Delaware Department of Health and Social Services, DAB No. 1166 (1990)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Delaware Department
DATE: June 13, 1990
of Health and Social Services Docket No. 89-245
Decision No. 1166

DECISION

The Delaware Department of Health and Social Services (State) appealed a
determination of the Health Care Financing Administration (HCFA)
disallowing $35,197 in federal financial participation (FFP) in payments
under Title XIX of the Social Security Act (Act), known as the Medicaid
program. The disallowance related to payments by the State to certain
intermediate care facilities and skilled nursing facilities for services
from October 1, 1988 through December 31, 1988, based on a new
reimbursement system. However, HCFA determined that the amendment to
the State plan that adopted the new reimbursement system could not
become effective before January 1, 1989. Therefore, HFCA disallowed the
FFP to the extent that the payments prior to January 1, 1989 exceeded
the amounts that would have been reimbursed under the pre-existing
system. In addition, the State and HCFA disagreed about the proper per
diem rate for one provider, accounting for $507.78 of the disputed
disallowance.

As discussed below, we uphold the disallowance by HCFA, except as to the
per diem rate for one provider. Consequently, we sustain the
disallowance of $34,689.22 but reverse the disallowance of $507.78.

Legal Framework

Medicaid is a co-operative program for providing medical assistance for
the needy; it is administered by the states under the supervision of the
federal government, and is funded by the states and the federal
government. If a state chooses to institute a Medicaid program and
wishes to receive FFP, it must submit a plan for operation of its
Medicaid program that conforms with federal requirements. Section 1903
of the Act. This plan must be approved by HCFA. States have
considerable flexibility in selecting the reimbursement provisions to
include in the plan under which they will operate. Approval will be
granted if the plan fulfills substantive requirements and the state
submits specific assurances and related information. See, e.g., section
1902 of the Act; 42 C.F.R. 430.10, 447.252, 447.253, 447.255, and
447.256(a)(1988). Once the plan is approved, the state will be bound by
its provisions in claiming FFP, until an amendment altering them is
approved.

When the state makes a material change in its policies or operation,
such as its reimbursement systems, it must promptly submit an amendment
to its plan. See 42 C.F.R. 430.12(c). The earliest date on which an
amendment may become effective is the first day of the calendar quarter
in which an approvable amendment was submitted (with exceptions not
relevant here). 42 C.F.R. 447.256(c).

Factual Background

The material facts in this case are not disputed. On December 28, 1988,
the State sent a letter to HCFA advising it that a plan amendment
changing the reimbursement system for certain facilities would be
submitted "[u]nder separate cover." Appellant's (App.) Ex. A, p. 1.
The letter recited assurances in regard to the amendment and was
accompanied by attachments providing related information and a copy of a
public notice, as required by federal regulations. App. Ex. A. This
letter was received by HCFA on January 3, 1989.

A second letter from the State was dated February 8, 1989 and received
by HCFA on February 12, 1989. Respondent's Brief (Resp. Br.), Ex. 2. A
HCFA form entitled "TRANSMITTAL AND NOTICE OF APPROVAL OF STATE PLAN
MATERIAL" and a fifteen-page document entitled "METHODS AND STANDARDS
FOR ESTABLISHING PAYMENT RATES -- PROSPECTIVE REIMBURSEMENT SYSTEM FOR
LONG TERM CARE FACILITIES -- STATE PLAN ATTACHMENT 4.19-D" accompanied
the February letter. Id., Exs. 3 and 4.

This case hinges on the date when "an approvable amendment" was
submitted, triggering the effective date provisions of 42 C.F.R.
447.256(c). The State contended that its December letter was intended
to and sufficed to preserve an effective date of the first day of the
last calendar quarter of 1988, i.e., October 1, 1988. HCFA argued that
no approvable amendment was actually submitted until the second letter
and its enclosures were received by HCFA on February 12, 1989. 1/
Therefore, the amendment could not be effective any earlier than January
1, 1989, the first day of the calendar quarter in which it was
submitted. 2/

Discussion

I. The December 28, 1988 letter was not an approvable amendment.

The meaning of the term approvable amendment for purposes of 42 C.F.R.
447.256(c) is central to the proper resolution of this case. The
statute and regulations do not contain a definition of "approvable
amendment." It does not follow that any paper submitted to HCFA is a
plan amendment, much less an approvable amendment. The essential nature
of a plan amendment can be inferred from a reading of the statute and
regulations and an understanding of the purpose of submitting
amendments.

