GAB Decision 691
September 11, 1985
New York State Department of Social Services;
Garrett, Donald F.; Settle, Norval D. (John) Teitz, Alexander G.
Docket No. 84-128
DECISION
The New York State Department of Social Services (State) appealed a
disallowance by the Regional Administrator of the Health Care Financing
Administration (HCFA or Agency) of $58,134,341 in federal financial
participation (FFP) under the Medicaid program. The disallowance was
based on the determination by HCFA that the provider agreements of five
intermediate care facilities for the mentally retarded (ICFs/MR) were
invalid, and therefore the State was not eligible for FFP for Medicaid
claims at these facilities. /1/ HCFA claimed that the provider
agreements were no longer valid after their respective expiration or
automatic cancellation dates. /2/ The State instead maintained(2)
certification of each of the facilities until various times in calendar
year 1983, relying on the "intermediate sanction" authority of section
1902(i) of the Social Security Act (Act), 42 USC 1396a(i), which allows
continued certification of a facility for eleven months as long as the
State denies payment for any new admissions to the facility during the
period of the sanction.
The central issue in this appeal is the applicability of the
intermediate sanction and its relationship with several Medicaid
regulations which the Agency argued required revocation of certification
in 1982. In part I of the decision we conclude that the intermediate
sanction was applicable and could properly be used by the State as an
alternative to decertification. We find that the facilities
substantially complied with Medicaid regulations prior to imposition of
the sanction and that it was not a relevant concern whether the sanction
was a "meaningful" one and that the sanction could be imposed after
the
facilities' termination or automatic cancellation dates.
We find, however, in part II of the decision that the State was not
entitled to FFP for the four facilities other than Letchworth Village
until it invoked the intermediate sanction on November 23, 1982. We do
not find the expectation by the State of possible relief from an
"extended phase out" regulation a valid excuse to enable the State
to
collect FFP in full for all patients before the sanction was imposed.
We therefore uphold the disallowance for the facilities from the
expiration or automatic cancellation dates of their provider agreements
until November 23, 1982, the date of imposition of the intermediate
sanction (except for the J.N. Adam facility, where, as we explain in
footnote 4, we sustain the disallowance from September 3, 1982 until
November 23, 1982). /3/
Part III addresses the delay in imposition of the sanction specifically
for the Letchworth Village Developmental Center, where we conclude that
the State properly extended certification of that facility for two
months under the(3) authority of 42 CFR 442.16 and therefore reverse the
disallowance for that one facility from September 30, 1982 until the
intermediate sanction was lifted in 1983.
Background
ICF/MR facilities were first covered by the Medicaid program in 1972.
Pub. L. 92-223, 42 USC 1396d. Regulations implementing the program for
the facilities were first published in 1974. 45 CFR 249.12 and 249.13
(1974), now 42 CFR Part 442, Subpart G. These initial regulations gave
facilities until March 1977 to achieve full compliance with regulatory
standards. Because many states had difficulty meeting the 1977
deadline, the Agency agreed to extend this deadline to July 18, 1980, if
participating facilities would present a plan of correction to document
their efforts to achieve compliance. 42 CFR 442.115. However, if at the
time of the first survey after July 17, 1977, the facility was unable to
develop a plan to complete corrections by July 18, 1980, the State
survey agency could request an extension until July 18, 1982, if certain
additional requirements were satisfied. 42 CFR 442.115(b). The State
requested and was granted the extension until July 18, 1982 for the
facilities at issue in this appeal. See generally Background to
proposed phase out regulation, 46 Fed. Reg. 42698 (August 24, 1981).
The State was unable to bring the five facilities into compliance by the
end of the plans of correction on July 18, 1982 and applied for further
relief. HCFA "strongly" suggested the State authorize short extensions
for some of the facilities by renewing their provider agreements and
establishing "automatic cancellation dates" of August 31, 1982. State's
Ex. 4. The State did so. See Tr., pp. 83-86. /4/
(4)
The State took no action to revoke Medicaid certification at the time of
the automatic cancellation dates or expiration dates, but instead chose
to continue certification. The State claims that it continued
certification of the facilities beyond these dates because of delayed
promulgation of an "extended phase out" regulation, 42 CFR 442.115(g),
which provided an application period until November 24, 1982. This
regulation, addressed in more detail below in Part II, authorized
continued certification of facilities in certain situations in order to
"phase out" beds in facilities which had been unable to meet their
plans
of correction by July 18, 1982. The State extended certification of the
Letchworth Village Developmental Center beyond the expiration date of
its provider agreement on September 30, 1982 by also invoking the
specific authority of 42 CFR 442.16. (Addressed below in Part III).
