Louisiana Department of Health and Hospitals, DAB No. 1116 (1989)

DEPARTMENTAL APPEALS BOARD

Department of Health and Human Services

SUBJECT: Louisiana Department of Health and Hospitals
Docket Nos. 88-88 89-72
Decision No. 1116

DATE: November 27, 1989

DECISION

The Louisiana Department of Health and Hospitals (State) appealed two
determinations by the Health Care Financing Administration (HCFA)
disallowing federal financial participation (FFP) claimed by the State
under Title XIX of the Social Security Act (Medicaid) for fiscal year
1986. In Docket No. 88-88, HCFA disallowed $8,745,267 in FFP claimed
for services provided by 140 long-term care facilities for periods
during which HCFA found the facilities did not have valid provider
agreements. In Docket No. 89-72, HCFA disallowed $118,140 for services
provided by one facility for a period during which HCFA found this
facility did not have a valid provider agreement.

Ordinarily, a state survey agency is responsible for surveying a
facility to determine whether it can be certified as a Medicaid
provider. If the state Medicaid agency then enters into a provider
agreement with the facility, this is evidence that the facility met
certification requirements. Here, HCFA was exercising its authority
under 42 C.F.R. 442.30 to "look behind" a provider agreement where HCFA
finds that the state has not complied with federal procedural
requirements for the survey and certification process. HCFA found that
(1) provider agreements for 56 facilities had incorrect effective dates;
(2) the certifications for 40 facilities should have been cancelled
because the State failed to determine the status of deficiencies prior
to the automatic cancellation date; (3) the automatic cancellation dates
for 34 facilities had been improperly extended; (4) the provider
agreements for 17 facilities had been extended without the required
written notice; (5) payments were made to 4 facilities (including the
facility in Docket No. 89-72) for periods during which they were not
certified; and (6) no automatic cancellation dates were set for 5
facilities. Some facilities were included in more than one finding, but
for different periods of time.

The State's primary argument was that HCFA did not find that there was
any jeopardy to patient health and safety in the facilities, but instead
based its disallowance on regulatory requirements which HCFA itself had
recognized were overly technical. With respect to one of the
requirements (setting a 12-month time-limit on the length of an
agreement), the State argued that this requirement was eliminated by a
statutory change, as HCFA itself had acknowledged, and that HCFA could
not properly reimpose the requirement without using notice and comment
rulemaking. The State also challenged HCFA's interpretation of
certification requirements as applied to certain groups of facilities
and presented evidence with respect to some of the facilities to show
that those facilities were certifiable.

For the reasons stated below, we conclude that the 12-month limit
remained in effect. Although HCFA had told the states that it intended
to change the annual survey requirements and would not enforce the
related regulations, HCFA subsequently determined that this was contrary
to congressional intent. HCFA gave the State adequate notice that no
FFP would be available if the State did not comply with all of the
regulations, including the 12-month limit.

While HCFA is now changing to a patient-outcome oriented system for
certifying facilities, this does not mean that the certification
requirements in effect here had no relationship to patient health and
safety. In fact, HCFA found that in many instances the State failed to
make required findings on patient health and safety or to require a plan
of correction for identified deficiencies before a provider agreement
could be effective.

On the other hand, with respect to 42 facilities, we find that the State
demonstrated that these facilities were certifiable for part or all of
the disallowance periods; HCFA's disallowance for those periods was
based on an unreasonable application of the procedural requirements,
given the particular facts here. Also, HCFA agreed that the
disallowance for one of these facilities (Patio Lodge) should be reduced
by $52,701. HCFA Post-hearing brief, p. 16.

Accordingly, we uphold the disallowance of $3,332,341 in FFP, reverse
the disallowance of $5,409,091 in FFP, and reverse in part and uphold in
part the remaining disallowance of $121,975 in FFP, with the amounts to
be determined. Our findings for particular facilities and time periods
are summarized at pages 37-38 below.

I. General requirements for long-term care facilities

Title XIX of the Social Security Act (Act) provides federal funding to
states for expenditures for "medical assistance" to needy individuals
under an approved state plan. Section 1905(a) of the Act defines
"medical assistance" to include payment for services provided by skilled
nursing facilities (SNFs) and intermediate care facilities (ICFs),
including intermediate care facilities for the mentally retarded
(ICFs/MR). To participate in the Medicaid program as an SNF, a facility
must meet conditions of participation specified in HCFA regulations.
Sections 1861(j) and 1902(a)(28) of the Act; 42 C.F.R. Part 442, Subpart
D. To participate as an ICF, a facility must meet standards specified
in HCFA regulations. Section 1905(c) of the Act; 42 C.F.R. Part 442,
Subparts E, F, and G. Each type of facility must have a provider
agreement with the "single State agency" which is designated to
administer the Medicaid state plan (also referred to as the "Medicaid
agency"). Section 1902(a)(27) of the Act.

A state survey agency performs surveys to determine whether a facility
wishing to participate only in Medicaid meets program requirements for
certification, so that the Medicaid agency may enter into a provider
agreement with it. (SNFs which also participate in Medicare are
certified by HCFA, rather than the state.) HCFA is authorized by
statute, however, to validate a state determination and to terminate the
Medicaid provider agreement if HCFA has cause to question the adequacy
of the state determination ("substantive look behind"). Sections
1902(a)(33)(B) and 1910(c) of the Act. In addition, HCFA regulations
provide:

. . . FFP is available in expenditures for SNF and ICF services
only if the facility has been certified as meeting the requirements
for Medicaid participation, as evidenced by a provider agreement
executed under this part. An agreement is no longer valid evidence
that a facility has met those requirements if HCFA determines that
--

* * *

(2) The survey agency failed to follow the rules and procedures
for certification set forth in Subpart C of this part and [section]
431.610 of this subchapter;

* * *

(4) The survey agency failed to use the Federal standards, and the
forms, methods and procedures prescribed by HCFA in current general
instruction . . . for determining the qualifications of providers;
or

(5) The agreement's terms and conditions do not meet the
requirements of this subpart.

This is referred to as "procedural look behind" and is the authority on
which HCFA based its action here. Specifically, HCFA relied on the
following regulatory requirements from 42 C.F.R. Part 442, as in effect
during the disallowance period:

o Section 442.13, which establishes rules for when a provider
agreement can be effective.

o Section 442.15, which provides that the duration of a provider
agreement may not exceed 12 months.

o Section 442.16, which provides that a Medicaid agency may extend
a provider agreement for up to two months beyond the original
expiration date, if it receives written notice from the state
survey agency containing certain specified findings.

o Section 442.111, which provides that if an SNF or ICF is
deficient in meeting applicable federal requirements, the survey
agency may certify it for up to 12 months with a condition that the
certification will automatically be canceled on a specified date
(no later than 60 days after the last day specified in the plan for
correction of deficiencies), unless the survey agency makes further
findings based on which the automatic cancellation date (ACD) can
be rescinded.

Below, we first discuss the State's general arguments about why HCFA's
disallowance cannot properly be based on these requirements,
particularly the requirement for time-limited agreements. We then
discuss in more detail the specific requirements on which HCFA relied
and how they apply to the facts of the facilities here.

II. The State's general arguments

The State raised two general arguments. First, the State argued that
HCFA's disallowance was "based solely on technical adherence to
mechanistic provisions void of any substantive findings of harm."
State's brief, p. 19. The State said that the major regulatory
provisions relied on by HCFA were of questionable validity and that HCFA
itself had recognized that the regulations placed an overly mechanistic
burden on states, that inflexibility in administration potentially
resulted in harm to Medicaid recipients and providers, and that the
regulations failed to maintain quality and safety standards. The State
said that HCFA made no findings of a substantive nature related to
patient health and safety. According to the State, any errors it made
were only technical or paperwork errors, and HCFA should have offered
the State the opportunity to modify its procedures so as to avoid the
need for a disallowance.

The State also argued that the 12-month limit on provider agreements had
been superseded by a statutory change and that HCFA could not
reinstitute requirements for time-limited provider agreements without
using notice and comment rulemaking.

