Arkansas Department of Human Services, DAB No. 1328 (1992)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Arkansas Department of   Human Services

DATE:  April 23, 1992
Docket No. A-92-32
Decision No. 1328

DECISION

The Arkansas Department of Human Services (State) appealed a
disallowance by the Health Care Financing Administration (HCFA) of
$4,116,973 in federal financial participation (FFP) claimed by the State
under title XIX of the Social Security Act (Medicaid).  The disallowance
was based on alleged overpayments made by the State to Arkansas
Children's Hospital (ACH) for services provided during the State fiscal
year ending June 30, 1988.  The payments were based on a State plan
amendment that was initially proposed by the State on November 17, 1987,
amended on March 7, 1988, and approved by HCFA on April 20, 1988.

For the reasons stated below, we uphold the disallowance for the period
July 1, 1987 through December 31, 1987 and reverse the disallowance for
the period January 1, 1988 through June 30, 1988.  We find that with the
amendment submitted March 7, 1988, the State intended to reimburse ACH
using a cost-based reimbursement system for all Medicaid services
provided during State fiscal year 1988 (SFY 88).  However, the State's
intended interpretation cannot control here since it is inconsistent
with regulations limiting effective dates of state plan amendments.
Under those regulations, the State's change in reimbursement method
could not become effective prior to January 1, 1988.  On the other hand,
we find no merit to HCFA's argument that the amended payment method
applied only to services rendered on or after June 30, 1988; this
argument fails to recognize (and give the greatest permissible effect
to) the language of the State plan amendment.  HCFA approved that
amendment and is required by statute to give states maximum flexibility
in determining hospital reimbursement methods consistent with applicable
requirements.  Accordingly, we remand the case to HCFA for recalculation
of the disallowance in accordance with this opinion..BACKGROUND

Title XIX of the Social Security Act, commonly known as Medicaid, is a
federal-state cost sharing program designed to assist states in
providing medical care to certain low-income and medically-needy
persons.  Under Medicaid, each state receives FFP in expenditures for
medical services provided to eligible recipients, made in accordance
with an approved state plan.  As part of its state plan, each state must
specify comprehensively the methods and standards used by the state
Medicaid agency to set payment rates for providers of Medicaid services.
42 C.F.R. . 447.252(b).  FFP is available for payments the state makes
in accordance with an approved plan.  42 C.F.R. . 447.253(g).

Prior to the Omnibus Budget Reconciliation Acts of 1980 and 1981 (Public
Laws 96-499 and 97-35), states could reimburse providers of inpatient
hospital services on a "reasonable cost" basis.  States would develop
plans containing payment methods which complied with applicable
regulations.  HCFA would then review and approve or disapprove the
state's payment methods as contained in the plans.

Under current law, each state still develops a state plan which is
consistent with applicable laws and regulations and submits it to HCFA
for approval.  However, as a result of the 1980 and 1981 enactments, the
plan must provide for reimbursement of hospital services, as well as
certain other services not applicable here, at rates which the state
assures:

 are reasonable and adequate to meet the costs which must be
 incurred by efficiently and economically operated facilities in
 order to provide care and services in conformity with applicable
 State and Federal laws, regulations, and quality and safety
 standards . . . .

Social Security Act, section 1902(a)(13)(A). 1/  Once the state provides
these and other required assurances to HCFA, HCFA must approve the state
plan regardless of the state's chosen method of reimbursement.

At the beginning of each quarter, a state estimates the amount of FFP to
which it will be entitled for expenditures incurred under the state plan
during that quarter.  HCFA then pays the state quarterly payments based
on these estimates, adjusted by any overpayments or underpayments made
in prior quarters.  See generally section 1903(d), Social Security Act.

