DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: California Department DATE: September 7, 1989 of Health
Services Docket No. 89-27 Audit Control No. 09-87-00122
Decision No. 1095
DECISION
The California Department of Health Services (California/State) appealed
a determination by the Health Care Financing Administration
(HCFA/Agency) disallowing $1,962,326 in federal financial participation
(FFP) claimed by the State under Title XIX (Medicaid) of the Social
Security Act (Act). 1/ The disallowance represented the federal share
of Medicaid expenditures claimed by the State for services provided to
"undocumented aliens" (i.e., individuals who lacked documentation
of the
required alienage under the program) in Los Angeles County during the
periods January 2, 1976 through March 31, 1979 and October 1, 1982
through March 31, 1983. 2/
The issue in this case is whether the State can properly claim FFP for
Medicaid services provided to undocumented aliens while the State
attempted to verify the individual's alienage (and hence program
eligibility) with the Immigration and Naturalization Service (INS).
As discussed below, we uphold the Agency's disallowance in full. We
find that the State cannot claim FFP for the aliens in question since
their eligibility was never ultimately established by the verification
process employed by the State. The State chose to provide Medicaid
benefits at its own risk, even in situations that were not emergency
cases, and the State must therefore bear the entire financial
responsibility if the individual's eligibility cannot subsequently be
established.
Background
On August 9, 1988, the Agency issued its final audit report entitled
"Selected Medicaid Expenditures on Behalf of Undocumented Aliens."
State's Ex. 2. The purpose of the audit was to determine if California
was in compliance with Medicaid regulations prohibiting the use of
federal funds on behalf of undocumented aliens. The audit was limited
to cases in Los Angeles County which were referred to INS for alienage
verification. The Agency's review concluded that California had in fact
made improper claims for FFP for services provided to undocumented
aliens. Under the State's program, termed "Medi-Cal", undocumented
aliens were furnished Medicaid services, pending verification by INS of
their eligibility status, provided they certified, under penalty of
perjury on a CA-6 form, one of four conditions. 3/ See California
Welfare and Institutions Code, section 14007.5. The State then
submitted the CA-6 form to INS and requested a verification of alienage.
The Agency's audit found that most of the undocumented aliens referred
to INS for verification failed to appear for interviews, while others
were found by INS to be illegally in the United States. When the
legality of the aliens' status in the United States was not
substantiated by INS, the State terminated their eligibility for
Medicaid. State's Ex. 2, p. 1. Prior to the termination, however, FFP
had been claimed for the medical services already provided. HCFA
determined that no subsequent adjustment in FFP for the period prior to
termination had been made even though the individual was not eligible
from the outset. The audit recommended that such an adjustment be made.
In the disallowance letter, the Agency cited 42 C.F.R. 435.402 as its
basis for the disallowance and noted that the regulation's exclusion
"while not explicit in the Medicaid statute at that time, was
nevertheless mandated by the requirements of the cash assistance
programs to which Medicaid eligibility is linked."
The State argued that it was entitled to claim FFP for the Medicaid
services. As discussed fully below, the State made four arguments to
support its position. The State argued that: (1) 42 C.F.R. 435.402 had
no foundation in the Medicaid statutory provisions and is consequently
invalid; (2) the Agency did not prove that aliens whose Medicaid
benefits were terminated because they failed to appear for an INS
interview were in fact ineligible for benefits; (3) the Agency did not
take into account the fact that INS does not recognize aliens who are
"permanently residing under color of law" ("PRUCOL") and
therefore
eligible for benefits; and (4) the Agency must share the responsibility
because in many cases INS processed California's requests for
verification only after substantial delays and sometimes inaccurately.
Applicable Authority
The basis for the disallowance is the HCFA Medicaid regulation, 42
C.F.R. 435.402, concerning eligibility requirements pertaining to
citizenship and alienage. Section 435.402 of 42 C.F.R., for the relevant
periods, provided:
The [State Medicaid] agency must provide Medicaid to otherwise
eligible residents of the United States who are --
(a) Citizens; or
(b) Aliens lawfully admitted for permanent residence or
permanently residing in the United States under color of law,
including any alien who is lawfully present in the United States .
. . .