Prompt submittal of amendments is required "[s]o that HCFA can determine
whether the plan continues to meet the requirements for approval. . . ."
42 C.F.R. 430.12(c)(2)(i). Thus an approvable amendment, when
read together with the plan which it amends, must continue to constitute
an approvable plan. The regulations do define precisely what
constitutes a state plan:

The State plan is a comprehensive written statement submitted by
the [state] agency describing the nature and scope of its
Medicaid program and giving assurance that it will be
administered in conformity with the specific requirements of
title XIX, the regulations in this Chapter IV, and other
applicable official issuances of the Department. The State plan
contains all information necessary to determine whether the plan
can be approved to serve as a basis for Federal financial
participation (FFP) in the State program.

42 C.F.R. 430.10.

The regulations also require that the plan "specify comprehensively the
methods and standards used by the [state] agency to set payment rates .
. . ." for long term care facilities. 42 C.F.R. 447.252(b). An
amendment altering payment methods would obviously be more limited in
scope than the entire plan. Nevertheless, the amendment would still have
to describe the intended changes in the State's reimbursement system and
specify comprehensively the payment methods and standards for those
areas in which it would displace prior plan provisions, in order for the
plan as a whole to continue to be in compliance.

If tested against this standard, the December letter certainly fails.
It not only fails to specify comprehensively the intended payment
methods, but indeed provides no detailed description at all of the new
payment system. Yet the system plainly requires considerable detail for
adequate explanation, as evidenced by the fifteen pages of text employed
by the State for that purpose in its second submission.

The State argued that the December letter and its attachments satisfy
the requirements of 42 C.F.R. 447.253 because they contain the
assurances and related information required by 42 C.F.R. 447.255.
Appellant's Brief (App. Br.) at unnumbered p. 3. The State acknowledged
that 42 C.F.R. 447.253 also requires that, in order to receive HCFA
approval, a state plan "must comply with all other requirements of
[Subpart C]." Id. However, the State asserted that it should be
"deemed" to have complied with subpart C, because the disallowance
letter does not indicate that the State failed to comply with any of
these "other requirements." Id. at unnumbered p. 7. The disallowance
letter cites to 42 C.F.R. 447.256(c), which requires the submission of
an approvable amendment to trigger an effective date. Resp. Br., Ex. 7,
p. 1. The disallowance further states that Delaware's amendment was not
submitted until the second quarter of fiscal year 1989, a clear
reference to the February 1989 submission. These references in the
disallowance letter are adequate to put the State on notice that nothing
received before the February submission had met all the requirements.
Further, in its letter approving the plan amendment but disapproving the
October 1, 1988 effective date requested by the State, HCFA set forth
the basis for the assertion that the December letter failed to meet all
requirements, in that "the submission of a notice of intent, instead of
a plan amendment within the calendar quarter, fails to comply with the
Federal regulation at 42 C.F.R. 447.256(c)." Thus, the State's
assertion that it should be deemed to have complied with all
requirements because of inadequate notice is ill-founded.

The State also relied on 42 C.F.R. 447.256(b) for the proposition that
the only basis for approving an amendment is "whether the requisite
assurances by the agency are submitted in proper form." App. Br.,
unnumbered p. 8. That regulation sets time limits for HCFA action on
assurances and plan amendments. 3/ HCFA is given 90 days from its
receipt of assurances regarding an amendment to notify the state of any
problem with the assurances or the amendment. If the state is not
advised otherwise within that time, HCFA will be deemed to have approved
them as submitted.

