New York State Department of Social Services, DAB No. 678 (1985)

GAB Decision 678

August 12, 1985

New York State Department of Social Services;
Ford, Cecilia Sparks; Settle, Norval D. (John) Ballard, Judith A.
Docket No. 84-151

DECISION

The New York State Department of Social Services (State) appealed a
decision by the Health Care Financing Administration (HCFA, Agency)
disallowing $4,416,550 in federal financial participation (FFP) for
payments made to Kings Park Psychiatric Center (Kings Park) under Title
XIX of the Social Security Act (Medicaid). The disallowance is divided
into two parts: (1) claims made for inpatient hospital services to
individuals age 65 or older in an institution for mental disease (IMD)
during the period November 15, 1981 through January 28, 1982, and (2)
claims made for inpatient psychiatric services to individuals under age
21 during the period August 26, 1981 through December 18, 1981.
According to the Agency, the triggering event for the disallowance was
written notification to the facility from the Joint Commission on
Accreditation of Hospitals (JCAH) that Kings Park was no longer
accredited effective August 26, 1981.

Title XIX authorizes FFP in inpatient psychiatric hospital services to
individuals under age 21 only when provided by an institution accredited
by JCAH. Through a somewhat circuitous route, HCFA regulations require
for an IMD providing inpatient hospital services to individuals age 65
or older, that the IMD meet the Title XVIII (Medicare) definition of a
"psychiatric hospital," that is, be accredited by JCAH or meet
equivalent standards, as determined by a "distinct part" survey
performed by the State. /1/

(2)

The major issues raised by the State are:

1) whether the disallowance is arbitrary and capricious because HCFA
did not find that the health and safety of the patients at Kings Park
was jeopardized or that inadequate care was given;

2) whether, in any event, HCFA incorrectly determined beginning and
ending dates of the disallowance period relating to IMD services;

3) whether the disallowance should be reversed because the
requirement for JCAH accreditiation is unconstitutional.

For the reasons discussed below, we reverse the disallowance for IMD
services provided to the aged during the period December 19, 1981
through January 28, 1982, but uphold the remainder of the disallowance.

Facts

* In September of 1980, JCAH conducted a survey of Kings Park and
thereafter made a preliminary determination to discontinue accreditation
of Kings Park on November 21, 1980. The New York State Office of Mental
Health (OMH), which operated the facility, appealed this determination
to the JCAH Board of Commissioners.

* On January 23, 1981, DOH conducted a survey of Kings Park to determine
if it continued to meet the Special Conditions of Participation for
Psychiatric Hospitals pertaining to medical records and staffing under
the Medicare program (we refer to these below as the "two special
Medicare conditions").

* On May 11, 1981, HCFA informed Kings Park that, as a result of the DOH
survey, the facility continued to meet the two special Medicare
conditions. A Medicaid provider agreement was issued.

* On August 22, 1981, the JCAH Board of Commissioners rejected Kings
Park's appeal of the 1980 initial(3) determination of non-accreditation.
This represented a final determination that Kings Park would no longer
be JCAH accredited.

* By a letter dated October 27, 1981, the Associate Regional
Administrator of HCFA informed the OMH Commissioner that since Kings
Park had lost JCAH accreditation, it no longer met the definition of a
"psychiatric hospital" under the Social Security Act and its Medicare
provider agreement was therefore terminated, effective November 15,
1981. The letter also stated that if the facility wanted to participate
in the Medicare program as a "distinct part facility," it should contact
DOH, which would assist in filing "a new eligibility request" and
arrange for a survey. (State's Exhibit 2)

* On December 3, 1981, DOH informed Kings Park that its annual Medicare
certification survey would be held on January 26-29, 1982.

* On December 7, 1981, OMH submitted a formal request for a hearing by
HCFA on the issue of the termination of the Medicare provider agreement.
In this letter, OMH requested that a hearing date not be set until after
the outcome of the upcoming JCAH resurvey of Kings Park, scheduled for
December 14-18, 1981.

* On December 14-18, 1981 JCAH surveyed Kings Park and subsequently
awarded a two-year accreditation to Kings Park, effective December 19,
1981.

* On January 22, 1982, Kings Park applied for readmission in the
Medicare program.

