Delaware Department of Health and Social Services, DAB No. 732 (1986)

GAB Decision 732

March 21, 1986

Delaware Department of Health & Social Services; 
Docket No. 85-33
Garrett, Donald F.; Settle, Norval D.  Ford, Cecilia Sparks

The Delaware Department of Health and Social Services (Delaware)
appealed a decision by the Health Care Financing Administration (HCFA)
to disallow $201,824.62 in federal financial participation (FFP) claimed
by Delaware under the Medicaid program for the first three fiscal
quarters of 1984.  HCFA based the disallowance on its determination that
Delaware had failed to maintain an effective program of utilization
control over long-term care services for Medicaid patients in two
intermediate care facilities (ICFs), including those for the mentally
retarded.

During the course of this appeal, HCFA reviewed documentation submitted
by Delaware and withdrew the disallowance for the quarter ending
September 30, 1984.  Additionally, HCFA has agreed that the disallowance
can be recalculated based on exact recipient data.  See 42 CFR 456.657.
HCFA indicated that the parties need only agree on the precise figures
to be used to begin the recalculation. Consequently, the amount of
federal funding in dispute is lower than the amount HCFA initially
disallowed.  Based on our analysis of the record, we uphold the
disallowance.

Background

The statutory authority for the Medicaid program is found at Title XIX
of the Social Security Act (Act).  It provides that for each quarter in
which a state claims federal funds under Medicaid, that state must make
a "showing satisfactory to the Secretary" that it is operating an
effective utilization control program for long-stay patients in certain
facilities.  See section 1903(g)(1).  As noted above, HCFA examined
documentation submitted by Delaware regarding HCFA's initial findings as
to whether certain patients were not properly reviewed.  Based on that
subsequent examination, HCFA now contends that Delaware failed to
include four patients in the annual on-site review of two ICFs during
the first quarter of 1984, as required by 1903(g)(1)(D).  Consequently,
HCFA imposed the statutory(2) reduction in FFP for that quarter, as well
as the following quarter for which it alleged that Delaware remained out
of compliance by failing to complete the reviews.  See section
1903(g)(5), and 42 CFR 456.652(b)(3).

Generally, Delaware argued that the facts of this case do not warrant a
finding that it had violated the statutory annual review requirements.
Delaware contended that its medical review system was essentially
satisfactory;  that it had substantially complied with the statutory
annual requirements;  that its medical review program had been operated
in good faith at all times;  and that, given the larger purpose of the
medical review program, its failure to review four patients in two
facilities was essentially de minimis.

Applicable Law

Section 1903(g)(1)(D) /1/ of the Act requires the state agency
responsible for the administration of a state's Medicaid plan to submit
a written, quarterly showing demonstrating that --

   it has an effective program of medical review of the care of patients
in . . . intermediate care facilities pursuant to section 1902(a) . . .
(31) whereby the professional management of each case is reviewed and
evaluated at least annually by independent professional review teams.


A state's showing for each quarter must be "satisfactory" or FFP paid to
the state for expenditures for long-stay services will be decreased
according to the formula set out in section 1903(g)(5).(3)$% Section
1902(a)(31) required, in pertinent part, that a State plan provide --

   . . . for periodic on-site inspections to be made in all . . .
intermediate care facilities . . . within the State by one or more
independent professional review teams . . . of (i) the care being
provided in such intermediate care facilities to persons receiving
assistance under the State plan, (ii) with respect to each of the
patients receiving such care, the adequacy of the services available .
. . .

Regulations implementing the statutory utilization control requirements
are found at 42 CFR Part 456 (1978).  In particular, section 456.652
provides that --

   (a) . . . (in) order to avoid a reduction in FFP, the Medicaid Agency
must make a satisfactory showing to the Administrator, in each quarter,
that it has met the following requirements for each recipient;

   * * * *

   (4) A regular program of reviews, including medical evaluations, and
annual on-site reviews of the care of each recipient . . . .

   (b) Annual on-site review requirements.  (1) An agency meets the
quarterly on-site review requirements of paragraph (a)(4) of this
section for a quarter if it completes on-site reviews of each recipient
in every facility in the State . . . by the end of the quarter in which
a review is required under paragraph (b)(2) of this section.

The statutory exception at section 1903(g)(4)(B) /2/ states --


   The Secretary shall find a showing . . . to be satisfactory . . . if
the showing demonstrates that the State has conducted such an onsite
inspection during(4) 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.