As consistently interpreted and applied by HCFA, this regulation limited
eligibility for Medicaid to a citizen, an alien lawfully admitted for
permanent residence, or an alien permanently residing in the United
States under color of law (the parties referred to the latter category
as "PRUCOL" aliens). The substance of this regulation has been in
effect since 1973. 4/ HCFA issued a policy action transmittal to state
agencies administering Medicaid programs in 1977 that discussed the
citizenship and alienage conditions of eligibility. HCFA Action
Transmittal 77-107 (AT 77-107) (issued November 15, 1977). A primary
purpose of the transmittal was to discuss the various ways an
individual's citizenship or alienage might be verified. The transmittal
reiterates that an individual must meet the citizenship or alienage
requirements as a condition for Medicaid eligibility. The transmittal
then stated:
Although it is not a requirement to verify an individual's
citizen/alien status, verification is advisable in questionable
cases. When alien status cannot be immediately ascertained, and
the applicant is in emergent need of medical assistance, States may
wish to provide Medicaid coverage to an otherwise eligible
individual. However, Federal matching is available for medical
expenses paid on behalf of such an individual only if he is
subsequently found to meet these requirements.
Analysis
1. The Board is bound by the applicable regulation, 42 C.F.R. 435.402.
The State's primary argument on appeal was that the Agency's regulation
setting out the citizenship and alienage eligibility requirements was
invalid during the period of this disallowance because the Medicaid
statute lacked a specific provision authorizing this regulation. The
State maintained that it was not until January 1, 1987, when section
9406 of the Omnibus Budget Reconciliation Act of 1986 (OBRA-86) became
law, that Title XIX contained an alienage eligibility restriction. Thus,
the State concluded that the regulation was outside the scope of the
Secretary's authority for the period in question and was, therefore,
invalid. In support of its position, California cited Lewis v. Gross,
663 F. Supp. 1164 (E.D.N.Y. 1986) (Lewis I), and Lewis v. Grinker, 660
F. Supp. 169 (E.D.N.Y. 1987) (Lewis II).
In Lewis I, eight aliens who had been denied Medicaid benefits brought a
class action against the Secretary of Health and Human Services and
various New York officials. The aliens challenged section 435.402(b) and
the corresponding New York regulation. The U.S. District Court held the
regulation to be an invalid attempt to legislate an alienage restriction
for the Medicaid program without Congressional authorization. In Lewis
II, after Congress enacted section 9406 of OBRA-86 and prior to the
issuance of the court's final judgment, the Secretary returned to the
district court and argued that Congress had ratified the regulation.
The court rejected the argument, confirmed its previous holding, and
entered judgment for the aliens. The Secretary did not appeal the
district court's judgment.
California asserted that the validity of 42 C.F.R. 435.402(b) had been
examined in Lewis I and re-examined in Lewis II, and that the rulings in
those cases support its contentions that the regulation is invalid and
that prior to OBRA-86 the Medicaid program had no authority for an
alienage restriction.
The Agency argued that the Board should reject the State's position
because the alienage restrictions found in the cash assistance programs
to which Medicaid is linked authorized the Medicaid regulation
restricting eligibility to citizens and permanent resident and "PRUCOL"
aliens. Agency brief, p. 7. Further, citing FY 1981 Medicaid Quality
Control Disallowances, DAB No. 948 (1988), for its position, the Agency
argued that the Board can not overturn this disallowance based on the
State's argument that the regulation is invalid because the Board must
apply the applicable regulation. 5/ Finally, the Agency argued that the
1986 amendments to Title XIX contained in OBRA-86 ratified and validated
its position.
We find, as the Agency argued, that it is dispositive here that the
Board is bound by all applicable regulations, including 42 C.F.R.
435.402. See 45 C.F.R. 16.14. The Agency alleged that this
regulation, which was in effect throughout the period, required that
Medicaid applicants meet citizenship or alienage requirements. The
State did not dispute that the regulation, if valid, applied to the
circumstances of this case. Rather, the State argued that there is no
explicit authority in the Medicaid statute for the citizenship and
alienage eligibility limitation, and that the regulation, therefore, is
invalid. This is precisely the type of issue that is beyond the Board's
authority to review under 45 C.F.R. 16.14. The Board is therefore bound
by and must apply the regulation that sets forth the citizenship and
alienage requirements.
