DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Oklahoma Department DATE: January 24, 1989 of Human
Services Docket No. 87-186 Decision No. 1010
DECISION
The Oklahoma Department of Human Services (State) appealed a decision by
the Health Care Financing Administration (HCFA/Agency) disallowing
$13,199,999 in federal financial participation (FFP) claimed under Title
XIX of the Social Security Act (Medicaid) for payments made for
inpatient hospital services provided at six state-operated facilities.
By agreement of the parties, the Board permitted the initial briefs in
this case to be limited to the issues concerning one facility, the
Central Oklahoma Juvenile Treatment Center (COJTC). (A briefing
schedule for the remaining facilities will be established after issuance
of this decision.) The Agency disallowed $5,337,306 in FFP, which the
State claimed for services provided at COJTC for the period July 1, 1982
through May 31, 1985, on the grounds that the facility was not certified
nor properly certifiable as a Medicaid provider during that period.
After the usual briefing, on July 14, 1988, the Presiding Board Member
issued a preliminary analysis of certain legal issues and an order to
develop the record (hereinafter cited as Order). After written
responses to the Order were received, the Agency requested a hearing in
the case, which was held on September 9, 1988 (see Transcript of
September 9, 1988 Hearing, cited as Tr.). The parties submitted
additional factual materials and closing arguments following the
hearing.
Based on the extensive record compiled in this case and COJTC I, we
conclude that the State has not documented that COJTC was in fact
certified as a Medicaid provider for the period July 1, 1982 through
April 27, 1984, and we therefore uphold the disallowance for that
period. We also find that on April 28, 1984 the facility was accredited
as an institution by the Joint Commission on Accreditation of Hospitals
(JCAH), and proper utilization controls were in place, so that at that
point the facility became Medicaid-eligible. Consequently, we reverse
the disallowance for the period April 28, 1984 through May 31, 1985.
I. Factual Background
During 1982 the State took steps to make COJTC a component of the
Oklahoma Teaching Hospitals (OTH) with a view towards qualifying the
facility for Medicaid participation. COJTC I at 3. Although the State
began claiming FFP for services at COJTC in July 1982, it is undisputed
that the State survey agency did not actually conduct a formal survey of
the facility as a component of OTH until November 1982. According to
testimony by the State employee that headed that survey, at that time
the survey agency found that COJTC did not have 24-hour nursing care as
required for hospitals by the Social Security Act (Act). Tr. at 21-26.
On December 29, 1982, COJTC submitted a plan of correction for this and
other deficiencies. Ex. 4. The State has conceded that it should not
have claimed FFP until this "acceptable" plan of correction had been
submitted (State Response to Order at 5), but it contended that FFP was
properly claimed after that date.
There is no record of any State survey for compliance with applicable
federal requirements following the December 1982 submission of the plan
of correction until the JCAH conducted an accreditation survey. On
April 28, 1984, the JCAH awarded a certificate of accreditation for a
3-year period to COJTC. (The parties have disputed the meaning and
significance of this JCAH certificate.) There is evidence in the record
that the State may have surveyed COJTC in April 1985. Ex. 28; Tr. at
42, 123.
On January 29, 1986, the Agency issued the disallowance that was
appealed in COJTC I. As the case developed, the Agency maintained that
it had to certify COJTC as a Medicare-qualified facility before the
facility could be eligible for Medicaid funding. It also maintained
that COJTC was actually a juvenile detention center rather than a
component of OTH which provided inpatient hospital services. The Board
found that Medicare certification by HCFA was not a prerequisite to
Medicaid participation where the hospital was seeking only Medicaid
funding. COJTC I at 4-5. (Since COJTC's patients were all juveniles,
the facility did not apply for Medicare certification, because that
program generally provides for medical services to the elderly.) We
then determined that we need not consider the question of the Agency's
authority to take the disallowance, which had been disputed by the
State, since we found the Agency's characterization of COJTC as a
separate juvenile detention center rather than a component of OTH to be
unsupported by the record. COJTC I at 6. We therefore overturned the
disallowance decision.
Subsequently, the Agency issued a new disallowance letter on September
25, 1987, that disallowed claims for inpatient hospital services at
COJTC and five other facilities. (As noted above, briefing on the five
other facilities has been reserved.) In its letter, the Agency alleged
that the survey and certification documents submitted for COJTC revealed
that the nursing services condition of participation was never met.
Disallowance letter at 2. The Agency therefore concluded that COJTC was
not properly certified as meeting the requirements for participation in
Medicare and therefore could not render inpatient hospital services
eligible for FFP in the Medicaid program.