This regulation is based on section 1915(f)(2) of the Act, which states
in pertinent part that "approval of a proposed State . . . plan
amendment . . . shall be deemed granted unless the Secretary, within 90
days after the date of its submission to the Secretary, either denies
such request in writing or informs the State agency in writing with
respect to any additional information which is needed . . . ." The
statute does not refer to assurances at all, so the regulation goes
further in protecting states from agency delay by preventing late
challenges to the acceptability of assurances, as well as amendments.
Neither the statute nor the regulation, however, has the effect of
making assurances and amendments interchangeable. While the regulations
may support the position that the State's assurances are to be accepted
at face value, they do not provide any support to the State in
attempting to substitute bare assurances for any substantive amendment.

II. The State has not shown any contemporaneous intention to treat the
December letter as a plan amendment.

The State argued that the Board should recognize its December submission
as sufficient to preserve the earlier effective date because that is the
result that the State intended. Even if intent were relevant, the
evidence does not support the State's expressions of intent.

The December letter never purported to be a plan amendment. It stated
that a plan amendment would follow "under separate cover." App. Ex. A.
In a letter dated October 16, 1989, the Secretary of the State Medicaid
agency expressed the State's desire for the earlier effective date as
follows:

Delaware recognizes that reimbursement methodologies approved by
HCFA will not be effective before the first day of the calendar
quarter in which the agency submits an approvable plan amendment.
However, Delaware maintains that notice of the State Plan change
was originally submitted for HCFA review on December 28, 1988.
This notice was intended to preserve October 1, 1988 as the initial
date of reimbursement under the revised methodology . . . .

Resp. Br., Ex. 5, p. 4. Yet this statement itself characterizes the
December letter as a "notice of the State plan change," not as an
approvable amendment. Stating an intention to do an act is simply not
the equivalent of accomplishing the act; submitting a notice of an
intent to amend a plan is not the same as submitting an amendment.

Comparing the two submissions yields additional evidence that the State
itself was aware of the difference. The regulations require that state
plan amendments be submitted to the Governor's office for review before
their submission to HCFA, and any comments from the Governor must
accompany the submission of the amendment. 42 C.F.R. 430.12(b). The
February submission acknowledges this requirement by stating that the
"review and comments by the Governor's Office .. will be forwarded when
completed" and by checking a box with a note to the same effect on the
HCFA transmittal form. Resp. Br., Exs. 2 and 3. 4/ By contrast, the
December letter contains no reference whatsoever to explain the absence
of the Governor's comments. The reasonable inference is that the State
did not believe that comments were required until it actually submitted
an amendment, which it did not accomplish until several weeks later.

The State clearly did wish to make its amendment effective at the
earlier date. It expressed this desire in its public notice attached to
the December 28, 1988 letter (App. Ex. A), in the statement in the
amendment itself as to the date of services to which the new system
shall apply (Resp. Br., Ex. 4, p. 1), as well as in the quotation above
from the Secretary of the State agency. Resp. Br., Ex. 5, p. 4.
Unfortunately, the State did not act on this desire by submitting the
necessary plan amendment expeditiously despite its express recognition
of its procedural obligations. The State cannot escape the consequences
of its inaction by now expressing an intention that its earlier notice
of intent be treated as an amendment.

III. Even if the State intended to treat its December letter as an
amendment, its intention cannot prevail against federal law and
regulations.

Even if the State were able to demonstrate an intent to have its
December letter constitute its amendment, for purposes of the effective
date, that intent could not be given effect, since it would contravene
federal law and regulations requiring that an amendment contain
sufficient detail to allow HCFA to ascertain if the plan continues to be
approvable.

The State cited a prior Board decision, South Dakota Dept. of Social
Services, DAB No. 934 (1988), to bolster its contention that a state's
expressed intention should control. The State's reliance on that
decision is misplaced.

