Oklahoma Department of Human Services, DAB No. 1183 (1990)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Oklahoma Department

DATE: August 2, 1990
of Human Services Docket No. 90-34
Decision No. 1183

DECISION

The Oklahoma Department of Human Services (State) appealed a
disallowance of $2,713,396 in federal financial participation (FFP)
imposed by the Health Care Financing Administration (Agency). The
Agency determined that the amount of FFP claimed by the State for
inpatient hospital services provided to Medicaid patients at the State's
Central Oklahoma Juvenile Treatment Center (COJTC, pronounced by the
parties as "Kojak") during the period June 1, 1985 through March 31,
1986 exceeded the amount the Agency contended was proper under the State
plan; the Agency disallowed the difference.

This dispute turns on the proper application of the State plan
provisions for calculating the per diem rate for hospitals. 1/ The
provision at issue utilizes the Medicare cost report "for each
individual hospital for the most recent reporting period ending on or
before June 30, 1982." The parties specifically dispute whether COJTC
should be treated as an "individual hospital" under the State plan. The
State made its claim for COJTC based on the per diem rate for the
Oklahoma Teaching Hospitals (OTH), and argued that "individual hospital"
could only mean OTH, which was an umbrella hospital encompassing COJTC.
The Agency argued that COJTC qualified as an "individual hospital" under
the State plan and that a separate rate for COJTC was appropriate and
consistent with the State's past administrative practices.

As the majority for the three member panel assigned to this case, we
conclude that the disallowance was proper for the following reasons:

o The State's position here is inconsistent with its contemporaneous
practices in calculating the per diem rates for COJTC and OTH. The
record demonstrates that the State filed claims for a period preceding
the disallowance period using separate per diem rates for COJTC and OTH.
The State's explanation as to why it did this even though it allegedly
believed that its plan required it to use a single per diem rate (with
potentially higher federal funding for COJTC as here claimed) is simply
not credible.

o The State failed to present any evidence of a contemporaneous
interpretation in support of its current position for the period covered
by the disallowance.

o The State's contemporaneous practices were in accord with the
Agency's view of the disputed provision, and appear to be reasonable in
light of the institutional purpose of COJTC and the type of services it
provided in comparison with OTH. OTH provided inpatient hospital
services, intensive care, coronary care, burn treatment, necessary and
routine services. COJTC, on the other hand, only provided inpatient
psychiatric services for juveniles. The cost of the services provided
by COJTC, moreover, was approximately one-half the cost of the services
provided by OTH. Finally, the two facilities had a substantially
different case mix. Given these differences between the COJTC and OTH,
separate rate computations would clearly be reasonable.

o The State's past practices and its lack of a contemporaneous
interpretation supporting its current position are particularly
significant where the State is changing its interpretation of its plan
to increase the level of reimbursement to a State-owned facility. The
underlying issue, under such circumstances, is whether the State can
shift to the federal government an increased share of the facility's
costs.

o The only basis for COJTC's Medicaid reimbursement in the first place
is its deemed hospital status under Medicare regulations based on its
Joint Commission on Accreditation of Hospitals (JCAH) accreditation as a
hospital facility. Thus, COJTC qualifies as an "individual hospital" in
its own right under the state plan, and it would be reasonable for the
State to apply its plan to compute a separate per diem rate for COJTC,
as it had done so initially. There is no requirement in the plan that
a single per diem rate must apply to a number of hospitals operating as
a single administrative entity.

o The State's position is further damaged because it appears not to
have applied other aspects of its rate- setting methodology consistent
with its position here in calculating the claims for COJTC and OTH for
the period at issue. If COJTC's claim is to be based on base year costs
for OTH as the State argued, it appears that the base year costs must
first be recalculated to include COJTC's lower costs. The State's
current claim, however, did not recalculate the base year costs for OTH
or its per diem rate for the period in question. While the State
conceded in the alternative that base year costs for OTH may have to be
recalculated and applied to both facilities, the State still did not
propose to perform the recalculation in a way that is consistent with
its plan. Thus, even if we were to agree with the State on the narrow
issue of whether COJTC should be treated as part of OTH for purposes of
rate-setting, the State has not substantiated its position that it is
entitled to the federal funding disallowed here. As the dissent notes,
including COJTC's costs in OTH's rate would likely lower OTH's rate and
require a downward adjustment in funding claims for OTH, as well as the
claims for COJTC.