The intermediate sanction authority of section 1902(i) of the Social
Security Act was invoked by the State on November 23, 1982 and was made
effective on January 15, 1983. The delay in imposition of the sanction
from the time of expiration or cancellation of the five provider
agreements is the source of the controversy we address in Parts II and
III.
The Agency advised the State in 1982 and has argued in this appeal that
the intermediate sanction statute did not supersede the alleged sole
authority of the Medicaid regulations governing plans of correction and
their extensions. The Agency therefore disallowed FFP from the time of
the expiration or cancellation dates of the various(5) provider
agreements until the time that the intermediate sanction was lifted at
the five facilities toward the end of 1983. The State has argued
instead that the intermediate sanction was specifically designed for the
situation at issue in this appeal and that it was applied at the proper
time, and, therefore, the disallowance should be completely reversed.
I. APPLICABILITY OF THE INTERMEDIATE SANCTION
The intermediate sanction provision was passed by Congress as part of
the Omnibus Budget Reconciliation Act of 1980. The Act provided:
(i)(1) In addition to any other authority under State Law, where a
State determines that a skilled nursing facility or intermediate care
facility which is certified for participation under its plan no longer
substantially meets the provisions of Section 1861(j) or Section 1905(
c), respectively, and further determines that the facility's
deficiencies --
* * *
(B) do not immediately jeopardize the health and safety of its
patients, the State may, in lieu of providing for terminating the
facility's certification for participation under the plan, provide
that no payment will be made under the State plan with respect to any
individual admitted to such facility after a date specified by the
State.
Section 1902(i), Social Security Act.
The Agency to date has not published final regulations to implement the
intermediate sanction statute. Proposed regulations were published on
February 21, 1985, 50 Fed. Reg. 7191.
The Agency has argued that the intermediate sanction provision did not
apply in the situation that led to this appeal because:
(1) The State never "substantially (met)" the requirements of Section
1905(c) which defines the term "intermediate care facility" and
authorizes the Secretary of Health and Human Services to prescribe
standards for the(6) care provided by such facilities. The Agency
contended that this alleged failure to substantially meet these
standards precluded application of the provision.
(2) The ban on admissions was not a "meaningful sanction" since
the
facilities' plans of correction already committed the facilities to
reducing patient population and new admissions were specifically
prohibited by 42 CFR 442.115(d)(3) at buildings at four of the
facilities which were "slated for phase out" under the plan of
correction. Agency's Brief, p. 54.
(3) The facilities must literally have been "certified for
participation" at the time the intermediate sanction was imposed. Since
the intermediate sanction was imposed by the State some months after
certification of the facilities should have been revoked, the State lost
the opportunity to utilize the sanction.
A. The Competing Interests in this Appeal
Before turning to these specific objections of the Agency to the use of
the intermediate sanction provision, we address the policy concerns of
both the Agency and the State in this dispute.
Many ICF/MR facilities, including the five facilities in this appeal,
were found to be out of compliance with Medicaid standards as first
promulgated for ICFs after 1974. Realizing that many facilities needed
time to comply with existing regulations, the Agency developed further
regulations in 1977 providing for the acceptance of long term plans of
correction which would require correction of deficiencies at such
facilities by no later than July 1982. In promulgating these
regulations for long term plans of correction, the Agency hoped to force
complaince with Medicaid standards by establishing a final deadline that
would be subject to no further negotiation. When the State in this case
sought to use the statutory remedy as provided by the intermediate
sanction provision, the Agency objected that this was contrary to the
regulatory goal of an all-inclusive set of rules that would force the
states' hands in guaranteeing the correction of deficiencies. It thus
argued that the intermediate sanction was not intended to provide states
with "yet another avenue of relief from compliance." Agency's Ex.
38;
see HHS Response to Order to Develop the Record, pp. 19-22. /5/
(7)
The State's response, in turn, was that it had been trying for many
years to improve care for the mentally retarded and that such change was
an inherently slow process. The State further maintained that
improvements must be viewed in context of a major effort to
deinstitutionalize many of these patients and transfer them to smaller
facilities which would be more sensitive to their needs. It was with
this knowledge, the State maintained, that Congress passed the
intermediate sanction provision, which granted a further short period of
time in which to correct deficiencies in those remaining large
facilities. See Tr., pp. 11-17.
