California Department of Health Services, DAB No. 666 (1985)

GAB Decision 666

June 28, 1985

California Department of Health Services;
Ballard, Judith A.; Settle, Norval D. (John) Garrett, Donald F.
Docket No. 84-162; ACN 10221-09

DECISION

The California Department of Health Services appealed a decision of the
Health Care Financing Administration (HCFA or Agency) disallowing
$38,402,172 in federal financial participation (FFP) under the Medicaid
program (Title XIX of the Social Security Act). The disallowance
related to abortions which had been paid for between November 1, 1972
and June 30, 1977. The Medicaid rules applicable to the claimed
services authorized 90% FFP for abortion services performed for family
planning purposes and 50% FFP for other (medically indicated) abortion
services. When the State made its original claim to HCFA for the
abortion services in question, it mistakenly lumped together all of the
services, whether they were for family planning or not and claimed them
at the 90% level. The State's claiming error originated in procedures
developed by the State's fiscal intermediary and was discovered during
the audit that gave rise to a disallowance for abortion services
covering 1977-78. /1/ Since the State is presently unable to identify
which abortion services were for family planning purposes based on
contemporaneous documentation, the Agency disallowed the additional 40%
FFP for all of the abortions claimed by the State for the 1972-77
period.


On appeal, the State argued that the three year period for retaining
records for the services in question had expired, and that it could not
therefore be subject to a disallowance on the basis that it had not
documented the propriety of its claim. The Agency effectively conceded
that the record retention period had expired but argued that the State's
burden to document its claim continued to exist beyond the retention
period because of the special circumstances of this case.

We conclude that the disallowance must be upheld in part and reversed in
part. As we discuss more fully below, the expiration of the record
retention period cannot enable the State to retain (2) program funds
which were not authorized by statute and which the State received solely
by virtue of its erroneous claiming practices. The circumstances here,
on the other hand, do not justify completely disregarding the expiration
of record retention for contemporaneous documents and upholding the
disallowance in full. Our middle ground approach is facilitated by the
fact that a comparable basis exists on which to determine which abortion
services were entitled to enhanced FFP for the period in question. In
Decision No. 665, the Board resolved the last remaining issues leading
to a determination of the amount of abortion services performed for
family planning purposes for the 1977-78 period. Approximately 82% of
the sampled cases for that period were for family planning and 18% were
not. The parties at the hearing in this appeal concluded that the
1977-78 period would be the best available evidence for identifying what
services in the earlier period were for family planning and agreed that
there were no significant differences between the periods to make use of
the later period inappropriate. Tr., pp. 12-18. Accordingly, our
decision is to uphold that part of the instant disallowance that is not
related to family planning services as determined by the State's
experience in the 1977-78 period.

Analysis

This appeal involves the interaction of two basic rules of grant
administration. This Board has repeatedly held that where a state
claims a special, higher rate of FFP (in this case 90% for family
planning services), it has the burden to both document the costs and
show that the claim for higher reimbursement is proper. See, e.g.,
Decision No. 665 and the cases cited therein. Department regulations,
on the other hand, limit the amount of time a grantee must retain
documentation that would be necessary to support its claim. 45 CFR
74.21. Grantees need retain records for only three years following
their claim for FFP or until an audit commenced within that three-year
period has been resolved. /2/


The Board has previously considered the combined effect of these two
rules and concluded that the expiration of the document retention period
would not necessarily preclude a disallowance for failure to document
costs where extenuating circumstances existed. Missouri Department of
Social Services, Decision No. 395, February 28, 1983. The Board there
noted that a grantee's burden to document costs "exists apart from the
requirement to retain records, and under the regulation concerning
retention of (3) records, there is no presumption that a grantee kept
the records and retained them for the requisite period." Id. at 15. The
Board then identified the compelling circumstances that served to
preserve Missouri's burden beyond the document retention period: 1)
some evidence in the record indicated that the Missouri officials may
have failed to keep adequate supporting documentation to begin with and
in any event the State had been unable to account for how or when its
records were destroyed; 2) the State had been continually advised of
the necessity to document its costs in order to receive an enhanced rate
of FFP; and 3) at the very least, knowing of the Agency's concerns
about documentation, the State should have contacted the Agency prior to
any disposal of records. Id. at 15-16.