Background

The parties' continuing dispute about FFP for COJTC has been the subject
of two prior Board decisions. In Oklahoma Dept. of Human Services, DAB
No. 799 (1986) (COJTC I), we reversed the Agency's finding that COJTC
was a juvenile detention center rather than a component of the Oklahoma
Teaching Hospitals (OTH) providing medical services. (We nevertheless
upheld the disallowance for the period July 1982 until the date the
State was able to establish that state survey and certification for
Medicaid had been completed.) In Oklahoma Dept. of Human Services, DAB
No. 1010 (1989) (COJTC II), we found that COJTC was not properly
certified in compliance with Medicaid standards for participation until
April 28, 1984. We therefore upheld a disallowance for the period
before that date and overturned the disallowance from that date, when
COJTC was "deemed" to be a qualifying hospital by reason of its
accreditation by the Joint Commission on Accreditation of Hospitals,
until May 31, 1985.

The State asserted here that it ceased filing any claims for FFP for
services provided at COJTC after May 31, 1985, because the Agency had by
that time made clear that it questioned the facility's eligibility as a
Medicaid provider as a unit of OTH. Appeal br. at 3-4. In order to
overcome this objection, the State formally separated COJTC from OTH as
of April 1, 1986. 2/ After the issuance of COJTC II, the State filed a
claim for FFP for the ten-month period from June 1985 through March 1986
that was based on OTH's Medicaid per diem rate. The Agency has not as
part of these proceedings disputed the State's right to file a claim for
FFP for services to Medicaid patients provided during this period. The
Agency's contention here was that the State plan provisions governing
per diem rates required the State to calculate a per diem rate for COJTC
alone, as it had been doing before it stopped filing claims. The OTH
rate was nearly double the rate the Agency calculated for COJTC alone,
because the costs used to calculate the rate for OTH included such
costly items as nursery and intensive care services which COJTC did not
provide. The difference between the two rates, multiplied by the number
of Medicaid patient days of service provided by COJTC during the
ten-month period, represents the disallowance at issue here.

The State plan provision that both parties agree is at issue here is as
follows:

METHODS AND STANDARDS OF REIMBURSEMENT FOR INPATIENT
HOSPITAL SERVICES

An all-inclusive prospective per diem reimbursement rate
(hereinafter the "prospective rate") for inpatient hospital
services will be established for each calendar year based on the
lowest amount computed from the following:

1. Utilizing the Medicare cost report for each individual
hospital for the most recent cost reporting period ending on or
before June 30, 1982, adjusted for estimated inflation after the
end of that cost reporting period through January 1 of the rate
year. 2. Utilizing the Medicare cost report for each
individual hospital for the most recent cost reporting period
ending on or before June 30, 1981, adjusted for estimated
inflation after the end of that cost reporting period through
January 1 of the rate year.

Attachment 4.19-A, effective 11/1/83 (footnote omitted) (State Ex. 4) at
1. The issue posed by this case is whether COJTC should be treated as
an "individual hospital" for rate-setting purposes.

In its disallowance, the Agency contended that the language "each
individual hospital" could be read to cover COJTC alone. Consequently,
the Agency asserted, COJTC's actual costs as determined under Medicare
cost principles should be used to establish the facility's per diem
rate. The Agency stated that "treatment of COJTC as a separate entity
for cost reimbursement purposes is in accordance with the State Plan, is
appropriate under principles of reasonable cost reimbursement, and has,
in fact, been the method historically utilized by the State in
reimbursing inpatient services provided at COJTC." Disallowance letter
(State Ex. 1) at 2. 3/ The Agency argued in the alternative that the
State in any event would be required to recalculate the OTH rate and
apply the recalculated rate to both OTH and COJTC for the disallowance
period.

The State maintained that OTH including COJTC as a component, not COJTC
alone, was the relevant hospital for rate-setting purposes. It admitted
that it had used a COJTC-only rate for its Medicaid claims during the
period prior to June 1, 1985, but it contended that that practice should
not be viewed as the compelled interpretation of the disputed provision
for two reasons: (1) State officials made a conscious decision to claim
less than the full reimbursement amount (under the State's current
methodology) because they were concerned that the Agency would disallow
all FFP for COJTC; and (2) the State claimed less than its due because
there was an effort at the time to keep Medicaid reimbursement to OTH
as low as possible in relation to non-State operated hospitals. The
State offered an affidavit from OTH's Director of Finance (State Ex. A)
in support of its asserted reasons. The State contended that it should
not be forced to continue to claim less reimbursement than it was due,
and it cited Kansas Dept. of Social and Rehabilitation Services, DAB No.
1026 (1989), as an example of a case in which the Board had held that a
state's election to implement its state plan in a manner that did not
give the state the full advantage of the plan's terms did not preclude
later interpretation of the plan to the state's advantage.