A. The basis for the State's arguments

The State based its position on the nature of the regulatory provisions
and on the 12-month requirement on the following documents:

o The Social Security Amendments of 1972, Public Law 92-63,
which limited provider agreements with SNFs under Medicare to 12
months. State's Ex. 5.

o Final rules published in 1974, which adopted the 12-month
limit for SNF provider agreements under Medicaid, explaining
that the amendments were using "insofar as possible identical
certification language for both programs." State's Ex. 6.

o Final rules published in 1979, which required states to
provide an appeal process for long-term care facilities whose
participation in Medicaid was denied, terminated, or not
renewed. State's Ex. 7. The State said that in the preamble to
these rules, "HCFA first recognizes the potential problem of
providing due process and adhering to certification survey
requirements." State's brief, p. 7.

o A "Notice of Decision to Develop Regulations" published in
February 1980, advising that HCFA intended to make changes in
regulations for survey and certification of health care
facilities, with the objectives of improving the quality of
surveys, simplifying the survey and certification process,
eliminating unnecessary differences between Medicare and
Medicaid which have proven ineffective; and including patients
and consumers in the survey and certification process. State's
Ex. 8.

o A proposed rule published in March 1980, proposing to
eliminate requirements prohibiting renewal of provider
agreements with long-term care facilities if the same
deficiencies persist through successive certification surveys.
State's Ex. 9. Specifically, the State relied on the preamble
statement that --

we have concluded that the benefits of the regulations
are not commensurate with the administrative costs. We
have found these regulations to be overly mechanistic,
expensive, and unnecessary. The process fails to take
advantage of the surveyor's professional judgement on
whether patient health and safety is actually
threatened. There have been instances where State
agencies have ignored the regulations in order to renew
agreements with providers who render high quality care
and to avoid unnecessary transfer of patients who are
not in jeopardy. . . . A considerable amount of State
survey agency time is spent in required activities . . .
to justify continued participation [with] no discernible
difference in the State agency's success in securing
compliance or upgrading the quality of care in long term
care facilities as compared to other groups of providers
. . . Id.

o Proposed regulations published in July 1980, in response to a
class action suit, which refer in the preamble to HCFA's own
finding that "the survey process was too paper oriented. State
surveyors rely almost totally on records, documentation, and
written policies in their assessment of care provided.
Relatively little time is given to measuring patient focused
outcomes." State's Ex. 11.

o The Omnibus Reconciliation Act of 1981, Public Law 97-35,
which deleted the 12-month limit on provider agreements with
SNFs under Medicare. State's Ex. 12.

o Regional Health Standards and Quality Letter No. 81-30,
issued by HCFA Region VI on November 31, 1981, which stated:

. . . Congress deleted from the Social Security Act the
requirement that an agreement with a skilled nursing
facility not exceed 12 months. With this, Congress
expressed its clear intent that annual surveys are not
necessary for some facilities. This statement of
Congressional intent was reinforced when Congress passed
the current appropriation for the State Certification
Program. There could be no clearer expression of intent
for Congress, through the budget process, to make it
impossible to survey all facilities on an annual basis.
Thus, while regulations currently in force stipulate
annual surveys, the change in law . . . supersedes
regulations. This gives HCFA the authority to implement
flexible survey cycles.

State's Ex. 13.

o Regional Health Standards and Quality Letter No. 82-1, issued
by HCFA Region VI on January 21, 1982, which referred to the
1981 statutory change by saying that "the basis for regulations
requiring time-limited agreements based on no less than an
annual survey was eliminated for both Medicare and Medicaid
participating facilities." State's Ex. 14.

o Proposed rules published on May 27, 1982, described in the
preamble summary as follows:

These regulations would simplify and streamline the
procedures by which a health care facility is approved
for participation in Medicare and Medicaid. The changes
are necessary because many of the current procedures
have proved cumbersome and expensive for the Federal and
State agencies to administer, and, in many aspects,
either unnecessary or ineffective in ensuring the
quality of health care services. . . . The procedures
that have proved effective in the past in protecting the
health and safety of patients would be retained. . . .
These regulations would also implement a recent
statutory amendment that removes the 12-month limit on
provider agreements with [SNFs].

State's Ex. 15.

o Other parts of the preamble to the 1982 proposed rules, which
include the following statements:

. . . we have identified some provisions that are
duplicative and confusing, and others that are unduly
burdensome for providers, difficult to enforce, and
relatively ineffective in ensuring quality services. We
propose to substantially modify these requirements,
which deal with aspects such as staffing reports, 90-day
follow-up visits, time-limited agreements, and automatic
cancellation clauses. . . . We propose to eliminate the
requirement that agreements with SNF's and ICF's be
limited to a period not to exceed 12 months. . . . In
order to have uniform procedures for both programs the
requirement for time-limited agreements [in Medicare]
was extended by regulation to . . . Medicaid. . . . The
[Medicare] law was changed because program experience
since the inception of time-limited agreements has
indicated that they are not necessary to ensure
compliance with the conditions of participation.
Moreover, the elimination of time-limited agreements
represents a substantial reduction of paperwork and
record keeping burdens since there will be no expiration
dates to track and adjust for any extension granted. .
. .

. . . We propose to eliminate the requirement that a SNF
or ICF provider agreement, accepted on the basis of a
plan of correction of deficiencies, be automatically
cancelled unless the deficiencies have been corrected by
the predetermined date. . . . These cancellation
provisions were established to ensure timely correction
of all deficiencies. However, they have often proved
ineffective, as well as costly and burdensome to
administer. . . .

. . . We propose to eliminate the requirement that all
facilities be subject to annual surveys with the
exception of ICF's for the mentally retarded (ICF/MR). .
. . The impact of the survey requirement on quality of
care has become questionable. . . .

State's Ex. 15.

o A policy statement issued by HCFA on June 1, 1982, announcing
to states that it was placing a moratorium on enforcement of the
12-month limit (even in the absence of a final rule). Under
this moratorium, if funds for surveying were depleted before
surveys were completed for all facilities, provider agreements
could be reissued without a survey. No disallowance would be
taken for providers not reviewed annually "if the State
documented that decisions not to survey were based on a rational
plan which set priorities in accordance with the historical
compliance of facilities . . . ." State's Ex. 16.

o A HCFA memorandum dated August 19, 1984, advising states that
the budget restrictions which had led to the moratorium no
longer existed and that states would have until October 1, 1985
to reinstitute time-limited agreements. State's Ex. 16.

o A statement made by HCFA as late as September 25, 1985, that
it was still considering its proposed changes to the
regulations. State's Ex. 16.

o The decision by the U.S. Court of Appeals for the Tenth
Circuit in Estate of Smith v. Heckler, 747 F.2d 583 (1984),
which held that, by promulgating a "facility-oriented" survey
and certification system, rather than a "patient-oriented"
system, the Secretary of HHS had failed to follow the purpose
and focus of the Act--to provide high quality medical care--and
had therefore acted in an arbitrary and capricious manner.

B. Whether the disallowance should be reversed as based on
overly technical requirements not related to health and safety

The chronological history relied on by the State does evidence a
recognition by HCFA that some of the survey and certification
requirements were burdensome on states and facilities without
corresponding benefits in ensuring quality of patient care. Based on
the Smith litigation and subsequent legislative changes, HCFA has now
adopted a "patient-oriented" approach. It does not follow, however,
that the "facility-oriented" approach previously in effect had no
relationship to patient health and safety, nor that HCFA may not base a
disallowance on the specific requirements which were in the unamended
regulations and which the State failed to meet.

As discussed below, we find there are specific parts of the disallowance
here where HCFA was relying on an overly technical reading of the
regulatory requirements, not related to certifiability of the facilities
at issue. On the whole, however, the disallowance is based on the clear
terms of regulations which the State knew it must meet in order to
obtain FFP for services provided by the facilities. We find the State's
reliance on HCFA's various historical statements to be misplaced, for
the following reasons:

o For the most part, they state reasons for HCFA's proposal to
amend regulations; there is no basis on which the State
reasonably could think that it could ignore the existing
regulations simply because HCFA was proposing to change them.

o The specific requirements referred to as "overly mechanistic"
in the 1980 proposed rule are repeat deficiency requirements,
which are not at issue here.

o In section 135 of the Tax Equity and Fiscal Responsibilty Act
of 1982, Public Law 97-248, Congress placed a six-month
moratorium on the proposed changes to the survey and
certification process; thus, Congress must have had doubts about
whether the proposed changes should be made.

o While not "patient-outcome" oriented in the sense used by the
Smith court, many of the requirements here are related to
patient health and safety. For example, the regulations require
that a survey agency find that an extension of a provider
agreement will not jeopardize patient health and safety.
Granted, it is possible that the failure to make such a finding
will not automatically jeopardize patient health and safety, but
it is also possible that the surveyors did not make the finding
because such a jeopardy did exist. Also, parts of the
disallowance here relate to time periods where a facility had
deficiencies in meeting requirements such as those in the Life
Safety Code, but had not yet submitted a plan for correcting
those deficiencies.

We also reject the argument made by the State in its post-hearing brief
that the fact that HCFA made no specific findings regarding patient
health and safety for these facilities means that the disallowance
should be reversed. In a procedural look-behind situation, the normal
presumption given to a state's provider agreement as evidencing proper
certification of a facility does not apply. FFP is not available unless
the facility met certification requirements. Thus, the burden is on the
state to come forward with evidence that, irrespective of any failure by
the state to meet procedural requirements, the facility was certifiable.
Here, the State came forward with factual evidence about some of the
facilities, alleging that the facts of other facilities were similar.
The Board made it clear to the State that it should present evidence to
support this allegation, but the State chose to present evidence only
with respect to certain facilities. Absent evidence showing that a
facility was certifiable, we must uphold the disallowance for that
facility.

