Vermont Agency of Human Services, DAB No. 599 (1984)

GAB Decision 599

December 10, 1984

Vermont Agency of Human Services;
Garrett, Donald; Settle, Norval Ballard, Judith
Docket Nos. 84-49; 84-50, 84-118


The Vermont Department of Social Services (State) appealed three
penalty disallowances taken by the Health Care Financing Administration
(Agency) under section 1903(g) of the Social Security Act (the Act).
The Agency determined that, for three quarters in calendar year 1983 and
the first quarter of 1984, the State did not meet the utilization
control requirements of section 1903(g)(1)(D). We uphold the
disallowances in the amount of $2,843,104. /1/


The primary issue in these appeals was whether the State's methods of
conducting onsite annual reviews of long-term care patients prior to
July 1, 1983 met the requirements of section 1903(g)(1)(D) and the
implementing regulations. We conclude that the State did not meet the
regulatory requirements for onsite annual reviews during the quarter
ending June 30, 1983 and also failed to meet the requirements during the
subsequent three quarters.

The State also contended that the Agency should be estopped from
taking the disallowances because it made statements, upon which the
State alleged that it relied to its detriment, concerning whether the
section 1903(g)(1)(D) requirements could be waived and whether the
State's revised system for utilization control met federal requirements.
Finally, the State argued that the disallowances should be reversed
because the State's failure to meet the requirements was de minimis and
of a technical nature and because the Agency treated other similarly
situated states differently. We conclude that the State has not
established the traditional elements of equitable estoppel or shown any
evidence of affirmative misconduct on the part of the Agency. We also
conclude that neither the nature of the State's failures to meet the
federal requirements nor the Agency's actions toward other states
provide a basis for reversing these disallowances. (2) This decision is
based on the written record and the transcript of an evidentiary
hearing.

What the State Did

Between January 1, 1982 and June 30, 1983 the State used a system for
conducting onsite annual reviews in which an inspection team interviewed
all patients in each facility but reviewed only 10% of the patients'
records. (The State referred to the reviews of patients whose records
were checked as in-depth reviews.) Occasionally the team would review
some additional patients' records but the State's witness testified that
the team never reviewed the records of all the patients in a facility.
Transcript of Hearing (Tr.), p. 35. The team then completed a detailed
form for the patients who received an in-depth review and an abbreviated
form for the other patients.

The Agency informed the State that its system did not meet federal
requirements. Subsequently, the State revised its methods and submitted
a revised plan, which the Agency informed the State in writing met
federal requirements. Letter of August 19, 1983, State Hearing Exhibit
H. The State allegedly began using the revised method as of July 1,
1983, reviewing 25% of the State's facilities each quarter, so that at
the end of one year each facility would be reviewed.

The Agency's Basis for the Disallowance

The Agency found that the State had not, as of June 30, 1983,
provided an adequate onsite annual review to each patient in long-term
care facilities. The Agency also found that, in the three quarters
subsequent to that, some patients still had not received adequate onsite
annual reviews. /2/


(3) 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
--

(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, Subpart I sets out the requirements
for inspections of care under section 1903(g)(1)(D). Subpart J sets out
the regulatory provisions for the penalty disallowances.

Analysis

Whether the State's methods met federal requirements for conducting
onsite annual reviews under section 1903(g)(1)(D) prior to July 1, 1983

The State alleged that it did not violate section 1903(g)(1)(D)
because it reviewed all patients on an annual basis. However, the
State's witness admitted that, although the inspection teams interviewed
all patients, they did not review all patients' records. Instead, the
teams reviewed approximately 10% of the records.

The Agency also charged that, in addition to the State's failure to
review all patients' records, the reports made by the inspection teams
did not include, for each patient, specific findings which assessed the
care received by each patient. The Agency asserted that the abbreviated
forms completed by the teams for the majority of the patients did not
contain all the information required by federal regulations. The State
did not deny this.