Analysis

The Board explained its approach to interpreting disputed State plan
provisions in South Dakota Dept. of Social Services, DAB No. 934 (1988):

In considering whether a state has followed its approved state
plan, the Board first examines the language itself. If the
provision is ambiguous, the Board will consider whether the state's
proposed interpretation gives reasonable effect to the language of
the plan as a whole. The Board will also consider the intent of
the provision. A state's interpretation cannot prevail unless it
is reasonable in light of the purpose of the provision and program
requirements. Lacking any documentary, contemporaneous evidence of
intent, the Board may consider consistent administrative practice
as evidence of intent. The importance of administrative practice is
in part determining whether the state in fact was applying an
official interpretation of a plan provision or has advanced an
interpretation only as an after-the-fact attempt to justify acting
inconsistently with or simply ignoring its plan.

South Dakota at 4.

In applying the factors identified in South Dakota to the present case,
we conclude that the Board should not defer to the State's current
application of its plan language. Indeed, if any particular
"interpretation" would be entitled to deference, it would be the State's
original and contemporaneous application of its plan. That application
takes into account the uniqueness of COJTC's services within the OTH
organization.

We note at the outset that the language of the plan alone does not
conclusively resolve the issue at hand. In COJTC II, the State took the
position that it was entitled to Medicaid reimbursement for COJTC once
COJTC had received deemed hospital status under Medicare regulations
based on its JCAH accreditation as a hospital. We conclude here that
COJTC may reasonably be viewed as an "individual hospital" under the
plan on this basis even though it was also treated by the State for
other purposes as a component of the broader hospital system known as
OTH. There is no requirement as such in the plan that a single per diem
rate must apply to a number of hospitals operating as a single
administrative entity. 4/ On the other hand, since the multi-facility
entity OTH could also be treated as an "individual hospital," the
State's current interpretation seems to be at least plausible based on
the plan language alone.

Evidence of the intent behind the adoption of the provision referring to
"individual hospital" is inconclusive on the question of whether a
freestanding State-owned facility must be considered for rate
calculation purposes as part of the administering entity. As the State
explained, the provision was changed as part of a settlement of a
lawsuit brought by private hospitals. The predecessor provision
required reimbursement calculation to be done by levels of inpatient
hospital services: routine care, nursery, intensive care (including
neonatal intensive care), coronary care and burn units. State Ex. 3 at
1. The private hospitals succeeded in persuading the State to change to
an all-inclusive prospective reimbursement rate. State Br., pp. 4-6.
The State did not offer any examples of private hospitals with a
relationship similar to that of COJTC and OTH, however; it merely
asserted conclusorily that following this change COJTC and the other OTH
juvenile facilities were eligible to be reimbursed at the OTH rate. As
we discuss at length below, however, the State's practice for COJTC and
other OTH affiliates did not change after the new provision became
effective -- the State continued to claim reimbursement for COJTC at a
COJTC-only rate.

The evidence in the record of the State's administrative practice
immediately following the November 1983 adoption of this plan provision
leads us to conclude that the interpretation advanced here is an
after-the-fact attempt to justify a rate that is practically double the
initial rate. Compare Louisiana Dept. of Health and Human Services, DAB
No. 492 (1983) (State admitted that its interpretation, which was
inconsistent with its practice during the disputed period, was adopted
after-the-fact.) Although the State in its brief contended, "Once the
new Plan amendment became effective, the different OTH facilities and
units within each facility were reimbursed on the basis of one
prospective rate" (appeal br. at 6), the State admitted that in
actuality "COJTC and the other juvenile facilities that were still
operating as part of OTH, however, were allowed to claim only" the rates
figured as they had been previously calculated, i.e., the rates for the
single facility. 5/ The State also did not assert here that it included
COJTC and the other facilities in OTH's annual Medicare cost reports.
See 42 C.F.R. 413.20(b). Consequently, objective evidence of the
State's contemporaneous interpretation of this provision as it applied
to COJTC and similarly situated facilities indicates that the State
interpreted "each individual hospital" to mean each facility as distinct
from the parent OTH. 6/