Section 1903(g)(4)(B) is implemented by 42 CFR 456.653 which provides
that --

   The Administrator will find an agency's showing satisfactory, even if
it failed to meet the annual (medical) review requirements of Sec.
456.652(a)(4), if --

   (a) The agency demonstrates that --

   (1) It completed reviews by the end of the quarter in at least 98
percent of all facilities requiring review by the end of the quarter;

   (2) It completed reviews by the end of the quarter in all facilities
with 200 or more certified Medicaid beds requiring review by the end of
the quarter, and

   (3) With respect to all unreviewed facilities, the agency exercised
good faith an due diligence by attempting to review those facilities and
would have succeeded but for events beyond its control which it could
not have reasonably anticipated;  or

   (b) The agency demonstrates that it failed to meet the standard in
paragraph (a)(1) and (2) of this section for technical reasons, but met
the standard within 30 days after the close of the quarter.  Technical
reasons are circumstances within the agency's control.(5)

Issues concerning the medical review requirement and the statutory
exception as raised in an Order to Develop the Record.

We issued an Order to Develop the Record (Order) /3/ which set out
preliminary analyses and questions on three general issues concerning --


(1) the meaning of the statutory exception stated in section 1903(g)(
4)(B) whereby a state's quarterly showing is satisfactory
notwithstanding a state's failure to conduct a medical review in one or
more facilities where a review was required,

(2) under what circumstances a state's showing will be found
satisfactory under the statutory exception in section 1903(g)(4)(B), and

(3) whether the Agency may properly find a violation of the section
1903(g) medical review requirement for a facility where there was an
on-site inspection under section 1903(a)(31), but the state review team
failed to review one or more Medicaid recipients and there were
mitigating or unusual circumstances or reasons to find that the state's
program substantially complied with the requirements.

The analyses in the Order derived from the Agency's analysis of the
effect of the amendments to section 1903(g) in Public Law 95-142 and how
to implement them set forth in an Action Transmittal, HCFA-AT-77-106,
November 11, 1977, and the preambles to the proposed and final
regulations at 43 Fed. Reg. 50922, November 1, 1978 and 44 Fed. Reg.
56333, October 1, 1979.(6)

We will refer to the parties' responses to the Order to the extent they
are relevant to the issues presented here.

Analysis

When performing the annual facility reviews due during the first
calendar quarter of 1984, the State review teams failed to review three
Medicaid recipients in one ICF and one Medicaid recipient in another
ICF.  Both ICFs had fewer than 200 certified Medicaid beds.  Delaware
stated that "(for) some unknown reason their names had been deleted
inadvertently from the regional Medicaid list" used by the review team.
Subsequent to the on-site reviews, the State learned that these patients
were Medicaid eligible and had been Medicaid recipients for some time
when the reviews were performed.  State Brief, p. 9.  Medical reviews
were finally performed in mid-August of 1984 for the patients that were
missed.  At issue now is a 1903(g) reduction for the quarters ending
March 31, 1984 and June 30, 1984.

A.  Whether Delaware's failure to review three patients in two ICFs
constitutes a de minimis violation of the annual review requirement so
that we may conclude that Delaware has substantially complied with the
statute.

Delaware maintained that it substantially complied with the 1903(g)(4)(
B) exceptions and that HCFA was reducing Delaware's federal funding on
the basis of obviously de minimis violations. Delaware contended that
the legislative history of section 1903(g)(4)(B) clearly revealed
Congresional intent to apply the annual review requirement (and
exceptions) in a reasonable manner.  Delaware argued further that the
legislative history clearly focussed the annual review requirement on
facilities, rather than recipients.  Therefore, HCFA's recipient-based
approach, whereby failure to review even a single patient is the
equivalent of not reviewing the entire facility, is unreasonable. Thus,
Delaware reasoned, HCFA should ignore de minimis violations and, under a
theory of liberal construction, resolve doubts as to the validity of an
annual review in the state's favor.  Delaware contended that any medical
review system which in practice produces results with such a small
margin of error, here missing only four recipients, is inherently valid.

Further, Delaware argued that section 1903(g)(4)(B) gave the Secretary
wide discretion regarding the imposition of a penalty stemming from a
state's failure to meet the requirements of section 1903(g)(1)(D).  In
support of its position, Delaware cited an Opinion of the Comptroller
General (59 Op. Comp. Gen. 286) which noted that "Congress had provided
a 'standard of reasonableness in the bill' with respect to the (7)
annual review requirements of Sec.1903(g)(1)(D)." Delaware contended
that its attempts at compliance with section 1903(g)(1)(D), as well as
the overall effectiveness of its Utilization Control program, should be
judged in light of the Secretary's discretion and the standard of
reasonableness inherent in the statute.

The Order posed the question whether the Agency must find a violation of
the medical review requirement where a review is performed in a facility
but the review team fails to review one or more Medicaid recipients
where there are mitigating or unusual circumstances or where a state's
program substantially complies with the requirements.  Our question was
based on the statutory exception, the Agency's implementation of the
medical review requirement as a facility-based requirement so that the
states need not track the length of care for any particular patient, and
the Agency's recognition that there may be recipients who have received
care for an annual period who are not reviewed because they had been
transferred or were absent from the facility at the time of the review.
See 43 Fed. Reg. 50924.