(4) Section 456.608 requires review of "each recipient's medical
record." Section 456.611(b)(2) requires the team to submit a report
which contains specific findings about individual recipients in the
facility. The State has not denied that it did not meet these
requirements and there is no evidence in the record showing that the
State met these requirements for each patient during the year ending
June 30, 1983. Therefore, we conclude that the State's methods did not
meet federal requirements for onsite annual reviews for each patient
prior to July 1, 1983.

Whether the State complied with federal requirements for onsite annual
reviews under section 1903(g)(1)(D) after July 1, 1983

The issue here is not the adequacy of the State's revised plan or the
adequacy of the reviews which the State performed in the three quarters
subsequent to July 1, 1983. The basis on which the Agency took the
disallowances for these three quarters was that, of the patients who had
not received adequate reviews by June 30, 1983, there still remained
some patients during each of the three subsequent quarters who had not
yet received an adequate annual review because the State reviewed only
25% of the facilities each quarter. Thus, by September 30, 1983 the
State had reviewed all the patients in approximately 25% of the
facilities, by the end of the quarter ending December 31, 1983, it had
reviewed all the patients in approximately 50% of the facilities, and by
the end of the quarter ending March 31, 1984, it had reviewed all the
patients in approximately 75% of the facilities. This meant that some
facilities still had not been reviewed in each of these quarters.
Therefore, patients in these facilities had not received an adequate
review in over one year.

Section 456.652(b)(3) provided:

(3) If a facility is not reviewed in the quarter in which it is
required to be reviewed under paragraph (b)(2) of this section, it will
continue to require a review in each subsequent quarter until the review
is performed.

The Agency has consistently interpreted the requirement for onsite
annual review of each patient to mean that a review continues to be
required until an adequate review is performed. Thus, the Agency's
policy has been that it can disallow for each quarter in which the
review has not yet been performed once a year has elapsed since the last
adequate review. The Agency's interpretation that the reviews must meet
federal requirements is consistent with the underlying purpose of the
statute and has been upheld by the Board and federal (5) courts. /3/
Colorado Department of Social Services, Decision No. 218, upheld by
federal courts (see citations at fn. 2).


Here, during the quarters ending June 30, 1983; September 30, 1983;
December 31, 1983; and March 31, 1984, the State did not meet federal
requirements that each case be reviewed at least annually. We conclude
that the Agency may disallow for these violations. /4/


Whether the Agency is estopped from taking these disallowances

The State argued that the Agency should be estopped from taking these
disallowances because the Agency told the State that the requirements of
section 1903(g)(1)(D) could not be waived and because the Agency told
the State that the system set out in the State's revised utilization
control plan beginning July 1, 1983 met federal requirements.

(6) The doctrine of equitable estoppel precludes a party from
establishing an essential element of its claim because of its own
misrepresentations, on which the opposing party relied, to its own
detriment. The basic elements of equitable estoppel are:

(1) the Agency must have known the facts;

(2) the Agency must have intended that the State act on the Agency's
conduct;

(3) the State must have been ignorant of the true facts; and

(4) the State must have relied on the Agency's conduct to the State's
injury.

See New York Department of Social Services, Decision No. 449, July
29, 1983, pp. 23-24.

It is not clear under what circumstances the federal government may
be estopped, but some form of affirmative misconduct may be required.
See Schweiker v. Hansen, 450 U.S. 785 (1981) and Heckler v. Community
Health Services of Crawford County, 104 S. Ct. 2218 (1984).

A. Waiver of section 1903(g)(1)(D)

The State asked the Agency in 1982 whether it could receive a waiver
of the requirement under section 1903(g)(1)(D) to perform annual onsite
reviews of each patient. The State believed that its system, as in
effect at that time, satisfied the purposes of utilization control and
was efficient and effective. Tr., pp. 30-31. An Agency official from
the Division of Program Operations, in a letter to the State dated June
3, 1982 (State Appeal File, Exhibit A), said:

. . . Section 1903(g)(1)(D) of the Social Security Act and the
regulation at 42 CFR 456.606 do not permit exceptions nor waiver of this
annual onsite review requirement.