Beginning at least as early as July 1, 1985, the State had in effect an
approved state plan which provided for reimbursement of all inpatient
hospital services according to a prospective payment system.  See HCFA
Ex. 1, at 1.  A prospective payment system is a payment method designed
to provide reimbursement to providers at a flat rate which may be
adjusted by certain factors, such as a patient's age and diagnosis, but
is not subject to adjustment based on the actual cost of providing the
services.  On November 17, 1987, the State submitted a transmittal and a
state plan amendment which contained, in part, a new retrospective,
cost-based reimbursement system for pediatric hospitals. 2/  See
Arkansas Reply Ex. 1.  A retrospective cost-based reimbursement system
differs from a prospective payment system in that a provider submits an
itemized report of the actual costs incurred in treating each patient,
and all reasonable costs are reimbursed through adjustments to an
"interim" rate paid on the basis of a prior year's costs.

The November 17, 1987 submittal to HCFA did not contain certain
assurances required by applicable regulations. 3/  On March 7, 1988 and
in response to a January 14, 1988 letter from HCFA, the State provided
the required assurances necessary to make the plan amendment approvable,
including an assurance that the public had been given notice of the
proposed change. 4/  The March 7 cover letter stated that "[t]he State
has changed the effective date to June 30, 1988 . . . ."  Arkansas Ex.
E, at 3.  The revised amendment itself, however, stated:

 Pediatric hospitals are reimbursed based on interim per diem
 rates with year end cost settlement for cost reporting periods
 ending on or after June 30, 1988.

Arkansas Ex. A (emphasis added).  On April 20, 1988, HCFA sent the State
a letter stating that the plan amendment had been "approved for
incorporation into the official Arkansas State Plan effective June 30,
1988."  HCFA Ex. 2.

On October 27, 1988, the State issued notice of the new reimbursement
methodology for pediatric hospitals along with the procedures for
applying for pediatric specialty status.  On that same day, ACH filed a
revised cost report for the annual cost reporting period ending June 30,
1988 using the cost-based reimbursement system.  HCFA Ex. 3, at 5.  On
December 5, 1988, ACH submitted an application to be classified as a
pediatric hospital for reimbursement purposes, which the State granted
retroactive to the beginning of SFY 88 (i.e. to July 1, 1987).  Id.

On December 12, 1988, the State sent ACH an initial cost settlement for
SFY 88 under the cost-based reimbursement system.  Arkansas Ex. B.  In
May 1989, the State began paying ACH for future quarters at an interim
rate calculated under the amended cost-based reimbursement methodology
rather than under the prospective payment system.  HCFA Ex. 3, at 5.  On
June 21, 1989 and July 20, 1990, the State sent ACH additional cost
settlements for SFY 88.  Arkansas Exs. C-D.  These three settlements
were made by the State under the cost-based reimbursement methodology
for pediatric hospitals as contained in the March 7, 1988 plan
amendment.

In December 1990, HCFA issued a "Review of the Reimbursement Process for
Pediatric Hospitals in Arkansas -- Report of the Focused Spectrum Review
for the Period July 1, 1987 - June 30, 1988."  HCFA Ex. 3 (SFY 88 Audit
Report).  HCFA found that, for SFY 88, ACH had received from the State a
total of $5,690,155 above the payments calculated using the prospective
payment system rate.  Stating that ACH should not have been reimbursed
according to the cost-based reimbursement system for services rendered
prior to June 30, 1988, HCFA finally disallowed $4,116,973. 5/


ANALYSIS

This dispute revolves around one simple question:  which of two approved
state Medicaid plans controls reimbursement for ACH for SFY 88.  The
answer is either the plan containing the prospective payment system for
all inpatient hospital services, which was in effect at the beginning of
SFY 88 (the plan); the plan amendment containing the cost-based
reimbursement system for pediatric hospitals which was approved during
SFY 88 (the amendment); or both.

The State asserted that since the amendment was to apply to "cost
reporting periods ending on or after June 30, 1988" and ACH had an
annual cost reporting period ending on June 30, 1988, the new payment
system should apply to ACH for all of SFY 88.  The State therefore
asserted that it followed its applicable state plan language in applying
the new cost-based reimbursement system to ACH for SFY 88.


