Utah Department of Health, DAB No. 1307 (1992)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Utah Department of Health

DATE: February 26, 1992
Docket No. 91-30
Decision No. 1307

DECISION

The Utah Department of Health (UDH, or State) appealed the disallowance
by the Health Care Financing Administration (HCFA) of $1,610,445 in
federal financial participation (FFP) claimed under Title XIX (Medicaid)
of the Social Security Act (Act) for the period July 1, 1985 through
June 30, 1987.  HCFA disallowed the federal share of overpayments for
mental health services provided to Medicaid recipients by the Timpanogos
Community Mental Health Center (TCMHC).

In accordance with its "freedom of choice" waiver under .1915 of the
Act, the State Medicaid agency, UDH, entered into an agreement with the
Utah Department of Social Services (UDSS) whereby UDSS would provide
certain mental health services to Medicaid recipients, either directly
or through subcontract.  TCMHC provided those services under its
subsequent agreement with UDSS.  A State audit disclosed that the
federal share of overpayments to TCMHC was $1,756,386 for the two fiscal
years ending (FYEs) June 30, 1986 and June 30, 1987.  HCFA reviewed the
State audit and adopted its findings. 1/

Utah did not challenge the overpayment determinations.  Instead, it
noted that .1903(d)(2)(D) of the Act provides that states are not
required to reimburse HCFA the federal share of overpayments that are
uncollectible due to bankruptcy (the bankruptcy exception).  TCMHC filed
for bankruptcy on January 29, 1990, and Utah asserted that it is not
required to repay the federal share of the overpayment.

HCFA did not challenge Utah's assertion that it was unable to recover
these overpayments due to TCMHC's bankruptcy.  HCFA contended that the
bankruptcy exception and its implementing regulations applied only to
overpayments made to a Medicaid provider, i.e., an entity having a
provider agreement with the state Medicaid agency.  HCFA maintained that
TCMHC was not a Medicaid provider since it contracted with UDSS, and not
UDH, the State Medicaid agency.  Utah, HCFA asserted, could not avail
itself of .1903(d)(2)(D) of the Act and the regulations governing
overpayments to avoid repayment to HCFA of the overpayment amounts,
since TCMHC did not have a provider agreement with UDH.

As we explain more fully below, we conclude that the bankruptcy
exception applied so that Utah is not required to repay the federal
share of overpayments made to TCMHC.  Section 1903(d)(2)(D) of the Act
provides that a state is not required to return the federal share of
overpayments "made to a person or other entity" where the state is
unable to recover the overpayment "on account of such debt having been
discharged in bankruptcy."  HCFA cannot reasonably read the language of
the statute and its implementing regulations to limit the reach of the
bankruptcy exception in the particular circumstances here, where TCMHC
was providing services to Medicaid recipients under the terms of Utah's
waiver as approved by HCFA.

We emphasize that our decision is limited to the unique factual
situation presented here; we do not mean to imply that HCFA does not
have an understandable and reasonable interest in reading the statutory
and regulatory provisions conservatively to avoid exposure to liability
to lower tier organizations who deal with but are not providers of
Medicaid services.

We reverse the disallowance in full, subject to Utah's obligation to
refund the federal share of overpayments which it recovers through
discharge in bankruptcy.  If Utah disputes HCFA's determination of the
amount of recovered overpayments that must be refunded, it may return to
the Board for review of this issue within 30 days of receipt of HCFA's
written determination.

Statutory background

Title XIX of the Act authorizes federal grants to states to aid in
financing state programs which provide medical assistance and related
services to needy individuals.  Any state that wishes to participate in
the Medicaid program must develop and submit a plan that meets certain
requirements set forth by the Secretary of the Department of Health and
Human Services (HHS).  Realizing that many states might have difficulty
financing a Medicaid program even if subsequently reimbursed by the
federal government, Congress also established a funding mechanism by
which HHS advances funds to a state, on a quarterly basis, equal to the
federal share of the estimated cost of the program.  After review of the
state's quarterly statement of expenditures, the Secretary may adjust
future payments to reflect any overpayment or underpayment which was
made to the state for any prior quarter.  Section 1903(d) of the Act.
Specifically, .1903(d)(2)(A) of the Act provides that amounts paid to a
state shall be reduced to the extent of any overpayment which the
Secretary determines was made to the state for any prior quarter and
with respect to which adjustment has not already been made.

