DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: California Department of Health Services
DATE: March 16, 1990
Docket No. 89-185
Decision No. 1139
DECISION
The California Department of Health Services (State) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing federal financial participation (FFP) in the amount of
$259,100 claimed under title XIX of the Social Security Act (Act). The
disallowed claim was for payments for medical services made by the State
to implement a court order. The services were provided to individuals
who had been found ineligible for Medi-Cal, the State's Medicaid
program, based on applications submitted on or before June 30, 1981.
The State made payments both to individual beneficiaries and to
providers. HCFA disallowed the State's entire FFP claim, finding that
the State had not shown that its expenditures met certain regulatory and
statutory requirements.
HCFA stated specifically that FFP was not available for amounts which
exceeded the Medicaid upper limits or were expended for types of
services not covered by Medicaid or for services rendered by individuals
or entities without valid provider agreements (non-participating
providers). This was not a determination that these requirements were
actually violated, however, but rather that the State did not
affirmatively show that all these requirements were met. The State
argued on appeal that it was not bound by the upper limits, but did not
dispute that the other limitations applied and, indeed, asserted all
along that it had made payments only for covered services (which may
include services only by participating providers).
For the reasons discussed below, we determine that the requirements that
payments be for covered services by participating providers applied to
payments made by the State to both individual beneficiaries and
providers. We also determine, however, that, with respect to payments
made by the State to providers, the upper limit requirements were not
overcome by the court order and therefore applied.
Accordingly, FFP is available in payments made directly to individual
beneficiaries so long as the payments reimbursed the cost to the
beneficiary of covered services by participating providers. FFP is also
available in payments to providers up to the amount of any applicable
upper limit if the payments were made to participating providers for
covered services. We conclude that the State must document that its
claims met the requirements which we conclude applied. Therefore, we
uphold the disallowance in principle, subject to reduction based on
documentation which the State may provide in accordance with the
instructions below.
Within 60 days of its receipt of this decision, the State should provide
to HCFA documentation adequate to demonstrate the proper amount of FFP
for the payments made by the State pursuant to the court order. 1/ The
State's documentation must provide adequate assurance that-- 1) payments
were for covered services by participating providers, and
2) FFP is claimed only in amounts up to the applicable upper
limit for payments to providers.
The State may institute a new appeal pursuant to 45 C.F.R. Part 16 if it
disputes HCFA's determination as to the amount of FFP properly paid.
Background
The services in question here were provided to individuals whom the
State had found ineligible for Medi- Cal under a State code provision
which created a presumption that certain transfers of property
constituted a gift with intent to qualify for medical assistance and
which provided that such transfers disqualified the transferor for
Medi-Cal. This provision, known as the "transfer of assets rule,"
was
incorporated in the State's title XIX plan approved by HCFA. After
extensive litigation, the rule was invalidated in 1983 by the U.S.
district court on the ground that it violated the comparability
requirements of the federal Medicaid program in that it applied to
medically needy but not categorically needy applicants. Beltran v.
Myers, No. 78-2350-CBM (MX) (C.D. Cal., February 8, 1982). 2/ The court
enjoined the State "from denying Medi-Cal benefits" to all members
of
the class whose Medi-Cal applications filed on or before June 30, 1981
were denied due to the transfer of assets rule, and ordered the State --
to provide plaintiff Beltran . . . the opportunity to present
evidence to the appropriate state or county office responsible for
the determination of Medi-Cal eligibility, on her incurred expenses
(whether paid or not), which, except for application of the
transfer of assets rule, would have been paid for under the
Medi-Cal program, to provide her access to the state administrative
process if there are disputes as to whether and how much she should
be paid, and to provide reimbursement for those of plaintiff's
bills which have been paid and to pay the providers for those bills
which remain unpaid, in accordance with the decisions reached by
defendants, their agents, or employees, as to the amounts owed. . .
.
State's appeal file, Ex. 6, p. 2. The court order also provided that
class members were entitled to "reimbursement for those costs which have
been incurred in the same manner and to the same degree as" the
plaintiff. Id., p. 3.
The State subsequently reimbursed the individuals (or their heirs or
estates), or paid the provider where no payment had been made by the
individual, for expenses incurred for medical services during periods
when the individual should have been found eligible for Medi-Cal. The
payments were made at the rates actually charged by the providers,
including finance charges.
On review of the State's claim for FFP in these payments, HCFA
questioned whether the payments were within the "upper limit"
requirements specified in accordance with the Act and implementing
regulations. HCFA also questioned whether the payments were for
services covered under the approved State plan. HCFA asked that the
State provide "data showing the amount that should have been claimed for
FFP had [the State] . . . used the payment procedures set forth in the
approved California State Plan and applied the 'upper limit'
requirements." State's Ex. 3, p. 2.
