Louisiana Department of Health and Hospitals, DAB No. 1109 (1989)

DEPARTMENTAL APPEALS BOARD

Department of Health and Human Services

SUBJECT: Louisiana Department DATE: October 19, 1989 of Health and
Hospitals Docket Nos. 88-135 88-218 89-34 89-79 89-158
Decision No. 1109


DECISION

The Louisiana Department of Health and Hospitals (State or DHH) appealed
several determinations of the Health Care Financing Administration (HCFA
or Agency) disallowing a total of $1,055,180 in federal financial
participation (FFP) claimed by DHH under Title XIX (Medicaid) of the
Social Security Act (Act). The amount represents the federal share of
State sales taxes on pharmaceutical drug items and durable medical goods
(such as artificial limbs) which were furnished to Medicaid recipients;
the sales taxes on these items were paid directly to the Louisiana
Department of Revenue by DHH, the State Medicaid agency. We uphold the
disallowances because payment of the sales taxes by the State did not
constitute actual expenditures for medical assistance under section
1903(a)(1) of the Act, as interpreted by section 2493 of the State
Medicaid Manual.

In prior Board decisions we held that HCFA could not impose on the
states its interpretation of the statute as excluding FFP for state
taxes without actual prior notice. We now find that, since that time,
HCFA gave such notice in section 2493, and that the form of notice in
the State Medicaid Manual was legally sufficient. We also find that
liability for the sales tax under Louisiana law lies in the first
instance on the purchaser or consumer of the product, and the seller or
provider is only the collector of the tax. Since the recipient would
pay the tax but for the payment made on behalf of the recipient by the
State Medicaid agency, FFP is not available in the taxes under section
1903(a) of the Act as interpreted by section 2493.

Background

Section 1903(a)(1) of the Act provides that a state with an approved
Medicaid plan may receive:

An amount equal to the Federal medical assistance percentage . . .
of the total amount expended . . . as medical assistance under the
State plan. . . . (Emphasis added)

The basis stated for the disallowances was that:

Payment of a State sales tax is not an actual amount expended by
the State since the State collects the tax. Since no actual State
expenditure has occurred, HCFA is precluded by Section 1903(a)(1)
from reimbursing such taxes.

In addition, the disallowances relied on Transmittal 51 to the State
Medicaid Manual, which added section 2493 setting forth new implementing
instructions for claiming FFP for state taxes.

We do not write on a clean slate on this subject. In 1986 the Board
decided two cases which dealt with the question of what payments for
taxes by a state were "expenditures" for medical assistance under the
Act: Hawaii Dept. of Social Services and Housing, DAB No. 779, and New
Mexico Human Services Dept., DAB No. 787. We also decided a third case
on the same general issue, California Dept. of Health Services, DAB No.
786, which involved state sales taxes claimed as administrative costs
under section 1903(a)(7) of the Act, rather than as costs of medical
services under section 1903(a)(1).

In all three cases we reversed the disallowances. We refer particularly
to Hawaii, since this was the first case of the three and we discussed
all the issues at some length, whereas in California and New Mexico we
incorporated much of our reasoning in Hawaii by reference.

We concluded in Hawaii that federal law was ambiguous concerning whether
state income from excise taxes paid by Medicaid providers had to be
deducted from the state Medicaid agency's payment to the providers in
determining the amount of expenditures eligible for FFP. We concluded
also that the State's interpretation of applicable law was reasonable
under the particular circumstances of that case, and therefore HCFA was
unreasonable in attempting to apply a different interpretation
retroactively.

For the case before us, our caveats in Hawaii are particularly
significant. We limited our decision in language which turned out to be
a forerunner of what was to come:

Nothing in this decision contradicts the Agency's position that
general expenditures claimed for FFP must be "net" of any
applicable credits. Furthermore, we emphasize that nothing in this
decision precludes HCFA from promulgating a rule or issuing formal
policy guidance giving notice of HCFA's intent to prospectively and
specifically require states to apply excise taxes received from
providers as credits against Medicaid payments to those providers.

Id., p. 2.

Following our decision, in August 1987, HCFA issued Transmittal 51
giving new implementing instructions to the states in an addition to
the State Medicaid Manual of section 2493, entitled CLAIMING FFP FOR
PROVIDER PAYMENTS FOR STATE TAXES. Since our decision turns in large
measure on what this section means, we set it out in full:

A. Legal Background and Authority. -- The availability of FFP in
Medicaid reimbursement to providers, including hospitals and
nursing homes for various fees and taxes, imposed by either State
or local government agencies, is governed by the provisions at
section 1903(a) of the Act. Section 1903(a) specifies that FFP is
available in expenditures made by a State for medical assistance
under the State's reimbursement plan.