We recognize that the phraseology of section 1902(i) is difficult, and
several legal issues are raised by the provision which were probably not
anticipated by its drafters. The legislative history of the
intermediate sanction authority is scant, providing little more than
that it was intended as an alternative "short of the more drastic step
of program termination." H.R. Rep. No. 1167, 96th Cong., 2d Sess. at 56
(1980). /6/
However, as we explain in more detail below, there is no indication by
the intermediate sanction's terms, either explicit or implicit, that the
specific type of facilities at issue here was intended to be excluded
from the(8) provision's scope. Rather, the provision appears to have
been intended to afford relief in the precise type of situation here,
where facilities were unable to meet certification requirements and
needed an additional short period of time in which to comply.
B. Substantial compliance of the facilities
The Agency's principal argument for its position that the intermediate
sanction could not be used by the State was that the facilities were
never "substantially compliant" with Medicaid standards. Section 1902(
i) of the Act permits use of the sanction where a State determines that
an intermediate care facility which is certified "no longer
substantially meets" the provisions of section 1905(c) (setting the
standards for ICFs), provided that the facility's deficiencies do not
immediately jeopardize the health or safety of its patients. /7/
The source of the difficulty that we address in Part I of this decision
is that there is no definition of "substantial compliance" in either
statute or regulation. In fact, although both parties have used the
shorthand phrase "substantial compliance," the intermediate sanction
statute does not use the words "substantial compliance." It speaks
instead of a facility which "no longer substantially meets" the ICF
requirements. We have accepted the use of this shorthand phrase.
Therefore our first step is to arrive at some understanding of what the
phrase means, since under the statute only a facility which was once,
and no longer is, in substantial compliance with Medicaid ICF
requirements is eligible for use of the intermediate sanction.
1. The facilities' deficiencies did not "seriously limit (their)
capacity to give adequate care."
Although we are uncertain of the precise definition of "substantial
compliance," we note Congress's choice in using the phrase "substantial"
compliance, rather than "full" compliance or merely "compliance."
It
seems reasonable that in using this phrase Congress intended to include
within the sanction's scope facilities which were certified with some
level of deficiencies, as were the facilities in this case. Further, if
Congress had intended to exclude(9) facilities which had previously been
certified with some level of deficiencies, it could have simply and
clearly done so.
In addressing what Congress intended by the particular use of the phrase
"substantial compliance," we note that at the time the intermediate
sanction statute was enacted only one Medicaid regulation described the
level of deficiencies that is acceptable for a certified facility.
42 CFR 442.105, titled "Certification with deficiencies: General
provisions," provided in part:
If a survey agency finds a facility deficient in meeting the
standards specified under Subpart D, E, F, or G of this part, the agency
may certify the facility for Medicaid purposes under the following
conditions:
(a) The agency finds that the facility's deficiencies, individually
or in combination, do not jeopardize the patient's health and safety,
nor seriously limit the facility's capacity to give adequate care. The
agency must maintain a written justification of these findings.
The Agency in this appeal never argued that the deficiencies in the five
facilities did "seriously limit the (facilities') capacity to give
adequate care." Therefore, there is no regulatory basis on which the
Board can conclude that the level of deficiencies in the facilities was
such as to make them less than "substantially compliant."
2. Facilities previously under plans of correction may be
"substantially compliant."
The Agency appeared to make several alternative arguments as to whether
the facilities in this appeal were substantially compliant. We
therefore consider each of these various arguments in turn. At one
stage, the Agency appeared to argue that any facilities previously under
plans of correction could not be considered substantially compliant.
See Tr., pp. 41-43.
There are two answers to this contention. The first is that the
intermediate sanction statute by its terms makes no exception for
facilities that had been under plans of correction. The second is that
the great majority of Medicaid facilities are certified with plans of
correction. That is the norm, so the Agency's position would lead to
the(10) result that the great majority of facilities would never be in
substantial compliance, even though properly certified with plans of
correction.
The Agency may instead have been arguing that facilities previously
under long term plans of correction, as were the facilities in this
appeal, could not be substantially compliant. Our response to this
argument is essentially the same as above. First, the statute itself
makes no such exception, and, secondly, the accepted practice of states
routinely certifying facilities under plans of correction leads us to
believe that such facilities are "substantially compliant." We see
no
basis for distinguishing those facilities under long term plans of
correction.
3. Facilities with "physical plant" deficiencies may be substantially
compliant.