In numerous cases involving excess or improper payments by states to
Medicaid providers, this Board has held that, under .1903(d)(2) of the
Act, HCFA may require adjustment of the grant award for the federal
share of firmly established overpayments, even if a state has not yet
recovered these amounts from the providers.  The Board reasoned that
excess or improper payments are not "medical assistance" within the
meaning of .1903(a)(1) and .1905(a) of the Act.  See, e.g., California
Dept. of Health Services, DAB No. 1015 (1989); California Dept. of
Health Services, DAB No. 977 (1988); California Dept. of Health
Services, DAB No. 619 (1985); Massachusetts Dept. of Public Welfare, DAB
No. 262 (1982).  The Board's prior holdings on overpayments issues have
been upheld in three decisions by United States Courts of Appeals:
Massachusetts v. Secretary, 749 F.2d 89 (1st Cir. 1984), cert. denied,
472 U.S. 1017 (1985); Perales v. Heckler, 762 F.2d 226 (2d Cir. 1985);
and Dept. of Social Services v. Bowen, 804 F.2d 1035 (8th Cir. 1986).
The Board has upheld HCFA's ability to require adjustment for the
federal share of overpayments even where the state is unable to recover
them due to provider bankruptcy.  See, e.g., DAB No. 977; California
Dept. of Health Services -- Accounts Receivable, DAB No. 334 (1982);
Massachusetts v. Secretary.

Congress created an exception to the adjustment requirements for
overpayments to bankrupt or out of business providers identified for
quarters beginning on or after October 1, 1985.  Section 9512 of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Pub. L.
No. 99-272, amended .1903(d) of the Act to give states 60 days in which
to refund the federal share of overpayments, and relieved states from
the requirement of refunding overpayments where they were uncollectible
due to provider bankruptcy or insolvency.  As amended, .1903(d) reads in
pertinent part as follows:

 (2)(A)  The Secretary shall then pay to the State, in such
 installments as he may determine, the amounts so estimated,
 reduced or increased to the extent of any overpayment or
 underpayment which the Secretary determines was made under this
 section to such State for any prior quarter and with respect to
 which adjustment has not already been made under this
 subsection.  .   .   .  (C)     For the purposes of this
 subsection, when an overpayment is discovered, which was made by
 a State to a person or other entity, the State shall have a
 period of 60 days in which to recover or attempt to recover such
 overpayment before adjustment is made in the Federal payment to
 such State on account of such overpayment.  Except as otherwise
 provided in subparagraph (D), the adjustment in the Federal
 payment shall be made at the end of the 60 days, whether or not
 recovery was made.  (D)     In any case where the State is
 unable to recover a debt which represents an overpayment (or any
 portion thereof) made to a person or other entity on account of
 such debt having been discharged in bankruptcy or otherwise
 being uncollectible, no adjustment shall be made in the Federal
 payment to such state on account of such overpayment (or portion
 thereof).

Factual background

In March, 1984, the State of Utah was granted a "freedom of choice"
waiver in order to establish a prepaid health plan (PHP) to provide
mental health services to certain groups of Medicaid recipients. 2/
Utah's waiver requests noted that the Medicaid Agency planned to enter
into a PHP contract with UDSS, and that the PHP would provide services
to recipients either through its own employees or through subcontracts.
State Exhibits (Exs.) I and II.  UDH and UDSS subsequently entered into
an agreement whereby UDSS would provide specified services to Medicaid
eligibles as a nonrisk PHP provider under 42 C.F.R. Parts 431 and 434.
UDSS agreed to provide the services either directly or through
subcontractors, and further agreed to pay UDH any amount determined to
be an overpayment, and to pay for any disallowances of FFP as a result
of services failing to comply with Title XIX requirements.  The
agreement was for July 1, 1985 through June 30, 1986, and was
subsequently extended by agreement through June 30, 1987.  State Ex.
III.

Under a June, 1985 contract with UDSS, TCMHC provided mental health
services to eligible Title XIX recipients.  TCMHC's contract was
effective July 1, 1985 through June 30, 1986, and was subsequently
extended through June 30, 1987.  State Ex. IV.