I.      The Board's Analysis of the State Plan

A state's interpretation of its plan methodology for provider
reimbursement is given great weight by the Board if it is reasonably
supported by the language of the plan.  Virginia Dept. of Medical
Assistance Services, DAB No. 1207 at 4 (1990).  This is due to the fact
that the Boren Amendment was enacted specifically to give states more
control over the method of funding of Medicaid services provided by
hospitals and other facilities within their boundaries.  See 46 Fed.
Reg. 47946 (September 30, 1981).  However, a state's interpretation of
its plan advanced in a disallowance dispute is not always controlling.

In considering whether a state has interpreted its plan language
reasonably and has then followed its plan in accordance with that
interpretation, the Board first examines the plan language for
ambiguities.  South Dakota Dept. of Social Services, DAB No. 934 (1988);
Virginia Dept. of Medical Assistance Services at 4.  If the plan
language is unambiguous, then the plain language of the plan controls.
If the language contains ambiguities, the Board will consider whether
the state's asserted interpretation is reasonable.  It is reasonable if
it gives effect to the plan as a whole and to the intent and purpose of
the provision at issue.  In order to determine the state's intent for
the provision, absent clear documentary evidence, the Board will
consider whether the state's concurrent administrative practices were
consistent with its proposed interpretation.  A state's interpretation
will not be considered reasonable, however, if it conflicts with
applicable statutory or regulatory requirements.  Id.


II.     Ambiguities in the State Plan

As stated above, we first look to see if there are ambiguities in the
plan's language.  If there are no ambiguities, then we apply the clear
language of the plan regardless of the interpretation urged by the
state.  A sentence in the plan amendment itself states that it is
effective "for cost reporting periods ending on or after June 30, 1988."
This provision, by itself, does not appear ambiguous:  since ACH had an
annual cost reporting period for SFY 88 beginning on July 1, 1987 and
ending on June 30, 1988, it seems from the face of the amendment that
ACH was to receive reimbursement under the amended plan for the entire
one-year period.  However, this is not the only language which must be
considered.

The original submittal to HCFA on November 17, 1987 did not contain this
effective date provision.  The language was included later when the
State submitted the revised plan amendment on March 7, 1988.  The cover
letter from the State accompanying the amendment stated that "[t]he
State has changed the effective date to June 30, 1988 . . . ."  The
April 20, 1988 approval letter from HCFA stated that "[t]he amendment
has been approved for incorporation into the official Arkansas State
Plan effective June 30, 1988."  Neither the March 7 cover letter nor the
April 20 approval letter restated or referred to the language in the
amendment regarding cost reporting periods.

The State is required to comprehensively specify its reimbursement
methodology in an approvable state plan.  42 C.F.R. . 447.252(b).  Yet,
at the same time, HCFA shares responsibility for the apparent ambiguity
when these documents are read together.  HCFA should have been more
explicit in its approval letter or should have asked the State to revise
the language of the amendment to conform to the cover letter and
approval letter.  Since HCFA's approval took place on April 20, 1988,
there was adequate time to accomplish this revision.

We find that the plan amendment documents as a whole are ambiguous
concerning what, if any, effect the change in reimbursement methods
should have on payments for services provided during SFY 88.  The March
7 cover letter from the State did not parallel the amendment language.
HCFA's approval letter likewise does not refer to any cost reporting
period, nor does it clearly state what is the effective date of the plan
amendment.  Because of this ambiguity, we have to consider whether the
State's proposed interpretation of the plan amendment gives reasonable
effect to the plan as a whole and to its purpose and intent, and whether
it is consistent with applicable laws and regulations.


III.     The Plan as a Whole and the Provision's Intent

As discussed below, the State's evidence on its administrative practice
shows that the State intended to reimburse pediatric hospitals at the
amended reimbursement level for the entire period encompassed in SFY 88.
HCFA argued that it intended to provide FFP in State payments at the
amended level only for services rendered on or after June 30, 1988, the
last day of SFY 88.  We find that the State's proposed interpretation of
the amendment is much more plausible generally than HCFA's proposed
interpretation and gives reasonable effect to the plan as a whole.

