DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
Subject: Colorado Department of Date: March 15, 1989 Social
Services Docket No. 88-206 Decision No. 1027
DECISION
The Colorado Department of Social Services (Colorado/State) appealed a
determination by the Health Care Financing Administration (HCFA/Agency)
disallowing $89,428.95 in federal funding claimed by the State under the
Medicaid program of the Social Security Act (Act) for the quarter ending
March 31, 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 found that Colorado had failed to conduct a satisfactory on-site
inspection of care review at Spring Creek Health Care Center (Spring
Creek) because the State review team did not include three Medicaid
recipients in its review of that facility. Spring Creek is a dually
certified facility providing both skilled nursing facility (SNF) and
intermediate care facility (ICF) services. Two of the cited recipients
were receiving ICF services; the other was a SNF patient. Colorado
relied on the facility's patient census lists to determine the Medicaid
recipients due for review. HCFA asserted that the State system for
identifying recipients due for review was faulty and that, consequently,
Colorado had not satisfied the Medicaid standard of reviewing each
recipient for whom a review was due. The State conceded that the cited
recipients should have been reviewed, but offered two defenses to the
disallowance. Colorado contended that it had met the annual review
requirement even though three recipients were not reviewed, and alleged
that HCFA's interpretation of the statutory review requirement set out
in the implementing regulations was arbitrary and capricious.
Additionally, Colorado asserted that its failure to review these
recipients could be excused under the "good faith and due diligence"
exception to the annual review requirement.
Based on the following analysis, we reject Colorado's arguments and
sustain the disallowance.
What the statute and regulations provide
Section 1903(g)(1) of the Act requires a state to make a quarterly
showing that it has an effective program of medical review of the care
of Medicaid recipients in ICFs and SNFs pursuant to section 1902(a)(31)
of the Act, whereby the professional management of each case is reviewed
and evaluated at least annually. Section 1902(a)(31)(B) of the Act
requires periodic on-site inspection of the care being provided each
Medicaid recipient in these facilities. These requirements are
implemented by regulations at 42 C.F.R. Part 456, Subpart I and section
456.652. Under these regulations, a review team must personally contact
and observe each Medicaid recipient, review that recipient's medical
records, and evaluate whether the services provided are adequate and
necessary to meet the recipient's needs or whether a less costly care
alternative is feasible.
If the Secretary determines that a state's quarterly showing is
unsatisfactory or invalid, the state's funding for long-stay services is
reduced in accordance with the formula at section 1903(g)(5).
Section 1903(g)(4)(B) sets out circumstances in which the Secretary
shall find a state's showing satisfactory, notwithstanding the state's
failure to conduct all required reviews. Specifically--
[t]he Secretary shall find a showing of a State . . . 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.
This section of the Act is implemented by the regulations at 42 C.F.R.
456.653, which provide in pertinent part--
The Administrator [of HCFA] will find an agency's showing
satisfactory, even if it failed to meet the annual review
requirements of section 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 and 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 by the close of the
quarter 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.
Background
Colorado inspection teams charged with performing annual reviews at
long-term care facilities rely solely on the particular facility's
census of Medicaid patients to identify recipients due for review. This
procedure resulted in three recipients being omitted from the March 1988
Spring Creek review. Colorado conceded that these recipients should
have been included in the Spring Creek review. The recipients were
eventually reviewed in June 1988 after HCFA notified Colorado that they
were omitted from the original review. Colorado Brief (Br.), p. 2; HCFA
Br., p. 8.
Colorado conceded that it was clearly the intent of Congress that each
Medicaid patient in each facility receive an annual review. Colorado
argued that it had satisfied the annual review requirement in that each
of the cited recipients had been reviewed within six months of their
eligibility, and would be reviewed again within the one year period
ending in March 1989. Colorado Br., p. 3. Alternatively, Colorado
contended that its failure to include these three recipients in the
March annual review could be excused under the "good faith and due
diligence" exception to the annual review requirement. Colorado argued
that HCFA's regulatory interpretation of this exception was unreasonably
restrictive in that the Agency held states to an objective standard
rather than to the subjective standard intended by Congress, citing
Delaware Div. of Health and Social Services v. U.S. Dept. of Health and
Human Services, 665 F. Supp. 1104 (D. Del. 1987), appeal dismissed (as
untimely filed), C.A. No. 87-3602 (3rd Cir., October 6, 1987).