Nevertheless, notwithstanding the Board's lack of authority to find
invalid an applicable regulation, we regard the following factors as
strong support for the Agency's position:
o Although the Medicaid statute did not explicitly include these
requirements during the period at issue, the Secretary reasonably
promulgated the requirements by regulation under the rulemaking
authority in section 1102 of the Act. Such authority would be based in
part on the existence of identical requirements for eligibility in the
two programs, Aid to Families with Dependent Children (AFDC) and
Supplemental Security Income (SSI), that lead to automatic eligibility
for Medicaid and that serve as a primary source for eligibility under
the Medicaid program.
o There is no dispute that Medicaid is linked to the cash
assistance programs. What is disputed is whether the non-financial
restrictions of the cash assistance programs apply to the various
categories of Medicaid recipients. We believe, as the Agency argued,
that the comparability requirement, at section 1902(a)(17) of the Act,
supports the validity of the regulation in that it compels comparable
treatment of all eligibility groups. Section 1902(a)(17) requires a
state plan to provide reasonable standards in determining eligibility
for benefits "which shall be comparable for all groups" of recipients.
6/ As the Agency stated:
California does not dispute application of the SSI and AFDC
restrictions on alien eligibility to the categorically needy . . . .
What the State fails to recognize, however, is that if these
restrictions apply in determining categorically needy eligibility
(as they undoubtedly do), the comparability requirement mandates
that applicants who seek to qualify under the optional categorical
or medically needy classifications must be subject to comparable
restrictions.
Agency brief, p. 16.
o The litigation relied upon by the State in questioning the
validity of the regulation is not binding on the Board. Moreover, it
involved a challenge by applicants denied Medicaid and not an appeal by
a state of a disallowance based on the state's failure to implement the
requirement. The plaintiff class in Lewis v. Gross, 663 F. Supp. 1164
(E.D.N.Y. 1986), was defined as all aliens residing in New York State
who have applied or attempted to apply for Medicaid but have been or
would be denied Medicaid on the basis of their alienage. So limited,
the case clearly is not controlling with respect to a disallowance
imposed against the State of California.
o The Agency convincingly argues that the prompt response by
Congress in enacting explicit statutory alienage requirements following
the court challenges cited by the State, as well as the statements in
the legislative history of the enactment, serve to validate the
regulation and suggest that the challenged requirements were authorized
by the Act as a whole and consistent with Congressional intent.
o The State was independently required by its own Medi-Cal statute
to implement the alienage requirements for the period in question. See
California Welfare and Institutions Code, section 11104. To the extent
that the federal statute and regulations afforded states discretion in
providing program eligibility to additional categories of aliens, the
State here limited itself by statute to only those categories set out in
42 C.F.R. 435.402. The Board has consistently held that applicable
cost principles require a state to conform to its own law in areas where
the state has discretion under a program to exceed Federal requirements.
See, e.g., Louisiana Dept. of Health and Human Resources, DAB No. 979
(1988); and California Dept. of Health Services, DAB No. 564 (1984).
Thus, these claims could be disallowed because they do not conform with
the State's own laws.
o The State's own actions were inconsistent with the position it
takes before this Board. The State, by discontinuing eligibility after
the negative response by INS, was clearly implementing the challenged
alienage requirements and was effectively recognizing their
applicability. The State only challenges the applicability of the
regulation when it suits its purposes, i.e., for the period of time in
which the State violated the regulation by providing coverage even
though eligibility had been recognized as questionable and needed to be
substantiated. While it is not clear that an issue of estoppel is
directly raised here as the Agency argued, we do note that there is
ample evidence that the State recognized the applicability of the
requirements as a whole and was required to implement identical alienage
requirements by State statute.
Thus, the factors cited by the Agency provide compelling evidence of the
validity of the regulation and the propriety of its application here.
2. The Agency is not precluded from taking the disallowance for
undocumented aliens who failed to appear for INS interviews.
The State maintained that the Agency assumed without reasonable factual
foundation that all alien recipients who failed to appear for a
scheduled interview with INS were "ipso facto either not lawfully
residing in the United States or not permanently residing in this
country under color of law." State's brief, p. 20. The State explained
that out of the entire universe of 1,664 claims, the auditors examined
in detail a random sample of eligibility files for 184 of the claims.
