DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New Jersey Department DATE: May 4, 1989 of Human
Services Docket No. 88-223 Decision No. 1046
DECISION
The New Jersey Department of Human Services (State) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $800,554 in federal financial participation (FFP) claimed by
the State under Title XIX (Medicaid) of the Social Security Act (Act).
HCFA found that the State had failed to credit the federal government
with its share of Medicaid overpayments identified by the State.
The State appealed $725,120.44 of the disallowed FFP, conceding
liability for $75,433.06 of the total disallowed. During the course of
Board proceedings, the parties agreed to a remand to HCFA for further
analysis and adjustment of alleged overpayments totaling $718,878 in
FFP. The State identified the remaining amounts in dispute as either
(1) overpayments to providers which the State cannot collect due to the
bankruptcy or disappearance of the provider, or (2) recipient related
overpayments which the State cannot recover due to the death or lack of
financial resources of the recipients. With respect to the first
category, the State argued that, under section 1903(d)(3) of the Act,
HCFA could adjust the federal share of provider overpayments only when
there has been an actual recovery of funds by the State. With respect
to the second category, the State argued that HCFA's position that
states should bear 100% of the loss when recipients are unable to repay
conflicts with the purpose of the statute, to furnish assistance to
persons who possess limited financial means.
For the reasons stated below, we uphold the disallowance with respect to
both categories remaining in dispute. We also uphold the disallowance
of the $75,433.06 for which the State conceded liability, and remand the
$718,878 according to the parties' agreement.
Legal and Factual Background
The Medicaid program is established under Title XIX of the Act. 42
U.S.C. 1396 et seq. The stated purpose is to enable states to furnish
medical assistance to individuals "whose income and resources are
insufficient to meet the costs of necessary medical services." Section
1901 of the Act. To qualify for federal funding, a state must have an
approved Medicaid state plan, meeting the requirements of section 1902
of the Act. "Medical assistance" is defined in section 1905 of the
Act,
which sets out eligibility conditions and lists what services may be
covered. Other provisions require states to establish methods and
standards for setting provider reimbursement rates, and to follow those
methods and standards. See, e.g., sections 1902(a)(13)(A) and (a)(30)
of the Act; 42 C.F.R. 447.252(a)(2) and 447.253(b) (1982).
Section 1903(a) of the Act provides for payments to states for a
percentage of "the total amount expended . . . as medical assistance"
and for associated administrative costs. Section 1903(d) explains how
payment is made. In general, states submit estimates of Medicaid
expenditures prior to each quarter, which may be adjusted by HCFA. The
Secretary of HHS then pays the state --
the amounts so estimated, reduced or increased to the extent of any
overpayment or underpayment which the Secretary determines was made
. . . to the State for any prior quarter and with respect to which
adjustment has not already been made . . . .
Section 1903(d)(2)(A) of the Act. Section 1903(d)(3) specifies:
The pro rata share to which the United States is equitably entitled
. . . of the net amount recovered during any quarter by the State .
. . with respect to medical assistance furnished under the State
plan shall be considered an overpayment to be adjusted under this
subsection.
In 1986, the Consolidated Omnibus Reconciliation Act of 1985 (COBRA)
added section 1903(d)(2)(C), which gave states 60 days after discovery
to adjust an overpayment made to a person or other entity, and section
1903(d)(2)(D), which provided that no adjustment need be made for such
overpayments if the state could not recover the overpayment because the
debt had been discharged in bankruptcy or was otherwise uncollectible.
Pub. L. 99-272, section 9512. These provisions were applicable to
overpayments identified for quarters beginning on or after October 1,
1985.
In 1987, HCFA performed a review to ascertain the effectiveness of
procedures used by the State to record, recoup, and credit the federal
government for amounts identified by the State or its fiscal agents as
receivables due from service providers or from program recipients. The
review covered the period March 1, 1983 through September 30, 1985.
HCFA determined that, for overpayments made during that period, the
State was not adjusting the federal share upon identification, but only
upon actual collection by the State. State's Ex. 2, p. 4.
As mentioned above, there are two categories of alleged overpayments
remaining in dispute. Below, we first address the overpayments to
providers and then address the recipient-related amounts.
Uncollectible provider overpayments
The State did not contest the correctness of the amounts listed as
overpayments to providers in this category, but argued that it should
not have to credit HCFA for the federal share since "due to the
bankruptcy and/or disappearance of the provider, [the State] cannot
collect the amounts listed." State's brief, p. 29. The State relied on
section 1903(d)(3) for its position that HCFA may adjust the federal
share of an overpayment to a provider only when there has been an
actual recovery by the State. The State based its position on the
contention that the amounts in question had "concededly" been paid
as
"medical assistance under the State plan." State's brief, p. 32.
Contrary to what the State argued, however, the disallowance was
premised on HCFA's view that the amounts in question were not paid as
medical assistance under the State plan. We could find in the record no
concession on the part of HCFA that these amounts were medical
assistance under the State plan. HCFA's review indicated instead that
these amounts were listed in the State's accounts receivable records as
amounts due from providers because these amounts had been identified as
overpayments either in audits or through fraud and abuse activities.
Absent any evidence from the State that these amounts were authorized
under the State plan, we must conclude that they were either in excess
of the amounts authorized under the State plan or were for services not
provided as claimed or otherwise not allowable under the State plan.