The Agency argued that Missouri applies with equal force to the instant
case. The Agency emphasized that California had been advised repeatedly
of the need to document fully its claims for enhanced FFP and that
California knew that "its claiming procedures were faulty and itself
intended to retrieve documentation for the purpose of perfecting its
claim." Agency's post-hearing brief, p. 1.

We agree with the Agency that the State's burden to document family
planning services extends beyond the record retention period at least to
the extent that the State must use the best available methodology for
determining how much of its claim was proper. The State here cannot use
the document retention rules to avoid a disallowance altogether since
the State would thereby gain a higher level of FFP than the law
authorized for a significant number of abortion episodes (the 1977-78
experience indicates that this would be approximately 18% of total
episodes). The State is clearly not blameless since its erroneous
claiming practices brought about the problem. The State in fact agreed
at the hearing that it should not receive a higher level of FFP for
services than could be shown to be eligible for that level. Tr., P. 13.

Having concluded that the burden to document persists to this degree, we
decline to uphold the disallowance in full as proposed by the Agency.
The records retention period for the services in question had already
expired. Nevertheless, under the Agency's approach, the State would
lose enhanced FFP for approximately 82% of the abortion episodes (as
indicated by the experience for 1977-78) because it presently is unable
to document those services with contemporaneous documents. The State
argued, and we agree, (4) that the circumstances here are different in
critical respects from those in Missouri. The parties submitted
extensive documentation of correspondence and discussions between the
Agency and the State to demonstrate what each side knew at various
junctures concerning the State's claiming practices and the adequacy of
its documentation. While there is evidence in the record that the State
was seeking ways of differentiating more clearly between types of
abortion in its documentation during the period of the disallowance and
that the State knew of difficulties in its process for machine sorting
family planning abortions, there is no evidence that the State did not
maintain adequate documentation throughout the period which would have
been sufficient to document what part of its claim was, in fact, for
family planning services. Further, the State emphatically argued that
neither the State nor HCFA recognized until 1980 that an error had
caused a percentage of its abortion expenditures to be improperly
claimed at 90% FFP. State's response to Agency's reply brief, pp. 2-3.
In any event the nature and scope of the State's documentation
responsibilities are clearly different from those involved in Missouri.
As the State noted:

. . . (T)his is not an isolated project or contract for which
discrete records exist. These services are supported by the general
computer records, microfilmed claims, beneficiary and provider profiles,
and underlying medical records common to all Medi-Cal services. There is
no reasonable method by which the Family Planning records (as opposed to
the summaries used for claim preparation) can be separately retained.
Nor is it possible simply to retain all records. The reason why
provider records, actual provider claims, and detailed computer tapes
are not retained much beyond the period required is that it is
incredibly costly to do so. Thus, it is simply unreasonable to expect
that the State would have stopped its normal disposal schedule for all
Medi-Cal records, plus required all providers to retain their records,
simply because claims for 90% FFP had been made.

State's reply brief, pp. 15-16.

Finally, to the extent that both parties learned after the retention
period that there were problems with the State's claiming practices for
the period in question (potentially giving rise to a disallowance), the
Agency as well as the State should have acted diligently. While (5) in
Missouri we emphasized the duty of the grantee to make inquiries to the
Agency concerning ongoing documentation responsibilities beyond the
retention period in specific circumstances, we also believe that the
Agency has the responsibility to notify the State of an audit at the
earliest possible time in order to give the State specific notice of
what documents must be retained beyond the ordinary three-year period.
Here the State had no notice from the Agency until August 18, 1980 that
it could not follow its normal records retention cycle for the services
claimed here. Agency's supplemental appeal file, item 33.

Conclusion

For the reasons described above, we uphold that portion of the
disallowance that cannot be demonstrated to be for family planning
purposes on the basis of the methodology and experience which the
parties derived from a review of claimed abortion services for the
1977-78 period. /1/ That disallowance is the subject of a companion
decision, California Department of Health Services, Decision No.
665, June 28, 1985, which we discuss in the text below. /2/
During the period subject to audit, this requirement was contained in
substantially the same form in 45 CFR 74.20(a). Similar record
retention requirements are found in 42 CFR 43.32 (then 45 CFR 205.145).

OCTOBER 04, 1985