In its final written submission to the Board, the Agency appeared to
narrow its argument regarding substantial compliance by maintaining that
facilities that needed to correct "physical plant" deficiencies could
not be considered as ever being substantially compliant. The Agency
maintained that the facilities at issue here only needed to correct such
"physical plant" deficiencies. The Agency argued:
However, the granting of extensions to correct physical environment
and Life Safety Code deficiencies until July 18, 1982, under Secs.
442.113 and 42 CFR 442.115 was not predicated on the concept of
"substantial compliance" as is the granting of plans of correction
in
the usual certification process. The concept of "substantial
compliance" is generally in the context of the facility's overall
performance as measured against all the facility standards for that
provider category. After 1978 the exceptions under 42 CFR Secs. 442.113
and 42 CFR 442.115 were only for meeting physical plan requirements
(Life Safety Code, living, dining, and therapy areas), which together
only comprise a portion of the total number of standards.
HHS Response to Order to Develop the Record, p. 1.
We fail to see why these so-called "physical plant" deficiencies
should
be treated any differently from other deficiencies. They were not a
separate, discrete type of deficiency; the only difference was that a
longer period was permitted for their correction and certain specific
requirements for meeting the correction timetable applied.(11) See 42
CFR 442.113. These deficiencies may have been more identifiable than
other deficiencies, but plans for their correction were still subject to
the requirement of 42 CFR 442.105 that facilities certified "with
deficiencies" "not jeopardize the patient's health and safety, nor
seriously limit the facility's capacity to give adequate care."
In its final written submission, the Agency appeared to have abandoned
completely its argument regarding substantial compliance. /8/ In
response to the Board's question of whether previously certified
facilities should be presumed substantially compliant, the Agency
responded in part:
The Agency was drawn into a discussion of whether these facilities
complied with operational standards under Medicaid in response to
Question #3 asked by the Board at the February 6, 1985 conference (Tr.
51-54), (Agency Exhibit 66). A discussion of "substantial compliance"
in the general sense, i.e. compliance with ICF/MR Medicaid standards, is
not relevant to the facts of this case which involve special regulatory
provisions addressing a fraction of the Medicaid standards (physical
environment and LSC) for a specified period of time.
HHS Response to Order to Develop the Record, p. 6.
In fact, the issue of substantial compliance was a major basis of the
Agency's argument in its initial brief. See Agency's Brief, pp. 48-52.
4. The Agency's disallowance was based only upon a "procedural
look-behind."
Even if we had accepted the Agency's argument above that facilities
under some type of corrective plan may not be considered substantially
compliant, we would still be required to find for the State on this
central issue. The disallowance in this appeal was based upon the
Agency's exercise of the so-called "procedural look-behind" authority(
12) under 42 CFR 442.30. See Agency's Brief, pp. 2-3. This regulation
authorizes the Agency to evaluate whether the State followed the correct
procedures as outlined in the statute and regulations pertaining to
certification of facilities. It is different from "substantive
look-behind," see section 1902(a)(33)(B) of the Act, where HCFA actually
visits facilities to evaluate if they comply with federal requirements.
/9/ Since the disallowance here is based only upon procedural
look-behind, there is not before us any issue of whether the particular
deficiencies at any facility were such that it could be argued that the
facility was not in substantial compliance, even though it was in fact
certified with a plan of correction. /10/
We find, therefore, that the five facilities in this appeal were in
"substantial compliance" with the provisions of section 1905(c) of
the
Act, as required by the intermediate sanction statute.
C. The intermediate sanction was "meaningful"
The Agency has argued that imposition of the intermediate sanction is
not applicable to the situation of this appeal because the penalty it
imposed on the State was not (13) "meaningful." Agency's Brief, pp.
54-58. The Agency relied on the language of a Medicaid regulation which
addresses plans of correction, 42 CFR 442.115(d)(3), which provides:
(d) If the plan provides for correction by phasing out part or all of
the ICF/MR, it must -
* * *
(3) Provide that no new recipients will be admitted to the building
or unit after the plan has been approved.
In its initial brief, the Agency observed that all but three of the
buildings at the five developmental centers were "slated for phase out"
under the five year plan of correction. Agency's Brief, p. 57. Since
section 442.115(d)(3) prohibited new admissions at all but these three
buildings, the Agency contended that there was no penalty on the State
by imposing the intermediate sanction.
We find the Agency's argument unpersuasive for two reasons. First,
whether the State suffered a monetary loss because of the sanction is
not a relevant issue under the statute. The intermediate sanction
statute has no requirement that a state be in fact harmed by its
imposition.