II. Regulatory Background
The State's claims for FFP at COJTC were for "inpatient hospital
services," which are defined as "services that . . . are furnished
in an
institution that . . . meets the requirements for participation in
Medicare." 42 C.F.R. 440.10(a)(iii) (1985). The state survey agency,
which is usually the state agency responsible for licensing hospitals,
is responsible for surveying providers to ascertain whether they meet
the requisite state and federal standards. 42 C.F.R. 405.1902(a). The
state survey agency usually certifies its findings concerning the
facility on a certification and transmittal (C&T) form (although a C&T
form is not the sole means of certification), which is forwarded to the
single state agency responsible for administering the state's Medicaid
program. If a facility is seeking certification for both Medicare and
Medicaid, the single state agency forwards the survey agency's
certification to the Agency as a recommendation which the Agency must
review and approve before the single state agency may enter into a
provider agreement that enables the facility to be reimbursed under
Medicare and Medicaid. In COJTC I, we found that when a facility such
as COJTC was seeking only Medicaid funding, this step of formal HCFA
approval was not required. Instead, if the state survey agency
certifies the facility as being in compliance with applicable standards
(or in compliance based upon an approved plan of correction of
deficiencies, 42 C.F.R. 405.1903(b)) the single state agency may
authorize the facility's participation and enter into a Medicaid
provider agreement without seeking approval from HCFA.
A hospital that has been accredited by the JCAH may be deemed as meeting
the Medicare and Medicaid requirements in lieu of a state survey and, if
there is a plan for utilization review in place, may be certified by the
state. 42 C.F.R. 405.1901(d).
III. Analysis
A. Application of res judicata
In COJTC I, the Board reversed the disallowance as being unsupported by
the record, but noted that the question remained as to whether the State
had claimed FFP "for a period when the State did not have in place a
valid provider agreement with COJTC," COJTC I, n. 1, since the
certification form proffered by the State indicated on its face that the
required Life Safety Code inspection results had not been received when
the form was signed. The State argued that this language and the
doctrine of res judicata limited the Agency to determining only if and
when the required Life Safety Code inspection was completed.
As the Presiding Board Member stated in the Order,
The clear implication of the entire footnote in COJTC I was that an
inquiry into when the State Medicaid certification process was
completed was expressly sanctioned. The State had conceded that a
disallowance for the period from July 1, 1982 until the date State
certification was completed might be appropriate. Thus, the
Agency's second disallowance, which is based on a theory that the
State never properly completed its Medicaid certification
procedure, is well within the area of inquiry that was reserved for
further consideration.
In its response to the Order, the State reiterated its belief that the
Agency was unfairly subjecting it to a second disallowance proceeding,
and it argued at the hearing that if nurse staffing was so central to
the question of the allowability of FFP for COJTC, the Agency should
have pressed it earlier. Tr. at 9. The State concluded, however, that
it would not ask the Board to reconsider the interpretation of its prior
decision set forth in the Order. Consequently, we here affirm that
preliminary ruling and hold that the present disallowance is not barred
by res judicata.
B. Agency authority to take this disallowance
The State also disputed the Agency's authority to take the current
disallowance. The State maintained that the Agency could not challenge
the State agency's determination here because federal substantive
"look-behind" authority in the Medicaid program, i.e., authority to
review the factual findings underlying a State's decisions to certify
facilities as Medicaid participants, had allegedly been granted only for
skilled nursing facilities (SNFs) and intermediate care facilities
(ICFs) by section 1902(a)(33)(B) of the Social Security Act, 42 U.S.C.
1396a(a)(33)(B) (which was initially cited by the Agency as authority
for the COJTC I disallowance). The State also contended that federal
procedural look-behind, i.e., authority to review the state's procedures
that led to the certification decision, was similarly limited by 42
C.F.R. 442.30 to SNFs and ICFs. According to the State, those two
authorities were allegedly seen by Congress and the Agency as necessary
to permit federal intrusion into a state's area of authority, and
therefore look-behind for other types of facilities would have to be
similarly sanctioned by statute or regulation.
We do not agree with the State's characterization of the Agency's
disallowance as necessarily the product of substantive or procedural
look-behind activity. As we view it, the real issue in this case is
whether the State fulfilled its obligation to document that the facility
which provided services for which Medicaid reimbursement is being sought
was in fact certified for Medicaid participation. While in the present
case, the Agency admittedly questioned the facts underlying the State's
survey and certification process for COJTC, the Agency particularly
emphasized its contention that no State certification existed for this
facility. Agency's brief at p. 11. According to the Agency, neither
the C&T form nor the survey documents resulting from the November 1982
survey showed that the facility was certified as in compliance with the
applicable standards. Tr. at 164-167. The Agency also challenged the
JCAH documentation of accreditation as not showing that the facility at
COJTC, as opposed to the program, was accredited and therefore due
automatic ("deemed") certification as of April 1984.