Out of the 184 claims examined, the auditors found "no evidence that the
recipients met the Federal standards on alienage" for 160 of these
claims. The State asserted that the audit report does not specify what
percentage of these 160 claims were paid on behalf of aliens whose
eligibility was discontinued because they failed to appear for their
interview with INS. The State concluded that claims for aliens who
simply failed to appear should be excluded from the disallowance
because, although an alien in this category would be discontinued from
future eligibility if he or she failed to appear for an interview
without good cause, the termination would not be the result of a finding
that the alien was illegally in the United States but from a
determination that the alien recipient had failed to cooperate in the
eligibility verification.
While California cited such considerations as medical conditions,
incoherence, fear, and the possibility that medical care was no longer
needed as possible reasons for failure of aliens to appear at INS
interviews, the State's position misses the point. The State conceded
that after missing an interview, without good cause, an undocumented
alien must be terminated from the Medicaid program. The only period at
issue is the time between the effective date of the alien's application
and the scheduled INS interview.
The determinative factor here is, regardless of the reasons for the
missed interviews, the State failed to verify the eligibility of the
undocumented aliens from the point of the alleged initial eligibility
and has not, therefore, documented its claim. The Agency's Action
Transmittal, HCFA-AT-77-107, put the State on notice of the Agency's
policy. That transmittal stated, in part:
When alien status cannot be immediately ascertained, and the
applicant is in emergent need of medical assistance, States may wish
to provide Medicaid coverage to an otherwise eligible individual.
However, Federal matching is available for medical expenses paid on
behalf of such an individual only if he is subsequently found to
meet these requirements. (Emphasis added)
This transmittal is consistent with the fundamental principle that a
state is only entitled to FFP for individuals whose eligibility has been
established. See, for example, 42 C.F.R. 435.913 (44 Fed. Reg. 17937
(March 23, 1979)) concerning necessary case documentation. The Board
has held in numerous prior decisions concerning the Medicaid program
that documentation in the case record must demonstrate that eligibility
has been established. See, e.g., New York State Dept. of Social
Services, DAB No. 828 (1987); and New York State Dept. of Social
Services, DAB No. 537 (1984). Moreover, the requirement to document
costs is a fundamental principle of grants management--that a grantee
has an obligation to provide documentation to support its claim. See,
e.g., Seminole Nation of Oklahoma, DAB No. 951 (1988); New York State
Dept. of Social Services, DAB No. 520 (1984); and New York State Dept.
of Social Services, DAB No. 204 (1981). The State here obviously
concluded that the certification by the individual alone was
insufficient to establish eligibility since, under its policy, it
requested verification of the certification from INS in every case.
Where, as here, the State failed to receive verification, the
individual's eligibility remained questionable and undocumented from the
initial point of eligibility, not merely from the point of INS
notification. Thus, when the verification did not demonstrate the
required alienage, the State cannot claim FFP for these aliens for any
prior period because the State still has failed to establish that the
individual was ever eligible.
The State clearly had the option under Medicaid rules and policies of
denying benefits until eligibility had been established to its
satisfaction. Nevertheless, the State chose at its own risk to provide
benefits during the period eligibility was being verified. The Action
Transmittal contemplates that this would be done at the State's risk
only in emergency situations. The State here, however, did not even
establish that it limited its policy to emergency situations. Clearly,
then, the State must bear the risk when eligibility is not in fact
established.
Accordingly, we conclude the State has failed to document eligibility in
all of the cases at issue, including those where INS could not verify
the status due to the individual's failure to cooperate.
3. Recognition of "PRUCOL" by INS is not required for the disallowance.
The State argued that it should not be penalized because INS does not
recognize aliens who qualify as "PRUCOL." California, in its brief,
at
pages 22-23, stated:
While the Agency's regulation and California law . . . provide that
otherwise eligible aliens who qualify as "PRUCOL" may receive
Medi-Cal benefits, there is no such immigration category under the
Immigration and Nationality Act nor under Immigration regulations .
. . .
The State concluded that "at least some" of the aliens who failed
to
appear for INS interviews or who INS determined were illegally residing
in the United States may well have been "PRUCOL" and were therefore
eligible for benefits.
As we concluded above, however, the State is responsible for
establishing eligibility. The State's chosen method here was to request
verification from INS. If this method would not have been sufficient to
verify eligibility in every instance, the fault lies with the State's
method of verification, not with the Agency's disallowance. When
eligibility could not be established based on verification from INS, it
was incumbent on the State to establish additional procedures if it
believed that individuals might still qualify as "PRUCOL." Without
such
procedures, we simply have no basis to conclude that any of the
individuals would have qualified under that category.