Secondly, even if a finding of some penalty were necessary to allow
imposition of the intermediate sanction, the State would in fact be
harmed by the imposition of the sanction in the amount of $660,000. One
way to describe the penalty that the intermediate sanction imposed on
the State is to say that, in effect, the sanction continued one of the
penalties that the plan of correction itself imposed. Just as the State
could not receive FFP for new admissions at most buildings under the
plan of correction, it could not do so at any buildings in the five
facilities under the intermediate sanction. /11/ If certification had
been(14) continued without the intermediate sanction after the plan of
correction expired, the State would have received FFP of $660,000 by its
estimate. State's Reply Brief, p. 15.
D. The sanction could be imposed after the termination or automatic
cancellation dates.
At the conference in this appeal, the Agency articulated an additional
argument in regard to the interpretation of the intermediate sanction
provision. The Agency argued that section 1902(i) of the statute
implies a condition in addition to the need for substantial compliance:
the ICF must be "certified for participation under its plan. . . ."
The
Agency argued that since the five ICFs/MR were no longer "certified"
at
the time the sanction was imposed, the intermediate sanction was
inapplicable. See Tr., pp. 187-188.
We are not persuaded by this argument. First, the Agency's
interpretation of the phrase "certified for participation" does not
comport with the intent of the intermediate sanction to provide an
alternative "in lieu of immediate decertification." H.R. Rep. No.
1167,
96th Cong., 2d Sess. at 57 (1980). If the intermediate sanction was
designed to provide relief from decertification for certain facilities,
it appears reasonable to us that the decision to impose it would
naturally be made either when a provider agreement was soon to expire or
when its term had lapsed. We can imagine no reason why Congress would
have distinguished between applying the sanction the day before the
ending date of the provider agreement and the day after. It seems an
unusually harsh penalty to prohibit entirely the use of the intermediate
sanction if the decision to use it was not made until after the
termination date, and we have no other evidence that Congress intended
to impose such a penalty.
Secondly, the statute itself contemplates that the sanction might be
imposed some time after certification has ended. See State's Response
to Order to Develop the Record, pp. 18-20. Sections 1902(i)(2) and (3)
of the Act provide that:
(2) The State shall not make such a decision with respect to a
facility until the facility has had a reasonable opportunity, following
the initial determination that it no longer substantially meets the
provisions of . . . section 1905(c) to correct its deficiencies, and,
following this period, has been given reasonable notice and opportunity
for a hearing.(15)
(3) The State's decision to deny payment may be made effective only
after such notice to the public and to the facility as may be provided
for by the State. . . .
Further, section 1902(i)(1) provides that time of imposition of the
statute is to be ultimately decided by the State: ". . . no payment
shall be made under the State plan with respect to any individual
admitted to such facility after a date specified by the State."
As the State has observed, the Agency has itself imposed an intermediate
sanction some time after expiration of the provider agreements of
skilled nursing facilities (SNFs) under section 1866(f) of the Act. As
State's Exhibits 189-196 indicate, HCFA imposed the intermediate
sanction on two SNFs several weeks after certification had ended. /12/
We therefore conclude in this part of the decision that the intermediate
sanction was applicable to the situation of this appeal. The
intermediate sanction statute by its terms appears designed to provide
relief for the type of facilities here and we are unpersuaded by the
Agency's objections to the sanction's imposition. We find that the
facilities were "substantially complaint" with regulations and we
do not
find reasonable the Agency's other interpretations of the intermediate
sanction statute.
II. THE TIMING OF THE INTERMEDIATE SANCTION FOR THE FACILITIES OTHER
THAN LETCHWORTH VILLAGE
In Part I, we have concluded that the State could utilize the
intermediate sanction provision for the five facilities in this appeal.
We turn now to the issue of whether the sanction was applied at the
correct time by the State. The State delayed starting imposition of the
sanction for the five facilities from the expiration or cancellation
dates of their respective provider agreements until November 23, 1982
because of the possibility of extensions provided by the(16) "extended
phase out" regulation, 42 CFR 442.115(g), which was made final on August
26, 1982. 47 Fed. Reg. 42698. The intermediate sanction was made
effective on January 15, 1983. /13/
We conclude, for the reasons given below, that the possibility of phase
out relief did not excuse the delay in imposition of the intermediate
sanction. We therefore uphold the disallowance for the Craig, West
Seneca, J.N. Adam and Newark Developmental Centers from the
cancellation dates of their provider agreements until November 23, 1982.