The Agency pointed to language in section 1903(g)(1) and 42 CFR
456.652(b) which, it claimed, clearly demonstrated that the Agency had
no discretion in this area.  Thus, argued the Agency, a state is
required to review every patient in every facility due for review. HCFA
Response to the Order, pp. 6-7.  The Agency noted that the regulations
interpreted the annual review requirement in terms of the anniversary
review quarter by which time all recipients in the facility must be
reviewed, rather than as 12-month periods for each recipient. The Agency
cited the preamble to the final regulations which provided that, "States
would not be required to track the length of time each individual
recipient was in a facility, and the review date would not relate to the
length of stay of any individual recipient in that facility." 44 Fed.
Reg. 56335.  The Agency maintained that this interpretation did not
relieve a state from the requirement that each recipient be reviewed
during an annual review.  Further, since Congress had not written a de
minimis exception into the statute, HCFA said it could not be expected
to apply one.  Therefore, HCFA concluded, failure to review any patient
is tantamount to failure to review the facility.

The above cited Comptroller General Opinion, with specific reference to
the certification, recertification, and plan of care requirements and
the requirement for utilization review of each admission, (at former
1903(g)(1)(A), (B), and (C)), concluded that HHS did "not have authority
under the circumstances presented (violations of(8) 1903(g)( 1)(A) and
(B)) to find that a State has satisfied the Medicaid utilization control
provision." The Comptroller General discussed the "standard of
reasonableness" set forth in section 1903(g)(4)(B) and reasoned that
there was no indication that Congress intended to lessen the
requirements in general, given the explicit statement of the exception
for a state's showing for the medical review requirement.

The Board has previously held that total rather than substantial
compliance with utilization control requirements is necessary.  Kansas
Department of Social Services, Decision No. 312, June 21, 1982.  We have
also upheld as reasonable the Agency's interpretation that it has no
discretion to waive the reduction of FFP once there is a violation of
the section 1903(g)(1) requirements.  Colorado Department of Social
Services, Decision No. 169, April 30, 1981.  In large part the Agency
based this interpretation on the above discussed Comptroller General
decision.  Upon considering the parties arguments, we conclude that
there is no reason to reverse our basic holdings for the medical review
requirement.  We have concluded that substantial compliance and
mitigating circumstances cannot meaningfully be applied here.  The
Agency has clearly chosen not to approach the medical review requirement
in this way.  The Agency's interpretation is supportable under the terms
of the statute and consistent with its own regulations, which we are
bound to apply.  Although the Agency has issued little guidance
expressly on the medical review requirement, the Agency's longstanding
strict application of the other utilization control requirements is
well-known to the states.  We cannot reasonably conclude that the Agency
is obliged to implement the medical review requirement in a radically
different or more liberal fashion than it implemented the other
utilization control requirements.

Moreover, we are not persuaded by the State's argument that omitting
from medical reviews three patients in one facility and one patient in
another is de minimis.  Although section 1903(g)(1) requires a showing
that "there is in operation in the State an effective program of control
over utilization of" long-term care services, the statute specifies that
such a program must consist, inter alia, of conducting annual medical
reviews of the care of each Medicaid patient.  (Sections 1903(g)(1) (D)
and 1902(a)(26) and (31)) The statute provides certain limited
exceptions to the requirement for the annual review of each patient
(discussed in part below), but contains no indication that the Secretary
has discretion to find that the State has a valid showing if the State
did not review patients who reasonably should have been identified as
Medicaid eligibles in the facility and the exceptions did not apply.
Here, Delaware presented no(9) evidence designed to show that it was not
reasonably able to identify and review the omitted recipients.  For
"some unknown reasons," these recipients were simply "inadvertently"
missed by the reviewers.  State Brief, p. 9. /4/


The regulation at 42 CFR 456.652(b) states a general requirement for an
on-site medical review in every facility for each Medicaid recipient.
Furthermore, a state may not aim for anything less than completion of
100% of the required reviews by the end of the showing quarter.  Order,
pp. 6-7.  Here, we are faced with a situation where there is no dispute
that reviews did not include one or more Medicaid recipients who were in
the facility and who ought to have been included in the on-site review.
We agree with HCFA that where such recipients are omitted from the
medical review performed at the facility, such a facility is legally on
a par with a facility which was entirely unreviewed.

B.  Whether Delaware's showing is satisfactory under the statutory
exceptions at section 1903(g)(4) (B).

Delaware reasoned that its good faith and due diligence are shown by (1)
the conduct of reviews in all of its ICFs and patients since they were
Medicaid eligible.  Moreover, Delaware argued that missing these four
patients in two facilities was "a classic case of a failing which is
technical in nature only."