Moreover, there is a substantial question whether the State acted
consistently with its current position in its computation of a per diem
rate for OTH during the period at issue. That computation failed to
include COJTC's costs (which were at a level that was approximately one-
half the level of the costs computed for OTH) in the base year
computation. If the State interpreted "individual hospital" to include
COJTC and other juvenile facilities as part of OTH, it should have
included their costs in the base year computation by utilizing Medicare
cost reports that included these costs. Exception "C" in the State plan
provides that where a difference in case mix is demonstrated, "the
hospital's rate will be determined by recalculating its base period cost
as if the hospital had experienced in its base period the case mix that
it experienced in its rate year." State Ex. 4. The State, however, did
not recompute the per diem rate for OTH for the period in dispute or any
other period as this provision appears to require. 7/The State offered
two explanations for its apparently inconsistent behavior. First, it
argued, it kept the COJTC rate at the old level because it feared that
the Agency would, as it indeed ultimately did, disallow all FFP claimed
for COJTC. A second factor was the State's alleged desire to limit
Medicaid reimbursement to OTH as much as possible in relation to the
reimbursement provided to non-State-operated hospitals. The State's
allegations are supported solely by the OTH Director's affidavit, which
was clearly prepared for this appeal. The State offered no
contemporaneous evidence of this interpretation or of these policies.
We also found no evidence supporting these assertions in the voluminous
records of COJTC I and COJTC II. Consequently, in light of the unbroken
pattern of claiming for COJTC at COJTC- only rates, we cannot credit the
State's claim that these alleged policy reasons prevented it from
implementing the interpretation of the State advanced here.

With respect to the State's claim that it kept its Medicaid claim low in
order to minimize the amount of FFP it might ultimately have to refund,
the record shows that the State apparently knew as early as March 1983
that the Agency questioned COJTC's eligibility for FFP (State Ex. 2 at 2
(marked "page 4")), yet it continued to file claims at the COJTC-only
rate through May 1985. 8/ The State alleged that it stopped its claims
then because of the anticipated Agency disallowance, which was issued on
January 29, 1986. See State's Ex. 1 in Board Docket No. 86-40 (record
for COJTC I); see also State Ex. 2 (July 2, 1985 letter from Agency
requiring State to stop claiming Medicaid FFP for COJTC as a part of
OTH). There is simply no contemporaneous evidence in the record to
support the State's claim that it believed as of January 1, 1984 that it
could claim a higher per diem rate for COJTC but did not do so because
it feared a disallowance. Throughout this period the State was
consistently representing to the Agency that COJTC was a part of OTH for
Medicaid purposes and was taking steps to bring COJTC into the Medicaid
program, see COJTC I at 3-4, which casts considerable doubt on its
after-the-fact explanation for its claiming practices.

Furthermore, that the State completely stopped all claims when it was
assured of a disallowance renders suspect the State's unsupported claim
that it was intentionally keeping its claims low in anticipation of a
disallowance. Moreover, when a state makes a claim that is lower than
its plan would permit, it risks being barred from claiming what it
considers its full due by the timely claims provisions of section
1132(a) of the Social Security Act. In fact, it appears the State was
still not using the interpretation advanced here as late as November
1986, since it apparently forfeited the difference between the OTH and
COJTC rates for part of the period prior to May 1985 by failing to make
a timely claim for that amount after this Board overturned the January
1986 disallowance in October 1986 in COJTC I. 9/

The only evidence offered by the State concerning the motive behind its
claiming practices was the March 15, 1990 affidavit by the OTH Director
of Finance. Although this individual may have had the administrative
responsibility for filing COJTC's Medicaid claims during the relevant
period, he was apparently not the State official responsible for
rate-setting policy. Cf. State Ex. 5 (Director of State's Department of
Human Services made affirmative decision not to raise OTH's per diem
rate until May 1985.) Without any contemporaneous evidence that the
State was deliberately foregoing what it considered to be a legitimate
claim, we find the State's explanation here to be an after-the-fact
rationalization of the interpretation advanced in this appeal.

Similarly, the State was unable to produce any contemporaneous evidence
supporting its assertion that it claimed less than it believed it was
due because it wanted "to keep Medicaid reimbursement to OTH as low as
possible in relation to the non-State operated hospitals in Oklahoma."
State Ex. A at 4-5. 10/ As with the other asserted policy, the State
offered the OTH Director of Finance's affidavit, which we do not find
convincing for the reasons discussed above. The State also provided a
letter, State Exhibit 5, which confirmed that its Director of Human
Services decided to delay until May 1985 the increase in reimbursement
that OTH itself could have claimed in January 1984 under the November
1983 plan provision, but no policy reason was stated there for the
decision. The letter does not refer to COJTC or any other OTH affiliate
or to any decision not to claim the OTH rate for them. Moreover, we
note that the Director's decision to delay the OTH per diem increase
meant a difference between claiming $474.05 and $507.21, while the
purported decision not to claim COJTC at the full allowable rate meant a
difference between claiming $256.00 and $474.05. Without a specific
reference to COJTC or the other juvenile facilities, we conclude that
this document provides no support for the State's claim of an official
policy limiting Medicaid reimbursement for COJTC. Again, the lack of
contemporaneous documentation supporting the State's present
interpretation of its plan leads us to reject that interpretation.