C. Whether HCFA had to use notice and comment rulemaking to
reinstitute time-limited agreements

This Board previously addressed the effect of the 1981 statutory change
for SNFs in the Medicare program on the 12-month limit for Medicaid
provider agreements. In Oregon Dept. of Human Resources, DAB No. 874
(1987), the Board found:

OBRA [the Omnibus Reconciliation Act of 1981] eliminated the
12-month requirement from the Medicare program. The independent
regulations for the Medicaid program were not affected by OBRA.
As HCFA pointed out, nothing in OBRA prohibits regulatory
requirements for time-limited provider agreements for SNFs and
ICFs in the Medicaid program. HCFA has never revoked 42 C.F.R.
442.15, and it remains an existing regulatory requirement under
the Medicaid program.

DAB No. 874, p. 7. The Board agreed with Oregon that its evidence
showed that "HCFA's policy on time-limited agreements was not constant;"
the Board found this to be irrelevant to the period in question,
however, since HCFA had notified Oregon prior to the disallowance period
that all long-term care facilities had to be surveyed annually, HCFA had
consistently insisted on this in subsequent correspondence, and HCFA had
allowed the states a liberal phase-in period. Id.

We find nothing in the State's evidence or argument here which would
lead to a different result. The two regional memoranda the State
submitted do speak of the OBRA provision as "eliminating" the basis for
or "superseding" the 12-month limit in the regulations. HCFA's official
interpretation of the effect of the OBRA provision, however, was that
published in the notice of proposed rulemaking: that HCFA now had the
authority to implement a flexible survey cycle and that to do so
permanently would require actually amending the existing regulations.
While HCFA did allow states to use a flexible survey cycle from October
1, 1981 through September 30, 1984, HCFA presented evidence that here,
as in the Oregon case, HCFA gave the State adequate notice that HCFA
would again enforce the regulation. HCFA's Exs. A-D; see also Tr., pp.
137-139. When HCFA discovered that the State had not reinstituted
annual surveys, the State submitted a plan for doing so. HCFA's Ex. E.
With the exception of one facility, discussed below, HCFA did not hold
the State to the 12-month requirement until after the time the State in
its plan had affirmed it would be in compliance.

The State's argument that HCFA could not reinstitute the 12-month limit
without notice and comment rulemaking is based on several mistaken
premises. First, the State argued that, once the Medicare provision
requiring that provider agreements not exceed 12 months was eliminated,
there was no legal basis for the Medicaid regulations. Under section
1102 of the Act, however, the Secretary has the authority to promulgate
regulations for the efficient administration of the Act, which are not
inconsistent with the Act. The OBRA amendment did not preclude the
Secretary from requiring time-limited agreements; Title XIX clearly
contemplates a survey and certification process intended to ensure that
states have provider agreements only with facilities which meet health
and safety standards prescribed by the Secretary and the states. The
OBRA amendment simply eliminated the statutory requirement for Medicare
SNFs.

Second, the State erroneously viewed HCFA's "moratorium" as a policy
which HCFA could not change without following notice and comment
procedures. HCFA had, however, used notice and comment rulemaking in
adopting the 12-month limit for Medicaid. While HCFA determined not to
enforce this requirement for a period, based in part on the lack of
sufficient funds for surveying, HCFA had never issued a final rule
deleting the 12-month limit from its regulations.

Finally, contrary to what the State argued, HCFA did give reasons for
deciding to again enforce the existing regulations. HCFA explained
that, after the May 27, 1982 publication of proposed changes,
"Congressional commentary, the imposition of a moratorium on the
proposed rules, and the passage of a larger appropriation is indicative
of a change in legislative intent from that described earlier." HCFA's
Ex. A.

In sum, the State could not reasonably rely on HCFA's regional office's
initial response to the OBRA amendment, given HCFA's subsequent policy
issuances. Moreover, the State's failures here in following the survey
and certification procedures did not occur because the State thought
that the 12-month limit did not apply (with the exception of the one
facility). The State had been adequately informed that HCFA would
disallow FFP if the State did not follow the regulatory requirements.
In fact, the State reinstituted time-limited agreements, failing to meet
corresponding requirements for when new agreements could be effective
and for when and how facilities could be certified when deficiencies
were found.

III. Issues related to specific facilities or groups of
facilities

A. Facilities which HCFA found had
incorrect effective dates

Under 42 C.F.R. 442.13(c), if a provider fails to meet all federal
health and safety standards (or any other requirements imposed by the
state Medicaid agency) on the date of the survey, a provider agreement
--

must be effective on the earlier of the following dates:

(1) The date on which the provider meets all requirements. (2)
The date on which the provider submits a correction plan
acceptable to the State survey agency or an approvable waiver
request, or both.

HCFA found that the State survey agency had routinely set the effective
date of certification for providers with deficiencies as either the date
of the State survey or the day following the expiration of the prior
certification period. Thus, HCFA disallowed FFP for 56 facilities for
the period between the effective date set by the State and the date HCFA
found was the earliest permissible effective date under section 442.13.
HCFA's Ex. G, Att. A.

The State responded by raising separate arguments with respect to the
following groups of facilities: (1) surveys performed more than 12
months after the beginning of the last State-approved certification
period; (2) surveys performed less than 12 months after the beginning of
the last certification period; (3) survey form erroneously dated; (4)
extensions of prior certification period not recognized by HCFA; and (5)
HCFA performing surveys which the State could not supersede. We discuss
each of these subgroups of facilities below.

1. Late surveys

With respect to 11 facilities (listed in note 3 of the State's brief),
the State acknowledged that it did not perform a survey before the prior
12-month certification period approved by the State had expired. The
State said, however, that the surveys were each performed within 60 days
of the expiration date, explaining that the surveys were late for seven
facilities because of scheduling delays and for the remaining four
because of "computer entry error of the certification period." State's
brief, p. 23. According to the State, HCFA would not have disallowed
any FFP if the State had done no more than extend the certification
based on scheduling problems, but now seeks to disallow "for lack of a
notation resulting from simple human error." Id.

As HCFA pointed out, the State did not assert that it had in fact
extended the provider agreements for these facilities. Under 42 C.F.R.
442.16, a state Medicaid agency may extend a provider agreement for up
to two months only if --

it receives written notice from the survey agency, before the
expiration date of the agreement, that extension will not
jeopardize the patients' health and safety, and --

(a) Is needed to prevent irreparable harm to the facility or
hardship to the recipients in the facility; or (b) Is needed
because it is impracticable to determine, before the expiration
date, whether the facility meets certification standards.

The State provided no explanation of why it did not extend these
provider agreements in accordance with the regulations.

We find the State's failure to comply more than merely technical. In
the absence of any finding that there was no jeopardy to patient health
and safety, it is reasonable to presume that the survey agency found
otherwise (particularly since the record shows that the surveyors made
such findings for other facilities). Moreover, the mere assertion that
the facilities were not surveyed on time because of scheduling delays
and computer errors is insufficient to show that it was "impracticable"
for the survey agency to act before the expiration dates. Finally, we
note that the State had adequate notice that it could not receive FFP if
surveys were not performed in a timely manner and therefore had a duty
to plan to avoid scheduling delays and to avoid computer errors as well.

Accordingly, we uphold the disallowance for all 11 of these facilities.

2. Surveys before expiration

The State identified 14 facilities which the State said it had surveyed
before the expiration dates; the State admitted, however, that the plans
of correction (POCs) for the deficiencies found were not signed until
after the expiration dates. State's brief, p. 23, note 4. According to
the State, the POCs were signed within 60 days of the expiration dates,
so no disallowance would have been taken if the State had extended the
provider agreements "based on scheduling problems." State's brief, p.
23.

We see no basis for distinguishing these facilities from those discussed
in the previous section: the State did not in fact extend the provider
agreements; no finding was made that there was no jeopardy to patient
health and safety; and no finding was made that it was impracticable for
the State to find compliance prior to the expiration date. If anything,
the fact that the surveys were performed but no acceptable POCs were
submitted before the expiration dates may indicate that the surveys
found substantial deficiencies at the facilities.

Accordingly, we uphold the disallowance for these facilities.

3. Alleged incorrect date on survey
form

The State argued that the survey form for Glen Retirement Village had
simply shown an incorrect expiration date because of a human error in
transposing numbers. The State presented no evidence in support of this
assertion. HCFA presented documents for the facility which show that the
initial survey of the facility was conducted on 4/9/86 and a POC was
submitted 4/22/86. HCFA's Ex. F. HCFA disallowed FFP for the period
4/9 through 4/21/86. HCFA's Ex. G, Att. A. In its reply brief, the
State said it "stipulates the certification period was established
incorrectly through a misapplication of policy and removes its previous
argument concerning this facility." State's reply brief, p. 9.