The State responded that it reimbursed beneficiaries and providers "only
for services which would have been covered under the Medi-Cal/Medicaid
program. . . ." State's Ex. 2, p. 2. The State also disputed HCFA's
position that FFP was not available for the amounts paid which exceeded
the "upper limits." The State did not provide any of the documentation
requested, and HCFA subsequently disallowed the State's entire claim on
the ground that FFP was available only in payments that were within the
upper limits and made to participating providers for covered services.
3/ HCFA indicated that, while it was willing to pay the federal share of
that portion of the payments which met these requirements, it could not
do so absent documentation identifying such payments.
Legal Requirements
In order to qualify for FFP, a state's claims for the costs of medical
services must be in accordance with an approved Medicaid state plan
which fulfills certain statutory and regulatory requirements. The Act
specifies the types of services that may be covered by a state plan.
Section 1905(a) of the Act. It also requires that every person or
institution providing services under the state plan have a provider
agreement with the state agency. Section 1902(a)(27) of the Act.
HCFA cited 42 C.F.R. Part 447, Subpart C, as authority for disallowing
costs based on the State's alleged failure to comply with upper limit
requirements. These regulations relate to payment for inpatient
hospital and long-term care facility services and include provisions
limiting payment for these services to the amount payable under
Medicare. However, the regulations have been amended several times, and
since the record does not show either the period of time during which
the payments were incurred or the types of services provided, 4/ it is
not clear precisely what the applicable upper limit requirements were.
The State did not comment on the applicability of the regulations cited
by HCFA.
The regulations also include limited exceptions to the requirement that
payments be authorized under a state plan. As pertinent here, 42 C.F.R.
431.250(b) (1980) provides that payments may be made for "services
provided within the scope of the Federal Medicaid program and made under
a court order." This regulation was preceded by a similarly worded
provision applicable to all public assistance programs. 45 C.F.R.
205.10(b)(3) (1979).
Parties' Arguments
The State apparently agreed that FFP could not be paid for services not
of the type covered by Medicaid or provided by non-participating
providers. However, it argued that FFP was available here,
notwithstanding the upper limits which would otherwise be applicable,
pursuant to 42 C.F.R. 431.250(b), the exception for payments made
pursuant to a court order. The State relied on the language in the
court order which directed the State "to provide reimbursement for those
of plaintiff's bills which have been paid and to pay the providers for
those bills which remain unpaid . . . ." The State argued that the
providers reasonably expected to be paid their usual and customary
charges at the time they rendered the services, and that if the upper
limits were applied to payments made directly to the providers, a
portion of their bills would remain unpaid. The State also argued that
the individuals in question would not be fully reimbursed for their
payments to providers if the upper limits were applied. The State
further asserted that the court order implicitly required that the State
treat the individuals in the same way they would have been treated had
the transfer of assets rule not been applied, and that application of
the upper limits would violate this requirement.
In addition, the State argued that HCFA's disallowance of the payments
for medical services was inconsistent with HCFA's position that
attorneys' fees paid by the State in connection with the Beltran
litigation were allowable. Finally, the State noted that, although it
notified HCFA in March 1984 that reimbursement would be at the rate
actually paid by the beneficiary (including finance charges if
appropriate), rather than at the Medi-Cal rate, it received no
indication from HCFA until October 1987 that FFP would be withheld.
HCFA took the position that the payments were not allowable since they
were not "within the scope" of the Medicaid program within the meaning
of the exception for court-ordered payments in 42 C.F.R. 431.250(b). It
argued that, to be within the scope of the Medicaid program, payments
must be made in accordance with all applicable statutory and regulatory
requirements except those which are the subject of the court order, and
asserted that there was no evidence that the order addressed the
requirements involved here. (As noted previously, however, HCFA was
willing to participate in payments which the State could show complied
with applicable requirements.) HCFA argued in the alternative that, in
requiring the State to pay expenses which "would have been paid under
the Medi-Cal program," the court order specifically required the State
to make payments in accordance with generally applicable Medicaid
requirements. It asserted that, since medical expenses in excess of the
upper limits, for non-covered services, or for services rendered by
providers without valid provider agreements would not have been paid if
the individuals in question had initially been found eligible for
Medi-Cal, they were not properly paid under the court order. HCFA also
noted that the order directed the State to provide individuals covered
by the order with "access to the state administrative process if there
are disputes as to whether and how much" they should be paid, a
provision which it asserted would not have been necessary if the court
had intended for the State to fully reimburse all incurred costs.