As we noted in the Order, the Agency is authorized to provide FFP only
for expenditures for medical assistance under the state plan. Section
1903 of the Act. Since the State plan is required by the Act to limit
FFP to services provided in certified facilities, section 1902(a)(22) of
the Act, documentation of a facility's certification becomes a
requirement of a state's claim for FFP. Thus, the Order preliminarily
ruled that
. . . it appears that the Agency does have authority to question
the propriety of payments made to a Medicaid hospital where the
State's documentation raises a question as to whether that
institution was eligible to participate in the program. Order, p.
3.
We affirm here that the Agency clearly has the authority to examine the
certification documentation proffered by the state in support of its
claim for FFP. As the Agency pointed out in its initial brief, and the
State agreed at the hearing, the State never entered into a separate
provider agreement with COJTC, since it was to be incorporated into the
agreement with OTH upon certification. Agency's brief at 2; Tr. at
9-14. Consequently, the fact of certification is critical to the
question of when FFP for services rendered at COJTC was authorized. In
fact, as noted above, the State has conceded that it should not have
claimed FFP until the certification process was completed. State
Response to Order at 5.
In this case the Agency alleged, inter alia, that the documentation
proffered by the State does not, on its face, show that COJTC was
certified. This is not the same as questioning the State's substantive
decision to certify the facility which, admittedly, the Agency also did
when it questioned whether the State could decide to certify a facility
even though it did not satisfy the nursing condition of participation.
In its response to the Order, the State reiterated the points it had
made previously in support of its contention that the Agency needed
express authority to question a provider agreement of a facility other
than an ICF or SNF. The authorities cited by the State, however, all
emphasize the State's responsibility to decide whether facilities may
participate in Medicaid. As we stated above, it is not the correctness
of a state decision to certify that we are examining in this case, but
rather whether the State documented that the facility was certified. We
therefore affirm the Order's preliminary ruling that the Agency had
authority to take this disallowance, since the disallowance at the very
least raises the issue of whether certification was documented. In view
of this finding, we need not reach the issue of whether the Agency has
look-behind authority for hospitals; we look at the certification
documentation rather than behind it.
V. Did the State document that its November 1982 survey resulted in
certification of COJTC?
The State claimed that its survey agency surveyed COJTC on November 19,
1982 and reported its findings on a C&T form dated February 15, 1983
(Ex. 5). The State argued that this form conclusively establishes that
the State survey agency certified COJTC as a unit of OTH eligible to
participate in Medicaid and was the basis for the State Medicaid
agency's allegedly unchallengeable determination to approve Medicaid
funding for this facility. In its initial brief in this proceeding,
however, HCFA asserted that this form "did not certify anything to
anyone." Agency's Brief at 11. The Agency noted that item 12, the part
of the form where the survey agency's findings regarding compliance or
noncompliance with program requirements is supposed to be recorded, was
left blank. Neither the box for "in compliance" nor the one for "in
compliance with a plan of correction" was checked. In addition, the
Agency stated that the underlying state survey report (HCFA-1537) showed
that the facility did not meet the requirement for 24-hour nursing care,
found at 42 C.F.R. 405.1024, which was one of the conditions of
participation in Medicare that was in effect during the disallowance
period. Ex. 3. The Agency held that a facility could not be certified
with a condition of participation out of compliance, even with a plan of
correction, because the conditions of participation were basic health
and safety requirements. The Agency thus concluded that the State had
not shown that COJTC satisfied the conditions for participation in
Medicare and therefore Medicaid.
Initially, the State alleged that the failure to check item 12 must have
been an oversight by the surveyor. The Agency then produced the
surveyor at the hearing, where he testified that he and his supervisor
consciously decided not to check item 12 because, in their opinion,
COJTC could not be certified because it did not satisfy the condition of
participation of 24-hour nursing care for its patients when he visited
there in November 1982. Tr. at 21-26, 29. The surveyor, now retired
from State employment, stated that the reason he signed the form at all
was that there was tremendous political pressure exerted on his
department to bring the State juvenile treatment centers into the
Medicaid program. Id. at 33, 36.