The State alleged that it acted on the basis of this information, and
oral information provided by Agency employees in September 1982, and
revised its system to provide for review of all patient records and to
include on all forms the information required by federal regulations.

(7) In a letter to the Chairman of the State's Legislative Council,
dated January 5, 1984, the Agency's Administrator mentioned the
possibility of receiving a waiver in connection with a demonstration
project under section 1115(a) of the Act. State Hearing Exhibit G. The
State alleged that had it been told about this possibility earlier (e.
g., when it asked in 1982 about a waiver), it would have applied for a
demonstration project waiver. Moreover, the State alleged that two
other states had received waivers in connection with demonstration
projects. /5/ Thus, the State argued, it relied to its detriment on the
Agency's statements that section 1903(g)(1)(D) requirements could not be
waived.


The Agency argued that the statements by Agency employees concerning
whether section 1903(g)(1)(D) permitted a waiver were accurate in the
context that the statements were made, and that the employees who made
the statements were not responsible for demonstration projects. The
Agency asserted that the State should have known about the possibility
of obtaining permission to perform a demonstration project and implied
that it did not have responsibility for informing the State of this
possibility in response to the State's question about a waiver of
section 1903(g)(1)(D).

We conclude that the State has not established either the traditional
elements of equitable estoppel or that affirmative misconduct occurred.
The State did not deny that the Agency's statements about section
1903(g)(1)(D) were accurate representations of the Agency's position
about the interpretation of section 1903(g). Thus, the literal
information provided by Agency employees was not a misrepresentation.
In an ideal world, the Agency would have provided additional information
about demonstration project waivers in response to the State's
inquiries; however, practically speaking, one arm of a federal
department is not always fully aware of what another arm is doing. The
State admitted that it never specifically asked (8) whether it could
apply for a demonstration project waiver to perform reviews on a sample
of patients. Tr., pp. 30-31. The State said that it did not understand
from the statute that it could apply for a demonstration waiver of
section 1903(g) because section 1115(a) does not specifically mention
section 1903(g). Section 1115(a) does refer to section 1902, however;
section 1902 discusses what state plans must include. Thus, section
1902(a)(26) provides for inspections of care and is specifically
referred to in section 1903(g)(1)(D). This should have been sufficient
to notify the State that it could obtain a waiver under section 1115(a).
The Agency also alleged that the availability of waivers for
demonstration projects relating to inspections of care was published in
the Federal Register. Tr., p. 95. Thus, the State had at least
constructive notice of the opportunity for a demonstration project
waiver.

Moreover, while the State might have relied on this information in
not obtaining a waiver, it could not have relied on it when it failed to
meet the requirements at issue here, in the absence of a waiver.

We conclude that the Agency did not misrepresent the facts or
otherwise act in a manner that should lead to the conclusion that the
Agency is estopped from taking this disallowance because it told the
State that section 1903(g) did not permit waiver of the onsite review
requirement.

B. The State plan and compliance with federal requirements subsequent
to July 1, 1983

The State argued that the Agency should be estopped from taking the
disallowances for three quarters beginning July 1, 1983 because the
Agency told the State (in writing) that the State's revised utilization
control plan met federal requirements (Letter of August 19, 1983, State
Hearing Exhibit H). The State asserted that if it had known that it had
to review, in the quarter ending September 30, 1983, all the patients
who had not previously received an adequate review, it would have
mustered its resources to do so.

The Agency told the State that its revised plan met federal
regulations. This does not mean, however, that the Agency is estopped
from taking a disallowance if the State's actual practice violates
federal regulations. Here, the State failed to review the records of
each patient within a year of the last adequate review. Under the
Agency's policy, discussed above, it could continue to find violations
for each quarter in which patients did not receive a review which met
federal requirements. Where the State has violated federal requirements
on a large scale, as it did prior (9) to July 1, 1983, a quarterly
review schedule leads to delayed compliance with the annual review
requirement for some facilities. /6/ Thus, the State did not meet
federal requirements for annual onsite reviews of each patient under
section 1903(g)(1)(D) during the quarters ending September 30, 1983,
December 31, 1983 and March 31, 1984. The State could not reasonably
rely on the mere approval of the State's revised plan as a basis for not
performing the required reviews.