UDH provided TCMHC final cost settlements seeking recovery of the
federal share of overpayments for FYEs June 30, 1986 and June 30, 1987
by letters dated December 1, 1989.  State Exs. VI and VII.  Also by
letter dated December 1, 1989, UDH notified HCFA of the overpayments and
requested partial forgiveness of the debt, or a plan for extended
payback.  HCFA Ex. 3.  TCMHC filed a petition in bankruptcy on January
29, 1990, and UDH filed a proof of claim with the U.S. Bankruptcy Court
on May 15, 1990.  State Ex. VIII.

Analysis

It is undisputed here that HCFA's determination as to the overpayment
amounts is correct and that Utah is unable to recover these amounts due
to TCMHC's bankruptcy.  The question presented is whether the bankruptcy
exception in .1903(d)(2)(D) of the Act applied to relieve Utah of its
obligation to repay the federal share of the overpayments.  HCFA
asserted that the exception did not apply since TCMHC did not have a
provider agreement with the State Medicaid agency and was thus not a
"provider" for the purposes of the bankruptcy exception under either the
statute or the subsequently promulgated regulations.  HCFA argued that
under the regulation, the bankruptcy exception applies only to such
"providers," and that this limitation is consistent with the concept of
a single state agency with responsibility and authority for the program,
delivering services through entities that have entered into provider
agreements, as authorized by Title XIX of the Act.

.1903(d)(2)(D) of the Act

Before the enactment of COBRA .9512, and .1903(d)(2)(D) of the Act, the
rule that states were responsible for uncollectible overpayments made to
bankrupt providers was based on HCFA's interpretation of .1903(d) as
upheld on appeal by the Board and U.S. Courts of Appeals.  See, e.g.,
DAB No. 977; DAB No. 334; DAB No. 262; Massachusetts v. Secretary.  The
Board reasoned that states administer the Medicaid program, contract
directly with providers, and have the ability to ensure that the program
contracts only with responsible providers.  The state was the party able
to ensure timely audit and collection of identified overpayment amounts,
since it, and not HCFA, dealt directly with the providers.

In DAB No. 262, the Board concluded that since HCFA had no direct role
in the recovery of overpayments, it was not unreasonable to require the
state alone to bear the burden which might result from delays in the
collection of overpayments, notwithstanding the fact that some might
declare bankruptcy.  As the Court of Appeals noted in Massachusetts v.
Secretary,

     Since only (the state) deals directly with the providers, and since
     the state is empowered to perform on-site audits of these
     institutions, it is clearly the party best able to minimize the
     risks resulting from dealing with insolvent providers. . . .
     Placing an additional burden on the state will increase its
     incentive to take care, whereas the Secretary remains powerless to
     reduce the risks no matter what the costs imposed on her.  749 F.2d
     at 96.

The states, rather than HCFA, bore the cost of overpayments
uncollectible due to bankruptcy as they had more direct contact with
providers.  This policy was changed by the enactment of .1903(d)(2) and
the bankruptcy exception.  The legislative history of the bankruptcy
exception, cited by both parties, at S. Rep. No. 99-146, 99th Cong., 2d
Sess. 314, 315, reprinted in 1986 U.S. Code Cong. & Admin. News 281, 282
provides that:

  Current law.---State Medicaid agencies are allowed to
  pay nursing homes and hospitals at interim rates until
  final rates are established.  If the final rate is less
  than the interim rate, the institution was overpaid and
  the State is responsible for the collection of the
  "overpayment".  The State must refund the Federal share
  of the overpayment to the Federal Government.  Under
  current program administrative instructions the State
  must refund the Federal share immediately upon
  discovering the overpayment.  Further, refunds must be
  made for all overpayments even where they are not
  collectable because the providers have gone into
  bankruptcy or have gone out of business.  These
  administrative instructions have been upheld by the
  courts.  Explanation of provision.---The provision would
  allow States up to sixty days (from the date of
  discovery) to recover overpayments from providers and
  refund the Federal share.  The provision would provide
  that a State is not liable for the Federal share of
  overpayments which cannot be collected from bankrupt or
  out-of-business providers.  Effective date.---October 1,
  1985.

HCFA argued that the references to "providers" and the description of
the prior law as concerning provider bankruptcy and the payment
practices of state Medicaid agencies show that the bankruptcy exception
is limited to overpayments made by a state Medicaid agency to providers
of services under provider agreements, and should not be applied here.

