Colorado Department of Social Services, DAB No. 1185 (1990)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Colorado Department of

DATE: August 20, 1990
Social Services Docket No. 90-21
Decision No. 1185

DECISION

The Colorado Department of Social Services (Colorado/State) appealed a
determination by the Health Care Financing Administration (HCFA/Agency)
disallowing $952,339 claimed by the State under the Medicaid program
(Title XIX) of the Social Security Act (Act). The disallowance was
taken pursuant to section 1903(g)(1) of the Act, which provides for the
reduction of a state's federal medical assistance percentage (FMAP) of
amounts claimed for long-stay services for a calendar quarter unless the
state shows that during the quarter the state had an effective medical
review program. The disallowance was based on HCFA's determination that
for the three quarters from January 1 through September 30, 1989, the
State did not have an effective program for controlling the utilization
of medical services provided by three mental hospitals (MHs). 1/
Colorado did not dispute HCFA's basis for the disallowance, admitting
that the required reviews had not been conducted. However, Colorado did
assert that the Agency incorrectly calculated the amount of the
disallowance. During the course of this appeal HCFA reviewed data
submitted by Colorado and reduced the amount of the disallowance to
$220,850.64. 2/ Even after the Agency's recalculation, the State
maintained that the correct amount of the disallowance was only
$70,035.67.

Based on the following analysis, we find that HCFA correctly calculated
the disallowance on the data it used. Consequently, we sustain the
disallowance in HCFA's revised amount of $220,850.64.

Analysis

The statutory provision for reduction in FFP for failure to have an
effective program of medical review is in section 1903(g)(1) of the Act,
and the formula for computing the per centum reduction of the FMAP rate
is in section 1903(g)(5).

The regulatory provisions implementing the statute are contained in 42
C.F.R. 456.657(a), entitled "Computation of reductions in FFP," which
provides as follows:

(a) For each level of care . . . , and for each quarter for which
a satisfactory showing is not made, the amount of the reduction in
FFP is computed as follows:

(1) For each level of care, the number of recipients who received
services in facilities that did not meet the requirements of this
subpart is divided by the total number of recipients who received
services in facilities for which a showing was required under this
subpart. If any of the requirements specified in section
456.652(a)(1) through (4) [for an effective utilization control
program] were not met for any recipient in a facility, the
reduction will be computed on the total number of recipients in
that facility at the level of care in question.

(2) The fraction obtained in paragraph (a)(1) of this section is
multiplied by one-third.

(3) The product obtained in paragraph (a)(2) of this section is
multiplied by the Federal Medical Assistance Percentage (FMAP).

(4) The product obtained in paragraph (a)(3) of this section is
multiplied by the agency payments for long-stay services furnished
during the quarter at that level of care.

The computation using the regulatory formula

Following the regulation literally, and using Colorado's figures from
its Exhibit B, Attachment B, the reduction for the first quarter at
issue would be as follows:

Step 1: The number of recipients who received services in MH facilities
that did not meet the review requirements (92), divided by the total
number of recipients who received services in MH facilities for which a
showing was required (323) = 92 323

Step 2: multiplied by one-third = 92 969

Step 3: multiplied by the FMAP (50%) = 92 1938

Step 4: multiplied by payments for long-stay services furnished at MHs
during the quarter $1,899,937 = $90,193.

Thus, the reduction for the quarter ending 3/31/89 would be $90,193.

Using the same method of computation, the reduction for the second
quarter (ending 6/30/89) would be $96,275; the reduction for the third
quarter (ending 9/30/89) would be $66,907; the total reduction would be
$253,375.


The computation using the State Medicaid Manual formula

HCFA used a formula set out in the State Medicaid Manual for its
computation, instead of the regulation. The Medicaid Manual sets out
the computation for reductions in federal financial participation at
section 9180. As explained there, the Manual's Step 4 reflects the part
of the expenditures related to long-stay services. This avoids the
necessity of computing the actual payments for long-stay services, which
is what the State did here. See HCFA State Medicaid Manual (Effective
February 10, 1988), p. 9-19.

If we follow the steps from the Medicaid Manual, as HCFA did, the
computation for the first quarter (ending 3/31/89) would be calculated
as follows:

Step l: The expenditures for the level of care (MH) subject to
reduction for the quarter (from HCFA Ex. 1, p. 3)
= $3,052,223

multiplied by the State's FMAP (50%) = $1,526,112

Step 2: multiplied by 33 1/3 percent = $508,704

Step 3: multiplied by the same fraction as in step 1 of the regulatory
formula (92/323) = $144,894

Step 4: Multiplied by a fraction, the numerator of which is the number
of long-stay recipients at the MH level of care (160) and the
denominator is the total number of MH recipients in the State (323) =
$71,774.

Using the same method of calculation as HCFA did, the reduction for the
second quarter (ending 6/30/89) would be $102,976.96; the reduction for
the third quarter (ending 9/30/89) would be $46,108.55; and the total
reduction would be $220,850.64.

Since HCFA's total is actually less than our computation following the
regulation, we accept the correct figure for the disallowance as that of
HCFA, namely $220,850.64.

The State's computation

The fraction used by the State is:

Long Stay Patients at Disallowance Facilities divided by
Long-Stay Patients at All Five IMD Facilities

Colorado Reply Brief (Br.), p. 2.

The error in the State's calculation is readily apparent. The State did
not use the fraction provided for in both Step 1 in the regulation and
Step 3 in the Manual formula. The numerator of this fraction, for each
level of care, as specified in 42 C.F.R. 456.657 (a)(1), is "the number
of recipients who received services in facilities that did not meet the
requirements of this subpart." The denominator of the fraction is "the
total number of recipients who received services in facilities for which
a showing was required under this subpart." There is nothing in this
provision which refers only to long-stay services; it speaks only to the
level of care.