The State would apply the new payment methodology to all services
rendered during SFY 88, which constitutes a single cost reporting
period.  HCFA, on the other hand, would apply the new payment
methodology to services rendered only on June 30, 1988 and would apply
the former payment methodology to services rendered on all other days
during SFY 88.  See HCFA Br. at 4.  It is unlikely that HCFA would have
intended for the State to undergo the accounting ordeal that would be
necessary in order to reimburse providers at a new rate for services
rendered on a single day.  It is much more likely that HCFA would have
intended for the State to start its new payment methodology with the new
cost-reporting period beginning on July 1, 1988.  Yet, if this was
HCFA's intention, HCFA could have easily requested that the State amend
its plan language to be effective for cost reporting periods ending
after June 30, 1988, rather than on or after June 30, 1988.  Likewise,
it could have stated in the approval letter that the new reimbursement
system was effective "for services rendered on or after July 1, 1988" or
"after June 30, 1988."  We find that the State's interpretation of the
plan provision gives effect to the plan as a whole and to the common
sense feasibility of beginning the new payment system with a new
cost-reporting period and on the first day of a quarter.  We find that
the State intended for the effective date to be July 1, 1987, the first
day of SFY 88.


IV.     Administrative Practices

The State's interpretation must not only be reasonable in theory; it
should be verified by practice.  Otherwise, a state could argue that a
provision had a particular meaning, which it was never intended to have,
in order to avoid an impending disallowance when a draft HCFA audit
review was issued.  In order to discern whether the State intended to
apply the interpretation of its amendment advanced here, we look at
whether the State's concurrent administrative practices were consistent
with its asserted interpretation of the amendment.

The SFY 88 Audit Report indicates that the State issued notice of the
new cost reimbursement methodology for pediatric hospitals on October
27, 1988.  On this same date, ACH revised its cost report for SFY 88 to
conform to the amended payment system.  On December 5, 1988 ACH filed
for pediatric hospital status for reimbursement purposes, which the
State granted retroactive to all of SFY 88.  In May, 1989, the State
revised the system of payments to ACH for future periods to reflect the
amended payment methodology.  We note that all of these actions which
the State and ACH took to conform to the new cost-based reimbursement
method of payment occurred prior to the time the SFY 88 Audit Report was
issued by HCFA in December, 1990.  Therefore, there is no reason to
believe that the State argued for a different interpretation of the
amendment, as a result of the SFY 88 Audit Report, than it intended for
it to have when it was submitted and approved.

We also note that neither ACH nor any other facility was classified as a
pediatric hospital until after the close of SFY 88.  Therefore, the
State acted reasonably and consistently with its asserted interpretation
of the plan amendment in making payments according to the prospective
payment system to ACH during that year.  The State could have reasonably
expected that it would retroactively adjust payments to pediatric
hospitals once one or more facilities were reclassified as pediatric
hospitals.  While we do not fully understand why ACH did not request a
reclassification until four months after the close of SFY 88 and why the
State did not adjust its payment system for future payments until May,
1989, HCFA did not challenge these actions.  Therefore, we find that the
State's concurrent administrative actions were consistent with its
asserted interpretation of its amendment.

We find that the State intended the March 7 amendment to apply to the
entire annual period encompassed in SFY 88.  Therefore, if the only
consideration were the State's intended interpretation of its amendment,
we would apply it beginning July 1, 1987.  However, this is not the sole
consideration.


V.      Program Requirements and Applicable Regulations

A state plan or plan amendment must comply with applicable statutes and
regulations.  Title XIX limitations and procedures for FFP in payments
for services are implemented by 42 C.F.R. Part 447.  During the time
period at issue in this disallowance, the general administrative
requirements applicable to Department of Health and Human Services
(DHHS) grants to states for other public assistance programs (45 C.F.R.
Parts 201 and 205) also applied to Medicaid state plans.