Essentially, Colorado asserted that HCFA has impermissibly restricted
the plain meaning of the phrase "good faith and due diligence" by
tying
the exception to events which are "beyond the control" of the party.
Rather than applying an absolute standard, Colorado insisted that its
actions should be measured by a standard which anticipates that a state
would "operate its inspection function in a reasonable and prudent
manner . . . [and assumes] that the results will not achieve
perfection." Colorado Br., pp. 5-6.
Under its interpretation of the regulation, Colorado claimed that it
could reasonably rely on a facility's census to identify Medicaid
recipients due for review. Colorado asserted that this was the method
used by most states to identify recipients. Colorado conceded that
where a state had information with which it could verify the accuracy of
a census it would be reasonable to expect the state to do so. However,
Colorado contended that absent such information "'due diligence' does
not require a higher standard of extraordinary care." Id. at 7.
Responding to HCFA's allegation that the State had provided information
to HCFA which could have been used to identify recipients, Colorado
admitted that its Professional Review Organization (PRO) entered
eligibility information into its computers on a daily basis. However,
Colorado said the PRO generated only monthly reports. Consequently, the
State concluded, the "PRO reports would be of minimal assistance at the
time of the inspection." See Colorado Reply Br., p. 2; see also HCFA
Br., pp. 7-8.
Analysis
Below, we first discuss the history of the "good faith and due
diligence" exception and why we think that HCFA's interpretation of that
exception is reasonable. We then discuss why the exception does not
apply to the circumstances of this case, and why we reject the State's
contention that it met the annual review requirement. The "good faith
and due diligence" exception
Section 1903(g)(4)(B) was added to the Act by Public Law 95-142, enacted
October 25, 1977. On November 11, 1977, HCFA issued Action Transmittal
HCFA-AT-77-106 (AT-77-106) to state agencies administering the Medicaid
program. AT-77-106 discussed the legislative history and effect of
section 1904(g)(4)(B). Regarding the "good faith and due diligence"
standard, the Action Transmittal noted that House committee reports
clearly indicated that Congress did not intend to permit states to aim
for less than 100% performance of the review requirement; rather, the
"good faith and due diligence" exception was "intended to permit
an
exception to the 100% requirement in situations clearly beyond the
State's control." In reaching this conclusion, HCFA relied on its view
that the exception was intended to formalize existing HCFA practice.
HCFA provided examples of circumstances beyond a state's control and
specifically noted that the exception would not excuse disorderly record
keeping. AT-77-106, pp. 6-7.
Approximately one year after publishing AT-77-106, HCFA issued a Notice
of Proposed Rulemaking (NPRM) setting out for comment a draft of the
regulations implementing Public Law 95-142. HCFA provided the following
guidance regarding "good faith and due diligence"--
We propose to excuse under the good faith and due diligence
exception only those failures to perform reviews which are due to
situations clearly beyond the State agency's control. Under this
exception, failures to perform reviews due to recurring or
predictable weather conditions would not be excused. Furthermore,
if a State employee strike or severe blizzard or other situation
beyond a State's control resulted in less than 98 percent
performance, a State would be subject to a reduction for all missed
reviews.
43 Fed. Reg. 50925 (November 1, 1978). In the preamble to the final
rule, HCFA indicated that the "good faith and due diligence" exception
would apply--
. . . if the 98 percent and 200 bed adherence level was achieved by
the close of the showing quarter, and the failure to achieve 100
percent compliance was clearly beyond the agency's control and
could not have been reasonably anticipated.
44 Fed. Reg. 56335 (October 1, 1979).
After some discussion of the comments, and the genesis of the exception,
HCFA noted that it would retain the "good faith and due diligence"
exception "as published in the NPRM." Id. at 56335-56336.
Why HCFA's interpretation is reasonable
We first note that HCFA's interpretation is a longstanding one, adopted
nearly ten years ago almost immediately after enactment of the
provision. As we noted earlier, HCFA viewed the good faith and due
diligence exception as formalizing its prior practice of not finding a
state's showing unsatisfactory where reasons entirely beyond a state's
control made it impossible for the state to meet review requirements.
