DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Michigan Department DATE: February 15, 1989 of
Social Services Docket No. 88-186 Decision No. 1017
DECISION
The Michigan Department of Social Services (Michigan/State) appealed a
determination by the Health Care Financing Administration (HCFA/Agency)
disallowing $15,270 in federal funding claimed by the State under the
Medicaid program of the Social Security Act (Act) for the quarter ending
June 30, 1988. The disallowance was taken pursuant to section
1903(g)(1) of the Act, which provides for the reduction of a state's
federal medical assistance percentage of amounts claimed for a calendar
quarter for long-stay services where the state fails to show that during
the quarter it had "an effective program of medical review of the care
of patients . . . whereby the professional management of each case is
reviewed and evaluated at least annually by independent professional
review teams."
HCFA alleged that Michigan failed to conduct an on-site inspection of
care review at Willowbrook Manor (Willowbrook), a skilled nursing
facility (SNF), by the end of the quarter in which the review was due,
June 30, 1988. The State maintained that Willowbrook was not due for
review until the final quarter of 1988. Michigan indicated that in
December of 1987 Willowbrook's status changed from a SNF caring for
mentally retarded patients to a SNF caring for geriatric patients.
Michigan asserted that this change resulted in an entirely new patient
population, a new provider agreement, and transfer of on-site review
responsibility to a different State agency. While the State contended a
review was not due for this "new" facility until the December 1988
quarter, it noted that Willowbrook was actually reviewed earlier than
required--in July 1988. In the alternative, the State argued that the
failure to review Willowbrook could be excused under the technical
failings exception to the annual review requirement.
Based on the following analysis we find that while Michigan was required
to review Willowbrook by June 30, 1988, its failure to do so is excused
under the technical failings exception. Accordingly, we reverse the
disallowance.
Applicable Law
Generally, section 1903(g)(1) of the Act requires that a state make a
satisfactory showing that it has an effective program of medical review
of the care of patients in long-term care facilities, whereby the
management of each case is reviewed at least annually. Section
1902(a)(31) of the Act requires that a state plan provide--
(B) with respect to each skilled nursing . . . facility within the
State, for periodic onsite inspections of the care being provided
to each person receiving medical assistance, . . . .
The quarterly showing requirements are implemented by regulation at 42
C.F.R. Part 456. Part 456 establishes a facility-based review system,
since HCFA recognized that it would be difficult to track individual
recipients. See 43 Fed. Reg. 50924 (November 1, 1978). Section 456.652
provides that--
(2) An on-site review is required in a facility by the end of a
quarter if the facility entered the Medicaid program during the
same calendar quarter 1 year earlier . . . .
* * *
(4) The requirement for an on-site review in a given quarter is
not affected by the addition or deletion of a level of care in a
facility's provider agreement.
The Act contains certain limited exceptions to the section 1903(g)(1)
annual review requirement. Specifically, section 1903(g)(4)(B)
provides--
The Secretary shall find a showing of a State, . . . under
paragraph (1), to be satisfactory . . . if the showing demonstrates
that the State has conducted such an onsite inspection during 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.
The statutory exceptions are implemented by regulation at 42 C.F.R.
456.653(a) and (b). Failure to make a satisfactory showing will result
in the reduction of a state's federal medical assistance percentage
under a formula set out at section 1903(g)(5) and 42 C.F.R. 456.657. We
refer to other regulations as needed in our analysis.
Background
Through December 9, 1987, Willowbrook was a SNF caring for mentally
retarded individuals. On December 10, Willowbrook transferred its
entire population of mentally retarded recipients to another facility,
changed its certification to that of a SNF caring for geriatric
patients, and admitted an entirely new clientele of patients.
HCFA based the disallowance on Michigan's failure to review Willowbrook
by June 30, 1988. HCFA asserted that since the previous review at
Willowbrook occurred in the second quarter of 1987, the 1988 annual
review was due by the end of the second quarter--June 30th. Michigan
contended that as of December 10, 1987 Willowbrook, as a geriatric
facility, was a new facility subject to annual review by a State agency
different from the agency responsible for reviewing Willowbrook when it
housed mentally retarded patients. Accordingly, the State asserted that
the annual review at Willowbrook would be due in the final quarter of
1988; that quarter represented the one-year anniversary of this "new"
facility's entry into the Medicaid system. See 42 C.F.R. 456.652(b)(2).