Part 447 provides that a state Medicaid plan amendment, which is
subsequently approved, becomes effective not earlier than the first day
of the calendar quarter in which an approvable amendment is submitted.
42 C.F.R. . 447.256(c).  The amendment must be submitted in accordance
with 45 C.F.R. .. 201.3(g) 6/ and 447.253.  Id.  Section 447.253
requires that the plan amendment be accompanied by certain enumerated
assurances from the state before it is considered approvable. 7/  In the
case of this particular plan amendment, those assurances were not
submitted until March 7, 1988, even though the original draft of the
plan amendment was submitted on November 17, 1987.  Therefore the state
plan amendment did not become an approvable amendment until March 7,
1988 for purposes of section 447.256(c).  For this reason, the amendment
could not take effect under this provision earlier than January 1, 1988,
the first day of the calendar quarter in which an approvable amendment
was submitted.

The preamble to the Part 447 regulations, as published in the Federal
Register, gave insight into the intent of the effective date provision.
The regulations as originally published on September 30, 1981 state that
section 447.256(c) is "a limitation on the retroactivity of rates" and
that it is "necessary to conform the revised regulations to the current
regulations on the effective date of new plans and plan amendments"
found in 45 C.F.R. . 201.3(g).  46 Fed. Reg. 47967 (September 30, 1981).
It is important to note that, from the language of the preamble, it is
clear that section 447.256(c) was intended to be a limitation on the
retroactivity of rates, not on the timing of payments.  Therefore, the
State's argument that HCFA intended that the State reimburse ACH for the
entire annual cost reporting period at the amended rate for pediatric
hospitals, as long as it did not make payments prior to the effective
date of June 30, 1988, is simply not plausible. 8/

The preamble also stated that section 447.256(c) was intended to extend
to all new plan amendments the requirements of 45 C.F.R. . 201.3(g).
Section 201.3(g) provides that new plans and certain plan amendments,
that is, those which add additional categories of services or
recipients, shall become effective not earlier than the first day of the
quarter in which the plan amendment is submitted.  Section 201.3(g) has
been interpreted to prevent exactly the kind of retroactive application
of rates that the State is attempting to impose in this case.  See New
Jersey Department of Human Services, DAB No. 115 (1980), aff'd, New
Jersey v. Dept. of Health and Human Services, 670 F.2d 1284 (3rd Cir.
1981). 9/

In addition to the restrictions found in Part 447 relating to the
effective date of state plan amendments, Part 205 limits federal
financial participation to the first day of the quarter in which either
the state plan amendment was submitted or became effective, whichever
was later.  45 C.F.R. . 205.5(b).  As we discussed earlier, the State's
intended effective date of the plan amendment in question, as applied to
ACH, was July 1, 1987.  However, because of the regulations in Parts 447
and 201 restricting the effective date to the first day of the quarter
in which an approvable amendment was submitted, we find that the actual
effective date could not have been earlier than January 1, 1988 since
the approvable amendment was submitted March 7, 1988.  Since section
205.5(b) allows FFP beginning with the later of the quarter of the plan
amendment's submission or of the effective date, we find that an actual
effective date for receiving FFP of January 1, 1988 is also consistent
with section 205.5(b). 10/

Finally, we note that the FY 1988 Continuing Appropriations statute,
cited by both parties, contains a provision that payment under Medicaid
may be made for any quarter between June 1, 1987 and September 30, 1988
"with respect to any State plan or plan amendment in effect during such
quarter, if submitted in, or prior to such quarter and approved in that
or any such subsequent quarter."  HCFA Ex. 6; Public Law No. 100-202,
101 Stat. 1329, at 269.  We have not been able to locate any discussion
in the House, Senate or Conference Committee reports which would
indicate the particular reasoning behind the provision.  However, we do
not find any merit to the State's argument that this provision limits
only when, not what, can be paid.  Arkansas Reply Br. at 3.  From the
face of the language, it appears that the provision was intended to
enact into law for FY 88 a limit on the retroactivity of rates similar
to that encompassed by Parts 447, 201, and 205 of the regulations.