Delaware noted that the facilities in question had less than 200 beds.
Accordingly, Delaware contended that its compliance had to be assessed
in terms of section 1903(g)(4) (B) (i) which mandates reviews in "not
less than 98 per centum of . . . facilities requiring such inspection.
. . ." Delaware again disputed HCFA's interpretation of the statute,
equating the failure to review a single recipient with a failure to
review an entire facility.  Delaware argued that HCFA's application of
the statute is plainly unjustified by the statutory language and
legislative history, which clearly emphasize a facility oriented review.
Delaware then argued that HCFA's approach harmed states, such as
Delaware, with a(10) small number of long-term care facilities, in that
a failure to review four patients in two facilities may alone preclude a
state from meeting the 98% standard established by the statute.
However, under HCFA's approach, the fact that a state made a good faith
effort to conduct 100% of the required facility reviews and review all
recipients in those facilities, will be ignored simply because the state
inadvertently missed four patients and in spite of the fact that the
State clearly reviewed more than 98% of all patients due for review.
Delaware stated that the corollary to this argument is that, under
HCFA's current application of the statute, a larger state with more
facilities can conduct reviews which miss far more recipients, yet their
medical review programs can be found in compliance with the statute.

Additionally, Delaware argued that the language of 42 CFR 456.653(a)(3)
and (b), which does not appear in the statute, restricts the coverage of
the statute.  Delaware stated that it was not clear "that the 30 day
rule . . . applies to the exception section as compliance . . . is not
expressly conditioned on the 30 day limit." Delaware noted that although
the legislative history of section 1903(g)(4)(B) mentioned that a
showing made under the technical failings exception should be completed
within a few weeks of the close of the quarter, neither the
(House-Senate) Conference Agreement, nor the statute as enacted mentions
this requirement.  Thus, Delaware argued, it would be "reasonable to
conclude that Congress intended that the discretion bestowed on the
Secretary for technical failings not be limited in terms of time."
Delaware Response to the Order, p. 4.

In order to address Delaware's arguments concerning the statutory
exception, we first discuss the meaning of the 98%/200 bed standard in
section 1903(g)(4)(B) and what a state must show to meet that standard.

1.  A general analysis of the statutory exception.

The Order noted that the statutory exception had been added because of
the apparent requirement in section 1903(g)(1)(D) for the Secretary "to
find a State's showing unsatisfactory if a single (facility's medical
review) was omitted or late or did not completely fulfill the statutory
requirements." Order, p. 3.

In the Order, we posed the following interpretation of the 98%/200 bed
standard --

   Under section 456.653, the Secretary is to find a state's showing
satisfactory if (1) the state met the 98%/200 bed standard by the close
of the showing(11) quarter and exhibited good faith and due diligence in
that its failure to complete 100% of the required reviews was beyond its
control or reasonable anticipation or (2) the state meets the 98%/ 200
bed standard within 30 days of the close of the quarter (possibly even
meeting the 98%/200 bed standard before the close of the quarter) and
there were circumstances within the state's control, i.e., technical
reasons, which prevented 100% of the required reviews from taking place
during the quarter. /5/


HCFA responded to the Order's tentative analysis and --

   (1) Agreed with the Order's interpretation of the 98%/200 bed
standard for the "good faith and due diligence" exception;

   (2) Interpreted 42 CFR 456.653(b) as a "subpart" of the "good faith
and due diligence" exception;  and

   (3) Presented a different version of the technical failings
exception.

HCFA attempted to recast its regulation implementing the statutory
exception.  HCFA created a technical failings "subpart" to the good
faith exception and predicated this exception on a state's having first
met the good faith and due diligence standard and on having technical
reasons for not meeting the 98%/200 bed standard by the close of the
quarter, but meeting this standard within 30 days of the close of the
quarter.  HCFA read the "subpart as applying only where the state failed
to conduct a timely 100% review(12) due to reasons beyond its control
and made a good faith effort to do so." HCFA Response to Order, p. 4,
n.1.  HCFA then presented a new version of the technical failings
exception which required a state to complete 100% of the required
reviews within 30 days of the close of the quarter. /6/

 

 


In its Response to the Order, HCFA argued that allowing a state which
claims the technical failings exception, and thus failed to complete the
reviews for reasons within its control, to meet the same standard as a
state that failed, notwithstanding its good faith and due diligence,
violated common sense.

HCFA may wish that it had implemented the exception differently, but
cannot now take a position contrary to its own published regulation as
explained in the preamble, without amending that regulation.  A state
seeking guidance on the exception reviewing the preamble to the final
rule would find plain language stating --

   . . . we have revised the final regulation to allow states, under the
technical failings exception, to reach the 98 percent, 200-bed standard
(rather than a (13) standard of 100%) within 30 days of the close of the
quarter if there were circumstances (within their control) during the
showing quarter which prevented the reviews from taking place.  We
believe that this change accurately reflects Congressional intent.