/14/ The State extended the certification of Letchworth Village
Developmental Center both because of possible relief from the phase out
regulation and because of the authority of a separate regulatory
provision, 42 CFR 442.16. In Part III, we reverse the disallowance for
the delay in imposition of the sanction for Letchworth Village until the
time the sanction was lifted in 1983 because of the independent
authority of 42 CFR 442.16.
A. The phase out regulation presented no dilemma for the State.
The State's primary argument in this appeal was that its delay in
imposition of the intermediate sanction was justified because of the
uncertainty of when the phase out regulation, 42 CFR 442.115(g), would
be issued in final form and whether the facilities concerned would be
eligible for relief under its provisions. In support of this argument,
the State has also cited the fact that "implementing guidelines" to
Agency regional offices were not issued until November 1982; the State
claimed these guidelines could have aided the State in evaluating
whether the facilities were eligible. See, e.g., State's Opening Brief,
pp. 29-33. The(17) State characterized its position in early August
1982 as a "dilemma" because it was uncertain whether the provider
agreements for the five facilities should be terminated or whether they
might be extendible pursuant to the phase out regulation. State's Ex.
D.
The phase out regulation was first published in proposed form on August
24, 1981. 46 Fed. Reg. 42698. The State analyzed this Notice of
Proposed Rulemaking (NPRM) and submitted detailed comments. See State's
Ex. 1. The final regulation was not published until August 26, 1982, 47
Fed. Reg. 37547; it provided an approximately three month application
period for extended phase out until November 24, 1982. /15/ The State
waited until the end of this period before applying for phase out for
only one of the facilities, Craig, which was ultimately rejected, see
State's Ex. 32, and to begin imposition of the intermediate sanction
authority on November 23.
We conclude that the phase out regulation's three month application
period did not supersede the responsibility of the State to decertify
the ICF/MR facilities or to impose the intermediate sanction at an
earlier date. Although the application period was designed to afford
states a reasonable time in which to formulate an application for its
facilities, there is no indication by its terms that the regulation
abrogated any previous agreements to which the States were bound.
B. The Alternatives Available to the State
The Agency did, in fact, allow the State an opportunity to apply for the
extended phase out relief. On September 16, 1982, the Agency wrote to
the State offering its solution to(18) the State's purported "dilemma"
of whether to decertify the facilities or apply for phase out relief.
State's Ex. 16. The Agency's offer was that the State could apply for
phase out relief for any of the facilities by the end of the application
period. If the facilities were accepted as eligible for phase out
relief, the State would lose no FFP. If, however, any of the facilities
failed to be eligible for phase out relief (or if no application was
made), they would be considered decertified retroactively from the
termination or automatic cancellation dates of their provider agreements
and the State would lose FFP accordingly. The State declined this offer.
See Agency's Exs. 24, 29; HHS Response to Order to Develop the Record,
pp. 23-24.
The Agency's offer comports with our conclusion above that the phase out
regulation was not designed to supersede any terms of a facility's
provider agreement. If the State wished to apply for phase out for a
facility, it could do so, but it could not be guaranteed FFP for the
time it took to submit an application if the application was denied.
Further, the phase out regulation and the intermediate sanction
authority were not mutually exclusive alternatives available to the
State. If the State was uncertain about when the final phase out
regulation would be published or whether the facilities would be
eligible for phase out relief under it, it could have begun invoking the
intermediate sanction before the expiration dates or automatic
cancellation dates of its facilities' provider agreements. If the
facilities were eventually found to have been ineligible for use of the
phase out regulation, the State could have received FFP for all but new
admissions for the duration of the three month application period.
III. THE TWO MONTH EXTENSION FOR LETCHWORTH VILLAGE
In this part, we address specifically the extension of Letchworth
Village Developmental Center's provider agreement beyond its expiration
date of September 30, 1982 to November 30, 1982. The State extended the
agreement for Letchworth Village by invoking the authority of 42 CFR
442.16, which provides:
Sec. 442.16 Extension of agreement.
A Medicaid agency may extend a provider agreement for up to 2 months
beyond its original expiration date if it receives written notice from
the survey agency, (19) before the expiration date of the agreement,
that extension will not jeopardize the patients' health and safety, and
--
(a) Is needed to prevent irreparable harm to the facility or hardship
to the recipients in the facility; or
(b) Is needed because it is impracticable to determine, before the
expiration date, whether the facility meets certification standards.