As discussed below, we conclude that the legislative history neither
supports HCFA's position nor addresses the particular circumstances of
this appeal.  It fails to indicate any explicit intent by Congress to
preclude application of the bankruptcy exception to the overpayments
made by Utah to TCMHC.  The reference to "providers" is more reasonably
regarded as an explanation identifying the generic class of entity whose
bankruptcy the law was designed to include; to read more into the term
is to overburden it with undeserved meaning.

As the Board has previously observed, the legislative history of the
bankruptcy exception indicates that Congress was trying to protect
states in cases in which providers had filed for bankruptcy or gone out
of business and thereby made the debt uncollectible.  New York Dept. of
Social Services, DAB No. 1112, at 10 (1989).  The amendment represented
a decision that in such instances it was HCFA, rather than the states,
that would bear responsibility for the federal share of uncollectible
overpayments.  Since under the freedom of choice waiver and the PHP
TCMHC's position was analogous to that of an entity with which the
Medicaid agency has a provider agreement, this policy would not be
served if the State in this appeal is denied resort to the bankruptcy
exception and forced to account for the federal share of the
uncollectible overpayments.  Here, the loss to Utah, and its treasury,
is not altered by the fact that the contract between TCMHC and Utah was
with UDSS, instead of with UDH, the State Medicaid agency.

Additionally, HCFA's argument that the reference to "providers" in the
legislative history indicates an intent to exclude application of the
bankruptcy exception to this case is not consistent with HCFA's earlier
explanation in the preamble to 42 C.F.R. Part 433, at 54 Fed. Reg.
5,452, 5,453 (February 3, 1989):

       The Conference Report accompanying COBRA refers only to
       overpayments made to providers. . . . In view of this
       Congressional intent and our past practice not to consider
       overpayments due to recipient eligibility errors to be
       overpayments to providers, we have not made these regulations
       applicable to eligibility-related overpayments.

HCFA noted that the federal share of overpayments involving recipients
must be refunded immediately following discovery pursuant to
.1903(d)(2), or, if during a period when Medicaid Quality Control (MQC)
systems were in effect, on the basis of MQC penalties.  54 Fed. Reg.
5,453, 5,454.  HCFA's explanation in the preamble suggests that the use
of the term "providers" in the legislative history was meant to
distinguish overpayments to providers from those due to recipient
eligibility errors, to which the amendment did not apply; nothing
indicates an intent to limit application of the bankruptcy exception
under the circumstances here.

We conclude that application of the bankruptcy exception here is fully
consistent with .1903(d)(2)(D) of the Act, which by its terms applies to
overpayments made by a state to a person or other entity.  Utah should
not be deprived of its ability to utilize the bankruptcy exception
because UDH was not a signatory to the agreement, as the potential loss
to Utah resulting from TCMHC's bankruptcy appears to be specifically the
kind of harm that the COBRA amendment was designed to cure.

Other provisions of the Act

HCFA asserted that the Act generally uses "state" and "state agency"
interchangeably, and requires states to designate a single state agency.
Thus, in the absence of any different intent, the general reference to
states in the bankruptcy exception should be interpreted as referring to
that particular state's Medicaid agency.  HCFA asserted that UDH was the
State Medicaid agency, and that its provider agreement was with UDSS,
which is not bankrupt.  UDH's actions in entering into the agreement
with UDSS, HCFA argued, were consistent with the Act's requirements of
single state agencies which enter into provider agreements.

However, as noted above, there is nothing in the legislative history of
the bankruptcy exception which would indicate any intent to exclude its
application to Utah's overpayments to TCMHC, the provider of Medicaid
services, simply because TCMHC was the second tier contractor under an
agreement with Utah's State Medicaid agency.  As Utah noted, the Act
does not define state as state Medicaid agency such that Utah's payments
to TCMHC for Medicaid services would fall outside the realm of
overpayments subject to the relief afforded states by .1903(d)(2)(D) of
the Act.  Additionally, this Board has held that a state as a whole must
be viewed as a single unit responsible for the administration of grant
funds.  Louisiana Dept. of Health and Hospitals, DAB No. 1176, at 10
(1990).  This is apparent from the use of the word "State" in
.1903(a)(1) of the Act, and from the definition of "grantee" at 45
C.F.R. .74.3.  That TCMHC's agreement with the State was with UDSS, and
not UDH, does not alter its status as an entity which provided services
in accordance with the Act and to which overpayments were made.