Finally, we disagree with the State that the circumstances here are
similar to those in the Kansas case. In Kansas the state's plan clearly
allowed for reimbursement of actual costs incurred by certain
facilities. The dispute there involved whether, since those facilities
had neither filed interim cost reports nor made interim claims based on
projected costs, as called for by the state plan, the year-end claims
for actual costs were allowable. In that case the evidence showed a
conscious decision to interpret the provision in a certain way (as not
absolutely requiring the interim reports) and the state's actions were
consistent with that interpretation. The Board held that the state's
interpretation of its plan was reasonable and was supported by the
wording of the provision and contemporaneous evidence of the state's
intent. Moreover, the Board noted, "If the State had applied HCFA's
interpretation of the plan amendment, the State facilities ultimately
would have been entitled to precisely the same level of reimbursement as
under the State's interpretation." Kansas at 1.

In contrast, we have found in the present case that the wording of the
provision is ambiguous as applied to the circumstances here and the
State's action during the relevant period was inconsistent with the
interpretation now being asserted. There is no evidence that a
conscious, contemporaneous decision was made not to follow any official
interpretation of the disputed state plan provision treating COJTC as
part of OTH. 11/ There is no evidence that the State intended this
provision, which was adopted at the behest of private hospitals, to
refer to State-owned facilities administered by a central agency.
Consequently, we conclude that the Kansas case is inapposite, and that
the State in this instance has not demonstrated that its new
interpretation of the disputed State plan provision is entitled to
deference.

As we observed in Massachusetts, supra, where the facility involved is
state-owned, deferring to a state interpretation increasing the
facility's per diem rate can result in a windfall to the state in the
form of increased FFP, since the cost for running the facility is the
same regardless of the rate. That windfall possibility appears
especially true in the present case, where the per diem rates prior and
subsequent to the disputed period were nearly half that claimed for the
ten-month disallowance period. See Agency br. at 4.

Conclusion

For the reasons discussed above, we find that the State's interpretation
of its plan is not entitled to deference and that the Agency's
interpretation is consistent with the State's past administrative
practice. Accordingly, we uphold the disallowance in full.

_____________________________ Judith A. Ballard

_____________________________ Donald F. Garrett
Presiding Board Member

Alexander G. Teitz, Board Member, concurring in part and dissenting in
part:

I concur with the majority that the State's claim for FFP as presented
can not be upheld. However, I disagree with the reasoning of the
majority in reaching this result. In my opinion the State properly
claimed FFP for reimbursement of COJTC at the OTH reimbursement rate,
but the State should have to recompute the OTH rate as outlined below.
Therefore, I dissent in part from the result reached by the majority.
While I would uphold the disallowance of the State's claim as it now
stands, I would remand the case and give the State a reasonable
opportunity to recompute its claim for COJTC as part of OTH, as outlined
below. This would be in keeping with the majority's alternative
reasoning, at p.3, ante:

Thus, even if were to agree with the State on the narrow issue of
whether COJTC should be treated as part of OTH for purposes of
rate- setting, the State has not substantiated its position that it
is entitled to the federal funding disallowed here.

As discussed below, recomputing the State's claim for FFP for COJTC as
part of OTH may in fact result in a substantial reduction in the claim
for COJTC, as well as the other component hospitals of OTC. 12/

Analysis:

The central question presented by this appeal is whether the State's
Central Oklahoma Juvenile Treatment Center (COJTC) is an "individual
hospital" within the language of the State Medicaid plan for calculating
the per diem rate for reimbursement for inpatient hospital services. If
it is, then its reimbursement rate for the period covered by the
disallowance should have been computed on its own costs.

If, on the other hand, COJTC was not an "individual hospital", since it
was a component or unit of Oklahoma Teaching Hospitals (OTH), then its
reimbursement rate should be the same as the all-inclusive prospective
reimbursement rate of OTH.

As discussed below, I disagree with the majority position on the central
issue. I do not find the language of the State plan ambiguous. The
plain language of the provision in question requires no interpretation;
we need not, therefore, consider what the State's practice may have been
in applying this provision. COJTC is a component or unit of OTH because
we found it be that in COJTC I. As such, its reimbursement rate for the
disallowance period must be that of OTH.

This does not mean that the disallowance should be reversed and the
State should receive all it claimed as reimbursement for COJTC for the
period covered by the disallowance. As discussed below, while the OTH
rate should be applied to COJTC, the OTH rate for the disallowance
period should first be adjusted for the base year (1982) for the
different case mix with COJTC's patients (and costs) included in it.

I. The language of the State plan is not ambiguous.

My disagreement with the majority begins with the first part of its
analysis, which relies on a quotation from South Dakota Dept. of Social
Services, DAB No. 934 (1988), for the Board's approach to interpreting
disputed state plan provisions. Majority at 6.