Michigan actually reviewed Willowbrook on July 6, 1988. Michigan
asserted that it had originally intended to review Willowbrook in the
last quarter of 1988, but had found it administratively more convenient
to conduct the review in the third calendar quarter. Accordingly, the
review was scheduled for and conducted in July 1988. Thus, Michigan
argued in the alternative that if the Board found that Willowbrook was
required to be reviewed by the end of the June 30 quarter, then the
technical failings exception should apply to excuse the untimely review.
Michigan indicated that it submitted its quarterly showing for the June
1988 quarter on the assumption that Willowbrook was not required to be
reviewed at that time. The State submitted a memorandum from the
Certification Coordinator of its Medical Services Administration in
which that official asserted that in mid-August 1988 he was called by a
HCFA official who had reviewed the State's quarterly showing and who
indicated that HCFA would probably not accept Michigan's assertion that
Willowbrook was a new facility not requiring review until the last
quarter of 1988. After discussing Michigan's situation (and presumably
learning that the facility was reviewed in early July), the HCFA
official suggested that Michigan write a memo to the Regional HCFA
Office requesting that the untimely review be excused under the
technical failings exception. Michigan submitted the memo to HCFA on
August 16, 1988. See Statement of Wallace J. Green, Michigan Submission
- December 12, 1988 and Michigan Exhibit 5.
HCFA noted that the regulations do not distinguish between types of SNFs
for annual review purposes. Therefore, the change relied on by Michigan
would have no bearing on the due date for the Willowbrook review. HCFA
Brief (Br.) pp. 3-4. Further, in its brief HCFA challenged the State's
argument that the untimely review of Willowbrook could be excused under
the technical failings exception. HCFA noted that Michigan's quarterly
showing did not list Willowbrook as a facility due for review which had
gone unreviewed or ask that the technical failings exception apply. See
42 C.F.R. 456.654(a)(1) and (6). HCFA argued that the proximity of the
July 6 review to the close of the quarter in which it was originally due
was evidence that Michigan regarded the due date for Willowbrook's
review to be June 30, 1988 and that Michigan had originally intended to
review the facility by that date. Thus, HCFA asserted that the failure
to timely review Willowbrook was due to poor administration and could
not be considered a technical failing. Id. at 8-9. However, during a
November 30, 1988 telephone conference Michigan indicated that at the
time it submitted its quarterly showing, it did not believe that
Willowbrook was due for review during the June 30 quarter; thus the
facility was not listed as unreviewed on the showing. Michigan asserted
that its decision to apply for the technical failings exception evolved
after the showing for the June quarter had been submitted. The decision
was based on the fact that, by chance, the facility was reviewed within
30 days of the close of the quarter and the subsequent discussion
between HCFA and Michigan officials in which the HCFA official suggested
that the technical failings exception might apply. Subsequent to the
telephone conference, HCFA did not challenge the State's assertions on
this point.
Analysis
WILLOWBROOK WAS REQUIRED TO BE REVIEWED BY JUNE 30, 1988.
The annual review requirement is mandated by the Act and implemented by
federal regulation. See sections 1903(g)(1) and 1902(a)(31) of the Act
and 42 C.F.R. 456.652. Neither the Act nor the regulations categorize
SNFs by the nature of their patient populations. Rather, the Act and
regulation impose a straightforward requirement that all SNFs must be
reviewed on an annual basis. While the change in patient population at
Willowbrook in December 1987 may have meant that a different State
agency was responsible for conducting the annual review at Willowbrook,
that change had absolutely no effect on the timing of when the annual
review was due. Moreover, Michigan's own evidence undercuts its
assertion that Willowbrook was a "new" facility after December 10,
1987.
As part of its December 12, 1988 submission, Michigan included two
provider agreements for Willowbrook. The first agreement covers the
period November 1, 1987 through October 31, 1988 (Agreement I), and
shows Willowbrook operating as a mentally retarded (MR) nursing
facility. Agreement I, Blocks 2 and 3. This agreement also lists the
same individual as Owner and Administrator. Agreement I, Blocks 48 and
63. There is no indication of the beginning date of this individual's
ownership, but the facility's opening date is listed as "4/01/82."