HCFA also cited sections 1902(a)(5) and 1902(a)(27) of the Act, as well
as Federal court decisions recognizing the state Medicaid
agency-provider relationship, which it contended recognize a statutory
requirement for Medicaid provider agreements.  See WJM, Inc. v.
Massachusetts Dept. of Public Welfare, 840 F.2d 996, 999 (1st Cir.
1988); Danvers Pathology Associates v. Atkins, 757 F.2d 427, 428 (1st
Cir. 1985).  It cited other decisions as recognizing the requirement of
a single state agency responsible for administering the Medicaid
program.  See West Virginia University Hospitals, Inc. v. Casey, 885
F.2d 11 (3d Cir. 1989); Planned Parenthood of Utah v. Dandoy, 810 F.2d
984 (10th Cir. 1987).  However, these decisions mention the requirement
of provider agreements and single state agencies only as part of
introductory recitations of Medicaid law, and do not address whether
Utah is precluded from treating TCMHC as a provider simply because its
agreement to provide services was with UDSS and not UDH.  Although
Danvers refers to 42 U.S.C. .1396a(a)(27) (.1902(a)(27) of the Act) as
requiring that a person or entity providing services enter into a
"provider agreement" with the state, that section (and its implementing
regulations at 42 C.F.R. .431.107) requires only that each person or
entity providing services agree to make certain information available to
the state.  The legislative history of .1902(a)(27) indicates that its
focus was assuring that the state had access to records of suppliers of
Medicaid services to assure that payments under the plan are proper;
this provision was added to cure HHS's predecessor's apparent lack of
authority to review records of suppliers, even when strong indications
of fraud were present.  S. Rep. No. 744, 90th Cong., 1st. Sess.,
reprinted in 1967 U.S. Cong. Code & Admin. News 2834, 3025, 3140.  Here,
the agreement between UDSS and TCMHC provided state and federal auditors
access to its records, and provided state and federal reviewers access
to client records as necessary to assure compliance with state and
federal requirements.  State Ex. IV-A.  Thus, those agreements fulfilled
the requirement of .1902(a)(27) of the Act that entities providing
Medicaid services have agreements containing these provisions.  The
sections of the Act cited by HCFA do not support its position that
.1903(d)(2)(D) does not apply to Utah's uncollectible overpayments to
TCMHC.

The overpayment regulation

The COBRA overpayment provisions, including the bankruptcy exception,
are implemented at 42 C.F.R. .433.300 et. seq.  54 Fed. Reg. 5,460
(1989), effective April 4, 1989.  In relevant portion, the regulation
provides that a state Medicaid agency is not required to refund the
federal share of an overpayment made to a provider when the state is
unable to recover the overpayment amount because of the provider's
bankruptcy.  The regulation applies to overpayments that occur and are
discovered in any quarter that begins on or after October 1, 1985.  42
C.F.R. .433.312(b), (c).  "Overpayment" is defined as excessive amounts
"paid by a Medicaid agency to a provider," and "provider" as "(in
accordance with     .400.203), any individual or entity furnishing
Medicaid services under a provider agreement with the Medicaid agency."
42 C.F.R. .433.304.

42 C.F.R. .400.203, "Definitions specific to Medicaid," states that --

       As used in connection with the Medicaid program, unless the
       context indicates otherwise-- Medicaid agency or agency means the
       single State agency administering or supervising the
       administration of a State Medicaid plan.  Provider means any
       individual or entity furnishing Medicaid services under a
       provider agreement with the Medicaid agency.

HCFA argued that under the regulations, (1) UDH was the state Medicaid
agency, not UDSS; (2) UDSS, and not TCMHC, was the signatory to the
Medicaid provider agreement and the Medicaid provider of services, and
UDSS is not bankrupt; and, (3) UDH did not enter into a Medicaid
provider agreement with TCMHC nor does it have any legal relationship
with TCMHC that is recognized under the statute and the regulations.