* On January 26-29, 1982, DOH conducted its annual survey and determined
that Kings Park remained in compliance with the two special Medicare
conditions.

* On March 29, 1982, the State recommended to HCFA that Kings Park met
the two special Medicare conditions.

* On August 2, 1982, HCFA notified Kings Park that the hospital's
Medicare provider agreement would be reinstated retroactive to January
29, 1982, the date on which the facility was found to be in compliance
with the two special Medicare conditions.

* On October 1, 1982, OMH submitted a request for reconsideration of the
decision of HCFA regarding the date of reinstatement of Kings Park's
Medicare provider agreement.(4)

* On March 18, 1983, the HCFA Associate Regional Administrator informed
OMH that the original decision that January 29, 1982 would be the
effective date of reinstatement was correct and in accordance with 42
CFR 489.13(a).

* On May 16, 1983, OMH requested a hearing on the termination of Kings
Park's Medicare provider agreement and the effective date of
reinstatement to provider status.

* On June 15, 1984, a hearing was held before an Administrative Law
Judge.

* On July 6, 1984, the Regional Administrator, HCFA, notified the
Commissioner, New York State Department of Social Services, of the
Medicaid disallowance in question.

* On February 27, 1985, the Administrative Law Judge upheld the
termination of Kings Park's Medicare agreement.

IMD Services

a. Whether the disallowance was substantively correct

With respect to services provided to individuals aged 65 and over (IMD
services), the State's primary argument was that HCFA's actions were
arbitrary and capricious because the State's actions were reasonable and
HCFA made no specific finding that, during the period here, the health
or safety of the Kings Park patients was jeopardized or that the care
they received was inadequate.

At first glance, some of the circumstances in this case might seem to
lend credence to the State's position:

* The State surveyed Kings Park on a yearly basis for the two special
Medicare conditions and found the facility in compliance during the
period covered by the disallowance.

* In May 1981, the facility had valid a Medicaid provider agreement
based on JCAH accreditation and compliance with the two special Medicare
conditions.

* JCAH's final determination to deaccredit was based on deficiencies
found in the facility eleven months earlier.(5)

* The State was appealing the termination of Kings Park's Medicare
provider agreement during the disallowance period.

* After notification of Medicare termination, the State apparently
determined not to do a distinct part survey because it knew JCAH would
be resurveying the next month.

* The Agency did not independently survey the facility and find it
substantially out of compliance with Medicare conditions of
participation.

* Neither the Medicare nor Medicaid regulations state specifically
what happens if JCAH deaccredits a facility.

However, upon closer examination, we find that the IMD services provided
in the facility did not meet the Medicaid definition and that,
therefore, FFP is not available.

First, while the State may have chosen, for its own administrative
reasons, to postpone performing a distinct part survey since a JCAH
survey had been scheduled, the State pointed to nothing in the
applicable regulations based on which the State could have reasonably
thought FFP would be available in the absence of either JCAH
accreditation or a distinct part certification.

While this requirement is arrived at by a circuitous route through HCFA
regulations, it is ultimately clear that in order to qualify for
Medicaid reimbursement, a facility must satisfy Medicare requirements,
one of which is JCAH accreditation or the equivalent, as determined by a
distinct part survey.

Title XIX does not define IMD services. Regulations defining the
services state that to be eligible for FFP the services must be
furnished in an IMD which meets Medicare requirements in 42 CFR 405.1035
and .1036, which provide standards for psychiatric hospitals. /2/ 42
CFR 440.140(a)(1)(ii). Prior to its amendment in 1984 (see fn. 1
above), section 1861(f) of Title XVIII of the Act defined psychiatric
hospital, in part, as an institution which is accredited by JCAH or a
distinct part of an institution which is JCAH accredited or meets
requirements equivalent to JCAH accreditation requirements as determined
by the(6) Secretary. /3/ The regulation at 42 CFR 405.1036 implements
this statutory definition, providing that a psychiatric hospital be
accredited by JCAH and that it meet the two special Medicare conditions
as set out in 42 CFR 405.1037 and .1038 respectively. In addition, a
distinct part of a facility can be considered a psychiatric hospital if
it meets the two special Medicare conditions and if it is accredited or
meets requirements equivalent to JCAH accreditation requirements. A
distinct part is considered to meet equivalent requirements if it is
found in "substantial compliance" with the conditions of participation
contained in 42 CFR 405.1020 through 405.1035. The responsibility for
performing the distinct part survey is placed on the state survey
agency. 42 CFR 405.1902(a).