HCFA's view was consistent with language in the Senate bill, which would
have authorized waiver of a section 1903(g) disallowance "in any case in
which the Secretary determines that the unsatisfactory or invalid
showing made by the State is of a technical nature only, or is due to
circumstances beyond the control of the State." In explaining this
provision, the Senate Finance Committee report stated that the bill
would waive a disallowance--
if the State's noncompliance is technical or due to circumstances
beyond its control. The committee intends, however, that this
waiver authority is to be invoked only when reasonably appropriate
and not as a generalized routine exception. Circumstances
considered outside of a State's control are those which could not
reasonably be anticipated and provided for in advance.
S. REP. No. 453, 95th Cong., 1st Sess. 40 (1977).
HCFA examined the legislative history of section 1903(g)(4)(B) in the
preambles to its proposed and final regulations and concluded that the
"good faith and due diligence" language combined the Senate and the
House versions of this exception. HCFA's regulations, adopted in light
of this conclusion, provide that this exception applies where there are
"circumstances beyond [a state's] control which it could not have
reasonably anticipated." 42 C.F.R. 456.653.
One court which has examined this exception concluded that it was a
"subjective" standard, calling for an evaluation of a state's intent
rather than consideration of objective factors. Delaware, supra, at
1128. In our view this is incorrect. While the conference report
states that there must be no evidence that a state deliberately did not
review a facility, we think that the legislative history as a whole
shows that mere subjective intent to review all facilities is not
sufficient to qualify for the exception. Moreover, the Delaware court
focused on the concept of "good faith," without considering the concept
of "due diligence." In our view, HCFA's regulatory standard embodies
its programmatic judgment that a state exercising the diligence which a
state should exercise in medical reviews would be able to meet the
annual review requirements unless prevented from doing so due to
circumstances beyond the state's control which the state could not
reasonably anticipate. While HCFA's regulation sets a high standard, in
our view this reflects the importance of the annual review requirements
in ensuring quality care for each Medicaid recipient in a long-term care
facility and in reducing costly expenditures for such care if it is not
needed.
In sum, HCFA's regulation is a reasonable implementation of the
statutory provision. It contains a longstanding interpretation,
consistent with the statutory language and history and with the purposes
of the annual review requirement.
The "good faith and due diligence" exception is inapplicable
Having determined that HCFA's interpretation of the "good faith and due
diligence" exception as presented in the implementing regulations is not
arbitrary and capricious, we next address why the exception does not
apply to the facts of this case.
A key element to the application of the exception is that a state be
unable to review each recipient in every facility due to circumstances
"beyond its control which it could not have reasonably anticipated . .
.
. " 42 C.F.R. 456.653(a)(3). Colorado was not prevented from reviewing
each recipient at Spring Creek due to circumstances beyond its control.
These patients were unreviewed due to the State's absolute reliance upon
the facility's census to identify recipients due for review.
Identification of recipients due for review is clearly a circumstance
within a state's control. As HCFA noted, we have found that the state
bears the ultimate responsibility for conducting satisfactory annual
reviews. See North Carolina Dept. of Human Resources, DAB No. 728
(1986). Colorado did no more than assert that it was justified in
relying upon the facility's census to identify the recipients. Instead,
Colorado merely offered the unsupported assertion that most states rely
on facility census information to identify Medicaid recipients due for
review. Numerous Board cases have addressed states' systems for
identifying Medicaid recipients in a facility due for review; some
states use computer-generated lists while others have found other ways
of double-checking information provided by facilities. See generally
Utah Dept. of Health, DAB No. 843 (1987) (review team conducted
room-by-room review as a back-up for accuracy of recipient list); and
Oregon Dept. of Human Resources, DAB No. 895 (1987) ("pending" Medicaid
recipients reviewed).
Colorado asserted that while its PRO entered eligibility information
into its computer system on a daily basis, the State could not be
expected to rely upon that information to identify recipients since the
PRO reports were generated only on a monthly basis. Colorado
characterized HCFA's suggestion that it rely on this information as "a
senseless act . . . unreasonable, arbitrary and capricious." Colorado
Reply Br., p. 7. Yet, the facts as presented by Colorado indicate that
use of the PRO information would have enabled the State to identify as
Medicaid eligible at least two of these omitted recipients. The review
at Spring Creek was conducted on March 17, 1988. HCFA Exhibit (Ex.) 1.