This finding is key because numerous past Board decisions have held that
section 1903(d)(3) is limited to amounts which qualify as medical
assistance under a state plan and does not preclude HCFA from adjusting
prior to recovery amounts which have been firmly established as excess
or improper payments to a provider. See, e.g., New York State Dept. of
Social Services, DAB No. 311 (1982), pp. 4-5; New Jersey Dept. of Human
Services, DAB No. 480 (1983), aff'd New Jersey v. Bowen, Civ. No.
84-2771, D.N.J. (Nov. 13, 1986). The Board's analysis of this issue has
been upheld in three decisions by U.S. Courts of Appeals: Massachusetts
v. Secretary, 749 F.2d 89 (1st Cir. 1984), cert. denied, 472 U.S. 1017
(1985); Perales v. Heckler, 762 F.2d 226 (2d Cir. 1985); and Missouri
Department of Social Services v. Bowen, 804 F.2d 1035 (8th Cir. 1986).
The State appeared to acknowledge the applicability of these decisions
to these provider overpayments since it said it was raising the argument
"in order that it may be preserved for any potential appeal." State's
brief, p. 29, note. The State provided no evidence or argument which
would distinguish these prior cases or cause us to reconsider our
analysis of this issue.
Therefore, we conclude that HCFA is not precluded from adjusting the
federal share of these provider overpayments, even though they are
uncollectible.
Recipient-related amounts
Although both parties referred to amounts which the State's records
identified as due from recipients as "overpayments," the State said
that
these amounts were not actually paid to recipients, but were paid to
providers of services. HCFA did not dispute this. HCFA's Associate
Regional Administrator, responding to the State's comments on HCFA's
review report, referred to these amounts as "recipient related
fraud/abuse cases." State's Ex. 5. He indicated, however, that the
federal government would be entitled to its share of the identified
amount, even if the recipient did not receive the payment, and gave the
following example:
Such an example is when an eligible Medicaid recipient furnishes
his/her Medicaid card to a non-recipient for provider care. The
provider is rendering service in good faith and receiving payment.
The recipient willingly and knowingly is creating an unallowable
expense to the Medicaid program and is responsible for such.
State's Ex. 5.
The State did not point to any program provision which would authorize
FFP in amounts identified as due from recipients under circumstances
such as those given in HCFA's example, nor did the State contest HCFA's
description of the way these accounts receivable would arise. The State
argued, however, that all of the amounts were unrecoverable, due either
to the recipient's lack of financial resources or, in one instance, to
the recipient's death. Based on the fiscal status of the recipients and
on the general purpose language of section 1901 of the Act, the State
argued that the federal government should share in the loss. The State
reasoned as follows:
First of all, Congress directs that the recipients of this program
be people of little or no resources. When an overpayment to a
recipient occurs, most likely the recipient is still lacking in
resources. . . . While recovery of funds is always onerous upon
recipients, it is virtually impossible when the recipient has no
funds. In this scenario, the onerous burden falls upon the State,
which must bear the full loss. Obviously, cooperative federalism
requires the federal government to recognize its share of the
burden in these circumstances.
State's brief, pp. 27-28.
What the State's argument fails to recognize is that the federal
Medicaid program, while established to provide funding for state
programs which assist the indigent, simply does not provide funding for
all costs incurred by a state. FFP is limited generally to payments
which qualify as "medical assistance" under section 1905(a) of the
Act
and the state plan, that is, to payments which are for covered services
for eligible individuals (or are associated administrative costs).
Where, as here, a state has made payments which do not so qualify, and
has claimed FFP in those payments, the state has received an overpayment
of FFP, which is properly adjusted under section 1903(d)(2)(A) of the
Act, irrespective of whether the state has recovered from the recipient.
Contrary to what the State argued, this result is not inconsistent with
the concept of cooperative federalism. Since the states administer the
program directly, they are in a better position than the federal
government to prevent fraud and abuse in the first instance and, when it
does occur, to act quickly to seek recovery. See Massachusetts, 749
F.2d at 96. While we recognize that it may be more difficult generally
to obtain recovery from recipients, who lack fiscal resources, than from
service providers, this fact alone is not a basis for permitting the
State to retain FFP in costs which are not allowable under program
requirements.
As the State itself recognized, the COBRA amendments (which authorize
FFP in some overpayments a state cannot collect) do not apply to the
amounts at issue in this case. See State's reply brief, p. 6. Even if
the amounts are properly viewed as overpayments, they would not be
overpayments "identified for quarters beginning on or after October 1,
1985." COBRA, section 9512(b). We also note that, based on the
legislative history of the COBRA amendments, HCFA has interpreted these
provisions to apply only to provider overpayments, and not to recipient
overpayments. 54 Fed. Reg. 5452, 5453-5454 (February 3, 1989).
Finally, we note that FFP may be available in some otherwise unallowable
payments (up to a specified "tolerance level") made because of a state's
error in determining eligibility for Medicaid and within the scope of
the disallowance mechanism based on the Medicaid quality control system.
See Florida Dept. of Health and Rehabilitative Services, DAB No. 955
(1988). Here, however, the State specifically said that no quality
control issue was involved. State's reply brief, p. 4.
Therefore, we conclude that there is no basis for providing FFP in these
recipient-related amounts.
Conclusion
For the reasons stated above, we uphold the disallowance of the amounts
conceded by the State ($75,433.06) or disputed by the State ($5,932, but
see note 1 above). We remand the remainder ($718,878.44) to HCFA
according to the parties' agreement.
________________________________ Cecilia Sparks Ford
________________________________ Norval D. (John) Settle
________________________________ Judith A. Ballard Presiding
Board