In determining the total amount legitimately expended under the
State plan, you may not include payments made to a provider for
those taxes which are either not imposed on all businesses or other
entities in the State or for which the Medicaid recipient would pay
the tax to the provider.

B. Availability of FFP. --

1. Taxes of General Applicability. -- Where a tax is
not restricted to medical providers of care or services
and is applied to all types of businesses (e.g., taxes
on real property, general excise taxes, or taxes for
workers' compensation funds) payment by the State to
providers which recognized such a tax would be an
allowable expenditure for FFP purposes.

However, where the tax has been specifically imposed only on
medical care and/or services, (e.g., taxes on health care
providers' net revenues, user fees assessed on a per bed, or
per admission basis, or licensing fees) you will not be
considered as having incurred an expense and, therefore, FFP
will not be available in expenditures related to that type of
tax.

2. Taxes Paid by Providers. -- When the tax is paid by
the provider, the tax is allowable for FFP purposes
(subject to B.1). However, where the tax would be paid
for by the Medicaid recipient, e.g., sales taxes paid by
the patient, FFP will not be available.

(Emphasis in original)

It is immediately apparent that HCFA did not attempt in section 2493 to
exclude FFP for all taxes paid by providers. As the HCFA witness who
drafted Transmittal 51 stated, HCFA took a narrower view of the taxes
paid by providers which it would not consider as expenditures for
medical services than it did in Hawaii. Transcript (Tr.), p. 55.
States could still receive FFP in reimbursement to Medicaid providers
for taxes of "general applicability" paid by the providers to state (or
local) governments. These payments would be considered "expenditures"
for medical assistance under section 1903(a) of the Act.

HCFA admitted that the sales taxes levied by Louisiana were taxes of
"general applicability" within the language of section 2493. The
question before us is, therefore, whether the taxes were paid by the
providers, or are unallowable because they come within the exception in
B.2. as taxes which "would be paid for by the Medicaid recipient, e.g.,
sales taxes paid by the patient."

To answer this question, we must examine both the Louisiana structure
for paying the sales taxes, and where the liability for payment of the
tax falls under Louisiana law, to determine whether the taxes should be
excluded from FFP under section 2493B.2.

Analysis

1. How the Louisiana sales taxes were paid

Louisiana has had a general sales tax for many years. However, until
about 1986, there were two exemptions relevant here. There was no sales
tax on drug items and durable medical goods; in addition, the State was
exempt from payment of sales taxes. The date the exemptions were lifted
was not too clear from the testimony at the hearing held in this case,
but there is no dispute about the fact that there was no exemption for
these particular taxes during the period covered by the disallowances
here. Sales taxes had to be paid on the particular items furnished as
part of medical assistance, and State agencies had to pay sales taxes in
the same way that private individuals or concerns would. Tr., pp.
249-50.

The way the actual payment of these taxes was accomplished was that DHH
paid the Louisiana Department of Revenue directly, computed on the total
amounts paid by DHH to providers for the drugs and durable medical goods
provided to recipients. The State explained at some length how this
method of payment originated. Since the State did not have to pay these
taxes prior to 1986, its Medicaid Management Information System (MMIS)
was not programmed to include them. It would be an expensive and
time-consuming process to reprogram the system for these taxes,
according to the State. Tr., pp. 212-215.

In addition, the State claimed that there was a financial gain to the
State in the procedure worked out with the Revenue Department. The
sales tax included a payment to the provider for collecting the tax and
remitting to the Revenue Department. The State was presumably able to
save this collection fee by remitting directly to the State Revenue
department. Id.

Louisiana claimed that structuring payment of the tax this way was
simply a bookkeeping transaction, and did not alter the essential nature
of the payment of the tax. Tr., p. 232. Without this structure, a
Medicaid recipient would come into a pharmacy to obtain some drug items,
for example. The pharmacist would bill DHH for the cost of the drug
item (including possibly a prescription fee for himself) plus the amount
of the sales tax. DHH would pay the pharmacist the amount billed, which
included the sales tax. The pharmacist would then remit the amount of
the tax, less the pharmacist's collection fee, to the State Department
of Revenue. The pharmacist-provider would pay the tax to one branch of
the State, the Department of Revenue, and be reimbursed for the tax by
another branch of the State, namely, DHH. Tr., p. 124. DHH would then
claim FFP in the entire amount of the reimbursement to the pharmacist,
including the sales tax.