For the first quarter, the fraction under the State's method is 16/160
(Colorado Br., p. 3.), while the correct fraction under the regulation
(and the Manual) is 92/323.

The flaw in the State's method is that it has confused "level of care"
with "long-stay services." They are separately defined in the
regulation. Level of care means a "type" of inpatient services, such as
services in a mental hospital. 42 C.F.R. 456.651. Long-stay services
means services provided to a recipient after a total of 90 days of
inpatient stay, in the case of mental hospital services. Id.

The fraction in the Step 1 of the regulatory formula is based on the
number of recipients at each level of care, not just long-stay
recipients. This is in accord with the language of the regulation
that if any of the utilization control requirements were not met for any
recipient in a facility, the reduction will be computed on the total
number of recipients in that facility at the level of care in question.
See 42 C.F.R. 456.657(a)(1).

The State's principal argument is that the Agency failed to reduce the
FFP properly for "long-stay" services. The Agency did reduce the FFP in
the last step from the Medicaid Manual formula, which uses a fraction
composed of the number of long-stay recipients in the facilities at the
particular level of care divided by the total number of recipients in
the State receiving services at that level of care. Since the reduction
is accomplished in this step, the Manual starts with the total amount of
FFP paid for the level of care.

In the method of computation in the regulation, the limitation to
amounts paid for long-stay services is also accomplished at the end, by
multiplying the fraction obtained from the first three steps by the
"agency payments for long-stay services furnished during the quarter at
that level of care."

What the State's method would do is reduce the total FFP for the level
of care twice: first, by taking only the FFP for long-stay services at
the level of care, and again, by using a fraction composed only of
long-stay patients.

The Medicaid Manual is a reasonable interpretation of the regulation.
The State does not deny having notice of it. Therefore, the State should
be bound by HCFA's computation of the reduction in FFP by using the
Manual. In any event, we have computed the reduction above using the
regulation, which is, as we conclude below, a reasonable interpretation
of the statute, and by which this Board is bound. 45 C.F.R. 16.14.
Since our computation using the regulation would in fact be greater than
that of HCFA using the Manual, we must sustain the disallowance in the
lower figure of HCFA.

The statutory formula

Although the computation of the reduction using the formula in the
regulation requires us to uphold the disallowance, we consider also the
statutory formula and its application here. The reduction in FMAP is
provided for in section 1903(g)(1) of the Act and applies to amounts
paid for services furnished after an individual has received inpatient
mental hospital services for 90 days; the per centum by which the FMAP
rate is to be decreased for those payments is determined under section
1903(g)(5).

Section 1903(g)(5) provides for determining the per centum amount of the
reduction of the FMAP as follows:

In the case of a State's unsatisfactory . . . showing made with
respect to a type of facility . . . in a calendar quarter, the per
centum amount of the reduction of the State's Federal medical
assistance percentage for that type of services under paragraph (l)
is equal to 33 1/3 per centum multiplied by a fraction, the
denominator of which is equal to the total number of patients
receiving that type of services in that quarter under the State
plan in facilities . . . for which a showing was required to be
made under this subsection, and the numerator of which is equal to
the number of


such patients receiving such type of services in that quarter in
those facilities . . . for which a satisfactory and valid showing
was not made for that calendar quarter.

(Emphasis added.)

It is clear from an examination of the statute that the words "type of
services" refers to the level of care (such as in a mental hospital), as
HCFA has correctly defined in 42 C.F.R. 456.651, and not to long-stay
services only, as the State contended.

Therefore, when the denominator of the reduction fraction in section
1903(g)(5) is stated to be the total number of patients receiving that
"type of services" in facilities for which a showing was required to be
made, it is the total number of patients receiving inpatient care at
mental hospitals in this case, and not merely long-stay patients at that
level of care.

Similarly, when the numerator of the fraction is stated to be the number
of patients receiving such "type of services" in that quarter in those
facilities for which a satisfactory showing was not made, the proper
number is all patients at the mental hospital level of care in
facilities for which the proper showing was not made, and not just the
long-stay patients in the facilities not reviewed.

The fraction used in the regulation and in the Medicaid Manual is
therefore a correct implementation of the statutory language, and the
computation by HCFA is in accord with the statute as well as the
regulation and Manual. Conclusion

Based on the preceding analysis, we sustain the disallowance in the
revised amount of $220,850.64.

Judith A. Ballard

Donald F. Garrett

Alexander G. Teitz Presiding Board Member

1. The disallowance referred to the facilities in question as
institutions for mental diseases (IMDs). Throughout this appeal, HCFA
referred to them as mental hospitals, although Colorado used the term
IMDs. Section 1903(g)(1) of the Act does not refer to services in an
IMD as a separate type of service, nor does the regulation, 42 C.F.R.
456.651, define services at an IMD as a separate level of care.
Clearly, it can only be to the advantage of the State to classify the
facilities in question as "mental hospitals," since services to
recipients in them do not by definition become long-stay services (and
so a basis for any reduction in FFP for failure to review) until they
have been provided to a recipient after a total of 90 days of inpatient
stay, as distinguished from a 60-day period for other inpatient
services. The State, in any event, did not dispute that the
disallowance was properly taken, and compiled its data for determining
the number of long-stay patients using 90 days, which applies only to
MHs. See Colorado Exhibit (Ex.) B.

2. This reduction was the result of a regulatory provision which
permits a recalculation of the amount disallowed based on a state's
submission of more accurate recipient data than may have initially been
available to the Agency. See 42 C.F.R.