Whether the disallowances should be reversed because the State's
failures were de minimis and of a technical nature

The State argued that its system for onsite annual reviews was
effective and consistent with the purpose of utilization control.
Therefore, the State argued, its failure to meet certain regulatory
requirements was de minimis. The State also argued that section 1903(
g)(4)(B), which contains an exception for violations of a technical
nature, should apply here.

The statute requires that an annual review be performed for "each
case." The regulations require that the medical records of each
recipient be reviewed and that specific findings be reported for each
recipient. The State did not meet these requirements for about 90% of
the patients in each facility. Thus, the violations were clearly not de
minimis. Regardless of how effective the State's system was in general,
the State violated federal regulations and the Agency had the authority
under the statute to take these disallowances.

Section 1903(g)(4)(B) provides an exception to the requirement that
onsite annual reviews be performed for each patient. The statute
permits the State to make a satisfactory showing even if it failed to
review 2% of the facilities with less than 200 beds (10) where the State
met the standard set out in the statute. /7/ The statute provides that
the State may be excused if it shows that it would have reviewed the
remaining 2% "but for failings of a technical nature only."


We conclude that the State may not be excused under section 1903(g)(
4)(B) because there is no showing here that the State reviewed "not less
than 98 per centum of the . . . facilities requiring such inspection."
Thus, we need not consider whether the State met the exception for
failings of a technical nature because it has not shown that it reviewed
98% of the facilities in each quarter. Moreover, the State did not show
that it reviewed the additional 2% within 30 days after the close of the
quarter, as required by 42 CFR 456.653.

Whether the disallowance should be reversed because similarly
situated states have been treated differently

The State alleged that four states were found to have violated the
utilization control requirements under section 1903(g) and (11) yet, for
three of the states, the Agency did not take disallowances and in one
state a disallowance was taken but withdrawn. The State argued that
this was unequal treatment and that the disallowances in question here
should be reversed as a consequence.

As support for its argument, the State submitted an affidavit from a
State employee who reviewed documents obtained from the Agency under the
Freedom of Information Act. The affidavit summarized the contents of
the documents; it made general allegations that the Agency did not take
disallowances despite findings that the states failed to take certain
actions related to their utilization control programs. The State did
not submit the documents themselves, or provide any testimony at the
hearing regarding this issue.

Even accepting the statements in the affidavit as true, we would not
find them sufficient as a basis for reversing the disallowances here.
The affidavit did not indicate that any of the other states had an
onsite annual review system similar to Vermont's, or that the Agency's
actions affecting other states were otherwise inconsistent with its
interpretations advanced here. Thus, the State has not supported its
allegation that the Agency did not take a disallowance against a state
which was similarly situated. We also note that the affidavit speaks in
general about what "was found" about the states' systems without
indicating the finality of those findings; often, federal surveyors
will make findings about a state's system which are later disproven by
documentation submitted by the state, or which are not upheld by the
Agency's Central Office. In short, Vermont's evidence of differential
treatment is markedly insubstantial, and amounts to little more than
speculation. /8/


