certified
to provide that care. The Agency's regulations are consistent with the
statute and the Agency has presented a rational basis for its
interpretation. Thus, even though the State may believe that there are
other possible interpretations which are also reasonable, it is not free
to choose one which contravenes the Agency's interpretation implemented
through regulations. In the absence of any specific statutory or
regulatory authority for waivers, and in the absence of approval by the
Agency for use of such a waiver process, the State must be found in
violation of the statute when it uses a waiver process to permit SNF
patients to remain in facilities not certified to provide SNF care. See
Wisconsin Department of Health and Social Services, Decision Nos. 482
and 525.
(11) Conclusion
We conclude that the State violated section 1903(g) when it permitted
patients needing SNF care to remain in ICFs which were not certified to
provide SNF care. The disallowances should the upheld in an amount to
be determined, taking into account the instances where the Agency has
accepted documentation submitted by the State that it did not violate
the statute. /1/ The Agency also suggested that another three
facilities could be eliminated from the disallowances if the
State submitted documentation pertaining to the patients in those
facilities. The Agency deferred recalculation of the amounts pending a
final determination of the facilities included in the disallowances.
Agency Brief, pp. 10-11. The parties may return to the Board should they
disagree about the final recalculation. /2/ The facility that
retained over 20 patients needing skilled nursing care had previously
been certified at both the SNF and ICF levels. The facility lost its
certification for the SNF level. A number of patients in the facility
who needed SNF level of care requested waivers in order to remain in the
facility, even though it was certified for ICF level only. The State
alleged that at that time the office responsible for processing the
waiver requests did not have the resources to review numerous requests
within a short time, so they bypassed normal procedures and granted the
waivers. The State acknowledged that the State's waiver system failed
in this instance and it did not dispute the penalty for this facility.
Tr. pp. 144-146. /3/ The State protested the Agency's use of
section 1903(g)(1)(A) As a basis for the disallowances, pointing out
that federal reviewers did not look at certifications but rather at IPR
team determinations. However, the State did not dispute that the
patients had been correctly reclassified as needing SNF care. This
determination would result in patients certified as SNF remaining in
ICFs or in patients certified as ICF when they should have been
certified as SNF. Either way, section 1903(g)(1)(A), as implemented in
Agency regulations, would be violated. The State also questioned whether
the Agency could be permitted to refer to section 1903(g)(1)(D) as
support for the disallowance when the Agency did not initially refer to
it in its notice of disallowance. This Board generally permits a party
to rely on its total presentation during the appeal, as long as the
opposing party has had reasonable notice and adequate opportunity to
respond. /4/ The State also asserted that, in the past, the
Agency had accepted transfer trauma as a legitimate ground for waiving
the utilization control requirements for patient transfer, and cited a
consent judgment between the Agency and the State. The State also
asserted that the Agency had acknowledged that such exceptions were
permissible under the statute and offered two letters written by Agency
and Department of Justice counsel in connection with the consent
judgment. State Hearing Exhibits C and D. The consent judgment arose
in a federal district court case involving certain patients who had
either previously been transferred from a facility and faced another
transfer, or who faced a transfer after residing in a facility for at
least a year. Borton v. Califano, Civ. Action No. 78-70207, D. Mich.,
E.D., S. Div., April 22, 1981. Under that judgment, the State could
permit certain patients to remain in lower level facilities. We do not
think that the Agency's participation in a consent judgment, which is by
its nature limited to the facts of a particular situation, or any
correspondence generated for the purposes of that consent judgment, is
evidence that the Agency has a general policy recognizing exceptions to
the utilization control requirements. The Agency asserted in its appeal
that it now believes that there is no such condition as transfer trauma
and that scientific opinion supports this view. Tr., p. 187.
Furthermore, the State acknowledged that transfer trauma was not a
factor in at least some of the patients involved here, Tr., p. 13, and
that generally transfer trauma is not a major factor in the State's
decisions to grant waivers. Tr., p. 116. Certainly the record shows
that for many of the patients involved in this appeal, no information
about transfer trauma was included in the waiver request or the
information added by the reviewing nurse. Tr., pp. 120, 132. /5/ The
Agency also alleged that the State did not follow its own waiver
procedures in all instances involved here. In view of our conclusion,
we need not address this question. /6/ 42 CFR 442.307 provides
that a patient be transferred when his physical or mental condition
requires services or care that an ICF cannot adequately provide.
Section 442.311(c) provides that a resident may be transferred or
discharged only for medical reasons, the patient's welfare or that of
other residents, or nonpayment under certain conditions.
MARCH 19, 1985