Louisiana argued that the way in which it structured payment of the tax
merely saved the State--and HCFA--money. Louisiana did not have to
reprogram its MMIS system and saved the collection fee. The Federal
Medical Assistance Percentage for Louisiana was 75%, so for every dollar
that the State of Louisiana saved, the federal government presumably
saved more, according to the State's argument. Tr., p. 213.

The Agency's position was not unexpected: there was no "expenditure" by
the State, since clearly one State agency was simply paying another.
There was no reason whatsoever why the State should have to reimburse
the State for such a circular payment. In the case of a Medicaid
patient, neither the patient nor the pharmacist would pay the tax. The
cost of the drug item, including the sales tax, was paid by the state
Medicaid agency to the State Revenue Department.

Louisiana's reply was that this payment was made by DHH for the benefit
of the recipient, so this was not simply a case of money going from one
State pocket to another.

2. The sales tax was paid by the State Medicaid Agency.

The only possible party who paid the sales tax, whether initially or
finally, was the Medicaid agency of the State of Louisiana. The persons
who received the drug items or durable medical goods did not pay the
tax, since as Medicaid recipients the items were furnished to them by
the providers, who were reimbursed by DHH for the cost of the items.
The recipients paid neither the cost of the items nor the sales taxes on
them.

The providers who furnished the drug items or durable medical goods to
the recipient did not pay the tax. They did not collect it from the
Medicaid recipient, so they did not have any tax collection to remit to
the State. They would of course not pay the tax themselves, since no
one claimed that there was any liability on the part of the provider to
pay the tax (unless as a type of penalty for failure to collect the
tax).

However, if not for the shortcut procedure devised by Louisiana, DHH
would pay the amount of the tax to the provider-pharmacist, who would
remit to the State Department of Revenue. This would not be an
allowable cost under the provisions of section 2493B. as a tax of
general applicability paid by the provider, since the provider was not
the one who paid the tax.

Section 2493A. states that in determining the total amount "legitimately
expended under the State plan," the State may not include payments made
to a provider for those taxes "for which the Medicaid recipient would
pay the tax to the provider." We next consider what this language means
in the context of the facts in this case.

3. The Medicaid recipient would ordinarily pay the tax.

The parties agreed that the Louisiana sales tax was imposed on the
purchaser or consumer of tangible personal property in a retail
transaction. They differ widely on who is considered the purchaser or
consumer in the transactions in these appeals.

A. The Louisiana Sales Tax Statute

The attorney for the State Department of Revenue and Taxation, who
testified at the hearing in these appeals, stated in his written
opinion:

The Louisiana General Sales Tax levied by LSA-R.S. 47:301 et seq.
(Sales Tax) is imposed ultimately on the purchaser or consumer in a
retail transaction by LSA-R.S. 47:304(A).

Section 304. Treatment of tax by dealer

A. The tax levied in this Chapter shall be collected by the dealer
from the purchaser or consumer.

State Ex. 8, p. 2.

The opinion went on to quote the statutory definition of "purchaser" in
Louisiana-R.S. 47:301(9):

"Purchaser" means and includes any person who acquires or
receives any tangible personal property, or the privilege of
using any tangible personal property, or receives any
services pursuant to a transaction subject to tax under this
Chapter.

B. Who is a purchaser under the statute.

The State argued at length that it was the State Medicaid agency which
was the purchaser of the drug items and durable medical goods, and not
the Medicaid recipients, since the recipients did not pay anything for
the items.

In the opinion from the State Tax Department, the contention was that
"anyone who contracts directly with the vendor to supply goods or
services or is obligated to pay for the goods or services is the
Purchaser." State Ex. 8. The opinion went on to say that since DHH had
contracted directly with the medical provider, and it appeared that DHH
was obligated to pay for the goods, then DHH was the purchaser and was
directly liable for the sales tax.