The State independently relied on the authority of both sections (a) and
(b) of 42 CFR 442.16 in justifying a two month extension for Letchworth
Village. See State's Opening Brief, p. 29. /16/
As discussed below, we conclude that the State properly extended the
certification of the Letchworth Village facility from September 30 to
November 30, 1982 under the authority of 42 CFR 442.16. We therefore
reverse the disallowance for the Letchworth Village facility from
September 30, 1982 until the time the sanction was lifted at the
facility in 1983. (The significance of the November 30, 1982 date is
mooted by our finding in Part I that the State properly utilized the
sanction after November 23, 1982.)
Although the State devoted argument to both grounds provided by 442.16,
we rely on section (b) in making our conclusion. We find that the
State's determination of impracticability is entitled to presumptive
validity and that the Agency has not rebutted such a presumption.
Because the two grounds of 442.16 are independently sufficient bases to
uphold the State's extension, we do not address the State's argument
under 442.16(a).
On August 12, 1982, OHSM, the State survey agency, requested a two-month
extension of Letchworth Village's provider agreement from September 30
to November 30, 1982. Attachment to State's Ex. O. The reason for the
request, according to the State, was insufficient time to determine
whether the facility's certification should be continued( 20) after
September 30. State's Reply Brief, pp. 17-18; State's Exhibit O.
According to the State, there was an involved process in deciding
whether to continue certification, including an opportunity for
facilities to develop a plan of correction, and interim two-month
extensions were typically requested by OHSM. State's Reply Brief, pp.
17-18.
The Agency in this appeal objected to the two-month extension for the
Letchworth facility because, in its view, "the State knew on June 18,
1982 . . . that Letchworth had not attained compliance with the
standards of 42 CFR 442.113(a) by the regulatory deadline of 42 CFR
442.115(a)(2)." /17/ Agency's Brief, p. 59. However, as we explain
below, we conclude that this is an insufficient basis on which to
conclude that it was not "impracticable to determine, before the
expiration date, whether the facility meets certification standards." 42
CFR 442.116(b).
In another appeal under 42 CFR 442.16 the Board held that a State
determination that it is impracticable to determine if a facility meets
certification standards is entitled to presumptive validity. Colorado
Department of Social Services, Decision No. 310, June 14, 1982. We
stated there:
42 CFR 442.16 authorized a specific interaction between two State
agencies: the State Medicaid agency could extend a provider agreement
based on notice from the(21) State survey agency. The provision did not
specify a review role for HCFA. (footnote omitted) We do not question
the authority of HCFA generally to determine the allowability and
reasonableness of expenditures, and therefore to determine whether the
State complied with the conditions in section 442.16. But the
intrastate nature of the process authorized by the provision, the
absence of a specified HCFA role in the process, and the lack of
standards like those under section 442.30, imply that the State's
determination under section 442.16 was entitled to presumptive validity.
That is, HCFA in effect bore a burden of showing how the State's
determination was wrong.
Id., p. 4.
In Colorado, the Board concluded that the Agency had not sufficiently
rebutted the presumption that the State's determination of
impracticability was correct and therefore upheld use of the two-month
extension. /18/
Although there may be some limited factual distinctions between Colorado
and the present case, the facts of the two cases are similar, and we
conclude that the analysis of that decision applies in this case as
well. In both cases, initial survey determinations were conducted in
June of the year in question that indicated several deficiencies in the
facility. (For Decision No. 310, in 1979; in Docket No. 84-128, in
1982.) In both cases, the provider agreements of the facilities in
question were due to expire in late September of the relevant year. In
both cases, the State survey agency applied under 442.16 in August for a
two-month extension until late November. Although the fact that the
months concerned were coincidentally identical for the two cases is not
significant, it is important that the initial surveys in both cases were
conducted approximately three months in advance of the expiration date
of the facilities' provider agreements.
We conclude here, as we did in Colorado, that the Agency has not
rebutted a presumption of impracticability. In argument before the
Board, the Agency first attempted to distinguish Colorado from the
present case by emphasizing the type of deficiencies present at the
Letchworth complex. The Agency(22) observed, as it did regarding its
argument on the substantial compliance of the five facilities (see
section IA above), that the deficiencies were "physical plant"
deficiencies that are addressed by 42 CFR 442.113. Tr., p. 62. /19/ As
we emphasized above in our discussion of substantial compliance, we fail
to see why "physical plant" deficiencies should be treated any
differently from other types of deficiencies. While physical plant
deficiencies might be more identifiable, the same difficulties would
appear to exist in correcting the deficiencies.