I believe that we need consider only the first two sentences of that
quotation:

South Dakota at 4. (emphasis supplied)

The South Dakota opinion then goes on to say that the state's
interpretation cannot prevail unless it is "reasonable in light of the
purpose of the provision and program requirements." And, "lacking any
documentary, contemporaneous evidence of intent," the Board "may
consider consistent administrative practice as evidence of intent." Id.
However, these tests are to be applied only "if the provision is
ambiguous." The corollary obviously must be that when the Board
examines the particular language of a state plan and the provision is
not ambiguous, then we do not look to intent or to the state's
administrative practice. 13/

This is in keeping with the general principle of statutory construction,
recently referred to by the Board in Louisiana Dept. of Health and
Hospitals, DAB No. 1176 (1990):

We note that a long-standing rule of statutory construction is that
the plain meaning of a law should be given effect, so that the
pursuit of intent in the legislative history is unnecessary absent
ambiguity in the language. "[T]he meaning of the statute must, in
the first instance, be sought in the language in which the act is
framed, and if that is plain, . . . the sole function of the courts
is to enforce it according to its terms." Caminetti v. United
States, 242 U.S. 470 (1917); see also INS v. Phinpathya, 464 U.S.
183, 189 (1984); Sutherland, Statutory Construction, Sect. 46.01
through 46.04, and cases cited therein.

Louisiana at 12-13.

To me the language of the State plan is not ambiguous in any respect.
Therefore, we need not consider all the circumstances of this particular
case in determining what the language means. The extended discussion of
what the past State practice was, or the search for whether there was
evidence of a contemporaneous interpretation by the State of its plan,
has no place in the decision.

COJTC was a component part of OTH because we found it to be so in COJTC
I. As such, on the plain language of the State plan its reimbursement
rate is to be that of OTH, since COJTC was not an individual hospital,
but a unit of OTH.

II. COJTC was a component or unit of OTH.

The majority says in the first part of its background section:

In Oklahoma Dept. of Human Services, DAB No. 799 (1986) (COJTC I)
we reversed the Agency's finding that COJTC was a juvenile
detention center rather than a component of the Oklahoma Teaching
Hospitals (OTH) providing medical services.

Majority at 3.

The definition of "component" is "a constituent part." Webster, Third
New International Dictionary, p. 466. A hospital which by definition
is a "constituent part" of another hospital can by no stretch of the
imagination be considered as an "individual" hospital.

COJTC I, supra, is replete with references to COJTC being a "component"
of OTH. In summarizing the record in COJTC I, we pointed out that
during 1982 the State had changed the population at COJTC, and
concurrent with this change in population "DHS took steps to make COJTC
a component of the OTH . . . ." COJTC I, at 3. We went on to say that
the Oklahoma Department of Health "inspected COJTC as a component of OTH
. . . " Id., and in April 1985 "DHS forwarded to HCFA for the first
time a separate certification and transmittal form . . . for COJTC as a
component of OTH." Id., at 4. We closed our factual summary in COJTC I
by saying: "In addition, COJTC was consistently certified by the state
survey agency as a component of OTH." Id., at 9. (Emphasis added
throughout)

The majority stresses that COJTC was a "freestanding" facility.
Majority at 7. In COJTC I we referred to the fact that a "component" of
a hospital could be "an additional facility, geographically separated",
as long as it met other requirements. COJTC I, at 7, n.5. We referred
to geographical proximity as not being a threshold test, but merely one
of several considerations for determining "whether a facility was so
integrated with another that it should be a considered a component of
the other facility." Id., at 8. 14/

In COJTC II we pointed out that the parties had agreed that "the State
never entered into a separate provider agreement with COJTC, since it
was to be incorporated into the agreement with OTH upon certification."
COJTC II at 6-7. The fact that COJTC never had a provider agreement of
its own is strong evidence that it never was considered as a separate
"individual" hospital of its own.

III. The OTH rate used by COJTC must be recomputed.

While the reimbursement rate for COJTC for the disallowance period was
properly the OTH rate, this does not mean that the OTH rate need not be
recomputed based on the inclusion of COJTC's costs.

The State dismissed this problem by saying that the base year rate for
OTH did not include COJTC costs because the OTH base year was the State
fiscal year 1982 (July 1981- June 1982). State br. at 15. COJTC did
not become part of OTH until State fiscal year 1983, and for Medicaid
purposes, COJTC was not a part of OTH until April 28, 1984. Id. The
State then proceeded to dismiss entirely any requirement for recomputing
OTH rates including COJTC costs by referring to new services that OTH
had added. Id. The State concluded that COJTC was simply another
example of a "new service" added since the base year, so no
recomputation would be necessary. Id., at 16.