Agreement I, Blocks 49 and 64. The second provider agreement (Agreement
II) covers the period December 10, 1987 through October 31, 1988. The
facility is shown to be operating as an SNF with concurrent intermediate
care facility services. Agreement II, Blocks 2 and 3. The second
agreement shows corporate ownership beginning "4/01/82" with the same
administrator and opening date as listed in the first agreement.
Agreement II, Blocks 48, 49, 63, and 64. This evidence points to a
continuity of ownership and administration which, combined with the
rapid conversion from MR to geriatric facility, belies the argument that
this was a new facility. Further, as HCFA noted, there is no statutory
or regulatory distinction between types of care offered at a SNF. Thus,
a simple change in the type of skilled care offered by a facility would
not alter the due date for a facility's annual review. Accordingly, we
conclude that Willowbrook was due for review by June 30, 1988.
Having determined that the Willowbrook review was untimely, we now
consider whether the technical failings exception excuses the untimely
review.
THE TECHNICAL FAILINGS EXCEPTION APPLIES TO EXCUSE THE UNTIMELY REVIEW
AT WILLOWBROOK.
Our conclusion that the technical failings exception can apply to excuse
this untimely review is based upon the following facts. The State does
not dispute HCFA's general interpretation of the annual review
requirements. Instead, the unchallenged evidence shows that Michigan's
failure to timely review Willowbrook was based upon the State's
assumption that the change in patient population at this one facility
would change the review requirements. Michigan mistakenly believed that
a new type of population would result in a new due date for review. In
all other aspects, the State maintained a satisfactory system of review.
Thus, as we discuss below, the failure to review Willowbrook can be
attributed to a singular occurrence within the State's system rather
than a systemic flaw in Michigan's annual review process.
In spite of HCFA's assertion to the contrary, Michigan's failure to list
Willowbrook as an unreviewed facility on its quarterly showing for June
30, 1988 does not preclude application of the technical failings
exception. The implementing regulation at 42 C.F.R. 456.654(a)(1) and
(6) generally requires that a state's quarterly showing list all
facilities for which a review was due, but not performed, along with a
certification of the circumstances surrounding the failure to review.
Here, although Michigan's reasoning was ultimately proven incorrect, it
is apparent that, at the time of its showing, Michigan was genuinely
unaware of the need to review Willowbrook in the June quarter. Thus,
Michigan could not reasonably have been expected to list this facility
as unreviewed. In fact, the undisputed evidence in the record is that
Michigan advanced the technical failings exception only at the
suggestion of a HCFA official, after the showing had been filed. Under
these circumstances, the mere omission of that information from the
showing cannot preclude access to the exceptions. See Delaware Dept. of
Health and Social Services, DAB No. 732 (1986), rev'd on other grounds,
Delaware Div. of Health and Social Services, 665 F. Supp. 1104 (D. Del.
1987), appeal dismissed (as untimely filed), C.A. No. 87-3602 (3rd Cir.
October 6, 1987).
Michigan satisfied the 98%/200 bed standard which is the first step in
application of the statutory exceptions. See section 1903(g)(4)(B) of
the Act. Willowbrook has 101 Medicaid beds. It was the only facility
unreviewed, so clearly, if there were any 200 bed facilities in Michigan
requiring review by June 30th, they were all reviewed. HCFA did not
allege that the failure to timely review Willowbrook put Michigan below
the statutory standard mandating 98% review of all facilities which
required review during the 12 month period ending on the last date of
the calendar quarter, including all facilities with 200 or more Medicaid
beds. Further, as required by the technical failings exception, the
Willowbrook review took place within 30 days of the close of the quarter
in which it was originally due. Thus, the only issue left to consider
is the nature of the circumstances which prevented a timely review.