44 Fed. Reg. 56336.

In its promulgation of the final regulation, HCFA clearly rejected the
interpretation it now espouses.  Furthermore, the legislative history
relied on by the Agency as support for requiring 100% of the reviews to
be completed within 30 days of the showing quarter to meet the technical
failings exception was repeated in the preamble to both the proposed and
final rules. /7/ The Agency was aware of the legislative history and
implemented the technical failings exception as consistent with its
intent.  HCFA is now ignoring the only published interpretation of the
exception on record and relying instead on an interpretation which, to
this point, HCFA itself had rejected.  HCFA's position is unreasonable.


Ordinarily, the Agency's reading of the applicable statutes and
regulations would have great weight.  The reading the Agency advanced
here, however, has no contemporaneous support from the action
transmittals and is directly contrary to the preambles to the proposed
and final rules and must be rejected out of hand as incorrect.  In sum,
our reasons are as follows:

   (1) The Order's statement of the meaning of the statutory exception
derives from express language in the preamble to the final regulation
explaining the "good faith and due diligence" and technical failings
exceptions.

   (2) There is no basis in the preambles to the proposed and final
regulation for concluding that 42 CFR 456.653 implemented the "good
faith and due diligence" exception and a subpart of that exception --
only a part of section 1903(g)(4)(B) of the Act.(14)

   (3) Although the Agency's proposed regulation implemented the
technical failings exception to require completion of 100% of the
required reviews within 30 days of the close of the quarter, the Agency
rejected this interpretation in the final rule and in the preamble
explained why this was not its interpretation of the technical failings
exception.

   (4) Whatever anomaly the Agency now sees in the apparently more
lenient application of the technical failings exception, this was
clearly intentional.  (We noted at one point in the Order that perhaps
this was in recognition of the difficulties inherent in reviewing all
patients in all facilities;  the Agency did not specifically comment on
this possible rationale.)

In addition, we affirm what we tentatively found in the Order for the
technical failings exception and conclude that requiring the 98%/200 bed
standard to be met by the end of the 30-day period allowed by statute
for submission of showings is consistent with the legislative guidance.
We do not agree with Delaware that the regulation at 42 CFR 456.653
fatally restricts the statute.  Those parts of the regulation cited by
Delaware provide guidance as to how the statute has been interpreted by
the administrative agency charged with that responsibility.  Review of
the legislative history and the preambles shows that the referenced
language was purposefully considered and included by the Agency in the
final regulation.  Section 456.653(a)(3) is consistent with the Agency's
longstanding view of when it would not determine a showing
unsatisfactory.  With regard to section 456.653(b), the 30 day reference
is administratively workable and obviously relates to the statutory 30
day time period to submit the quarterly showing and the reference to
technical reasons as within the state's control represents the
administering agency's judgment as to the meaning of that exception.
Simply because the State would prefer that the Agency interpret a
statutory provision differently, does not oblige the Agency to do so.

2.  Whether a state must certify to the availability of the statutory
exception in its quarterly showing.

HCFA raised this issue for the first time in its Response to the Order.
There, the Agency indicated that, as a precondition to qualifying for
either the "good faith and due diligence" or technical failings
exceptions, a state must inform HCFA, at the time it submits its
quarterly report, of (1) all facilities due for review by the end of the
quarter that were not reviewed, and (2) the reasons why the(15)
facilities were not reviewed.  The Agency noted that the states had been
made aware of this requirement through two action transmittals,
HCFA-AT-79-61 (July 2, 1979), and HCFA-AT-77-106.  HCFA Response to the
Order, pp. 4-5.  If we uphold the Agency on this precondition, the
statutory exception would be unavailable here.  Delaware did not submit
evidence that it claimed the exception in its quarterly showing, and, in
any event, this appears a practical impossibility since Delaware was on
site performing reviews in each facility during the first quarter of
1984 and only learned later that these patients had been missed.  Thus,
there is no evidence that Delaware knew when it submitted its showings
that two reviews were deficient.

Section 1903(g)(4)(B) provides that a state's showing shall be
satisfactory if the showing demonstrates that the state met the 98%/200
bed standard and the state met either the "good faith an due diligence"
or technical failings exceptions for those facilities not reviewed. The
implementing regulation at 42 CFR 456.654(a)(1) provides that a state's
showing must include --

   . . . a certification of the reasons the annual on-site review
requirements . . . were not met in any facilities.

AT-77-106 provided on page 8 --

   . . . States are to include with their showings . . . a list of all
facilities which . . . did not receive an appropriate review during the
12 month period ending on the last date of the showing quarter.

Additionally, AT-79-61 stated on page 11 --

   . . . States must include . . . list of all facilities, . . . that
were due for annual review by the close of the quarter, but did not
receive it.

