Oklahoma Department of Human Services, DAB No. 799 (1986)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  Oklahoma Department of Human Services

Docket No. 86-40
Decision No. 799

DATE:  October 22, 1986

DECISION

The Oklahoma Department of Human Services (DHS, State) appealed a
decision by the Health Care Financing Administration (HCFA, Agency)
disallowing $4,446,311 in federal financial participation (FFP) claimed
under Title XIX of the Social Security Act (Medicaid) for payments made
to the Oklahoma Teaching Hospitals (OTH).  The disallowed payments were
for inpatient hospital services provided at the Central Oklahoma
Juvenile Treatment Center (COJTC) during the period July 1, 1982 through
August 31, 1985.  According to the Agency, COJTC was ineligible for FFP
because it was never properly certified to HCFA as a component of OTH
under the requirements of Title XVIII (Medicare).

In light of our review of the arguments and materials presented by the
parties, we have concluded that, based on existing regulations and
policies, COJTC need not be certified by HCFA as a qualified Medicare
provider to be eligible to participate in Medicaid, i.e., state
certification is sufficient for Medicaid participation.  In addition, we
have determined that, even assuming that the Agency has authority to
review a State's Medicaid certification, the Agency did not establish
that COJTC did not provide inpatient hospital services as a component of
OTH.  Accordingly, we reverse this disallowance as being unsupported by
the record. 1/

 


1/   The State conceded that a disallowance for the period from July 1,
1982 until State Medicaid certification was completed might be
appropriate.  Appeal, n.3.  The State maintained that COJTC's
certification was complete with the submission of an acceptable plan of
correction on December 30, 1982.  Reply, p. 17.  The record is unclear,
however, as to when certification was actually completed, since the
certification form proffered by the State (State's Ex. 51) indicates on
its face that the Life Safety Code inspection results had not been
received by (continued on the next page)

       - 2 -

Regulatory Background

The Medicaid program under Title XIX of the Social Security Act (Act) is
administered by the states and partially funded by the federal
government.  A facility must be inspected by the proper state survey
agency in order to qualify for reimbursement for "inpatient hospital
services" provided to a patient who is eligible for Medicaid. 2/ In the
case of hospitals, the state survey agency must be the agency
responsible for licensing such institutions under state law.


1/      (continued from the previous page) the date that the form was
     signed.  Our reversal of the disallowance on the grounds presented
     by the Agency in this case does not preclude a further disallowance
     if the Agency determines that FFP was claimed for a period when the
     State did not have in place a valid provider agreement with COJTC.

2/   "Inpatient hospital services" are defined as services that--

 (1) are ordinarily furnished in a hospital for the care and
 treatment of inpatients;

 (2) Except in the case of nurse-midwife services, as specified
 in section 440.165, are furnished under the direction of a
 physician or dentist; and

  (3)  are furnished in an institution that--

  (i) Is maintained primarily for the care and treatment
  of patients with disorders other than tuberculosis or
  mental diseases;

  (ii) Is licensed or formally approved as a hospital by
  an officially designated authority for State
  standard-setting;

  (iii) Except in the case of medical supervision of
  nurse-midwife services, as specified in section 440.165,
  meets the requirements for participation in Medicare;
  and

  (iv) Has in effect a utilization review plan, applicable
  to all Medicaid patients, that meets the requirements of
  section 405.1035 of this chapter, unless a waiver has
  been granted by the Secretary.

     42 CFR 440.10(a).  (1985) (effective throughout the period of
     disallowance).  - 3 -

Section 1902(a)(33)(B) of the Act.  Generally, the same survey agency
performs the surveys for both Medicare and Medicaid.  Section
1902(a)(9)(A) of the Act; 42 CFR 431.610(e).  If the facility is found
to meet the requisite state and federal standards for its class of
providers, the survey agency certifies this to the single state agency
(responsible for administering the Medicaid program), which may then
enter into a Medicaid provider agreement with the certified facility
without seeking approval from HCFA.  In contrast, if a facility is
seeking certification for Medicare purposes, the surveying agency's
certification is forwarded to HCFA as a recommendation which the Agency
must review and approve before the facility can be reimbursed under
Medicare.

Background

The record demonstrates that during 1982 the State changed  the
population at COJTC from children and adolescents who had been placed
into State custody as adjudicated juvenile delinquents to minors who had
been adjudicated as "in need of treatment." 3/ State's Exhibit (Ex.) 7,
paragraph 13.  Concurrent with this change in population, DHS took steps
to make COJTC a component of the OTH with a view towards qualifying the
facility for Medicaid participation.  State's Ex. 12.  COJTC's policies,
staffing and physical plant were allegedly revamped to comply with OTH
practices.  State's Ex. 7.  In addition, final authority for staffing
and making medical program policy decisions for COJTC were all placed in
a newly created position at DHS, Director for Institutional Programs.
Id.