We will ordinarily defer to a reasonable interpretation by a state of
its own statutes. The State interpretation here is not reasonable,
however, taking the plain meaning of the statutory language. Despite
the attempt of the State's tax expert to show how DHH acquired control
of the personal property and a use of it (Tr., p. 186), it is only the
Medicaid recipient who goes into a pharmacy and orders some drug items
who "acquires" or "receives" the items, or the "privilege of using" the
particular goods. Obviously, only the recipient uses the prescribed
drug or artificial limb. The fact that DHH is going to pay the tax, by
agreement with the provider and with the State Department of Revenue,
does not make DHH the "purchaser" of the items under the express
language of the statute. Even more remote from the general conception
of the plain language is the State expert's attempt to show that the
Medicaid recipient was not the "consumer" as the State sales tax law
intended that term to be used. Tr., p. 193. The Louisiana statute does
not make DHH the purchaser or consumer simply because it has agreed with
the provider to pay for the items.

An example may help to clarify this. In some states there is a limit on
the number of prescriptions per year that the State Medicaid agency will
pay for any one recipient. If a recipient came in and ordered a
prescription 11 times, where the state limit was 10, the recipient would
have to pay for the prescription--and the tax--the 11th time. But the
transaction would in effect be the same each time; the pharmacist would
fill the order and give the recipient the items ordered. The first 10
times the pharmacist would get paid for the prescription by DHH and DHH
would pay the tax to the State Department of Revenue. The 11th time the
recipient would pay the provider directly the cost of the prescription
plus the tax, and the pharmacist would remit the tax to the State.

As far as the language of the Louisiana statute is concerned the
recipient would be the "purchaser" or "consumer" each time. The
recipient would each time acquire or receive tangible personal property,
or the privilege of using it.

However, for the purposes of this case it actually makes no difference
whether the Medicaid recipient or the Medicaid agency is considered the
purchaser or consumer under the Louisiana statute. FFP is not allowable
if the Medicaid recipient would have had to pay the tax if Medicaid did
not. The test under section 2493 is not whether the recipient was
obligated to pay the tax under Louisiana law, but whether under that law
the recipient would have been obligated to pay the tax if he or she were
not a Medicaid recipient.

4. Section 2493 denies FFP for payments of sales taxes which the
recipient would ordinarily be obligated to pay.

If the State Medicaid agency pays the State Department of Revenue
directly, clearly there has been no "expenditure" by the State for
medical assistance under section 1903(a) of the Act. This payment does
not come under the general provision of section 2493 as such because
there have been no taxes paid by a provider. However, if we accept the
State's argument that this is just a bookkeeping transaction, and in
effect, the State Medicaid agency is paying the provider, who then pays
the State, then we must consider the proviso in B.2. of section 2493.

This provides that when a tax of general applicability is paid by the
provider, the tax is allowable for FFP, except for the proviso:

However, where the tax would be paid for by the Medicaid
recipient, e.g., sales taxes paid by the patient, FFP
will not be available. The language may not be artful,
but the meaning is obvious. Since a Medicaid recipient
does not pay the sales tax, the language can only mean
"where the tax would be paid for by the Medicaid
patient, if he or she were not on Medicaid."

The recipient would certainly pay the tax, under Louisiana law, if he or
she were not under Medicaid. Tr., p. 127. Therefore, under section
2493B.2., FFP is not available in the taxes paid by DHH to the
Department of Revenue.

5. The State had notice of section 2493.

The State admitted it had actual notice of Transmittal 51, which added
section 2493 to the Medicaid Manual. Tr., p. 225. The only question is
then whether this notice was legally sufficient.

The State claimed that notice and comment rulemaking, and publication in
the Federal Register, was necessary to give adequate (as distinguished
from actual) notice to the states of a change in policy as to FFP for
taxes. This is a different question from the one we had in the Hawaii
and New Mexico cases (and in California as well), where we found that
the states had not received actual notice of the Agency's policy to
eliminate claiming FFP for reimbursement to providers for state taxes.
The states were not on constructive notice that FFP was not available
and therefore actual notice was required. We left open what method the
Agency should use for giving notice. We said in New Mexico:

We need not reach the issue of what would constitute actual
notice, since that is not necessary for our decision. We
indicated in Hawaii, and we repeat here, that an action
transmittal might well be sufficient but we have also stressed
that the making of policy and the method of promulgating it is
for the Agency.

p. 8.

The State acknowledged receiving actual notice of Transmittal 51. That
does not end the matter, since the State argued that it was not bound by
the policy statement because section 553(b) of the Administrative
Procedure Act (APA) required publication in the Federal Register of
notice and comment rulemaking. The Agency again argued that this
provision did not apply to "interpretative" rules or general statements
of policy.