Under cross-examination, the former state employee could not identify
specific instances of political pressure, but he maintained that there
was a tremendous push to bring COJTC and the other facilities into the
Medicaid program. Tr. at 111-112. In its post-hearing submission, the
State emphasized the length of time that had elapsed since the November
1982 survey. It argued that the surveyor may have been confused about
whether there was adequate nursing coverage at that time, since the
surveyor admitted to two visits to COJTC and the State had uncovered a
letter concerning a July 1982 visit by the survey agency that emphasized
the nursing situation. Ex. 71. The State alternatively argued that the
surveyor and the Agency's witness agreed at the hearing that the final
decision regarding certification of COJTC was the State Medicaid
agency's, since the survey agency could only recommend certification.
We find the surveyor's testimony to be extremely credible for several
reasons. First, his recollection concerning nursing conditions at COJTC
during November 1982 is supported by the underlying survey report.
Second, his demeanor and the words he used to describe how unusual it
was for him to have signed the C&T form without indicating his opinion
on whether the facility satisfied the conditions for certification were
very compelling. Although he could not identify specific examples of
political pressure brought to bear on him and his supervisor to certify
COJTC, he testified that he was convinced enough about the pressure
generally that he had to take what for him was an obviously distasteful
action. Tr. at 33, 35, 111-112. Moreover, documents in the COJTC I
record indicate that there was indeed considerable State interest in and
emphasis on obtaining Medicaid funding for this facility (CITE, plus Ex.
2 in COJTC II file), and lend credence to the surveyor's sense of
political pressure. In fact, the State had already begun claiming
Medicaid funding for this facility in July 1982.
Thus, we find that the C&T form is meaningless and cannot serve as
evidence of certification, even if it does bear the signature of the
surveying official. This conclusion is reinforced by the highly
credible evidence in the record from the surveyor that he was unable to
recommend certification and by the survey report itself, which
identified the nursing staff deficiency. Moreover, even if we were to
accept the State's allegation that it intended to certify the facility
on the basis of an acceptable plan of correction, the C&T form does not
support this allegation since the box for certification with plan of
corrections was not checked and the survey official testified at the
hearing that he could not certify under the circumstances because the
lack of nursing coverage constituted a threat to patient health and
safety. Tr. at 72. (While the plan of correction was apparently
approved by the survey official, there is no indication on that form
that he concluded that the facility would be certifiable with a plan of
correction and, indeed, he did not so indicate on the C&T.)
The survey official testified that it was the lack of any nursing
coverage for many shifts that formed the basis for his conclusion that
the facility was uncertifiable, Tr. at 29, even with a plan of
correction, Tr. at 72. The surveyor's opinion is supported by the
Board's opinion in Mississippi Medicaid Commission, DAB No. 504 (1984),
which was expressly upheld by the District Court in Mississippi Medicaid
Commission v. Department of Health and Human Services, 633 F.Supp. 78
(S.D.Miss. 1985), aff'd, 786 F.2d 583 (10th Cir. 1986), that a plan of
correction is insufficient to cure noncompliance with a condition of
participation for the Medicaid program. In addition, as the Agency
noted, the State Operations Manual (SOM) provides that failure to comply
with a required condition of participation indicates a serious breakdown
in one of the major health care or safety systems of the facility. SOM
section 2320 (now found at sections 1014 and 1016), Agency Ex. B.
Moreover, the statute itself requires that a hospital have 24-hour
nursing care for its patients. Section 1861(e)(5) of the Act.
Finally, aside from the State's failure to document certification, the
State provided no documentation that the State Medicaid Agency expressly
authorized COJTC's Medicaid participation as a result of the alleged
certification and plan of correction. The State repeatedly argued that
the ultimate decision concerning COJTC's Medicaid participation rested
solely with the State Medicaid Agency, and that the Medicaid Agency's
decision to authorize participation in the instant case was reasonable.
See, e.g., the State's Post-Hearing Submission, Parts I and II. The
State, however, did not provide any documentation or other evidence of
any affirmative decision by that agency based on the survey findings,
the plan of correction, and the C&T. Indeed, the same C&T form signed
by the surveyor has a place for the State Medicaid agency to sign
evidencing its determination of Medicaid eligibility; the only copy of
the C&T form supplied by the State (Ex. 5) had no such signature.
Inasmuch as the State Medicaid agency had actually started claiming FFP
for COJTC patients in July 1982, it would be disingenuous to argue that
the act of claiming alone evidenced a determination of eligibility when
the claims preceded the survey and the preparation of the non-certifying
C&T.
Thus, we reject the State's argument that the February 15, 1983 C&T
form, with the accompanying plan of correction from the facility, should
be taken as evidence that COJTC was certified as a Medicaid provider and
approved for participation in the program.