In November 1982 the State survey agency, the Oklahoma Department of
Health, inspected COJTC as a component of OTH for compliance with state
and federal regulations for hospitals.  The Department of Health
surveyed COJTC (State's Ex. 27) and provided DHS its certification
findings, with a list of deficiencies.  State's Ex. 51.  On December 30,
1982, COJTC submitted a plan for correction of certain deficiencies.
State's Ex. 29.  The Department of Health licensed COJTC as a component
of OTH from February 15, 1983 through April 30, 1985.  State's Exs. 51,
53.  On April 28, 1984, the Joint Committee on Accreditation of
Hospitals (JCAH) awarded

3/   The Oklahoma statutes defined a "child in need of treatment" as any
child who is afflicted with a substantial disorder of the emotional
processes, thought, or cognition which grossly impairs judgment,
behavior, capacity to recognize reality, or ability to meet the ordinary
demands of life appropriate to the age of the child.  Okla. Stat.
Annot., tit. 10, section 1101.  - 4 -

accreditation to COJTC.  State's Ex. 30.  On April 9, 1985, DHS
forwarded to HCFA for the first time a separate certification and
transmittal form (HCFA form 1539) for COJTC. as a component of OTH.
State's Ex. 54.

The Disallowance

In its January 29, 1986 notice of disallowance, HCFA stated that
pursuant to its look-behind authority under section 1902(a)(33)(B) of
the Act, it had reviewed COJTC's status as a Medicaid provider and had
determined that COJTC was not primarily engaged in providing medical
services and, furthermore, was not a component of OTH.  In its briefing
before. the Board, the Agency substantially modified its position.
Instead of relying on section 1902(a)(33)(B), the Agency contended that
COJTC was required to be certified by HCFA as a Medicare-qualified
facility in order to be eligible for reimbursement in the Medicaid
program.  The Agency also argued that review authority over
Medicaid-certified facilities was inherent in the Act, citing Smith v.
Heckler, 747 F.2d 83 (10th Cir. 1984). 4/ The Agency maintained that
COJTC was a juvenile detention center rather than a component of OTH
which provided inpatient hospital services.

The State argued in its briefs that a facility that sought only Medicaid
certification needed only State certification and that, once the State
had certified a hospital as a qualified Medicaid provider, the Agency
had no authority to review the State certification.  The State also
contended that COJTC was providing inpatient hospital services to
patients during the relevant time period as a state-certified component
of OTH.

Medicare Certification as a Prerequisite to Medicaid Participation

As an independent basis for the disallowance--and as one basis for its
authority to question COJTC's qualifications as a Medicaid
provider--HCFA maintained that the definition of Medicaid-reimbursable
inpatient hospital services at 42 CFR 440.10(a)(3)(iii) requires that a
Medicaid provider must actually be certified by HCFA as a Medicare
provider.  That provision states that the services must be provided at a
hospital that "meets the requirements for participation in Medicare." As
previously noted, a State's survey and

 

4/   Since the Agency did not pursue its reliance on section
1902(a)(33)(B) of the Act, we need not discuss the State's contentions
concerning the proper construction of that section.  - 5 -

certification of a Medicare provider, unlike that of a Medicaid
provider, must be formally approved by HCFA for the facility to be
accepted as an eligible provider.

The State admitted that it never sought Medicare certification for COJTC
because all patients treated there were under 21 years old and therefore
ineligible for Medicare.  The State contended that the regulation
required only that an institution meet the requirements for
participation in Medicare, not that it actually participate in Medicare.
The State therefore maintained that when a facility seeks only Medicaid
certification, the State, not HCFA, is responsible for determining
certifiability.