Accordingly, we find that the State set an incorrect effective date for
Glen Retirement and uphold the disallowance for this facility.

4. State extensions not recognized by
HCFA

The State argued that HCFA's disallowance included six facilities where
the State had advised the facilities in writing that the 12-month
periods were being extended for 60 days: Pinecrest, Raintree, Jeannine
Street, DeHart, Iberian, and Brooklyn. The State argued that no
extensions would have been made if there was a threat to patient health
and safety. The State presented evidence for Pinecrest which included a
certification and transmittal form (C&T) stating that an extension was
given because there was no jeopardy to patient health and safety and
that it was impracticable to survey the facility in a timely manner.
The State also argued generally that HCFA mistakenly assumed that
written notice of the surveyors' findings on health and safety was
required. The State said that no notice was required because the
Louisiana Department of Health and Hospitals (DHH, previously the
Department of Health and Human Services) is the single State agency
responsible for administering the State's Medicaid plan. The State said
that its survey agency, the Licensing and Certification Division, is
under DHH, which should not have to notify itself of an extension.

HCFA responded that the Medical Assistance Division (formerly the Office
of Family Security) was the division within DHH which was responsible
for entering into provider agreements, so that written notice from the
Licensing and Certification Division to the Medical Assistance Division
was required, even if they were both part of the single State agency.
HCFA also explained that it had found the C&T for Pinecrest to be
inadequate because it was not issued "before the expiration date of the
agreement" as required by section 442.16 (quoted above on page 14).
HCFA further argued that patient health and safety were in jeopardy at
Pinecrest since a State survey had found Fire Safety Code violations.

Below, we first discuss the facts for the Pinecrest facility. We then
address the five other facilities the State included in this category.

a. Pinecrest

The following facts for Pinecrest are undisputed:

Disallowed amount: $4,284,823 ($2,734,146 in FFP) Disallowance
period: 5/01/86 - 6/18/86

Prior certification due to expire: 4/30/86 Survey:
3/24 - 4/04/86 POC submitted: 4/21/86 C&T re: extension:
5/01/86 Resurvey: 6/19/86

The parties also agreed that the following occurred. The State survey
showed that the facility was out of compliance with two standards which
HCFA had identified as "key" standards for ICFs/MR which could lead to
termination of the facility. The State sent notice to the facility that
these key standards must be corrected before the facility could be
recertified. The POC submitted by the facility showed that the
deficiencies in meeting the two cited standards would be corrected by
6/30/86. The State's resurvey on 6/19/86 showed that the deficiencies
had in fact been corrected.

HCFA's position was that the facility could not properly be recertified
until the key standards were actually met, and that the attempted
extension was not effective because the C&T was not signed until after
the prior certification period had expired and because the fact that the
surveyors found a Fire Safety Code violation meant that there was
jeopardy to patient health and safety.

The State presented the following evidence:

o The 4/10/86 notice to the facility about the results of the
first survey, stating that "the certification period with
extension ends June 30, 1986." State's Ex. 18.

o Testimony that one of the persons to whom this notice was
copied is in the Medical Assistance Division. Tr., p. 127.

o A control sheet for survey-related actions for Pinecrest,
with the handwritten notation "Please send key letter" and
"certification expires (with extension) on 6/30/86" and "type in
C&T no danger to health and safety." State's Ex. 18.

o A C&T for Pinecrest with the remarks: "Because impractical
to assure compliance - extend certification from 4/30/86 to
6/30/86 - Health and safety of the clients not in jeopardy."
The date in the space for State survey agency approval is
5/01/86. State's Ex. 18.

o A Statement of Deficiencies and Plan of Correction for the
State's survey completed 4/04/86. State's Ex. S-18.

o Testimony by the State official who was program manager for
surveying ICFs/MR during the disallowance period and whose name
appears both on the control sheet and the C&T. He testified
that he had made the findings about no jeopardy to patient
health and safety on 4/10/86 and used the control sheet to tell
his typist to send the notice to the facility and to do a C&T
extending the provider agreement. He further testified about
the nature of the deficiencies and why he had concluded that
they did not jeopardize health and safety. Specifically, he
explained that, although the surveyor had found that some
dampers were not working which would control air flow in case of
a fire, he had decided that this would not jeopardize safety
because this was a third backup system and he was familiar with
how the systems worked. He also explained that the reason the
C&T was not signed by the survey agency until 5/01/86 was that
the computer was down; he said the form was transmitted to the
Medical Assistance Division the day it was signed. Tr., pp.
115-128; 183-185.

We reverse the disallowance for this facility for the following reasons:

o The extension regulation has two purposes: to ensure that
the agency responsible for the provider agreement knows that it
has been extended and to ensure that the requisite findings are
made before extension is given. Both purposes were fulfilled
here: the Medical Assistance Division was informed by copy of
the 4/10/86 notice to the facility that the provider agreement
was being extended, and the State survey agency had determined
prior to the expiration date that there was no jeopardy to
health and safety and that it could not complete all required
actions before the expiration date.

o We found the State's witness to be credible and to be
knowledgeable about ICF/MR standards in general and about
Pinecrest in particular. HCFA presented no evidence by anyone
with survey experience to contradict the judgment of the State's
witness about the nature of the deficiencies.

o The testimony is corroborated by the contemporaneous notes on
the control sheet giving directions to the typist.

o At most, the C&T for extending the agreement was a day late.
HCFA's determination that this violated the regulation is
unreasonable under the particular circumstances here, where
documents completed earlier fulfilled the function of the
regulation.

Accordingly, we reverse the disallowance for Pinecrest.

b. Jeannine Street, Iberia,
DeHart, Brooklyn, and Raintree

With respect to the other five facilities which the State argued were
similar to Pinecrest, the State's evidence consisted solely of copies of
notices to the facilities that they had been found out of compliance
with key standards and that the expiration date was being extended for
60 days. State's Ex. 18. HCFA presented survey and certification
documents for the facilities which HCFA said showed that the facilities
shared the following facts with Pinecrest: (1) a State survey showing
that one or more key standards were not met; (2) notice that the
facility must be in compliance before certification could continue and
that the deficiencies must be corrected by the expiration date; (3) a
POC listing completion dates after the expiration date; (4) no activity
to certify until after the completion dates for correction of the key
standards; and (5) after the completion date, retroactive certification
commencing the day after the expiration of the former certification
period. HCFA's pre-hearing submission, pp. 2-4; HCFA's Ex. K.

Contrary to what HCFA implied, the notices to the facilities did not say
that the corrections must be made by the expiration date of the prior
certification period. Instead, they indicated that the corrections must
be made by the date the certification was due to expire with the 60 day
extension added on. State's Ex. 18. The problem here is that the State
did not submit any documentation, like that submitted for Pinecrest,
showing that a contemporaneous finding had been made that an extension
would not jeopardize health and safety, nor any testimony that the
deficiencies found (which were extensive for some of the facilities)
would not preclude such a finding. In section III.D. below, we address
the State's arguments about why the written notice requirement does not
apply to its organizational set-up. For our purposes here, however, we
note that, irrespective of whether the State needed to send the written
notice from one State division to another, we would find that the
regulation could not reasonably be read to authorize an extension absent
the requisite findings. This is clearly more than a technical
requirement; it is intended to ensure that patients are not left in a
facility indefinitely without some assurance that they will not be in
jeopardy. Indeed, such a finding is particularly important in a
situation such as here, where the State surveyors found deficiencies
which could lead to decertification if not corrected.

Thus, for these facilities we agree with HCFA that the purported
extensions did not meet the clear terms of section 442.16. FFP is not
available for services provided between the dates the prior
certification periods expired and the effective dates of the new
certification periods as established under 42 C.F.R. 442.13(c).

Accordingly, we uphold the disallowances for Jeannine Street, Iberia,
DeHart, Brooklyn, and Raintree.

5. Facilities HCFA was surveying

The State identified three facilities which were being surveyed by HCFA
under its substantive look-behind authority at the time the prior
certification period expired. The State argued that HCFA's position
that the State should have performed its own survey or extended the
provider agreements was contrary to federal law, which gives HCFA the
authority to make independent and binding determinations when it
performs its own surveys. According to the State, HCFA disallowed for
periods during which HCFA was engaged in informal reconsideration of its
initial decisions to terminate the facilities.