In fact, said the State, if the State fiscal year 1985 became the base
year for rate-setting purposes, the State would be entitled to more FFP
than it claimed. Id., at 16, n.24.

The State is wrong when it argues that the OTH rate would not have to be
recomputed to include COJTC costs. As the Agency pointed out (Agency
br. at 10), the State plan required recomputation based on changes in
case mix if the State considered COJTC as part of OTH. The pertinent
provision is as follows:

The prospective rate is subject to adjustment where a hospital's
case mix differs significantly in its rate year from its case mix
in its base period . . . .

State plan, Attachment 4.19-A, page 2, Exception C, HCFA Exhibit
A.Despite the State's claim that no adjustment was necessary for the
addition of COJTC's "services" to OTH, it is hard to imagine a more
significant difference in the case mix than when COJTC joined OTH.
COJTC provided inpatient psychiatric services exclusively; OTH's other
components did not provide this service at all. Agency br. at 10.
Clearly an adjustment to the rate of OTH was required.

The remaining question is how this adjustment in rate should be
computed. The State's argument was misleading when it suggested that we
should simply take the base year 1985 as the base year for rate-setting
purposes. That is not what the State plan says. The plan requires that
the rate be recomputed using the base period cost. The section cited
above continues as follows:

Where such a difference is demonstrated, the hospital's rate will
be determined by recalculating its base period cost as if the
hospital had experienced in its base period the case mix that it
experienced in its rate year.

So where the OTH rate for 1985 was computed using as base year 1982, the
rate for 1982 must be recomputed as if COJTC was included in OTH in
1982. It does not matter that COJTC was not a part of OTH in 1982, let
alone not certified to furnish Medicaid services in that year. If the
State wants the benefit of having the reimbursement rate of COJTC in
1985 be that of OTH, as a component of OTH based on the State plan
provisions, it must also take the State plan provision for recomputing
the 1982 base year rate used in computing the 1985 rate. 15/

The State in its reply brief suggests that if the rate for the
disallowance year did have to be recomputed to include COJTC's costs,
the result would be still higher reimbursement rates for OTH. The
presumed basis for this theory is the language of the State plan that
"the base period for newly established hospitals" for which there was no
cost reporting period ending before June 30, 1981 would be the earliest
completed cost reporting period ending after that date. State Ex.4.
Since the first full cost reporting period for which COJTC had Medicaid
costs and days was the cost reporting period ending June 30, 1985, then
that period would become the base period for recomputing OTH's
reimbursement rate, according to the State. State reply br. at 5-7.

The flaw in this reasoning is that OTH was not a newly established
hospital in the disallowance period or in the prior periods covered by
COJTC I and COJTC II. The whole basis for using OTH's rate for COJTC is
that COJTC was not an "individual hospital". The language in the State
plan pertaining to a base period for "newly established hospitals"
follows after the provisions for determining the all-inclusive
prospective per diem reimbursement rate "for each individual hospital."
If COJTC was not an individual hospital for rate-setting when it became
a part of OTC, it did not become a "newly established hospital." The
State can not treat COJTC as an individual hospital for one purpose and
not for another, whichever suits it best. 16/

The decision in this case, however, should be based on the merits, and
not on whether the State may get more FFP from using the OTH
reimbursement rate than from using a separate rate computation for
COJTC. There is nothing wrong in a state attempting to maximize the
amount of FFP it receives in rate reimbursement, provided it follows its
own state plan provisions, as well, of course, as statutory and
regulatory requirements.

Conclusion

I dissent from the majority decision so far as it upholds the
disallowance in full. I do not, however, agree with the State's position
that the disallowance should be reversed and the State's claim for FFP
upheld in full. The amount of the State's claim should be recomputed as
outlined above, and the disallowance adjusted accordingly, as may be
necessary, depending on the computation.

_______________________________ Alexander G.
Teitz

1. In order to qualify for FFP, a state's claim for the costs of
medical services must be in accordance with its approved Medicaid state
plan. Section 1903(a) of the Social Security Act; 42 C.F.R. 447.252.

2. COJTC I, which held that COJTC could properly be considered a unit
of OTH for Medicaid purposes, was not issued until October 22, 1986.

3. The Agency went on to state its view that Medicare reimbursement
principles supported this result, and the State took issue with this
position in its briefs. Since we find below that the Agency's
interpretation of the State plan was correct and that the disallowance
is therefore sound on that basis, we will not discuss these Medicare
principles further.