We find that the provisions of section 2493 of the Medicaid Manual were
definitely "interpretative" rules. The Agency was clearly attempting to
interpret what the word "expenditure" in 1903(a) of the Act meant. That
was what all the argument was about in Hawaii and New Mexico, that HCFA
had adopted an interpretation of what "expenditure" meant without giving
the states notice of its interpretation. Here the State admittedly had
actual notice. Since this was "interpretative," it was clearly enough
under the APA provision exempting "interpretative rules" from the
requirement of publication in the Federal Register. The State in this
case had actual notice which was legally adequate of the provisions of
section 2493 of the Medicaid Manual.

Moreover, even without section 2493 the State should have known that
these particular taxes were not "amounts expended as medical
assistance." The term "medical assistance" is defined in section
1905(a) of the Act as "payment of part or all of the cost" of listed
services. Payment of the sales tax is not payment for the cost of a
service provided, but is an add-on to the cost, solely for the State's
benefit. It is entirely different from a tax of general applicability
that a provider incurs as a cost of doing business.

6. Congressional Intent

The State in its post-hearing brief referred to section 8431 of Pub. L.
100-607, which provides as follows:

The Secretary of Health and Human Services shall not issue any
final regulation prior to May 1, 1989, changing the treatment of
voluntary contributions or provider-paid taxes utilized by States
to receive Federal matching funds under Title XIX of the Social
Security Act.

This section clearly did not prohibit the Agency from issuing
Transmittal 51 and section 2493 of the State Medicaid Manual. Public
Law 100-607 was passed in 1988; Transmittal No. 51 was issued in August
1987. There was nothing prohibiting HCFA from issuing its
interpretation in section 2493. It is useless to speculate on what
Congress intended by this resolution, since it did not attempt to
abrogate Transmittal 51 retroactively.

The State in its post-hearing brief stated that in the three previous
disallowances on taxes before the Board (Hawaii, California, and New
Mexico) HCFA had attempted "to remove reimbursement of general taxes,"
thereby requiring states "to forego all potential revenues from business
and sales taxes." pp. 2-3. Louisiana went on to say that it had been
HCFA's contention in each of the three cases that participation in Title
XIX funding by a state "requires abandonment of all general taxes which
may touch Medical services provided through Federal and State
expenditures." Id., p. 3.

This may have been HCFA's contention in the three Board cases, but this
was certainly not the limitation placed upon the states by Transmittal
No. 51. Section 2493 specifically provided FFP for reimbursement to
providers for taxes of general applicability. Transmittal No. 51 was a
much more favorable interpretation of section 1903(a) for the States
than the position HCFA had taken in the three cases decided by the
Board.

As the "Legal Background and Authority" part of Transmittal No. 51
states, payments to a provider for taxes of general applicability are
eligible for FFP except where "the Medicaid recipient would pay the tax
to the provider." Section 2493 does not limit the taxing power of the
states; it in fact specifically provides for FFP where the payments by a
state are reimbursement to a provider for taxes of general applicability
paid by the provider.

7. Program Income

Louisiana also argued that FFP should be available in the sales taxes at
issue here because of the "Program Income" regulations. The term is
defined in 45 C.F.R. 74.41, entitled Meaning of Program Income:

(a) Except as explained in paragraphs (b) [inapplicable here]
and (c) of this section, program income means gross income
earned by a recipient from activities part or all of the cost of
which is either borne as a direct cost by a grant or counted as
a direct cost towards meeting a cost sharing or matching
requirement of a grant. . . .

Paragraph (c) reads, in pertinent part, as follows:

(c) The following shall not be considered program income: (1)
Revenues raised by a government recipient under its governing
power, such as taxes. . . (However, the receipt and
expenditure of such revenues shall be recorded as a part of
grant or subgrant project transactions when such revenues are
specifically earmarked for the project in accordance with the
terms of the grant or subgrant.)

In its opening brief the State set out this regulation and then
proceeded at once to the conclusion that this regulation "clearly
establishes the availability of FFP for payment of sales taxes where
such taxes are neither limited to a Title XIX service nor dedicated to
the Title XIX program cost." p. 3.

The regulation itself does nothing of the sort. All it says is that the
receipt of taxes of the general applicability type by a government
recipient does not constitute program income. It does not state whether
FFP will or will not be available for these tax receipts.