The State presented evidence with respect to the Leesville facility and
testimony that Amanda Rock and John Heard were essentially part of that
facility, and were in the same situation. Tr., p. 164-165. Below, we
first discuss the evidence with respect to Leesville and then address
the other facilities.

a. Leesville

The following facts are undisputed:

Disallowed amount: $160,300 ($102,287 in FFP) Disallowance
period: 4/01/86 - 6/03/86

Prior certification due to expire: 3/31/86 HCFA's first survey:
9/09 - 13/85 HCFA's follow-up survey: 1/28 - 30/86 State's
first survey: 4/14 - 23/86 State's follow-up survey: 6/02/86
Acceptable POC submitted: 6/04/86

The State's evidence shows, and HCFA did not deny, that the State was
told it should delay its survey of the Leesville facility, an ICF/MR,
pending the results of HCFA's substantive look-behind action. During
HCFA's negotiations with the facility and with State officials over
deficiencies HCFA had found, State surveyors consulted with HCFA about
what to do since the prior certification period was about to expire.
The HCFA official admitted in a deposition that he had told the State
that it could extend Leesville's provider agreement for two months.
Wallis Deposition, p. 31.

HCFA did not base the disallowance on its substantive look-behind
survey, since the facility had substantially corrected the deficiencies
by the time of a HCFA resurvey in March and HCFA had notified the
facility that it would not be terminated. Instead, the basis for the
disallowance was that the State had not, in fact, extended the provider
agreement and that the new certification could not be effective until
the acceptable POC was submitted on 6/04/86. The State surveyor said
that he did not do the notice of extension because, while he agreed with
the federal surveyor that there was no jeopardy to patient health and
safety, he could not state that it was impracticable for the State to
survey in a timely manner: but for the pending federal action, the State
could have surveyed. Transcript of telephone conference, Att. to Wallis
Deposition.

Under the particular circumstances here, we agree with the State that
its failure to execute the required notice to extend the provider
agreement should not be considered a basis for a disallowance. HCFA
itself had decided that an extension would be appropriate, and the
surveyor's failure to execute the written notice was due to his scruples
about meeting the literal terms of the regulation, not because of any
concern for patient health and safety. Substantive look-behind actions
were authorized only in 1980 (section 916, Public Law 96-499), and
simply were not contemplated when the extension provisions were drafted
in 1974; however, the regulation can fairly be read to render a state
survey "impracticable" when it would interfere with a federal action.

Unlike other cases where we have upheld HCFA in insisting on the
required written notice, here we have reliable evidence that an
extension was appropriate--HCFA's own contemporaneous determination to
that effect. Thus, we reverse the disallowance for the period 4/01/86
through 5/30/86, since the provider agreement may be properly extended
for that period.

We uphold the disallowance for the remaining period, 6/01/86 through
6/03/86. The effective date of the new certification period and
provider agreement is determined by the date of submission of the
acceptable POC. 42 C.F.R. 442.13(c). The State's argument about the
effect of HCFA's actions is irrelevant for this period since HCFA's
action ended in March when HCFA notified the facility that it would not
be terminated. We reject the State's position that its follow-up was
delayed because HCFA had told the facility it would have until 5/31/86
to make corrections. The State's initial survey was done in April,
after HCFA's termination action ended, so the State clearly did not
think it had to wait to take the actions necessary for it to certify the
facility simply because HCFA had agreed to delay its actions.

b. Amanda Rock and John C.
Heard

HCFA acknowledged that the Amanda Rock and John C. Heard facilities were
related to Leesville and did not deny that the federal look-behind
survey applied to them as well. HCFA's pre-hearing submission, p. 14.
Both facilities also had the same certification period expiration date,
3/31/86; both were surveyed by the State as of 4/23/86; and both had the
same date for submission of an acceptable POC. Id. With respect to
these two facilities, however, the survey agency had actually issued
C&Ts on 5/14/86, to extend the provider agreements from 4/01 through
5/30, 1986. HCFA's Ex. Q. HCFA took the position that these extensions
were ineffective as constituting the written notice of extension
required by 42 C.F.R. 442.16 because they were issued after the
expiration date.

We see no reason for distinguishing these facilities from the Leesville
facility, given the undisputed evidence that they were essentially part
of Leesville and that their situation was the same. The C&Ts for these
facilities specifically state that the surveys were delayed at the
request of the regional office. State's Hearing Exs. S-22 and S-23.
Accordingly, we reverse the disallowance for these facilities for the
period 4/01/86 through 5/30/86.

With respect to the period from 6/01/86 through 6/04/86, we uphold the
disallowances. The new certification period could not be effective
until an acceptable POC had been submitted for the deficiencies found in
the State survey.

B. Facilities which HCFA found had ACDs not
responded to timely

HCFA disallowed $1,290,084 in FFP for 40 facilities listed in Attachment
B to the disallowance letter in Docket No. 88-88. HCFA's Ex. G. HCFA
found that these facilities had been issued certifications with
automatic cancellation dates (ACDs); that the State had not resurveyed
the facilities prior to the ACDs; and that, therefore, the
certifications should have been cancelled because the State survey
agency had failed to determine, prior to the ACD, that the deficiencies
had been corrected or that substantial progress had been made in
correcting the deficiencies.

HCFA relied on 42 C.F.R. 442.111, which provides in pertinent part:

(a) Facilities with deficiencies may be certified . . . for the
period specified in either paragraph (b) or (c) of this section.
. . .

(b) The survey agency may certify a facility for a period that
ends no later than 60 days after the last day specified in the
plan for correcting deficiencies. . . .

(c) The survey agency may certify a facility for up to 12
months with a condition that the certification will be
automatically canceled on a specified date within the
certification period unless --

(1) The survey agency finds that all deficiencies have been
satisfactorily corrected; or

(2) The survey agency finds and notifies the Medicaid agency
that the facility has made substantial progress in correcting
the deficiencies and has a new plan for correction that is
acceptable.

The automatic cancellation date must be no later than 60 days
after the last day specified in the plan for correction . . . .

HCFA disallowed payments made to each facility for the period beginning
with the day after the ACD through the day prior to the day on which the
follow-up survey was completed. The State did not present any evidence
or argument specific to this group of facilities, relying instead on its
general arguments, discussed in section II above.

We uphold the disallowance for these facilities. This is not a
situation where the failure to rescind the ACD was simply a paperwork
error. Compare Illinois Dept. of Public Aid, DAB No. 876 (1987), pp.
7-9. Here, the State presented no survey results or other evidence to
show that the ACD could have been properly rescinded under section
442.111(c). Apparently, the State did perform a follow-up survey in
each facility after the ACD for that facility, which showed that
corrections or substantial progress had been made at that point in time.
The State presented no evidence, however, that the facilities were
certifiable during the periods between the ACDs and the follow-up
surveys. Thus, no FFP is available for those periods. See Pennsylvania
Dept. of Public Welfare, DAB No. 331 (1982); Maryland Dept. of Health
and Mental Hygiene, DAB No. 210 (1981).

C. Facilities which HCFA found had ACDs
which were inappropriately extended

HCFA disallowed $1,418,917 in FFP for payments to 33 facilities listed
in Attachment C to the disallowance letter in Docket No. 88-88. HCFA
Ex. G. HCFA found that the State had extended the previously set ACDs
for these facilities. According to HCFA, since section 442.111 provides
that an ACD can be set "no later than 60 days after the last day
specified in the plan for correction . . .," an ACD is a firm date which
can never be extended.

1. The State's arguments

The State argued that HCFA had specifically authorized the State's
practice of extending ACDs, when it was having difficulty scheduling
follow-up surveys, rather that having to transfer the patients to
another facility. In support of this contention, the State submitted
(1) the record of a telephone conversation between a State official and
the HCFA employee who acted as a liaison with the State; (2) testimony
by a State official that he had been told by the HCFA liaison that ACDs
could be extended; and (3) testimony by a State official that HCFA had
not sent the State a form questioning the practice of extending ACDs,
even though the State had submitted to HCFA numerous C&Ts evidencing
this practice. State's Ex. 20; Tr., pp. 34-36; 39-41; 70-73. HCFA
presented the following in rebuttal: (1) testimony by the HCFA liaison
that she would not have told the State it could extend ACDs; (2)
testimony by the Associate Regional Administrator of HCFA that HCFA did
not fully examine all of the C&Ts submitted by the State but focused its
review on the substantive deficiencies found by the surveyors; and (3) a
letter dated August 29, 1986, informing the State that ACDs could not be
extended. Tr., pp. 243-244; 209-210; HCFA's Hearing Ex. H-C.

The State also argued:

Rather than disregarding ACDs when scheduling problems arose,
the State took a more reasonable and documentable approach of
extending the ACD and scheduling a resurvey as quickly as
possible. Considering the alternative . . . was cancellation of
the certification on arbitrary and indefensible grounds, the
State had no choice but to allow continued participation until a
resurvey could be scheduled. It should be noted that all of
these facilities were providers of high quality care; that
extension of the ACD posed no threat to the health and safety of
recipients; and that subsequently performed surveys found no
evidence of deficiencies.