4. Thus, contrary to the position taken in the dissent, we believe
that a facility that itself qualifies as a hospital may be viewed as an
"individual hospital" under the plan even though the State treats the
facility as a component of a broader hospital system for other purposes.
The dissent relies on our finding in COJTC I that COJTC was a component
of OTH. This ignores COJTC II, in which the State's position was that
COJTC could nonetheless be "deemed" a hospital itself. Moreover, the
focus of COJTC I was on whether the medical direction OTH provided for
COJTC was sufficient to support a conclusion that COJTC provided medical
services and was not merely a juvenile detention facility.

Although the dissent refers specifically to the "all- inclusive"
prospective reimbursement rate of OTH, the history of the disputed plan
provision makes clear that the use of the term "all-inclusive" was to
clarify which services were to be included (routine as well as
ancillary), and that the term had no direct bearing on the issue
presented here.

5. Thus, the rate used for COJTC claims from the adoption of this
amendment in November 1983 through May 1985 was $256.00. In contrast,
the rate claimed for May through December 1985 was $542.71 and for
January through March 1986 was $559.00. After COJTC severed its OTH
ties in April 1986, the rate went down again to $239.71. Agency br. at
4.

6. The State's contemporaneous application, moreover, was reasonable
from several perspectives. It makes sense for the State to calculate a
separate rate for a facility that has such a dramatically different case
mix from the broader hospital organization, that provides essentially
only one covered service, and that provides a hospital service that may
be separately covered under section 1905(a)(16) of the Act for
individuals under age 21. Moreover, as we discuss in the text below, it
would only be appropriate for the State to claim for COJTC services at
the OTH per diem rate under its plan if it had incorporated COJTC costs
in the OTH rate, which the State did not do for purposes of the claim at
issue. The State's claims for earlier periods based on COJTC's costs
alone were approximately half of what it is claiming here. If the State
receives the benefits of the OTH rate without recomputing that rate to
take into account COJTC's costs, it would likely receive a windfall.

7. The State contended that if recomputation was required, the State
plan called for a 1985 base year, citing plan provisions for newly
established hospitals and claiming that COJTC was not established as a
hospital until its JCAH accreditation during the preceding fiscal year.
This is completely inconsistent with its position that COJTC was a
component of OTH since 1982, although not approved for Medicaid until
later. Moreover, the State's characterization of the addition of COJTC
as only "adding new services" and not requiring a change in the base
year, is unpersuasive in the face of the specific language about case
mix in Exception C. Thus, even if we were to agree with the State that
COJTC should be included as part of OTH in computing the per diem rate,
it appears the Agency could require the State to recompute the per diem
rate of OTH for relevant periods by including the costs of COJTC in the
base year computation for OTH.

8. The State's FFP claims for this period totalled at least
$4,247,697. See Agency's Ex. A in Board Docket No. 86-40 (record for
COJTC I).

9. In view of our conclusion upholding the disallowance on the basis
of the plan alone, we do not reach any timeliness issues that may be
raised by the State's claims.

10. The only explanation for this alleged policy was that "State
officials wanted to avoid criticism about the magnitude of OTH Medicaid
claims." State Ex. A at 5. Since this is offered as a reason in
addition to the Agency's known opposition to Medicaid financing for
COJTC, we are unsure whose objections the State was allegedly trying to
forestall; clearly, the result of this policy was that the State had to
bear more of the alleged costs of providing care to Medicaid-eligible
patients at COJTC.

11. In Kansas there was evidence showing that the state initially
promised the facilities assistance with filing the interim reports but
subsequently decided not to bother for the first year.

12. The majority recognized this possibility:

As the dissent notes, including COJTC's costs
in OTH's rate would likely lower OTH's rate and
require a downward adjustment in funding claims
for OTH, as well as the claims for COJTC.

Majority at 3.

13. The Board has, in several past decisions, given deference to a
state's interpretation of its own plan. Louisiana Dept. of Health and
Human Services, DAB No. 731 (1986), at 14.

14. I do not, on this point, give any weight to the accreditation of
COJTC by the Joint Commission on Accreditation of Hospitals (JCAH). The
accreditation of COJTC was as a hospital facility, not as an individual
hospital.

15. It may well be that the State will not actually benefit
financially from using the recomputed OTH rate. In fact, the State may
end up a loser, since all the other OTH components will have to use the
recomputed OTH rate for 1985. This is not our concern. The State can
not have it both ways; if it wants the advantages of the State plan, it
must take any disadvantage that goes with it. The possibility of a
substantial reduction in the claim by having COJTC use the adjusted rate
of OTH undercuts the majority reliance on a windfall for the State as a
reason for its decision.

16. The affidavit submitted by the State in support of its argument
for a 1985 base year (State Ex. B) is not entitled to any weight. It
simply gives the affiant's computations if the erroneous reasoning in
the brief were