The Agency argued that the action transmittals establish a precondition
making the statutory exception unavailable to a state unless established
on the face of the quarterly showing.  While the action transmittals
make it clear that, if a state knows that a facility has not received an
appropriate review, the state must report this on its showing, this does
not necessarily mean that a state is precluded from claiming the
exception where HCFA determines, after-the-fact, that the review of one
or more facilities was not an appropriate review or where a state for
technical reasons unknowingly failed to perform any review at all.(16)

Strict application of the precondition such as the Agency proposed here,
without regard to the circumstances of a particular case, may work a
substantial injustice upon a state in certain instances.  For example,
as happened here, if HCFA determined after a state's showing that the
review for a particular facility did not meet the statutory/ regulatory
standards, the facility is treated as if no review had been performed.
Thus, the time for a state's submission of a list of unreviewed
facilities for which it wishes to claim an exception would have passed
by the time the state was informed that a facility's review was
deficient.  The state having believed the review of the facility to be
valid, did not list it as unreviewed and therefore cannot, under the
HCFA policy advanced here, claim the good faith or technical failings
exceptions to the annual review requirement.

Regardless of the fact that HCFA notified the states that it expected
listings of unreviewed facilities and reasons for which the states could
claim an exception, the action transmittals did not address the
situation where a quarterly showing submitted in good faith is later
determined invalid.  The emphasis in section 1903(g)(4)(B) is on the
showing demonstrating that a state met the 98%/200 bed standard.  This
makes the showing the basic source of evidence of reviews performed by
the state.  The action transmittals establish a ministerial requirement
for completeness with regard to what the state must submit quarterly,
i.e., if a state did not review a facility or performed a deficient
review, the State should certify as to the reason why.  The effect of
imposing a precondition like the Agency advocated here is so extreme,
that it is not an implicit requirement that may be applied without
notice.  Moreover, the Agency never supported its proposed precondition
by offering a reason why the precondition should be imposed.  The
precondition would preclude a state showing from being found unknowingly
to review one patient in a facility, but mandate the showing be found
satisfactory if due to the same type of technical failing a state had
knowingly omitted review of an entire facility and claimed the exception
in its quarterly showing.  Therefore, the practical effect of the
application of the precondition as argued by the Agency here would be to
deny the states access to the statutory exceptions.  The action
transmittals do not explicitly require this, and in any event we think
the effect of the precondition is contrary to congressional intent in
enacting the exception so that the Agency cannot reasonably apply the
action transmittal requirement in this way.(17)

3.  The meaning of the requirement to review 98% of the facilities and
all facilities with 200 or more beds.

In the Order we asked the parties to comment on the meaning of the
requirement to review 98% of the facilities and all facilities with 200
or more beds.  After reviewing the parties responses, we are convinced
that the following analysis is correct.  The 98% requirement pertains
not to the number of facilities in a particular level of care under
review during a quarter, but to the completion of reviews in 98% of the
combined total of all facilities where such a review was required by
1903(g)(1) during the 12-month period ending with the close of the
quarter in question.  AT-77-106, p. 5;  43 Fed. Reg. 50925;  44 Fed.
Reg. 56336-56337.  For example, assuming a state had a total of 100
intermediate care facilities, skilled nursing facilities, and mental
hospitals due for review during the annual period from March 31, 1984 --
March 31, 1985, the state would meet the 98%/200 bed standard for its
showing submitted for the quarter ending March 31, 1985 if it completed
reviews during the annual period in 98 facilities including all those
with 200 or more certified Medicaid beds. /8/


4.  Application of the statutory exceptions to the facts.

As we discussed above, the statutory exception specifically requires
that a state review 98% of all facilities due for review and all 200 bed
facilities by the end of the showing quarter for the purposes of the
"good faith and due diligence" exception and within 30 days of the close
of the quarter for purposes of the technical failings exception.

There is no dispute here that the facilities where HCFA found deficient
medical reviews had less than 200 beds.  Therefore, in order to take
advantage of the statutory exception, Delaware was required to review
98% of all facilities due for review.  Delaware indicated that 42
facilities were due for annual review during the twelve month period
ending March 31, 1984.  For the twelve month period ending June 30,
1984, 43 facilities were due for review.  The Agency found Delaware's
on-site medical reviews during the first quarter of 1984 deficient in
two facilities.  The deficiencies were not corrected until August 1984,
when the State reviewed the patients initially omitted.  Thus, Delaware
clearly failed to review 98% of all facilities for which a review was
required by March 31, (18) 1984 -- the end of the showing quarter. This
continued throughout the second quarter of 1984. /9/


Additionally, even if Delaware had met the 98%/200 bed standard within
the required time, we would not find that either exception applied. The
only written policy interpretation of circumstances constituting "good
faith and due diligence" is set out in AT-77-106.  Simply stated, this
exception could be applied in situations where reviews were missed due
to circumstances beyond a state's control.  Delaware refers to its
failure to conduct the medical reviews as "inadvertent".  There is
nothing to show that this failure was related to circumstances beyond
the State's control.  The circumstances here, rather than demonstrating
"good faith and due diligence", as alleged by Delaware, are more
appropriately considered with the types of "disorderly record keeping"
or staffing or scheduling problems which the Agency explicitly stated
would not place a state within this exception.