The State also argued that the nursing condition of participation was
eased after the disallowance period, and that the State should not be
held liable for failure to meet a standard that the Agency allegedly
admitted in its notice of proposed rulemaking was unnecessarily strict.
This argument does not excuse the State's failure to meet a clear
condition of participation in effect at the time of the survey. In
fact, the documentation submitted by the State shows that nursing
coverage did not consistently meet the standard applicable during the
period until October 1983. Ex. 17. Furthermore, the State admitted
that COJTC did not meet even the relaxed standard at the time of its
November 1982 survey since there were no nurses whatsoever for some
shifts. Tr. at 84; Ex. 15. Additionally, we note that the change that
had been proposed in this condition at the time of the survey was not,
as the State suggested, to abolish the requirement for a registered
nurse on duty at all times (see Notice of Proposed Rulemaking (NPRM), 45
Fed. Reg. 41794 (June 20, 1980)). We also do not agree with the State
that the Agency's general statement in the NPRM that it was changing the
regulations to bring them more into accord with the statute can be
applied specifically to this particular change, since that purpose was
among several cited by the Agency for its proposed overall revamping of
the regulations.
Consequently, we agree with the Agency that the documentation proffered
by the State in support of its claim for FFP in Medicaid services at
COJTC does not establish that services were rendered in a facility that
was certified as qualified for Medicaid participation by having met the
conditions for participation in Medicare for the period July 1, 1982
through April 27, 1984. We therefore uphold the disallowance for that
period. VI. Was COJTC accredited by JCAH?
The State argued that, even if COJTC was not eligible for Medicaid
participation by virtue of its State certification, it automatically
became eligible in April 1984 when the JCAH accredited the facility for
a period of 3 years. A hospital may be deemed to meet all of the
requirements for participation in Medicare, except for utilization
review requirements, if it is JCAH accredited. 42 C.F.R. 405.1901(d).
The parties agree that the State had an approved contract for
utilization review in place by October 1984, and the State produced
evidence that that contract was in effect as early as January 1984. Ex.
74. The Agency, however, pointing to certain ambiguous language in the
JCAH's correspondence with COJTC, maintained that the JCAH certification
was limited to the juvenile psychiatric program only, and did not cover
the entire facility, and that COJTC could not therefore be deemed to
meet the requirements for Medicare participation. The State, referring
to other ambiguous language in other JCAH communications, and to
evidence that the JCAH survey leading to the accreditation covered the
physical facilities as well as all aspects of the program, argued that
the JCAH accreditation was not so limited.
After reviewing all of the evidence on this point, we conclude that the
JCAH accreditation was of the entire COJTC facility, not just a limited
program. Most persuasive were the documents supplied by the State after
the hearing, which showed that JCAH was concerned with the physical
plant at COJTC, including safety measures, rather than just the details
of its juvenile psychiatric program. See Exs. 32 (request for
pre-survey materials), 40 (survey report). These documents show that
the JCAH survey was conducted over a 4-day period by a registered nurse,
Ex. 38, and included reviews of the qualifications of the facility's
staff, organizational charts, plan for professional services, medical
records department, utilization review plans and quality assurance plan.
See Exs. 36 (pre-survey materials), 40 (survey report). When compared
with the survey documents from the November 1982 survey, Ex. 3, it is
clear that this survey covered all of the details that were normally
covered by a state survey. Moreover, the latest letter of clarification
sought and received from the JCAH stated that
The survey involved a 68 bed (16 buildings) child and adolescent
facility. The facility was accredited for three years for the
provision of residential psychiatric treatment of children and
adolescents. Ex. 55.
In the face of the overwhelming evidence that the JCAH survey was the
kind of review evidently envisioned by the regulations as a satisfactory
substitution for Agency or State review, we find that the JCAH
accreditation was of the COJTC facility as a whole, so that the facility
acquired "deemed" status on its effective date.
Consequently, we reverse the disallowance for the period after JCAH
accreditation.
Conclusion
The disallowance for the period July 1, 1982 through April 27, 1984 is
upheld, because the State has not documented that COJTC was properly
certified during that period. The disallowance for the period April 28,
1984 through May 31, 1985 is overturned, since we find that COJTC was
accredited as a facility by the JCAH during that period. The Board will
communicate separately with the parties concerning briefing procedures
for the other facilities covered by this disallowance.
__________________________ Judith A. Ballard
__________________________ Alexander G. Teitz
__________________________ Donald F. Garrett
Presiding Board