4. INS' inaccuracies or verification process is not determinative of
the issue in this case.
Finally, the State maintained that the disallowance should be reduced
because the process of alienage verification was the responsibility of
INS. The State argued that the INS verification process was subject to
delays and errors. State's brief, p. 24; see also State's Ex. 7. The
State contended that the length of delays were reduced, at least in
part, by its stationing one of its own clerks at INS to hand-carry
verification forms and schedule interviews with INS investigators.
Despite this action, California stated that, during the second of the
two periods in issue, the average delay at INS "ranged from 1.28 months
in the last quarter of calendar year 1982 to 1.77 months in the first
quarter of 1983." State's brief, p. 25.
We find that the State's argument is without merit. HCFA Action
Transmittal, HCFA-AT-77-107, set out the fundamental principle that
eligibility had to be established before payment of a Medicaid claim.
The State elected to provide coverage prior to the INS verification.
Conversely, the State could have elected to delay the Medicaid
eligibility determination until it had received verification of
eligibility status. See 42 C.F.R. 435.911. Moreover, the action
transmittal suggested that such services, prior to verification, be
provided when "the applicant is in emergent need of medical assistance."
State's Ex. 8. The State has not even alleged that it provided services
only in emergency situations. Additionally, even the State acknowledged
that there were "many other potential sources of delay and error."
State's brief, p. 25. Finally, even if INS had been inaccurate in any
instance, the State could have presented evidence to that effect for the
Agency's consideration. It has not done so, however. The State itself
chose to rely on the INS verification, and the results of that
verification remain the last word on whether the eligibility of the
individuals involved was established or not. Therefore, we find that
the State assumed the risk of its actions, and simply has not
established the eligibility of the individuals involved, as required.
Conclusion
Based on the foregoing analysis, we uphold the disallowance in full.
_________________________ Cecilia Sparks Ford
_________________________ Norval D. (John) Settle
_________________________ Donald F. Garrett Presiding
Board Member
1. The disallowance amount was based on a sample out of a universe of
1,664 cases; the results of the sample were then extrapolated to the
entire universe of cases. See State's brief pp. 5-6. While, as will be
discussed in the text, some of the categories used by the auditors are
in dispute, the sampling methodology is not at issue.
2. Medicaid Quality Control (MQC) procedures limited federal financial
adjustments for ineligible cases to instances in which a State exceeded
prescribed error tolerance limits. However, the MQC regulations were
not in effect prior to April 1, 1979 nor during the period October 1,
1982 through March 31, 1983.
3. The four conditions were:
1. Named alien is in the country legally and allowed to remain
indefinitely;
2. Named alien is not under order of deportation;
3. Named alien is married to a person in the U.S. who is not under
order of deportation; or
4. Affidavits of two U.S. citizens attesting to the named alien's
continuous residence in the U.S. for five years or more have been
submitted to the county welfare department.
State's brief, p. 7 and Ex. 9.
4. The original version (42 C.F.R. 448.50) required, as a condition
for state plan approval, that state plans limit eligibility to citizens
or to two categories of aliens, while the version in effect during the
period at issue here, promulgated September 29, 1978, 43 Fed. Reg.
45204, provides that a state "must" provide Medicaid to citizens and
the
two categories of aliens. The preamble to the later version (which
applies here) stated that changes in language were only intended to
clarify and simplify the rules, and that no substantive changes were
intended. See 43 Fed. Reg. 45176 (September 29, 1978).
5. The Agency also argued, in the event the Board determined that it
had the authority to rule on the validity of the regulation, that
California was estopped from attacking the validity of the regulation
because the State accepted the restrictions contained in the regulation,
established procedures for implementation through State statute, and
required aliens to provide verification of their status.
6. There are two general Medicaid eligibility groups: (1) the
"categorically needy," and (2) the "medically needy."
The categorically needy group is divided into mandatory and optional
subgroups. As pertinent for this case, the mandatory categorically
needy are persons actually receiving cash assistance under either AFDC
or SSI. States may also elect to cover as optionally categorically needy
persons who would be eligible for AFDC, SSI or an optional State
supplement, but who are not receiving these benefits, or who would be
eligible for cash benefits under any of these programs if they were not
institutionalized.
The medically needy are persons who meet the non- financial eligibility
requirements for cash assistance under AFDC or SSI, but whose income or
resources exceed the financial eligibility standards of those