South Dakota concerned whether the state had followed its own plan in
calculating a reimbursement rate. The state argued that its
interpretation of its plan was reasonable and reflected the intent of
the plan's drafters. The Board ruled that a state's interpretation of a
plan provision should be accepted, if the provision is ambiguous and the
interpretation offered is reasonable. The State must establish that its
interpretation was intended originally, and not invented after-the-fact,
using contemporaneous evidence or, lacking that, consistent
administrative practice. Id., p. 4.

The Board noted that its decision was influenced by the Boren Amendment,
Section 962 of Pub. L. No. 96-499, amending Section 1902(a)(13)(A) of
the Act, which accorded the states greater leeway in selecting a
reimbursement system. In this context, the Board used the language
quoted by the State that "plans will be approved so long as the state
provides the requisite assurances." App. Br., unnumbered p. 9, quoting
South Dakota, p. 5. Elsewhere in the same decision, however, the Board
made it clear that the states' greater leeway in defining their own
plans under the Boren Amendment "did not give the states flexibility to
ignore the methods set out in a state plan. . . ." South Dakota, p. 5.
Further, the Board noted that "[b]oth before and after the Boren
Amendment . . . a state Medicaid plan must set out the methods and
standards to be used by the state Medicaid agency in determining rates.
. . ." Id., p. 2.

The Board deferred to state intent in construing plan provisions in
South Dakota because selecting and defining the methods were within the
state's authority. Neither possible interpretation was alleged to be
inconsistent with any federal requirement or policy. The state, having
written the plan, was expected to have some expertise in interpreting
it. In this case, by contrast, the State's interpretation of federal
requirements for an approvable amendment is not entitled to deference.
The State had no authority to define the content of federal regulations.

Furthermore, other Board decisions support our reading of the
regulations to require a plan amendment to consist of more than a
statement of assurances. For example, in California Dept. of Health
Services, DAB No. 1007 (1989), the state agency claimed that it had
documentation which would have shown that it prepared, and perhaps even
submitted, assurances to HCFA supporting its claimed payment methods.
The Board held that such documentation would have been irrelevant,
because:

Even if it could be demonstrated that assurances similar to those
for FY 1985 had been prepared for FY 1984 and had been submitted to
HCFA, such statements alone, unaccompanied by a proposed plan
amendment, could not have served to amend the State plan
methodology . . . nor . . . make HCFA responsible for the State's
failure to amend its plan to conform to its practice.

Id., p. 7-8 (Emphasis added.). Similarly in Arkansas Dept. of Human
Services, DAB No. 357 (1982), the Board stated:

While it is clear, then, that states have a great deal of
flexibility in developing reimbursement methods and in changing
those methods, the respondent has the ultimate authority to approve
those changes. In order to fulfill this statutory mandate, the
respondent has required that the states specify in their plans what
those methods will be, and notify the respondent of changes in the
methods by amending the plans.

Id., p. 9. 5/

Thus, federal law requires that an amendment contain content. The
December letter contains nothing which could or does purport to meet any
substantive requirement to specify the change to be made in
reimbursement methods. The State's intention to interpret federal law
to allow it an earlier effective date cannot prevail.

IV. HCFA has not demonstrated a reason for applying a lower per diem
rate for one provider.

In its disallowance letter, HCFA stated that the State applied a hold
harmless provision in its plan to compare the actual amounts received by
facilities under the new system in the last quarter of 1988 with the
amounts the facilities would have received under the pre-existing
system. Resp. Br., Ex. 7, p. 1. The purpose of this comparison by the
State was to ensure that no facility would receive less under the new
system than it would have received under the old system during a
transitional first year, so facilities could adjust their operations as
necessary. Resp. Br., Ex. 4, p. 7. HCFA used these comparisons to
calculate its disallowance by identifying those facilities which
received amounts under the new system in excess of what they would have
received under the old system, during the period when the new system
should not have been used to calculate reimbursement rates. Attached to
the disallowance letter is a sheet listing eighteen providers and
indicating as to each the applicable per diem, the days of service, and
the amounts resulting under the old and new (actual) system, with the
difference disallowed.