We likewise find no merit to the State's argument that the four
paragraphs of the HCFA Medicaid grants section of the FY 88 Continuing
Appropriations statute, when read together, would allow for the
application of a retroactive rate under the facts of this case.  HCFA
Ex. 6; Public Law No. 100-202, 101 Stat. 1329, at 268-269.  This section
provides for the appropriation of such sums as may be necessary for
unanticipated costs incurred by HCFA during the fiscal year.  These
unanticipated costs refer to costs which the federal government is
obligated to pay.  There is no obligation for HCFA to pay expenses which
are not covered by the state plan in effect for the time period in which
coverage is sought.  Therefore, this provision does not place any
statutory responsibility on HCFA to cover, at an amended rate, costs
incurred in quarters during which the state plan amendment containing
the new rate, due to restrictions in the regulations, could not have
been in effect.

Furthermore, we note that it was not necessary for the State to pay ACH
for hospital services at a rate in excess of what the hospital could
reasonably expect at the time of providing the services.  General grant
principles limit costs to those "necessary" to the grant programs.  OMB
Circular A-87, made applicable to Medicaid grants by 45 C.F.R. . 74.171.

In summary, we find that the amended plan language, to the extent that
the State intended to implement it for services provided between July 1,
1987 and December 31, 1987, would violate applicable regulations
restricting the effective dates of state plan amendments.  Therefore we
decline to give effect to the amended state plan for this period.  We
find that the amended plan language can be given effect consistent with
applicable regulations beginning January 1, 1988 through June 30, 1988.
We hold that FFP was available to the State in payments to ACH for
services provided during this period based on rates set in accordance
with the plan amendment.


VI.     Other Arguments and Issues

Both parties cite Heckler v. Community Health Services, 467 U.S. 51
(1984), on the issue of whether the government should be equitably
estopped from denying payment under the amended plan language on the
basis that the language, which can be interpreted to violate federal
regulations, was approved by an agent of HCFA.  We do not agree with the
State that the core issue of Heckler is whether the action or remedy
involved is legal or equitable.  What is important are the general
principles which can be gleaned from Heckler.

Heckler stands for the proposition that those who deal with the
government must know the applicable laws and regulations and may not
rely on the conduct of government agents where it is contrary to law.
Heckler specifically states that those who deal with Medicare have an
affirmative duty to familiarize themselves with cost reimbursement
principles and requirements of the program.  We see no reason why this
would not also apply to those who deal with Medicaid.  Id.  We find that
the State had a duty to familiarize itself with federal Medicaid
requirements and to comply with those requirements.

Both parties also discuss Levine v. New York State Dept. of Social
Services, 434 N.Y.S.2d 572 (1980), on the issue of effective dates as
limited by regulations.  We agree with HCFA that Levine has absolutely
no bearing on this case.  Levine addressed a situation where a
regulation was drafted in such a way that its effective date attempted
to override an earlier effective date specified in the provision's
enacting legislation.  Here, there are no regulations which conflict
with laws providing for earlier effective dates.  To the contrary, the
regulations of Parts 447, 201 and 205 are consistent with the
limitations contained in the FY 88 Continuing Appropriations statute.

Furthermore, it is not inherently inequitable that the State be denied
the higher payments provided for in the amended plan for the first half
of SFY 88.  The State chose the prospective payment system and made
assurances at the time that system was originally included in the state
plan that such payment system was reasonable and adequate under section
1902(a)(13)(A) to meet the costs which must be incurred by efficiently
and economically operated providers to provide the services required by
Medicaid.  Having chosen that system, the State was bound by it until
the time at which it submitted an approvable plan amendment.
Furthermore, part of the delay was caused by the State's failure to
provide the required assurances when it submitted the original version
of the plan amendment on November 17, 1987.