As we note in the Order, there is little guidance about what is properly
regarded as a technical failing.  However, since a state may not aim for
less than 100% compliance with the annual review requirement, we
generally agree with the basic principle underlying HCFA's position that
technical failings are based on circumstances within a state's control,
but that poor administration or bad record keeping should not be
considered a technical failing.  HCFA Response to the Order, p. 6.
Similarly, we cannot condone an unexcused failure to attempt a review or
a review deficient for no apparent reason as a technical failure.  We
believe the term "technical failings," however imprecise, is,
nonetheless, a term of art.  The term does not mean, as Delaware argues,
that a few unexcused individual reviews missed in the overall annual
review constitute mere "technicalities" which fall within the technical
failings exception.

Finally, we note that even if an inadvertent failure to review a
recipient could be deemed a technical failing, Delaware did not
demonstrate that it met the 98%/200 bed standard within 30 days of the
close of either quarter for which a disallowance was taken. (19)

D.  Whether HCFA erred in its inclusion of one patient in the group
cited for annual review violations.

Delaware argued that HCFA had incorrectly included a patient residing in
the Jeanne Jugan Residence in the disallowance.  Delaware noted that
"due to breaks in the patient's coverage, . . . the patient's case had
not been open for a full twelve months and . . . was not due for an
annual review." (Delaware Brief, p. 20;  Attachment D) However, Delaware
has not argued, nor does the evidence demonstrate, that the patient in
question was not a Medicaid recipient residing in the facility at the
time of the annual review.  HCFA maintained that the applicable
regulation requires that an annual review must include all Medicaid
patients in a facility at the time of the review. /10/ Further, HCFA
noted that since there were other patient violations aside from the one
challenged by Delaware here, the facility was still appropriately
included in the disallowance.  HCFA Brief, p. 4. Delaware did not
specifically respond to this point.


As we have discussed earlier, the preamble to 42 CFR 456.652(b) clearly
indicates that, "States are not required to track the length of time
each individual recipient was in a facility, and the (facility's) review
date would not relate to the length of stay of any individual recipient
in that facility." See 44 Fed. Reg. 56335.  The same preamble reiterates
at a later point that "the regulatory scheme . . . is based on
facilities, not the length of time individuals were in those
facilities." Id.

Delaware's approach suggests that a patient must reside in a facility as
a Medicaid patient for one year prior to being subject to review.  Thus,
an individual could avoid review for a period substantially in excess of
one year, simply by virture of successive breaks in the patient's
coverage.  We do not find this approach supported by the regulation or
the preamble.  This individual was a Medicaid recipient in this facility
prior to the start of the review and was present during the review.
Thus, Delaware was clearly obliged to(20) review this recipient.  We
conclude that this patient was properly included as a basis for the
disallowance. /11/


E.  The constitutionality of section 1903(g)(5)

Delaware contended that the utilization control penalty provision at
section 1903(g)(5) of the Act is arbitrary, unreasonable, and irrational
in its application to smaller states.  Delaware maintained that the
disparate impact of the penalty calculation on smaller states
constitutes a due process violation under the 5th Amendment of the
United States Constitution.  Delaware argued that two states with the
same number of facilities reviewed and violations found, could receive
penalties which would not reflect the difference in those states' size
and resources.

The Agency characterized the Public Law 95-142 amendment to the
reduction calculation as "substantially reducing this drastic penalty."
Prior to amendment the statutory reduction equaled "one-third of the
total Federal matching" for each level of care for the quarter for only
a single violation for a patient at that level.  The amended reduction
calculation provided for a reduction "roughly equivalent to one-third of
the Federal matching payment for long stays in the quarter by patients
receiving the same level of care in the facility or facilities with
respect to which UC requirements were not met (footnote omitted)."
(emphasis in original) AT-77-106, p. 10.

Public Law 95-142 provides evidence to support the proposition that
Congress has considered section 1903(g)(5) and that that section of the
Act accurately reflects the manner in which the statutory reduction was
meant to apply.  Additionally, Delaware has provided no evidence that
Congress intended anything other than to apply this aspect of the
statute to all states.  Under 45 CFR 16.14 the Board is bound by all
applicable laws and regulations. Therefore, we are required to apply
section 1903(g)(5) in this case.