Section 405.1901(b) of 42 CFR discusses the effect of JCAH accreditation
in the Medicare program. It states that currently accredited hospitals
are "deemed to meet all of the conditions of participation" except, in
the case of psychiatric hospitals, the two special Medicare conditions.
The absence of "deemed" status is not ipso facto fatal to Medicare
certification. For example, if the State or HCFA decides to survey an
accredited facility and the facility refuses to release the JCAH survey
report, the facility "will lose its deemed status and be subject to the
regular State agency survey procedure." 42 CFR 405.1901(b).

The requirement for a survey as part of the alternative to JCAH
accreditation is not a mere technicality, but goes to the heart of the
Medicare requirements -- ensuring that the patients are receiving
quality care in a safe and healthy environment.

Second, we do not agree with the State that it had a reasonable basis to
believe that the facility had come into compliance simply because the
State found in its survey of the two special Medicare conditions that
the facility had corrected staffing and medical records deficiencies
found by JCAH. Although JCAH did find deficiencies in these areas, JCAH
also found defects in physical plant and other areas. The survey the
State performed was a limited one, which simply did not address the many
other standards which must be substantially met to justify certification
on a basis other than JCAH accreditation. (7)

Although HCFA did not make a specific finding here that the facility was
out of compliance, the point is that funding is not available in the
absence of a finding that the facility is in compliance. In effect, the
Agency found that loss of accreditation meant that Kings Park was no
longer "deemed" to meet the Medicare conditions of participation.
Whether or not JCAH accreditation itself should be considered a
condition of participation /4,/, it is clear that upon its loss, a state
must take action through a distinct part survey to find the facility in
substantial compliance with the regulations at 42 CFR 405.1020 through
405.1035, or the facility cannot be said to meet Medicare requirements.


While we can assume that some corrections were made at the facility some
time between September 1980 and December 1981 (although we note that the
reaccreditation letter has an addendum listing areas that "must be
brought into substantial compliance prior to the next full survey"), the
State provided no evidence of when compliance was achieved, other than
the JCAH resurvey in December 1981. We have no reasonable basis to
conclude that the facility actually met Medicare requirements prior to
that time. /5/


b. Whether the disallowance should start on November 15 or December
15, 1981

Under 42 CFR 441.11, FFP is available for up to 30 days after a
facility's provider agreement is not renewed or is terminated "only . .
. (a)(2) if the Agency makes reasonable efforts to transfer the
individuals to another facility or to alternate care." The State argued
that the purpose of this regulation is to give states time to find
qualified facilities to place Medicaid recipients, and one way to do
this is for the state to assist the facility to reestablish its
certification. In this case, where JCAH(8) resurveyed a month after the
termination, the State argued, relocation of patients would not have
been appropriate. The State contended that section 441.11 must be
interpreted as requiring a state to make reasonable efforts to transfer
patients only when the transfer of patients is appropriate; any other
reading would be arbitrary and capricious, the State said.

In general, a state can receive FFP in costs of services provided in a
facility only for the period of time that the facility is certified as
evidenced by a valid provider agreement. Section 441.11 creates a
narrow exception to this general rule, providing FFP during a limited
time for patient transfer. The regulation does not directly apply to
the situation in this case because the State Medicaid agency did not
terminate or fail to renew Kings Park's provider agreement in 1981.
But, even if we assume that the regulation does apply because we are
finding, in effect, that the State should have terminated the Medicaid
provider agreement, we cannot find that the starting date for the
disallowance should be changed. The regulation is clear; continued FFP
is allowed only under the narrow exception of a state making reasonable
transfer efforts. While the State said that it was reasonable not to
transfer the patients because JCAH would be surveying very soon, the
State could not be absolutely certain that it would regain
accreditation. Furthermore, there was another alternative within the
State's control to assure that FFP would continue even if no transfer
efforts were made -- distinct part certification. Even if we were to
find that the State's nonaction was not totally unreasonable, such
nonaction certainly does not constitute reasonable efforts to transfer;
"reasonable efforts" cannot be reasonably interpreted to be no effort.
There is simply no regulation that provides for continued FFP in
circumstances as the State set out here. In the absence of a regulatory
exception which applies, we must apply the usual rule (see 45 CFR
16.14). Thus, we uphold HCFA's determination that the starting date of
the disallowance is November 15, 1981.