The State asserted that the per diem rate of $70.15 assigned to one of
these providers, Harbor (#0565504), was erroneous, and that a rate of
$70.78 is "more accurate." Notice of Appeal, p. 1-2. The State in its
brief reiterated that the rate is an error, stating that Harbor "was not
subject to the hold-harmless provision as HCFA suggests." App. Br. at
unnumbered p. 10. It is not entirely clear what this statement means,
but apparently the State's position is that Harbor was not one of the
facilities which actually received a higher payment than it would have
been entitled to under the old system. In support, the State provided a
document entitled "PATIENT INDEX REIMBURSEMENT SYSTEM -- PROCEDURE CODES
AND PER DIEM RATES--SFY1989," which bears a notation at the bottom
"Revised 3/14/89." App. Br., Ex. B. The document shows a per diem rate
of $70.78 for Harbor for all listed patient classifications and
procedures. The State's position appears to be that this rate would
have applied under the pre-existing system and therefore this facility
did not receive any excess payments.

Generally, the Board has required the federal agency making a
disallowance to articulate the basis with sufficient detail to allow the
grantee to respond. The burden then shifts to the grantee to support
its claims with documentation. See e.g., Wisconsin Dept. of Health and
Social Service, DAB No. 1121, p. 12 (1989). The State presented
documentation in support of its assertion of error by HCFA. 6/ Although
put on notice by the State's notice of appeal and its brief and provided
adequate opportunity to respond, HCFA did not contest this documentation
in its brief nor provide any more specific source for its calculations.

The State gains some credibility from the fact that it has challenged
only one of the individual provider's rates, which is consistent with
the assertion that it has identified a narrow error. Also, the document
on which it relies was dated before the disallowance, suggesting that it
was not prepared simply to strengthen this appeal.

We find that the State has sufficiently met the burden of supporting its
assertion of error in this case. The State was in a better position to
make these calculations, since HCFA was relying on the State's figures.
In the absence of any reply from HCFA to explain the discrepancy, we
accept the State's position that the lower per diem rate represented an
error and will reverse the disallowance as to this one item.

Conclusion

For the reasons discussed above, we uphold the disallowance as to
$34,689.22, but reverse the disallowance of $507.78.

__________________________ Donald F. Garrett

__________________________ Norval D. (John)
Settle

__________________________ Alexander G.
Teitz Presiding Board Member

1. We note that the parties apparently differed on whether the
submission of an amendment should be recognized on the date of mailing
or the date of receipt by HCFA. We need not decide this issue because
we find below that the first letter did not constitute an approvable
amendment. None of the arguably relevant dates for the second letter
occurred within the last quarter of 1988.

2. It is arguable that Delaware was precluded from questioning the
effective date of the plan amendment before us, since the remedy for
disapproval of a plan amendment is by request for reconsideration and a
hearing (commonly known as a conformity hearing) under 42 C.F.R.
430.18. Once HCFA's disapproval of the effective date of October 1,
1988 requested by the State (Resp. Br., Ex. 6) became final, Delaware
was presumably precluded from attacking the effective date before us,
even though the disallowance came earlier. However, we need not reach
this issue since HCFA did not raise it before us and, in any event, we
find for HCFA on other grounds.

3. The fact that the title of the regulation and the text refer to
both assurances and amendments indicates that the two are not identical,
contrary to the State's reliance on these references to support its
position.

4. Since HCFA has approved this amendment despite the delay in
submitting the Governor's comments, we do not comment on whether their
late submission violated any regulations.

5. While some aspects of this decision may no longer be relevant
after the Boren Amendment, the requirement that amendments specify what
methods a state has selected remains in force.

6. HCFA apparently based its calculations on the comparison made by
the State itself between the reimbursement amounts under the old and new
systems for purposes of its hold-harmless provision, rather than on an
independent audit. If the State now indicates that an error exists in
that comparison, it is not unreasonable to accept its assertion that
this new document properly reflects the rates to be paid to the facility
in question, at least in the absence of any response by HCFA to the
State's