Analysis
This appeal concerns the availability of FFP in payments for medical
services made by the State to implement a court order. We do not have
the situation here where the federal agency was a party to the
litigation which resulted in the court order and would therefore be
directly bound by the order. The question presented is whether FFP is
available in the payments made to implement the court order, regardless
of whether the payments exceeded the upper limit requirements in the
Medicaid regulations. (As noted earlier, the State did not argue that
payments to non-participating providers or for non-covered services were
allowable.) The only basis for federal participation in costs which
would not otherwise be allowable Medicaid costs is 42 C.F.R.
431.250(b), which authorizes FFP in payments "for services provided
within the scope of the Federal Medicaid program and made under a court
order."
In Ohio Dept. of Public Welfare, DAB No. 173 (1981), the Board,
examining the earlier version of this regulation, stated:
We also agree with HCFA that "within the scope" was intended to,
and does set limits on the availability of FFP pursuant to the
court's order in such situations. But these limits are drawn from
regulatory requirements which are not the subject of the court's
order (as opposed to those which may be affected). . . .
DAB No. 173, p. 11; see also Missouri Dept. of Social Services, DAB No.
193 (1981), quoting this language. 5/ The Board thus read the regulation
as waiving any requirements of the Medicaid program which are the
subject of a court order. Applying this test, the Board concluded in
Missouri that FFP was not available in payments to non-participating
providers made pursuant to a court order to pay for medical services to
certain SSI recipients who had been denied Medicaid benefits because
"[t]he court dealt with the Medicaid eligibility of SSI recipients, not
the qualifications of the provider." Thus, although "the State might
have inferred" a direction to pay non-participating providers "from
the
tenor of the . . . order," this was not sufficient to bind the Agency
under the regulation. Id., p. 7. 6/
The State in effect took the position that this case was distinguishable
from Missouri, arguing that payments in excess of the upper limits were
authorized under the exception for court-ordered payments in section
431.250(b). As explained below, we conclude that the court order here
did in fact address the rate at which payments were to be made, and
that, under this regulation, the State is entitled to FFP in certain
payments even if those payments were in excess of the upper limits.
The court order arose out of the court's determination that certain
individuals were improperly found ineligible for Medi-Cal. There is no
dispute that the State's failure to comply with the basic requirement
for making eligibility determinations is not a bar to FFP under 45
C.F.R. 431.250(b). However, eligibility is not the only subject of the
order, which also addresses the rate of payment in directing payment of
the expenses incurred by the individuals in question "which, except for
application of the transfer of assets rule, would have been paid for
under the Medi-Cal program." If a member of the Beltran class had been
found eligible for Medi- Cal, he would not have had to pay for any
services of the type covered by Medi-Cal which he received from
participating providers. Thus, the order necessarily requires that
individuals be reimbursed to the full extent of any payments made by
them for such services. Accordingly, the State is entitled under section
431.250(b) to FFP in payments to individuals for covered services
rendered by participating providers regardless of whether those payments
exceeded the applicable upper limits.
We are not persuaded by HCFA's argument that the disputes provision in
the court order showed that payments in excess of the upper limits were
not within the scope of the order. Clearly, the disputes provision
could have been used to resolve questions concerning such matters as
whether payments were made for services of a type covered by Medi-Cal or
whether the services were rendered by participating providers.
Moreover, HCFA itself originally read the court order as requiring the
State to "make reimbursement at the rate actually paid by the
beneficiary, including finance charges if appropriate, rather than at
the Medicaid rate." State's Ex. 3. The fact that HCFA did not take a
contrary position until it issued the disallowance lends support to the
State's interpretation of the order.
Nevertheless, we further conclude that a distinction must be drawn
between payments to individuals (and their heirs or estates) and
payments to providers. If a member of the Beltran class had been found
eligible for Medi-Cal, the provider would have had to accept payment for
services rendered to that individual at the applicable upper limit.
Contrary to the State's argument, moreover, there was no reasonable
basis for the provider to have expected payment of his usual and
customary charges at the time the services were rendered since there are
other situations in which a participating provider does not know that an
individual is Medicaid-eligible but is bound by the applicable upper
limits (e.g., where Medicaid is available for services rendered before
the individual applies for Medicaid or before the individual's
application for Medicaid is approved). Any payment to the provider in
excess of the upper limits represents a windfall to the provider, who
presumably provided the same treatment which he would have provided if
the individual had been eligible for Medi-Cal. Since it appears the
court did not explicitly order such payments and the State could have
avoided them, the State could not reasonably expect to receive FFP.
Accordingly, HCFA is not required to participate in the payments to
providers to the extent that those payments exceeded the applicable
upper limits. We assume for purposes of this decision that there were
upper limits which applied to Medi-Cal payments, since HCFA and the
State appear to be in agreement on that point; however, we make no
determination as to what the applicable limits were.