To construe the regulations as excluding TCMHC from the reach of the
bankruptcy exception ignores the regulatory language "unless the context
indicates otherwise."  Here the "context" reasonably requires that HCFA
recognize the provider status of an organization providing services
under the terms of a freedom of choice waiver.  HCFA pointed to no
requirement under the waiver that UDH structure the relationships with
UDSS or TCMHC differently.  Furthermore, HCFA did not argue that the
overall purposes and objectives for using the provider agreement
mechanism to establish a state Medicaid agency's relationships with
providers were not adequately served by the agreements actually used
here.

TCMHC was effectively acting as a Medicaid provider under the particular
circumstances of the PHP, where Utah had to deal with various county
entities to furnish the specified Medicaid services.  HCFA was further
aware through the State's waiver requests of the unique arrangement by
which UDH was obtaining services for beneficiaries through the PHP.
Utah provided evidence that HCFA acted in accord with the understanding
that the subcontractors under the PHP, like TCMHC, were Medicaid
providers, and not UDSS.  It noted that HCFA's FY 1986 Critical Medicaid
Issues Program (CMIP) review of the PHP established pursuant to the
waiver repeatedly referred to the subcontractors as providers, and
specifically described UDSS as a state agency, rather than as a provider
of medical services.  The CMIP review found that UDSS had claimed its
total costs for the PHP, including administrative costs, as medical
assistance payments, and that "(s)ince DSS is another State Agency
rather than a provider of medical services," the administrative costs
would have been claimed at a lower rate had the services been provided
on a fee-for-service basis rather than through the PHP. 3/  State Ex. B,
p. 5.

Furthermore, the agreement between UDSS and TCMHC had the
characteristics of a provider agreement.  It referenced various
provisions of Title XIX of the Act, the Medicaid regulations, and the
Utah State Medicaid Plan, and stated that the UDH Division of Health
Care Financing was charged with interpreting Medicaid regulations to
adjust the payments.  State Ex. IV-A, Att. G.  Additionally, final cost
settlements were provided to TCMHC by UDH, the State Medicaid Agency,
and the agreement provided that TCMHC could request a hearing from UDH.
State Ex. VI, VII.  The proof of bankruptcy lists UDH as TCMHC's
creditor.  State Ex. VIII.

The agreement between UDSS and TCMHC was substantively similar to the
one between UDSS and UDH, which HCFA would characterize as a provider
agreement.  It appears to be UDH's absence as a signatory to the
agreement between TCMHC and UDSS for the period in question that led
HCFA to bar application of the bankruptcy exception.  We believe that
this position promotes form over substance and ignores TCMHC's status in
fact as a provider of Medicaid services under the Act and under the
regulations when read in the context of the unique, but HCFA-approved
method for providing the specified mental health services pursuant to
Utah's PHP.  We conclude that under the circumstances of this PHP which
resulted in TCMHC's agreement with Utah to furnish services, it is
reasonable to read the statutory language and the regulations to include
TCMHC as a provider. 4/

We also note that Utah asserted that it changed its contracts at renewal
in 1987 to include a direct contractual relationship between the PHP
providers and UDH, after receiving an October, 1986 State Medicaid
Manual issuance defining "overpayment" as an excessive amount which is
paid by a state Medicaid agency to a provider.  State brief, pp. 22-23.
At the time that it received the issuance, however, there were
agreements in effect consistent with Utah's freedom of choice waiver
under which UDSS could provide services through subcontract.  Utah was
entitled to some reasonable notice that its method for providing
services under the approved PHP might deprive it of its ability to use
the bankruptcy exception as implemented by HCFA.  The Board has
previously held that we cannot hold a state accountable for an agency
policy interpretation that is not compelled by the plain meaning of a
statutory or regulatory provision unless the state has received actual
notice.  Maine Medicaid Fraud Control Unit, DAB No. 1182, at 12 (1990).

Other provisions of the regulations

HCFA cited other provisions of the Medicaid regulations, at 42 C.F.R.
Parts 431 and 447, which impose specific requirements on relations
between Medicaid providers and state Medicaid agencies 5/.  HCFA also
referred to the regulatory definition of PHP as an entity providing
services under contract with the state Medicaid agency.  42 C.F.R.
.434.2.  HCFA maintained, in effect, that TCMHC may not be treated as a
provider for purposes of overpayments while avoiding the legal
requirements imposed by other provisions of the regulations.  However,
HCFA did not allege any failure by Utah to observe the specified
regulatory requirements.  Similarly, we do not believe that any of the
cited provisions bear directly on the question of whether Utah may seek
the benefit of .1903(d)(2)(D) of the Act.