The literal language of the provision under discussion does not support
the limitation being urged upon us by the Agency as the correct
interpretation.  This provision does not on its face require that a
hospital be certified as a Medicare  provider, only that the facility
meet the requirements for participation in Medicare.  HCFA did not point
to any policy issuance as support for its claim here that this provision
mandates that not only must the Medicare conditions for participation be
met, but that HCFA approval is required as well.  The determination of a
facility's qualifications is one that the State survey agency is
eminently well-qualified to make, as the regulations require not only
that the same agency perform Medicaid surveys as performs Medicare
inspections, but that the same agency staff perform both determinations.
See 42 CFR 431.610(e)(2).  Moreover, for SNFs, which, like hospitals,
may participate in Medicare, Medicaid regulations indicate that
certification for Medicaid may be made by either HCFA or a state survey
agency.  42 CFR 442.200.  Finally, in one instance where HCFA approval
under the Medicare program is required for Medicaid participation, the
Agency has so specified.  See 42 CFR 440.40(a)(1)(ii)(B) ("'Skilled
nursing facility services for individuals age 21 or older, other than
services in an institution for tuberculosis or mental diseases,' means
services that are--. . . Provided by . . . if specified in the State
plan, a swing-bed hospital that has an approval from HCFA to furnish
nursing facility services in the Medicare program; . . .") (Emphasis
added).  Consequently, we conclude that the regulations read as a whole
do not make reimbursement under Medicaid for a unit of a hospital not
providing Medicare services contingent upon HCFA approval under
Medicare.

The Agency's "Inherent Authority" Contention

In addition to its contention that the Agency must approve a hospital
under Medicare for it to be reimbursed for inpatient hospital services
under Medicaid, the Agency argued that COJTC - 6 -

was improperly certified as a component of OTH, stating:  "This
disallowance is the exercise of [the Secretary's] . . . duty to
determine the eligibility and compliance of institutions to receive
federal Medicaid monies."  Agency's Response, p. 20.  Rather than
relying on any specific statutory provision, the Agency contended that
its authority to review COJTC's status as a component of a hospital was
inherent in the Act, citing Smith v. Heckler.  In Smith, the court
stated:

     The Secretary has a duty to ensure more than paper compliance . . .
     The "look-behind" provision and its legislative history intended
     the Secretary to be responsible for assuring that federal Medicaid
     money is given only to those institutions that actually comply with
     Medicaid requirements.

Smith, 747 F. 2d at 589, 590.  In essence, the Agency contended that it
was not only authorized but duty-bound to recover FFP erroneously paid
to what it maintained was a state juvenile detention center, not a
hospital.

Although Smith can be cited for the proposition that the Secretary has a
duty to ensure that patients in facilities receiving federal Medicare
and Medicaid funds receive proper care, that case involved a plaintiff's
claim that this duty compelled the Secretary to promulgate regulations
furthering that objective, not a claim that the Secretary was obliged or
authorized to review state Medicaid determinations.  Moreover, since the
look-behind authority discussed in Smith was section 1902(a)(33)(B),
which the Agency originally cited but has now evidently abandoned as the
basis for this disallowance, this case is not persuasive support for the
Agency's claim that there is implicit in the Act a general look-behind
authority.  We are not obliged, however, to consider whether the
statutory scheme requires that the Agency permit FFP even where, as is
alleged here, the expenditures were for a non-medical facility, because,
as we discuss below, the Agency's contentions concerning the nature of
this facility are unsupported in the record.

The Agency's Characterization of COJTC

Even if the Agency had identified a specific statutory or regulatory
basis for its review of COJTC's status, the record before us does not
support the Agency's claim that despite COJTC's licensure by the
appropriate State agency as a component of OTH, COJTC was really a
detention facility for juvenile delinquents during the disallowance
period and did not meet applicable federal program requirements to be a
component of OTH.  The Agency contended that the threshold

       - 7 -

test for deciding whether this facility is a component of OTH is the
requirement that it be located in the same metropolitan area. 5/

According to the Agency, COJTC, located in Tecumseh, Oklahoma, some 50
miles from Oklahoma City, where OTH is located, fails to meet the
geographical proximity test.  Finally, the Agency argued that COJTC was
not a component of OTH because it was not "administratively responsible"
to OTH.  Agency's Response, p. 17.

We first lay to rest the Agency's insistence that COJTC is a juvenile
detention facility rather than a treatment center where mentally ill
children were provided medical services under the supervision of
physicians.  As of October 1, 1982, Oklahoma law restricted placement of
juveniles at COJTC to those who were adjudged "in need of treatment"; by
definition, such a child could not be placed into DHS care unless a
court found that the child had a demonstrable mental illness.  Oklahoma
Stat.  Annot., tit. 10 section 1116(A)(5)(b).  Although, as the Agency
indicated, this definition is included in a section of the Oklahoma
statutes that also deals with adjudicating children as juvenile
delinquents, that classification is clearly a separate one from "in need
of treatment" and, as well, from "abused or neglected child," which is
also included in that section.  The affidavit of the facility's first
director (State's Ex. 7) and a state survey agency report (State's Ex.
31) confirm that by 1983 COJTC was in compliance with the statute; all
children who did not meet the definition of "in need of treatment" were
removed from the facility.  In addition, COJTC's Program Manual shows
that a patient was to be examined by a psychiatrist upon arrival who
would establish a diagnosis and initial treatment plan for the child on
its first day at the facility.  State's Ex. 9, Chapter IV.  During the
succeeding ten days several other health professionals would provide
their assessments so that a more thorough treatment plan could be
established.  COJTC's 1984 accreditation by the JCAH (State's Ex. 30) 6/
and sample