The State argued, however, that HCFA acted inconsistently in disallowing
payments made pursuant to the Beltran order while allowing attorneys'
fees for that litigation. We do not agree. Attorneys' fees are
administrative costs, and whether such costs are allowable depends on
entirely different considerations from those involved here, where there
is a regulation which deals specifically with the allowability of
payments for medical services made pursuant to a court order.
We also reject any suggestion by the State that the payments were
allowable in full because HCFA did not take a disallowance earlier,
although it was on notice of the nature of the payments. The Board,
like the courts, has consistently held that the doctrine of laches is
generally inapplicable to the federal government. See Kentucky Cabinet
for Human Resources, DAB No. 957 (1988), and cases cited therein.
Similarly, it is clear that recovery by HCFA is not precluded by
principles of equitable estoppel. The elements needed to estop even a
private party are not present here: there was no prejudice to the
State, nor detrimental reliance. In any event, the federal government
is not in the same position as a private party. While it is not clear
that the federal government can ever be estopped, it certainly cannot be
in the absence of affirmative misconduct. Failure to question costs
earlier is not grounds for estoppel; inaction is not affirmative
misconduct. See Kentucky, supra.
Conclusion
For the reasons set forth above, we conclude that FFP claimed in
payments to individual beneficiaries is allowable in full if the
reimbursement was for covered services by participating providers. FFP
is allowable in payments to providers up to the amount of any applicable
upper limit if the payments were made to participating providers for
covered services. Since we could not determine what amounts may be
allowable based on the record before us, the State is to document its
FFP claim as provided above. Accordingly, we uphold the disallowance in
principle subject to reduction to the extent that the State documents
that its claim is consistent with our conclusions.
_________________________ Judith A. Ballard
_________________________ Donald F. Garrett
_________________________ Cecilia Sparks
Ford Presiding Board Member
1. These payments were made several years ago for medical expenses
which may have been incurred ten or more years ago. Under these
circumstances, it is unclear what type of documentation would be
adequate. It may be possible, for example, to determine whether
payments were for covered services provided by participating providers
simply by examining the procedures that the State had in place when it
made the payments. (See State's Ex. 8.B., which explains the State's
process for documenting and reviewing the claims which it paid.) Also,
our record does not show what is involved in applying the upper limit
requirements to the provider payments. (Our reading of State's Ex. 7
(listing amounts and payees) shows only six payments to providers.) The
State, of course, may consult with HCFA to determine what type of
documentation is adequate in light of the available primary
documentation.
2. The original district court decision, affirmed by the circuit
court, found that the transfer of assets rule was not inconsistent with
the Act and therefore did not violate the supremacy clause. Thereafter,
the Act was amended by Pub. L. 96-611 to permit the denial of
Supplemental Security Income assistance (authorized by title XVI of the
Act) to individuals who are eligible only because they have disposed of
resources for less than fair market value. The amendment also permitted
states to apply similar rules to Medicaid recipients in both the
categorically needy and medically needy programs. The U.S. Supreme
Court granted certiorari in Beltran on the supremacy clause issue and
remanded the case for reconsideration in light of this statutory change.
Beltran v. Myers, 451 U.S. 625 (1981). The district court's subsequent
determination that the transfer of assets rule was invalid was affirmed
by the circuit court. Beltran v. Myers, 701 F.2d 91 (1983). It is
clear from this history that the State's transfer of assets rule was not
out of line with federal law except to the extent that it was applied to
only one class of Medi-Cal recipients.
3. HCFA did not raise the issue whether the finance charges which were
included in the State's payments constituted allowable costs.
4. The notice of disallowance states that the expenditures were
claimed during the period July 1, 1983 through December 31, 1985. Thus,
no expenditures were incurred after December 31, 1985. Since the court
order covered payments made to individuals who applied for Medi-Cal on
or before June 30, 1981, however, there is no limitation apparent from
the record on how early the expenditures required to be reimbursed by
the State could have been incurred.
5. The Board cited in support of its interpretation the preamble to
the non-substantive recodification of the regulation, which stated in
pertinent part:
The provision contained in 45 CFR 205.10(b)(3) was especially
important since it restricted FFP to Medicaid services under the
scope of the Federal program. For example, even when there is a
court order against a State to provide services beyond the limits
of the program, FFP is not available when there are other
regulatory provisions which impose limitations (such as separate
time limits or limitations on types of services) upon the receipt
of Federal funds.
45 Fed. Reg. 24878 (April 11, 1980).
6. The Board also held in Missouri that court-ordered payments were
not outside the scope of the Medicaid program simply because they were
made directly to the SSI recipients instead of to providers. HCFA did
not raise direct payments to individuals as an issue