c. Whether the disallowance should end on December 19, 1981 or
January 29, 1982

The State argued that, since Kings Park regained JCAH accreditation on
December 19, 1981 and the State had surveyed in January 1981 and found
that the facility met the two special Medicare conditions, the facility
once again met all Medicaid certification requirements on December 19,
1981; therefore, the disallowance should stop at that date.(9)

The Agency argued that, although Kings Park regained accreditation on
December 19, 1981, it was not until January 29, 1982 that State
surveyors surveyed Kings Park for the two special Medicare conditions.
According to the Agency, when HCFA terminated Kings Park's Medicare
eligibility in November 1981, "nothing survives the termination of a
provider agreement because the contract relationship is no longer
valid." (Agency Brief, p. 32) Therefore, HCFA argued, it was not until
January 29, 1982 that Kings Park met Medicare requirements again. In
support, the Agency cited 42 CFR 489.57, which discusses reinstatement
of Medicare eligibility after termination of a Medicare provider
agreement.

We find that, because Kings Park met all Medicaid requirements on
December 19, 1981, the disallowance should cease then.

The facility's Medicaid provider agreement was not terminated for the
period in question. In 1984, the Agency in effect "looked behind" the
Medicaid provider agreement, based on loss of JCAH accreditation, but
did not question the State survey determinations on the two special
Medicare conditions. The agency argued that the Medicaid provider
agreement is inextricably tied to the Medicare provider agreement (see,
e.g. Transcript, p. 42).

We could find no support for this in the Medicaid regulations on IMD
inpatient hospital services to the aged. /6/ Rather, the Medicaid
regulations define the relevant services as merely meeting certain
Medicare requirements (which do not include having a Medicare provider
agreement). All those requirements were met on December 19, 1981.


The initial JCAH determination was made in September 1980. Before JCAH
made its final determination, the State in January 1981 surveyed the
facility for the two special Medicare conditions and found the facility
in compliance. Certification of compliance with conditions of
participation are for a 12 month period. 42 CFR 405.1904(a). The
Medicare termination was based solely on the JCAH deaccreditation. HCFA
pointed to nothing which indicates that the facility did not continue to
comply with the two special Medicare conditions during the whole of
1981.(10)

The Agency may be correct that for purposes of the Medicare provider
agreement, the Medicare regulations dictate that the HCFA termination in
November 1981 ended the contractual relationship between HCFA and the
facility and that the State survey decision in January 1981 does not
continue in "existence" to be revived when JCAH reaccredited Kings Park.
The Medicaid regulations do not dictate the same result, however. The
Agency's citation of 42 CFR 489.13(a) as to the effective date of
Medicare agreements has no relevance to the finding of Medicaid
certification invalidity here; the same is true of 42 CFR 489.57. /7/


Thus, we reverse the disallowance for the period December 19, 1981
through January 28, 1982.

Services to Individuals Under Age 21

Title XIX also authorizes FFP in the costs of inpatient psychiatric
hospital services for individuals under age 21. Section 1905(a)(16).
Prior to its amendment in 1984 (see fn. 1 above) the Medicaid statute
and regulations stated that those services included only those provided
in an institution (or program) "accredited by" JCAH. Section 1905(h) of
the Act; 42 CFR 440.160.

The State argued that the requirement, by providing, in effect, for
automatic termination of FFP upon loss of JCAH accreditation,
constitutes a denial of due process.The State asserted that continued
receipt of FFP is a statutorily created property right which entitles
the provider to at least a "post-reduction hearing" (State's brief, p.
2).Since JCAH determinations are unreviewable by HHS or the courts, the
State argued, there is no way for a provider to get a meaningful review
of the termination decision.