The amendment permitting exceptions to the annual review requirement was
not intended to permit states "to aim for less than 100 percent
performance of the review requirement." See 43 Fed. Reg. 50925
(November 1, 1978). However, there is little guidance about what is
properly regarded as a technical failing. From the legislative history
we know only that the technical failings exception would cover the
situation where a state had conducted reviews in most but not all
facilities by the close of the showing quarter, and completed the
remaining reviews within "several weeks". See 44 Fed. Reg. 56336
(October 1, 1979). In the notice of proposed rulemaking, setting out
for comment a draft version of the implementing regulation, HCFA
proposed that under technical failings it would "excuse . . . failure
due to circumstances within the State's control, provided that the State
completes the reviews within 30 days after the end of the quarter." See
43 Fed. Reg. 50925 (November 1, 1978). HCFA has retained this
interpretation since the regulations went into effect. Clearly,
scheduling the date for an annual review is a circumstance within a
state's control. See, New Hampshire Dept. of Health and Human Services,
DAB No. 841 (1987). While it is clear that poor administration or bad
record keeping could never qualify as a technical failing, not every
failure on the part of a state can be considered poor administration or
bad record keeping. See, e.g., New Hampshire, supra; Utah Dept. of
Health, DAB No. 843 (1987); Arkansas Dept. of Human Services, DAB No.
923 (1987); and Illinois Dept. of Public Aid, DAB No. 930 (1988).
In the four cases cited immediately above, we found that each state's
annual review system was efficiently operated and would have, but for an
unusual occurrence, satisfied the statutory standard of reviewing each
recipient in every facility where a review was due. In New Hampshire,
supra, state review teams visited an eight building facility over a
period of several weeks. In between visits a recipient was transferred
from an unreviewed building to one in which the review had been
completed. Thus, in what was otherwise an orderly and efficient review
process, the recipient was missed. This oversight was caused solely by
the sequence of building review within the facility, which the state
controlled. In Utah, supra, a key punch error inadvertently dropped the
cited recipient (rather than another patient with the same last name)
from the facility's monthly report used to identify recipients due for
review. The state's room-by-room review process would have caught this
error but, over the course of the three day review, the patient was
moved from an unreviewed part of the facility to an area which had
already been reviewed. The facility's staff did not notify the review
team of this fact. We found the one-time key punch error constituted a
technical failing, and that the state's orderly approach to the actual
review process offset HCFA's argument of poor administration. In
Arkansas, supra, the state did not review a facility pending the outcome
of a court hearing to determine if the state had properly terminated the
facility as a Medicaid provider. The state expected the hearing results
to be announced prior to the end of the quarter in which a review was
due. The hearing results were announced well past the deadline for the
review. Nevertheless, the state had monitored the care given to
recipients, although not precisely in the form required by HCFA. The
Board found no evidence of a systemic problem constituting poor
administration or bad record keeping. Rather, in view of the
circumstances, we found the state had acted reasonably and the technical
failings exception should apply. In Illinois, supra, the state failed
to include a physician on the review team at an institution for mental
diseases (IMD). The regional supervisor, charged with assigning review
teams, was new to the position and unaware of the need to have a
physician on the team. The state had, however, provided her with
adequate training and information and had picked up her error through
its quality assurance measures. We found that the technical failings
exception should apply to excuse this untimely review. In each of these
cases we found that the failure to conduct satisfactory reviews merely
represented isolated instances which did not evidence a systemic
problem.
Here, too, the facts support a finding that the untimely review of
Willowbrook represented a singular occurrence, rather than a systemic
failure in Michigan's annual review process. There is no question that
once the review was conducted it satisfied the applicable Medicaid
standard of review. The undisputed facts support a conclusion that
Michigan officials genuinely did not understand that the change in the
nature of services provided by Willowbrook would have no effect on the
annual review requirement. Thus, the State believed no review was due
until the final quarter of 1988. In fact Michigan scheduled and
conducted a review of the facility on that erroneous assumption.
Application of the annual review requirement to the particular facts
here presented a somewhat unusual problem. Since the entire population
of the facility was transferred out, setting the review date for the
quarter a year after the change would not result in any of the new
patients not receiving an annual review. Thus, we view the State's
failure here as a technical one which arises from HCFA's facility-based
review system and which does not evidence poor program administration or
bad recordkeeping. Consequently, we find the untimely review of
Willowbrook can be excused under the technical failings exception.
Conclusion
Based on the preceding analysis we find that Michigan was required to
review Willowbrook by the close of the June 30, 1988 quarter. However,
the subsequent untimely review at that facility may be excused by the
technical failings exception. Accordingly, we reverse the entire
disallowance of $15,270.
________________________________ Judith A. Ballard
________________________________ Donald F. Garrett
________________________________ Alexander G. Teitz Presiding
Board