Conclusion

Based on the analysis above, we conclude that Delaware failed to conduct
valid annual medical reviews at two ICFs during the first two quarters
of 1984. Thus, we uphold (21)

HCFA's decision to take a disallowance for those quarters.  The amount
of federal funds ultimately disallowed will be based on HCFA's
recalculation of the penalty based on exact recipient data.  If the
parties are unable to agree on the manner in which the disallowance
should be calculated they may return to us for assistance on that
limited question.  /1/ Amendments to section 1903(g) made by section
        2363 of the Deficit Reduction Act of 1984 (DEFRA) deleted the
provisions in 1903( g)(1)(A), (B), and (C) requiring a state's showings
to include evidence for "each" case that certification, recertification,
and plan of care requirements were met and evidence of a "continuous
program" of utilization review under section 1902(a)(30).  The DEFRA
Amendments also amended section 1902(a)(31) (the changes made to that
section do not affect the issues presented here). DEFRA was enacted July
18, 1984.  /2/ Public Law 95-142 added section 1903(g)(4)(B), among
        other amendments, to section 1903(g).  See section 20 of the
Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977, Pub. L.
95-142, October 25, 1977.         /3/ The Order was issued in this case
as well as four other appeals -- Colorado Department of Social Services,
Docket No. 85-31;  New York State Department of Social Services, Docket
No. 85-35;  Pennsylvania Department of Public Welfare, Docket No. 85-40;
and Arkansas Department of Human Services Docket No.  85-42;  these
cases all raised substantially similar issues.  The Orders also
contained specific questions pertinent to the individual appeals.  The
Agency submitted a consolidated response to the Order on the
cross-cutting issues. Additionally, orders raising similar types of
questions and concerns were issued in Idaho Department of Health and
Welfare, Docket No. 85-6;  New Hampshire Department of Health and
Welfare, Docket No. 85-38;  and Tennessee Department of Health and
Environment, Docket No. 85-46.         /4/ We do not imply here that the
retrospective identification by the Agency of one or more patients
omitted from a medical review is necessarily always a proper basis for a
finding that the State violated the on-site medical review requirement.
We have found in other cases that the patients identified by the Agency
did not have to be reviewed. See, e.g., North Carolina Department of
Human Resources, Decision No. 728, March 18, 1986.  /5/ Alternatively,
        we inquired whether 42 CFR 456.653(b) should be read literally
to mean that a state need not meet the 98%/200 standard by the close of
the quarter, so long as the state has technical reasons for not doing
so;  and that within 30 days of the close of the quarter a state need
only meet the 98%/200 bed standard and does not need to demonstrate
technical reasons for not reviewing 100% of the patients. We reject this
interpretation even though it represents a literal reading of the
regulation.  We believe this interpretation is incorrect because it
would implicitly permit a state to aim for less than total compliance
with the basic requirement to complete 100% of the required reviews by
the close of the showing quarter.  Properly interpreted, the regulation
implements the exception but can not be construed as altering the basic
requirement.         /6/ As we stated in the Order, our analysis of the
meaning of the statutory exception and the implementing regulation at 42
CFR 456.653 derived from AT-77-106 and the preambles to the proposed and
final regulations.  Although the Agency response presented a contrary
view of the meaning of the exceptions, the Agency did not analyze the
material relied on by the Board and explain why the Board's conclusion
was incorrect. The preamble to the proposed rule indicates that the
amendments to section 1903(g) were --         //ot intended to permit
agencies to aim for less than 100 percent performance of the review
requirement.  Rather, (Pub. L. 95-142) was intended to permit a limited
exception to the 100 percent requirement in the specified situations. 43
Fed. Reg. 50925 We agree that the basic medical review requirement
remains unchanged;  the interpretation of the exception stated in the
Order is premised on the overall objective of completion of 100% of the
required reviews by the close of the showing quarter.         /7/ The
preamble to the proposed rule stated that while the legislative history
was silent as to what constituted a technical failing, it specified that
the "exception would cover instances in which a state had reviewed
patients in most facilities on time, with the remaining facilities
reviewed within several weeks after the end of the quarter. (95th Cong.,
1st Sess.  Senate Committee on Finance, S. Rept. No. 95-453, p. 41.)"
/8/ Delaware initially based its argument concerning the 98%/200 bed
standard on a faulty interpretation of what this requirement means.  /9/
        HCFA indicated that "if the (sic) Delaware had failed to review
only 1 out of 45 facilities (97.778%) or 1 out of 49 (97.959%), the
Agency would round off the percentage figures to 98%." HCFA Response to
the Order, pp. 13-14.         /10/ But see South Dakota Department of
Social Services, Decision No. 650, May 28, 1985, where we held that an
Inspection of Care team is not responsible for reviewing a patient
determined Medicaid eligible after the team entered the facility to
begin the annual review.         /11/ Additionally as HCFA correctly
notes, even if we were to find that this person did not have to be
included in this review, the existence of other patient-violations in
the facility mandates that it be included in the penalty calculation.