Conclusion

We conclude that the State did not meet federal requirements for
onsite annual reviews in three quarters of 1983 and one quarter of 1984
and that the Agency need not be estopped from taking these disallowances
because of its statements and actions. We also (12) conclude that the
State may not be excused from these violations because of the nature of
the State's failures. We uphold the disallowances in the amount of
$2,843,104. /1/ The State submitted data showing that some of the
patients included in the disallowance were in out-of-state
facilities. The Agency agreed that these patients should not be
included in the disallowances and recalculated the amounts disallowed.
Agency submission of November 27, 1984. /2/ The State alleged
that the Secretary did not conduct onsite validation surveys but merely
reviewed the reports made by the inspection teams, and that this
precluded the Agency from taking these disallowances. However, the
Board held in Colorado Department of Social Services, Decision No. 218,
September 30, 1981, that validation surveys are not a condition
precedent to imposition of a penalty disallowance and that the Secretary
has discretion about how and whether to perform surveys. At p. 11.
(Decision No. 218 was upheld in Colorado Department of Social Services
v. DHHS, 558 F. Supp. 337, 353 (D. Colo. 1983), aff'd, No. 83-1395, 10th
Cir., May 9, 1984.) Furthermore, here the record demonstrates that
violations were found in the inspection team reports and there was no
need for further survey by the Agency. /3/ The State argued that
this policy changes the annual review requirement into a requirement
that a review be performed quarterly. However, the State's argument, if
correct, would mean that even if a state does not perform a review, or
performs it inadequately, it need not perform a review until another
year elapses. This would negate the purpose of the requirement, which
is to ensure that all patients are receiving adequate care at the level
they need. Moreover, under section 1903(g), a state must make a
satisfactory showing for each quarter. This means that the Agency may
check each quarter to see that all patients have received an onsite
review within the last year, regardless of whether the review was
performed during the quarter being surveyed by the Agency. /4/
The State argued that the Agency used the wrong figures in calculating
the penalty because it should have included only the patients in 25% of
the facilities rather than patients in all the facilities not reviewed.
However, under the Agency's policy that reviews not performed or
performed inadequately continue to be violations until performed, the
Agency could include the patients in all facilities in which reviews had
not been performed during the past year. The Agency's calculations for
each quarter reflect the number of facilities in which annual reviews
were still due. We note that the number used by the Agency for each of
the quarters after June 30, 1983 decreases, reflecting the fact that for
each succeeding quarter, the State performed reviews in another 25% of
its facilities. Tr., pp. 58-63. /5/ The Agency acknowledged
that New York and Massachusetts have demonstration project waivers of
the section 1903( g)(1)(D) requirements under section 1115(a). The
Agency emphasized that these states applied for and received permission
to conduct such projects. The State did not allege and there was no
evidence, however, that these states learned about the opportunity to
conduct these projects under circumstances similar to those presented
here. Thus, we see no reason why the fact that these states have
waivers should affect these disallowances. /6/ The Agency
alleged that the State's plan did not inform the Agency that the State
planned to review only 25% of the facilities each quarter. However,
even if the Agency was aware of the State's practice (which was not a
violation per se of federal requirements), we do not think the Agency
had an affirmative duty to remind the State that the requlatory
requirements meant the State would have to review all facilities during
the first quarter to which the new system applied. /7/ Section
1903(g)(4)(B) states, (B) The Secretary shall find a showing of a State,
with respect to a calendar quarter under paragraph (1), to be
satisfactory under such paragraph with respect to the requirement that
the State conduct annual onsite inspections in mental hospitals, skilled
nursing facilities, and intermediate care facilities under paragraph
(26) and (31) of section 1902(a), if the showing demonstrates that the
State has conducted such an onsite inspection during the 12-month period
ending on the last date of the calendar quarter -- (i) in each of not
less than 98 per centum of the number of such hospitals and facilities
requiring such inspection, and (ii) in every such hospital or facility
which has 200 or more beds, and that, with respect to such hospitals and
facilities not inspected within such period, the State has exercised
good faith and due diligence in attempting to conduct such inspection,
or if the State demonstrates to the satisfaction of the Secretary that
it would have made such a showing but for failings of a technical nature
only. /8/ If the Agency had made definitive findings that there were
violations, in circumstances similar to those here, we would then have
to address the issue of whether the Agency's failure to take a
disallowance in that instance should affect the Agency's duty to enforce
the statute where there are clear violations.

MARCH 19, 1985