Recipient H.E. was approved for Medicaid at the ICF level on March 1,
1988, effective February 17, 1988. Recipient J.W. was approved for
Medicaid at the SNF level on January 6, 1988, effective November 1,
1987. The case of recipient M.S. (an ICF patient) was characterized by
the State as "unusual as she had not been listed by the facility for
more than 1 year." Colorado Br., p. 3. Even if the State had used a
one month old PRO report to identify recipients, it would have been able
to identify at least one recipient at each level of care (J.W. and
M.S.), thereby eliminating the SNF disallowance. If the report was
generated after the first of March, use of the report would have also
prevented the failure to review recipient H.E. Thus, contrary to
Colorado's assertion, reliance on a PRO report would not be a senseless
act, but could have served as a reliable back-up to assist the State in
accurately identifying all recipients for whom a review was due.
Also, Colorado could have used other information to verify the
recipients' status; HCFA noted that, for purposes of the Agency's
validation survey, the State had provided certain recipient billing
information which could have been used to verify the facility's census.
HCFA Br., pp. 7-8; see also HCFA Exs. 4 and 5. Colorado provided no
adequate explanation of why it could not have used this information or,
alternatively, have developed a more accurate system, as other states
have, to ensure including all recipients in a facility review. Nor did
the State explain why it would be reasonable to rely on information
provided by the facilities. Indeed, the State did not even explain why
the facility's census here was not accurate.
The State correctly asserted that the statutory standard of review
"anticipates" that a state's review process will not achieve perfection;
but Congress clearly expected states to exercise due diligence in
reviewing the quality of, and need for, each recipient's long-term care.
As the Agency recognized in its NPRM--
The committee reports accompanying Pub. L. 95-142 make clear that
this amendment was not intended to permit agencies to aim for less
than 100 percent performance of the review requirement. Rather, it
was intended to permit a limited exception to the 100 percent
requirement in specified situations. (See 95th Cong., 1st session,
House Conference Rept. 95-673, p. 48.)
43 Fed. Reg. 50925 (November 1, 1978).
Regarding Colorado's contention that it had met the annual review
requirement since these recipients were reviewed within six months of
their eligibility, we note that while Congress did intend that each
recipient in every facility be reviewed at least annually HCFA
implemented this review requirement by means of a system of facility
reviews. See note 1. Thus, the State was required to review all
recipients in Spring Creek during the March 1988 annual review,
regardless of the length of time those patients had been Medicaid
recipients. Additionally, we question Colorado's assertion that each
recipient was reviewed within six months of their eligibility
determination, in light of Colorado's admission that recipient M.S. had
been "unlisted" for more than one year. Here, the fact that these
recipients were ultimately reviewed in June 1988 was not attributable to
any aspect of the State's system, such as reviews which were conducted
every six months. See Maine Dept. of Human Services, DAB No. 857 (1987)
(state system of semi-annual reviews found to satisfy the annual review
requirement). Rather, these reviews occurred only due to the fact that
HCFA's validation survey brought the missed reviews to the State's
attention.
We must also reject Colorado's contention that the "good faith and due
diligence" exception applies to excuse the missed reviews since it did
not subjectively intend to miss these recipients. Colorado Br., p. 6.
As we have discussed above, the "good faith and due diligence"
exception is not based on the absence of an intent not to review. If
the focus were on intent, any state could avoid a disallowance merely by
asserting a lack of intent to not review. Consequently, anything shy of
deliberate maladministration would be forgiven. Under such a broad
interpretation, the purpose of the statutory reduction of federal
funding for an unsatisfactory showing would be negated. See
Pennsylvania Dept. of Public Welfare, DAB No. 1014 (1989), pp. 12-13.
Here, Colorado's absolute reliance on the facility's census is
insufficient to support a finding that the State exercised good faith
and due diligence in conducting the annual review and was prevented from
reviewing all the recipients due to circumstances beyond its control.
In spite of the fact that the State is charged with the responsibility
of reviewing all recipients in each facility, the State did no more than
send its review teams to the facility with the hope that the facility
would accurately identify all the recipients. The identification of
Medicaid recipients due for review is certainly a circumstance within a
state's control. However, Colorado employed no back-up system to double
check the accuracy of the facility's census, even though information was
readily available. These facts support a finding that Colorado did not
act with the diligence due to ensure that the statutory requirement of
an annual review of each recipient in each facility was met.
Conclusion
Based on the preceding analysis, we sustain the disallowance of $89,429.
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz
________________________________ Judith A. Ballard Presiding
Board