As a corollary, the State argued that the Congress's delegation to JCAH
(a private party) of the "law-making authority" to determine the
conditions for reimbursement under a federal program is an
unconstitutional delegation of power. (State's brief, p. 19) /8/

(11)

As HCFA pointed out, the Board is bound by "all applicable laws and
regulations." 45 CFR 16.14. In interpreting a statute and regulations
which are ambiguous, the Board may consider whether constitutional
issues have a bearing, however. Here, both the statute and regulations
use the wording "accredited by" JCAH. The Agency has interpreted this to
mean that a facility must not only meet JCAH standards but must actually
receive JCAH accreditation. Given the status of the court cases on the
constitutional issues raised here, we do not think that a more liberal
reading of the statute and regulations is required.

HCFA could reasonably conclude that no improper delegation is involved
here. We note, for example, a long list of cases upholding state
professional licensing requirements based on graduation from schools
accredited by professional organizations. See, e.g., Potter v. N.J.
Supreme Court, 403 F. Supp. 1036 (D.N.J. 1975); Ostroff v. N.J.
Supreme Court, 415 F. Supp. 326 (D.N.J. 1976); Lucas v. Maine
Commission of Pharmacy, 472 A.2d 904 (Me. 1984). We note, also, that
one primary concern of courts examining delegation issues is that the
organization to which the task has been delegated not have some sort of
self-interest in the determinations made. See, e.g., Corwallis Lodge v.
Oregon Liquor Control Commission, 677 P.2d 76 (Or. App. 1984);
International Service Agencies v. O'Shea, 430 N.Y.S.2d 224 (N.Y. Sup.
Ct. 1980). The State has not shown that JCAH has any such self-interest
in making the determinations which affect Medicaid reimbursement.

With respect to the due process issue, we could find no case directly
discussing whether a state has a due process right which arises when a
state potentially loses federal funding because a provider has lost
required accreditation. Even if we were to conclude that the State had
a due process(12) right to governmental review of JCAH's decision, this
would not provide a basis for overturning this disallowance. The State
did not allege here that providing a different review of the JCAH survey
findings, other than the review already provided by JCAH, would have led
to a different result.

Conclusion

For the reasons explained above, we reverse the disallowance for IMD
services for the aged during the period December 19, 1981 through
January 28, 1982, but uphold the remainder of the disallowance. /1/ The
"Deficit Reduction Act of 1984," Pub. L. 98-369, July 18, 1984
amended sections 1861(f), 1865, and 1905(h) of the Social Security Act.
Pursuant to the amendment, JCAH accreditation is no longer part of the
definition of a "psychiatric hospital" under Title XVIII. Similarly,
section 1905(h) was amended to remove the requirement of JCAH
accreditation. The amendments were effective July 18, 1984 and do not
apply here. /2/ 42 CFR 405.1035 is not relevant to this appeal.
/3/ There is no dispute in this appeal that an entire institution can
qualify as a distinct part. /4/ The language of 42 CFR
405.1036(a) says that "the conditions of participation require that the
hospital be accredited by (JCAH). . . ." /5/ The Agency argued that our
decision as to Medicaid reimbursement must be dictated by the
decision of the Administrative Law Judge upholding the termination of
Kings Park's Medicare provider agreement. While we have found that the
Medicaid requirements incorporate some Medicare requirements, there were
additional issues that we had to consider in order to reach our
conclusion, for example, whether the State had adequate notice in
Medicaid requirements of relevant Medicare conditions of participation.
/6/ There are provisions linking Medicare and Medicaid certification for
skilled nursing facilities. See 42 CFR 442.20. /7/ Likewise,
the State's quotation of "42 CFR 4813(a)" (State's Brief, p. 42), which
we assume is supposed to be 42 CFR 442.13, applies only to skilled
nursing facilities and intermediate care facilities. /8/ We note
that the State also made similar arguments relating to the regulations
on IMD services to the aged. In effect, the State was arguing that in
order to avoid an unconstitutional reading the Agency should have
interpreted the requirements to require non-JCAH evaluation of
conditions in the facility. We note that at least one federal circuit
court, in Cospito v. Heckler, 742 F.2d 72 (3d Cir. 1984), found the
delegation to JCAH to evaluate a psychiatric hospital providing services
to patients 65 years or older was not unconstitutional. Further, we
also note that for these services, there is an alternative to JCAH
accreditation: substantial compliance with Medicare conditions as
determined through a distinct part survey.

JANUARY 14, 1986