HCFA also noted that the agreement between UDSS and UDH expressly made
UDSS the provider and imposed a duty on it to refund any overpayments,
and that UDSS is not bankrupt.  However, we do not believe that this
language in the agreement is dispositive on the question of UDH's
ability to avail itself of .1903(d)(2)(D) of the Act, or on its ability
to challenge the disallowance.  This language affects only the financial
responsibility between two state agencies in the event a disallowance
becomes final.  Although similar language might be found in Medicaid
provider agreements, it should not be construed to limit a state's
ability to present arguments on its behalf or to avail itself of the
bankruptcy exception or any other provision to which it might be
entitled under the law and regulations.  The language does not address
the questions of whether TCMHC is a Medicaid provider, and whether Utah
is entitled to claim relief from reimbursement of the federal share of
the overpayment.

We thus conclude, under the specific and limited circumstances of this
appeal, that TCMHC was providing Medicaid services and received
overpayments from Utah for the purposes of .1903(d)(2)(D) of the Act,
and that Utah is entitled to relief from having to reimburse HCFA for
the federal share of the overpayments which are uncollectible due to the
bankruptcy of TCMHC.

We note, however, that pursuant to 42 C.F.R. .433.320(e), Utah must
refund to HCFA the federal share of any overpayments to TCMHC which it
may recover through discharge of bankruptcy.  Materials that Utah
submitted in response to the Board's order to develop the record
indicate that as of October 24, 1991, Utah had received a total of
$744,100.76 from TCMHC pursuant to an order of the bankruptcy court
confirming TCMHC's plan of reorganization.  Utah reported that
$144,748.08 was intended to reimburse it for overpayments made to TCMHC
prior to the bankruptcy exception, for which the federal share has
already been refunded to HCFA.  We leave it to HCFA to determine how
much of the funds recovered, and of any funds that remain to be
recovered, represents the federal share which must be refunded to HCFA.
If Utah disagrees with HCFA's determination, it may return to the Board
for review of this limited issue.

Conclusion

We reverse the disallowance in full, subject to Utah's obligation to
refund the federal share of overpayments which it recovers through
discharge of bankruptcy.  If Utah disputes HCFA's determination of the
amount of recovered overpayments that must be refunded, it may return to
the Board for review of this issue within 30 days of receipt of HCFA's
written determination.

 


       Donald F. Garrett

 

       Norval D. (John) Settle

 


       Cecilia Sparks Ford Presiding Board Member


1.  Utah appealed only $1,610,445 of the disallowance, and did not
challenge that portion of the disallowance consisting of overpayments
made prior to the enactment of the Social Security Act provision at
issue here.

2.  Section 1902(a)(23) of the Act requires state Medicaid plans to
provide that eligible individuals may obtain services from anyone
qualified to perform the services.  Section 1915(b)(4) of the Act
authorizes the Secretary to waive this requirement and permit a state to
restrict the providers from whom Medicaid recipients may obtain
services, to the extent that such a waiver is cost-effective, efficient,
and not inconsistent with the purposes of Title XIX.

3.  Our conclusion that Utah is entitled to the relief afforded by the
bankruptcy exception is not based on any notion of estoppel arising from
HCFA's CMIP review.  Rather, the CMIP review is an additional element of
evidence supporting our determination that TCMHC was acting as a
Medicaid provider.

4.  As we conclude that TCMHC may be considered a provider under the
language and intent of the statute and within the context of the
regulation such that Utah may claim the bankruptcy exception, we need
not consider Utah's assertion that the overpayment regulations are
invalid to the extent they would operate to support this disallowance.

5.  These regulations include 42 C.F.R. .431.54, which states in part
that providers must be afforded due process rights prior to restriction
by the state Medicaid agency; 42 C.F.R. .431.107, requiring plans to
provide for an agreement with the provider to make records and
information available; 42 C.F.R. .447.15, which requires state plans to
provide that the state Medicaid agency limit participation to providers
who accept state payments as payments in full; 42 C.F.R. .447.31,
permitting state Medicaid agencies to request that HCFA withhold
Medicare payments to providers to recover Medicaid overpayments; and 42
C.F.R. .447.45, providing deadlines for submission of claims by