5/   A "component" of a hospital is defined in the HCFA State Operations
Manual (SOM) as an additional facility, geographically separated but in
the same metropolitan area, united under common ownership, with a single
Chief Medical Officer, single Chief Executive Officer and a totally
integrated medical staff.  SOM section 2024.

6/   The Agency claimed that the JCAH accreditation pertained only to a
program at COJTC, not the entire facility.  This is not accurate, since
the actual certificate of accreditation is not so limited.  See State's
Ex. 30.  Moreover, the State is not claiming that the facility should
receive deemed status under section 1865 of the Act.  - 8 -

medical records from patients (State's Exs. 47, 48) provide further
unrefuted support for the conclusion that the facility was treating
mentally ill juveniles.

As for the Agency's argument that COJTC is not a component of OTH, we
conclude that the requirement of geographical proximity is not a
threshold test, as claimed by the Agency, but merely one of several
considerations cited by the SOM for determining whether a facility was
so integrated with another that it should be considered a component of
the other facility. 7/ Even if geographical proximity were an absolute
requirement, we find this condition to be met.  In its briefs, the State
pointed out that the metropolitan statistical area of Oklahoma City
includes Tecumseh and that the JCAH considers a 100-mile radius as being
a reasonable geographic area for accredited multi-facility providers.
State's Exs. 44, 45, 46.  HCFA did not contest these statements.

The Agency also has not seriously contested the extensive documentation
provided by the State showing that COJTC's policies and procedures were
revised in 1982 to comply with and become subordinate to those of OTH
and that COJTC was certified as a component of OTH by the State survey
agency.  In finding that COJTC was not a component of OTH the Agency
failed to define anywhere "administratively responsible," the criterion
upon which it relied, nor did it indicate which of the four components
listed in the SOM--common ownership, single Chief Medical Officer,
single Chief Executive Officer, and totally integrated medical
staff--this criterion falls under.  The Agency did argue that some of
the various organizational charts extant during the disallowance period
show COJTC as subordinate to the Division of Children and Youth Services
(DCYS) rather than OTH.  Agency's Ex. N2, N3, and N4. 8/ We find,
however, that COJTC was under common "ownership" with OTH, in that both
were subject to the control and direction of the same governing body,
the Oklahoma Human Services Commission, which was ultimately responsible
for the operational decisions of the entire hospital enterprise.
COJTC's Chief of Staff of the Institutional Medical Programs reported to
the Executive Chief of Staff for OTH (later known as the Medical
Director), who reported directly to the

 

7/   Although the SOM cautions that a facility may be so distant as to
make it impossible to operate as a component of a single hospital, there
is not as explicit a requirement of geographical proximity as there is,
for example, for a single Chief Medical Officer.

8/   An additional organizational chart cited by the Agency was not
pertinent to the disallowance period.  - 9 -

governing body and was ultimately responsible for all medical staff
activities, including, e.g., approval of applications for staff
privileges.  In addition, both COJTC and OTH were ultimately responsible
to the same Chief Executive Officer, the Director of Human Services.
Even if, as the State conceded, management of COJTC administrative
matters was shared by DCYS, with OTH exercising medical and professional
supervision over the facility, both DCYS and OTH were ultimately
responsible to the Director of Human Services.  In addition, COJTC was
consistently certified by the state survey agency as a component of OTH.
9/

The Agency did not contest any of the materials furnished. by the State
in support of its claim that during 1982 COJTC was systematically
brought under OTH policies and authority.  We therefore conclude that
the Agency's characterization of COJTC is not supported by the record.

Conclusion

Based on the foregoing, we conclude that the disallowance cannot be
sustained on the basis relied on by the Agency in this proceeding.


 ________________________________ Judith A. Ballard

 ________________________________ Alexander G. Teitz

 ________________________________ Donald F. Garrett Presiding
 Board Member


9/  The Agency made much of the fact that one of the state certification
forms indicates that the COJTC's beds were not included in the count of
Medicare-certified beds.  There is no indication, however, that the
certifying agency was excluding COJTC's beds from Medicaid certification
and, as we held above, Medicare certification was not necessary for
COJTC to qualify as a Medicaid provider.