State's brief, pp. 28-29.

Finally, the State presented evidence that it had performed follow-up
surveys for several facilities prior to the ACDs, as well as testimony
that it could have rescinded the ACDs based on those surveys. HCFA
presented no rebuttal testimony, but provided an analysis of why it
thought the State could not have found that the facilities made
substantial progress in correcting the deficiencies.

2. Whether the State could extend ACDs

We conclude that, until the State had notice from HCFA to the contrary,
the State could and did reasonably interpret the regulations to permit
extensions of provider agreements beyond ACDs. HCFA's reliance on the
time-limit for setting ACDs initially is misplaced. A similar
time-limit applies to setting of expiration dates for certification
periods. Yet, the provider agreement can clearly be extended beyond
this limit, so long as the required findings are made and proper notice
given. The ACD, unless rescinded by the State, functions as an
expiration date, terminating the agreement after the lapse of a
specified time period. Indeed, HCFA's own witness described an ACD as
meaning that "on a particular date an agreement will automatically
expire unless one of two things happens." Tr., p. 309; see also Tr.,
pp. 310-312.

Moreover, under the regulations for certifying a facility with
deficiencies, the State had the option of either setting a certification
period which would end 60 days after the last day in the POC or setting
an ACD. HCFA's State Operations Manual recommends using a shortened
certification period for facilities with more serious deficiencies and
using the ACD mechanism for facilities with only minor deficiencies
where the facilities, based on their past performance in correcting
deficiencies, can reasonably be expected to make the necessary
improvements. HCFA's Hearing Ex. H-E. Since the regulation at section
442.16 would clearly permit extension of the provider agreement with a
shortened certification period, even though this would mean the
agreement went beyond the 60-day period, the State reasonably thought
that the 60-day limit did not preclude extension of ACDs.

The State did not definitively show that HCFA had in fact specifically
authorized it to extend ACDs. The State did show, however, that it had
brought to HCFA's attention that it was having difficulty scheduling
follow-up surveys and that the State had submitted C&Ts over a period of
time which showed that the State was extending ACDs. State's Ex. 20;
Tr., pp. 34-41; 99-100; 208-209. The fact that HCFA did not question
this may indicate that the issue is not so clear cut as HCFA would now
have us believe. While the HCFA liaison said she would not have told
the State it could extend ACDs, since in her view there was no provision
in the regulations or manual for extending ACDs, she did not testify
that she had told the State it could not extend ACDs. Tr., pp. 243-245.
The letter on which HCFA relied as notice of its policy was dated August
29, 1986. HCFA's Hearing Ex. H-C. HCFA did not establish when the
State received this letter, and it is unlikely the State received it
before the latest of these extensions was given (no later than August
31, 1986 according to the dates given in Attachment C to the
disallowance letter). Until the State had notice of HCFA's
interpretation to the contrary, the State could reasonably interpret the
regulation as permitting extension of ACDs.

Of course, extending a provider agreement beyond an ACD would require
the written notice specified under section 442.16. HCFA did not find
here that the State did not meet those requirements, and the State said
it had submitted C&Ts for the extensions. Accordingly, we reverse the
disallowance for these facilities.

We do not here reach the issue of whether the ACDs for some of these
facilities could have been rescinded based on follow-up surveys. We
note, however, that HCFA provided no testimony to contradict the
judgment by the State's witness, who had extensive survey experience,
that each of the facilities for which the State submitted documentation
had made substantial progress in correcting their deficiencies prior to
their ACDs.

D. Facilities which HCFA found had provider
agreements which were extended after the expiration date

HCFA disallowed a total of $3,4l2,712 in FFP for 17 facilities listed in
Attachment D to the disallowance letter. HCFA Ex. G. HCFA found that
the State had improperly extended the provider agreements because the
written notice of extension was not received "before the expiration date
of the agreement" as required by section 442.16. HCFA disallowed FFP
for each facility for the period between the expiration date of the
prior certification period and the date when the facility could properly
be certified based on the next survey.

Included in this finding were the following facilities for which the
State provided evidence and which we discussed above: Pinecrest, Amanda
Rock, John C. Heard, and Raintree House. The State also provided
evidence for Metropolitan Development Center. With respect to the
remaining facilities included in this finding, the State presented no
evidence, but argued that written notice of extension was not required
since both its survey division and its Medicaid program division were
part of the Medicaid agency. We find that the extension for
Metropolitan Development Center was effective, but that the extensions
for the remaining facilities not discussed above were not effective.

1. Metropolitan Development Center

The State argued that the facts for Metropolitan Development Center
(Metro), an ICF/MR, were similar to those for the Leesville facility
(discussed in section III.A.5.a. above) because there was a federal
look-behind survey. The State also presented testimony that the facts
for Metro were like the Pinecrest facility (discussed in section
III.A.4.a. above) because the State had extended the provider agreement
after finding deficiencies in meeting key standards.

The following facts for Metro are undisputed:

Disallowed amount: $289,037 ($184,435 in FFP) Disallowance
period: 5/01/86 - 5/08/86

Prior certification period: 5/01/85 - 4/30/86 State's first
survey: 2/21/86 C&T re: extension: 5/01/86 Federal survey:
4/28 - 5/02/86 State's follow-up: 5/02/86 Acceptable POC:
5/09/86

HCFA took the position that the extension was ineffective because the
written notice was not "before the expiration date," as required by
section 442.116. HCFA said that the facility was not certifiable until
5/09/86, the date that the State could recertify the facility based on
an acceptable POC.

The State submitted:

o A control sheet for Metro, with the notation "Send key
standard letter." State Hearing Ex. S-24.

o Testimony by the program manager for ICFs/MR that, although
the State did not have a copy of the actual letter sent to the
facility, he had noted on the control sheet that it was mailed
4/01 and that the form letter used would have referred to an
extended provider agreement. Tr., p. 179.

o Testimony by the program manager explaining the nature of the
deficiencies found in the State's first survey and stating that
he had decided that there was no danger to health or safety of
the patients. Tr., pp. 175-179.

o Testimony by the program manager that the surveyors would
have ordinarily done the C&T extending the provider agreement
right away, but that it was instead signed one day late on
5/01/86, just like Pinecrest. Tr., p. 180.

o Finally, his testimony that the State would have performed a
follow-up survey before the expiration date and could not do so
here because of the federal survey, but had gone in the day the
federal surveyors (who decided not to terminate the facility)
had left. Tr., pp. 180-181.

We find that the extension for Metro should be considered effective,
even though the C&T was signed one day after the end of the prior
certification period. The State's evidence for this facility is not as
strong for Metro as for Pinecrest to show that the State survey agency
actually made the required findings regarding patient health and safety
and notified the Medical Assistance Division of the extension in a
timely manner. But we have no reason to question the State witness'
testimony that the key standard letter was sent, and the record as a
whole shows that the form the State used would include reference to an
extension and be copied to the Medical Assistance Division. The State's
testimony regarding the nature of the deficiencies and why they did not
pose a threat to patient health and safety is unrebutted, and, as we
noted above, we found this witness to be knowledgeable and credible.
Moreover, in light of the computer problems the State witness testified
the State was having at this time and the intervening federal survey,
the failure to actually have a C&T filled out and signed until one day
after the expiration date should not preclude a determination that the
regulation was met.

Accordingly, we reverse the disallowance of $184,435 in FFP for Metro.

2. The remaining facilities with
extensions after the expiration dates

As noted above, the State presented no evidence for the remaining
facilities covered by this finding, arguing instead that the written
notice of extension was not necessary in light of its State
organization.

The State presented testimony at the hearing which confirmed that the
Licensing and Certification Division was part of DHH, but which also
confirmed HCFA's assertion that the Medical Assistance Division was
responsible for entering into provider agreements with facilities. Tr.,
pp. 100-104; 184. Also, memoranda to the Licensing and Certification
Division from the Medical Assistance Division confirm HCFA's position
that the latter division paid the providers and was responsible for
extending provider agreements. HCFA's Hearing Exs. H-A; H-B; see also
HCFA's Ex. J. Thus, contrary to what the State argued, the written
notice requirement was not clearly inapplicable to its State
organization: the notice would still serve the intended purpose of
informing those who need to know that the provider agreement could
properly be extended for two months beyond its expiration date.

We also note that Attachment D indicates that for some of these
facilities, the disallowance periods covered more than two months.
Since an extension is limited to two months, some disallowance would be
warranted even if extensions had been properly made.

Accordingly, we uphold the disallowance for the facilities listed in
Attachment D, with the exception of Pinecrest, Amanda Rock, John C.
Heard, and Metropolitan Development Center, where we reverse in whole or
in part.