In Hawaii the State spelled out its argument on the program income
regulations in more detail. It cited 45 C.F.R. 74.42(c), which provides
for deduction of program income from net expenditures before computing
FFP, as well as section 74.41 excluding taxes from program income.
Hawaii, pp. 10-11. The Agency responded that the rationale behind the
disallowances was not that the receipt of the taxes by the State
constituted "program income," but rather that it constituted an
"applicable credit" under Office of Management and Budget Circular A-87
(A-87). Id., p. 11.

The Board specifically stated that 45 C.F.R. 74.41 did not bar the
Agency's action. We refused to conclude that the program income
regulation dictated a decision for the State, saying that the program
income regulation was simply "one factor" which supported the State's
interpretation. Id., p. 12. Our closing statement on the program
income issue is of particular significance here.

The Agency, of course, is free to adopt another reasonable
interpretation; it merely cannot impose that interpretation
retroactively under the circumstances here. Moreover, a formally
adopted regulation is not necessarily the only mechanism available
for announcing a new interpretation.

Id.

The Agency in Transmittal No. 51 did just what we said in Hawaii it
could do, namely, adopt another reasonable interpretation of what
constituted an "expenditure" under the statute, and give the states
notice of this interpretation.

8. The tax provisions of A-87

The State also relied for support of its position on Item B.25 of
Attachment B of A-87 which provides:

Taxes. In general, taxes or payments in lieu of taxes which the
grantee agency is legally required to pay are allowable.

Again, the State immediately concluded that this provision "establishes
the allowability of sales taxes where the grantee is legally obligated
to make payment." State brief, p. 5.

There are several possible answers to this contention. One is that, as
discussed above, the grantee agency was not the one legally obligated to
make the payment under the Louisiana sales tax law. Under Louisiana law
the primary liability for the tax is on the recipient-purchaser, and the
tax is paid by the State because the purchaser is a Medicaid recipient.
Another answer is that this section does not deal with what is an amount
expended as medical assistance under the Act.

Still another answer is that Item B.25 refers to taxes being allowable,
"in general." However, at the beginning of Attachment B of A-87,
paragraph A.2. states that the allowability of the selected items of
cost listed "is subject to the general policies and principles stated in
Attachment A" of A-87. Paragraph C of Attachment A lists "Basic
guidelines" and Item l. lists "Factors affecting allowability of costs."
To be allowable, costs must meet the listed general criteria, and Item
g. requires that they "[b]e net of all applicable credits." Therefore
the provision for allowability of taxes "in general" in B.25 of
Attachment B must yield to the applicable credit provision of the basic
guideline in C.1.g. of Attachment A. Also, under the basic guideline in
C.1.a., the cost must "be necessary . . . for proper and efficient
administration of the grant program." A sales tax is hardly necessary
for administration of the Medicaid program.

We referred in Hawaii to the "ambiguity and mixed message in A-87" as
one of the factors which "set a context in which the State reasonably
determined" that it did not have to treat the excise taxes at issue
there as an "applicable credit." (p. 8) As we discussed above, the
Agency could bind the states to another reasonable interpretation with
notice, and the Agency did this in section 2493.

Summary

Section 2493 was issued to deal with two specific situations. The first
is where a Medicaid provider pays a tax imposed on it for taxes of
general applicability. There FFP is available in reimbursement by the
state to the provider.

The second situation, the one we have here, does not necessarily have
anything to do with payments made by a provider. It is where a Medicaid
recipient, or patient, would pay a sales tax on goods (or services) if
he or she were not a Medicaid recipient.

This second situation does not come under the part of section 2493 which
deals with payment of taxes by providers, since the sales tax is not
actually paid by the provider, but by the Medicaid agency, and so it is
not a cost to the provider of providing medical assistance. If a state
does not use the Louisiana shortcut method, the provider remits the tax,
but is only a collector, not the payor of the tax.

HCFA made a policy decision that it would allow FFP for provider-paid
taxes of general applicability. Tr., p. 82. It also made a policy
decision not to allow FFP for payments by a state Medicaid agency of
sales taxes which a recipient would otherwise have to pay. In this
instance, HCFA concluded that there was no actual expenditure for
medical assistance under the statute, since the state was in effect
paying itself. We consider such an interpretation of the statute to be
reasonable, and a state is bound by this interpretation once it has
actual notice of it.

Conclusion

Under the facts of these cases, we uphold the disallowances in full.


_____________________________ Judith A. Ballard


_____________________________ Norval D. (John) Settle


_____________________________ Alexander G. Teitz Presiding Board