Further, the Agency appeared to argue that an extension for Letchworth
under 42 CFR 442.16(b) was improper because the facility's plan of
correction should have expired on July 18, 1982. Tr., p. 63. First,
there seems to be no question that the provider agreement was subject to
an expiration date of September 30, 1982. The disallowance for
Letchworth Village in fact corresponds to the period of time after the
expiration of its provider agreement on September 30, 1982.
Second, we fail to see how the expiration of the provider agreement in
this appeal was any different than in Colorado, where we found that the
Agency had not rebutted a presumption of impracticability. The State
may have known that the provider agreement for Letchworth Village was
due to expire on September 30, but it may have still been uncertain
whether the facility should be decertified at that time or granted an
additional agreement. The Agency has failed to demonstrate why the
State should have known conclusively that decertification was inevitable
based on the initial survey determination of June 18, 1982. The Agency
may be making two arguments: (a) There was no uncertainty as to whether
the facility should have been decertified on September 30, 1982 based on
the initial survey determination in June; and (b) further plans of
correction could not be developed after July 18, 1982, thus rebutting
the State's argument that one justification for invoking 42 CFR 442.16
was the need for time to develop an additional plan of correction.
With respect to whether decertification was inevitable after September
30, 1982, we fail to see how the determination of(23) whether to
continue certification should be any less difficult for a facility that
had just completed a five year plan of correction. The State still
needed to determine if the facility complied with standards. And as we
explained above, the fact that many of the deficiencies related to
physical plant does not seem dispositive. One might argue, in fact,
that the determination here was especially difficult precisely because
the facility was subject to a long term program of improvement. Also,
as we indicated above, Letchworth Village was an unusually large
facility and any evaluation of conditions in the facility would be
difficult as a practical matter.
With respect to the development of further plans of correction, the
Agency has provided no authority nor are we aware of any that would have
prohibited an additional plan of correction for Letchworth Village. /20/
Although the five year plan may have had a deadline of July 18, 1982 set
by regulation, the regulations also provide that states may accept one
year plans of correction for facilities "with deficiencies" if the
conditions described in 42 CFR 442.105 are satisfied. See 42 CFR
442.110 and 442.111. These regulations make no exception for facilities
that have previously been under long term plans of correction. /21/
Another possible factual distinction between Decision No. 310 and the
present case is that development of a plan of correction was required by
Colorado state law. See Decision No. 310, p. 5. No such legal
requirement was cited in this appeal, although the State maintained that
its usual procedure called for the opportunity to develop a plan of
correction. See State's Reply Brief, p. 17. We do not fnd this
distinction significant. The fact that Colorado law required allowance
for an opportunity to develop a plan of correction and that the State
had only a policy to that effect in this appeal should not affect the
impracticability of determining whether certification should be
revoked.(24)
We therefore conclude that the Agency has not rebutted a presumption
that it was impracticable to determine whether Letchworth Village's
provider agreement should have been extended or terminated after its
expiration date of September 30, 1982.
CONCLUSION
For the foregoing reasons, we reverse the Agency's determination in part
and affirm it in part. In Part I, we uphold the use of the intermediate
sanction by the State and therefore reverse the Agency's disallowance
for the five facilities from November 23, 1982 until the intermediate
sanction was lifted at each facility during 1983. In Part II, we uphold
the disallowance for the Craig, West Seneca, and Newark Developmental
Centers from the automatic cancellation dates of their provider
agreements on August 31, 1982 until the intermediate sanction was
invoked on November 23, 1982. For J.N. Adam, because the State has
concurred in the disallowance of FFP until September 2, 1982 (see n.
4), we uphold the disallowance from September 3, 1982 until November 23,
1982. In Part III, we reverse the disallowance for Letchworth Village
Developmental Center from the expiration of its provider agreement on
September 30, 1982 until the sanction was lifted at the facility,
because of our finding that the agreement was properly extended for two
months. See chart appended to decision. We remand this case to the
Agency to determine the proper amount of FFP to which the State is
entitled in accordance with this decision. If the State is unable to
agree with this calculation, the State may appeal to us on this one
issue.(25)
*4*Appendix ICF/MR Provider Agreement Automatic Cancellation
Disallowan Facility Termination Date Clause Date
Period Uph CRAIG N/A August 31, 1982
September 1 to November 2 WEST N/A
August 31, 1982 September 1 SENECA
to November 2 NEWARK N/A August 31, 1982
September 1 to November 2 J.N. ADAM * July 31, 1985
N/A September 3 to November 2 LETCHWORTH September 30,
1982 N/A Non VILLAGE extended by
regulation to November 30, 1982