E. Facilities which HCFA found had gaps in
certification

HCFA disallowed a total of $270,586 FFP in payments to three facilities
listed in Attachment E to the disallowance letter in Docket No. 88-88.
HCFA's Ex. G. HCFA found that there were gaps between the certification
periods for these facilities. HCFA cited 42 C.F.R. 440.30 and 440.12(a)
for its conclusion that FFP was not allowable during these gaps.

The State presented no specific evidence or argument for two of the
facilities (Heritage Manor Shreveport and Old Mooringsport), relying on
its general argument that HCFA's requirements for time-limited
agreements had not been properly reinstituted. With respect to the
other facility (Heritage Manor Vivian), the State presented evidence
that what it did in certifying this facility was consistent with its
plan for reinstituting time-limited agreements, which had been approved
by HCFA.

We uphold the disallowance for Heritage Manor Shreveport and Old
Morningsport, for reasons stated in section II above. We reverse the
disallowance for Heritage Manor Vivian ($124,581 in FFP). State's
Hearing Exhibit S-1 supports the State's position that the timing of its
survey and certification for Heritage Manor Vivian in the Fall of 1985
was consistent with its approved plan. See HCFA's Ex. E; Tr., pp.
137-139. The fact that the prior survey had been more than 12 months
before is not a basis for disallowance, given HCFA's approval of the
State's plan for how it would get back on an annual survey and
certification cycle.

F. Facilities for which no ACDs were set

HCFA found that the State did not set required ACDs for five facilities
listed in Attachment F to the disallowance letter in Docket No. 88-88.
HCFA's Ex. G. HCFA based its position that the State was required to
set ACDs on 42 C.F.R. 442.111. The State admitted that it did not set
any ACDs for the following facilities, even though surveyors had found
deficiencies at the facilities: Holy Angels, St. Rosalie, St. Peter,
St. Jude, and Bell Oaks. The State raised two arguments with respect to
these facilities. The State argued that it was told by a HCFA trainer
that it did not need to set ACDs for facilities with only
"element-level" deficiencies. The State subsequently admitted that all
of these facilities except Holy Angels had more than "element-level"
deficiencies and that they were all certified before the date of the
alleged statement by a HCFA trainer. Tr., pp. 15-16.

The State also presented evidence that no ACD was set for Holy Angels
because, prior to the expiration of the previous certification period,
the State had performed a follow-up survey which showed that Holy Angels
had made substantial progress in correcting its deficiencies. The State
submitted no evidence on the other four facilities but HCFA did.

We find that the State was not required to set an ACD for the Holy
Angels facility because the surveyors had performed a follow-up survey
before the prior certification period had expired and had found that the
facility had either corrected the deficiencies or made substantial
progress in doing so. With respect to the other four facilities, we
find that the State did not establish that no ACDs were required.

1. Holy Angels

The record shows the following for Holy Angels:

Disallowed amount: $1,484,112 ($947,012 in FFP) Disallowance
period: 4/01/86 through 10/31/86

Prior certification period: 1/01/85 - 12/31/85 Date of Survey:
9/23 - 9/27/85 Plan of Correction: 10/10/85 Follow-up
survey: 12/10/85 Certification period: 1/01/86
- 12/31/86

The record also shows that, of 28 deficiencies found in the survey which
was completed on 9/27/85, the facility had fully corrected all but two
by 12/10/85, when the follow-up survey was done. State's Ex. 22. The
original survey document cited nine separate findings under the
deficiency with ID prefix tag W368 (food and nutrition services), six of
which applied only to the kitchen in one hall of the facility (Cabrini).
The follow-up surveyor stated with respect to tag W368: "Acceptable
progress has been made by facility to meet this requirement with above
exceptions." Id. The "above exceptions" were three findings, each
limited to one hall of the facility: one related to food labeling, one
to dishwasher temperature, and one to the need for covers for light
bulbs. The facility responded that these had been corrected by
12/16/85. Id. The second deficiency which remained on the follow-up
survey had ID prefix tag W454 (medical services) and referred to the
need to train nursing staff "to perform in house lab studies such as
WBC, spin crits, or VA." The surveyor noted: "Progress has been made
material obtained and inservice scheduled for 1-86." Id. The State
issued a C&T for Holy Angels, with a new certification period of 1/01/86
- 12/31/86. After the typed words "ACD Date" this C&T has a handwritten
notation "none/f-up done." Id.

The State presented testimony by the Assistant Director of its Licensing
and Certification Division, who made this notation and approved the
certification as program manager for ICFs/MR. The Assistant Director,
who had extensive survey experience, testified that he had determined
that there was no need to set an ACD, in light of the findings of the
follow-up survey. He stated his view that the facility had made
substantial progress by correcting all but two "very elemental"
deficiencies, and that, based on his past experience, the facility would
make the additional corrections. He explained that the remaining food
and nutrition problems cited as deficiency W368 related to only one hall
in the facility and that the surveyor (who was new) should not have
cited deficiency W454 in the first instance since nurses did not need to
read lab studies as the survey finding implied. Tr., pp. 157-162,
185-186.

HCFA's position was that, since the State had accepted a plan of
correction for the two remaining deficiencies, with the last completion
date being 1/31/86 (the date by which the facility said it would have
inservice training on lab studies), the State should have set an ACD for
3/31/86. Thus, HCFA disallowed from 4/01/86 through 10/31/86 (the date
of submission of an acceptable plan of correction after the next
survey.) HCFA presented no testimony from anyone with survey experience
concerning the nature of the remaining deficiencies. HCFA argued,
however, that the surveyor's finding under W454 was treated by the State
as a deficiency for which a POC was required and that the Board should
not give credence to "the State's attempt at [the] hearing to discredit
its own prior actions, which the State treated in all respects as valid
when taken." HCFA's post-hearing brief, p. 12.

We conclude that the disallowance for Holy Angels should be reversed.
We found the Assistant Director to be forthright and to be knowledgeable
not only about the certification requirements, but also about the
particular facilities involved. While the surveyor cited lack of
training on lab studies as a deficiency requiring a POC, the
contemporaneous, written record supports the Assistant Director's
testimony that he determined at the time he approved the C&T that
substantial progress had already been made by the facility in correcting
deficiencies. He had noted that no ACD was set because a follow-up had
already been done. His judgment on this appears reasonable in light of
what the written record shows about the corrections that had already
been made and the nature of the remaining deficiencies.

Here, the survey agency was more diligent than required --it performed
the follow-up before the prior certification period expired. To read
the regulation as requiring the State to set an ACD and then
subsequently rescind it (which it could validly do based on the 12/10/85
follow-up survey) is to require the State to perform unnecessary
paperwork. Also, the mere fact that the survey agency required a POC
for the remaining deficiencies is irrelevant since, under the
regulation, an ACD can be rescinded only if substantial progress is made
and the facility submits an acceptable POC for any remaining
deficiencies.

Even if we were to hold that the regulation required the setting of an
ACD, however, this procedural failure would mean only that HCFA properly
"looked behind" the provider agreement to determine whether the facility
met certification requirements. Since the State could have properly
rescinded the ACD based on the follow-up survey, this case is analogous
to the situation in Illinois Dept. of Public Aid, DAB No. 876 (1987) pp.
7-9, where the surveyors had found substantial progress in a follow-up
survey but simply forgot to execute the document rescinding the ACD.
Contrary to what HCFA argued, the fact that the follow-up survey here
was performed before the end of the prior certification period, rather
than after as in Illinois, is not a basis for distinguishing the two
cases.

Accordingly, we reverse the disallowance of $947,012 in FFP for Holy
Angels.

2. St. Rosalie, St. Peter, St. Jude, and
Bell Oaks

HCFA argued that each of these facilities share the following facts with
Holy Angels: (1) a survey was conducted before the existing provider
agreement expired; (2) deficiencies were identified for which a POC was
accepted; (3) a follow-up survey determined that the deficiencies still
existed; (4) a second POC was accepted which listed correction dates
past the expiration date of the prior certification period; and (5) the
survey agency issued a C&T which had no ACD. HCFA's pre-hearing
submission, p. 16. In support of this contention, HCFA submitted
documentation for St. Rosalie only. HCFA's Ex. S. HCFA disallowed FFP
for each of these facilities for the period beginning with the day after
the date HCFA found was the latest allowable ACD (that is, 60 days after
the last completion date in the second POC).

The State did not deny HCFA's summary of the facts and submitted no
documentation for any of these facilities.

The documentation for St. Rosalie is consistent with HCFA's summary.
The C&T with the new certification period (3/01/86 - 2/28/87) is like
the C&T for Holy Angels in that it states: "ACD: none/f-up done."
HCFA's Ex. S. Unlike for Holy Angels, however, the State submitted no
evidence that this notation resulted from an evaluation that the
follow-up survey showed that the facility had made substantial progress
in correcting the deficiencies found in the first survey. Moreover, the
record shows that the follow-up survey for St. Rosalie was completed
3/05/86, after the prior certification period had expired.

Finally, when asked whether there were any other facilities with facts
similar to Holy Angels, the State's counsel answered: "There are none."
Tr., p. 21. Thus, we conclude that HCFA correctly found that ACDs
should have been set for these facilities.

Accordingly, we uphold the disallowances for St. Rosalie, St. Peter, St.
Jude, and Bell Oaks.

G. The facility covered by Docket No. 89-72

The disallowance docketed as 89-72 covered only one facility: Amite
Nursing Home. HCFA found that there was a gap between certification
periods for Amite.

The following facts related to Amite are undisputed:

Disallowed amount: $118,140 in FFP Disallowance period:
4/01/88 through 6/13/88

Prior certification period: 10/01/86 through 3/31/87 Survey date:
2/23/87 Certification period: 4/01/87 through 9/30/87 Next
survey and POC: 6/14/88

The State explained that it had previously set a shortened certification
period for the Amite facility because of compliance problems, but that
the reason it set a six-month certification ending 9/30/87 was solely to
allow the facility's certification to coincide with its license. The
State said that there was no threat to patient health and safety.
During a financial review in June 1988, HCFA discovered that the
facility had not been surveyed since 2/23/87. The State offered as a
reason the following: "Through human error, the September 30, 1987 date
was mis-keyed as September 30, 1988 creating a time period error."
State's brief (Docket No. 89-72), p. 2. The State argued that HCFA's
disallowance was based on its technical, time-limited agreement
requirement and that there was no threat to patient health and safety,
as shown by the fact that when the State resurveyed the facility on
6/14/87 (the date HCFA discovered the error) no threat to the health and
safety of recipients existed and an acceptable POC was completed and
signed on the same day.

We first note that it appears that HCFA did not hold the State to the
six-month certification period the State had set; HCFA did not disallow
FFP for the 12-month period following expiration of the prior
certification period. Thus, HCFA apparently recognized that the State
could have set a longer period based on the February 1987 survey.
HCFA's disallowance for the subsequent period, however, was not merely
technical. As we explained above, HCFA was reasonable in applying a
12-month limit after notice to the states, and Louisiana knew that it
would not receive FFP for facilities with invalid provider agreements.
The State thus had a duty to ensure that it listed the correct date for
when the facility needed to be resurveyed, and, indeed, the State should
have picked up on its error if the license was due to expire in
September 1987 as the State's argument suggests. Moreover, while the
facility was apparently certifiable in June 1988 with a POC, the
facility admittedly did have some deficiencies, which would have been
corrected in a more timely manner had the State not erred. There was no
POC until 6/14/88. Absent evidence to show that the deficiencies did
not exist during the disallowance period, we must conclude that the
facility was not certifiable during this period.

Accordingly, we uphold the disallowance of $118,140 in FFP for the Amite
facility.

Conclusion

We uphold the disallowances in part and reverse them in part as follows:

o Facilities listed on Attachment A to the disallowance letter in
Docket No. 88-88:

-- the disallowance of $102,287 for the Leesville
facility is reversed for the period 4/01/86 through
5/30/86 and upheld for the remaining period, 6/01/86
through 6/03/86, with the amounts to be determined;

-- the disallowance of $1,238,665 in FFP for the
remaining facilities is upheld.

o Facilities listed on Attachment B to the disallowance letter in
Docket No. 88-88: we uphold the entire disallowance of $1,290,084 in
FFP.

o Facilities listed on Attachment C to the disallowance letter in
Docket No. 88-88: we reverse the entire disallowance of $1,418,917 in
FFP.

o Facilities listed on Attachment D to the disallowance letter in
Docket No. 88-88:

-- we reverse the disallowances for Pinecrest ($2,734,146 in FFP),
and Metropolitan Development Center ($184,435 in FFP);

-- we uphold in part and reverse in part the disallowances for
Amanda Rock ($9,326 in FFP) and John C. Heard ($10,362 in FFP,
with the amounts to be determined);

-- we uphold the disallowance of $474,443 in FFP for the remaining
facilities.

o Facilities listed on Attachment E to the disallowance letter in
Docket No. 88-88:

-- we reverse the disallowance of $124,581 in FFP for
Heritage Manor Vivian;

-- we uphold the disallowance of $146,005 in FFP for the remaining
facilities.

o Facilities listed on Attachment F to the disallowance letter in
Docket No. 88-88:

-- we reverse the disallowance of $947,012 in FFP for Holy Angels;

-- we uphold the disallowance of $65,004 in FFP for the remaining
facilities.

o The facility included in Docket No. 89-72 (Amite): we uphold the
entire disallowance of $118,140 in FFP.

If the parties cannot agree on the computation of the total amount of
FFP in payments for facilities and time periods for which we have upheld
the disallowances, the parties may return to the Board on these issues
only.

_____________________________ Cecilia Sparks Ford

_____________________________ Alexander G. Teitz

_____________________________ Judith A. Ballard Presiding Board
Member

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

SUBJECT: Louisiana Department of DATE: January 17, 1990 Health and
Hospitals Docket No. 90-3 Request for
Reconsideration of Decision No. 1116

RULING ON REQUEST FOR RECONSIDERATION

By motion submitted December 29, 1989, the Health Care Financing
Administration (HCFA) requested partial reconsideration by the Board of
its decision in Louisiana Dept. of Health and Hospitals, DAB No. 1116
(1989). Under the Board's regulations, the Board may reconsider its own
decision where a party "promptly alleges a clear error of fact or law."
45 C.F.R. 16.13.

In DAB No. 1116, the Board decided a number of issues raised by HCFA
"looking behind" the Medicaid provider agreements between certain
nursing facilities and the Louisiana Department of Health and Hospitals
(State). In section C of the decision, the Board reversed HCFA's
determination to disallow $1,418,917 in federal financial participation
for 33 facilities on the basis that the State had improperly extended
the automatic cancellation dates (ACDs) for the facilities. The Board
stated:

Until the State had notice of HCFA's interpretation to the
contrary, the State could reasonably interpret the regulation as
permitting extension of ACDs.

Of course, extending a provider agreement beyond an ACD would
require the written notice specified under section 442.16. HCFA
did not find here that the State did not meet those requirements,
and the State said that it had submitted C&Ts for the extension.

DAB No. 1116, p. 28.

In its motion, HCFA did not challenge the Board's holding that the
State's interpretation was a reasonable one, until the State had notice
of HCFA's interpretation. Rather, HCFA challenged what it saw as "the
implicit holding that the State's submission of C&Ts for the subject
facilities constitutes compliance with . . . 42 C.F.R. [section] 442.16
. . . ." Motion, p. 2. HCFA said that, since the record did not show
that each of the six requirements of section 442.16 were met, an
assumption that the C&Ts constituted compliance with section 442.16 was
unwarranted and constitutes a clear error of fact. HCFA requested that
the part of DAB No. 1116 dealing with the 33 facilities be set aside and
that the record be reopened to receive evidence from the parties as to
whether the requirements of section 442.16 were met.

We see no basis in HCFA's motion for reconsidering our decision or for
reopening the proceedings. Contrary to what HCFA argued, the statement
in the decision regarding the requirements is neither a "holding," nor a
finding that the requirements of section 442.16 were met. As HCFA
itself acknowledged in its motion, the only basis HCFA had stated for
the disallowance for these 33 facilities was the legal position that
ACDs can never be extended. The statement in the decision to which HCFA
objected merely noted that the requirements of section 442.16 must be
met for an extension to be valid and went on to explain why we were not
addressing those requirements in our decision. The statement about the
C&Ts cannot be read to mean that any C&T would be sufficient, since the
decision elsewhere recognizes that section 442.16 requires specific
findings. The statement was made to explain why the Board was not on
its own motion raising a question about the validity of the extensions.

The Board's decision does not preclude HCFA from requiring that the
State show whether it in fact has C&Ts or other documents which extend
the ACDs for these facilities and which meet the requirements of section
442.16. This does not mean, however, that we should reopen the
proceedings leading to DAB No. 1116. If HCFA intends to disallow on the
basis of section 442.16, that is an entirely new basis for a
disallowance, and the appropriate procedure, under the circumstances
here, would be for HCFA to issue a new determination. This is
particularly so since the State has not yet had an opportunity to show
HCFA that it met the requirements of section 442.16 for the facilities,
and it is unclear whether the State would pursue an appeal if it cannot
make such a showing.

Accordingly, we deny HCFA's motion.

_____________________________ Cecilia Sparks Ford

_____________________________ Alexander G. Teitz

_____________________________ Judith A. Ballard Presiding Board