Finally, there is no merit to the State's argument that the Board does
not have jurisdiction over this matter because it should be a proceeding
under 42 C.F.R. . 430.60.  Section 430.60 implements section 1904 of the
Social Security Act, which provides for alternative adjudicative
proceedings for any state which the Secretary finds has failed to comply
substantially with its state plan.

While the lines between noncompliance actions and disallowance actions
are not always clear, there are certain characteristics which have been
found to distinguish them.  Noncompliance actions provide prospective
remedies and are designed to provide incentives to states to return to
compliance with their plans and federal requirements.  The remedies may
bear no relationship to the actual costs of the acts of noncompliance
which are at issue.  On the other hand, disallowance actions involve
retrospective remedies for limited and specifically-focused amounts of
money.  See, e.g., Massachusetts Dept. of Public Welfare, DAB No. 262,
at 20-21 (1982), rev'd on other grounds sub nom Massachusetts v.
Heckler, 576 F. Supp. 1565 (D. Mass.), rev'd sub nom Massachusetts v.
Secretary of Health and Human Services, 749 F.2d 89 (1st Cir.), cert.
den. 105 S.Ct. 3478 (1984) (dispute over amounts paid by the state to
nursing homes which were alleged to be improperly calculated and
overly-generous was properly before Board as a disallowance matter);
California Dept. of Health Services, DAB No. 734, at 8-9 (1986) (dispute
regarding overpayments made by state to providers, which involved review
of state's policy for crediting overpayments, was properly before Board
as a disallowance matter).

This case involves a retrospective remedy for a limited amount of money
which was disallowed for a particular, limited cost period.  The
disallowance was based on an calculated overpayment and was not intended
to serve as an incentive to induce future compliance.  Furthermore, this
case is substantively indistinguishable from Massachusetts, DAB No. 262,
and California, DAB No. 734, which were both found to be disallowance
actions and properly before the Board.  The Chair of the Board, a member
of the Board panel responsible for this decision, has determined that
the Board has jurisdiction over this matter as a Title XIX disallowance.
See 45 C.F.R. Part 16, App. A, .. (B)(1) and (G).

CONCLUSION

We conclude that the state plan amendment providing for a cost-based
reimbursement system for pediatric hospitals, submitted in its revised
form on March 7, 1988, was effective for services rendered on or after
January 1, 1988.  We affirm the HCFA decision disallowing the difference
between payments under the cost-based reimbursement system and payments
under the prospective payment system for ACH for the period July 1, 1987
through December 31, 1987.  We reverse the disallowance for the period
January 1, 1988 through June 30, 1988.  We hold that the State is
entitled to receive FFP in payments to ACH for services provided during
these six months in accordance with a cost-based reimbursement system as
provided for in the state plan amendment submitted on March 7, 1988.  We
remand this matter to HCFA to recalculate the disallowance.  If the
State does not agree with the recalculation, it may return to the Board
within 30 days of receiving the recalculation for the limited purpose of
reviewing the recalculation.

 

     ___________________________
     Cecilia Sparks Ford

 

     ____________________________
     Norval D. (John) Settle Board
     Chairman


     ____________________________
     Judith A. Ballard Presiding
     Board Member

1.  This provision is known as the Boren Amendment.

2.  ACH was the only facility classified as a pediatric hospital during
the period at issue in this disallowance.  HCFA Ex. 3, at 5.

3.  Under 42 C.F.R. . 447.253, state Medicaid agencies are required to
assure HCFA, before HCFA can approve changes in payment methods, that 1)
the new rates are reasonable and adequate; 2) the new rates take into
consideration facilities which serve a larger share of low-income
persons; 3) the new rates do not exceed upper payment limits; 4) the new
procedures provide for certain appeal, cost-reporting, and audit
procedures; and 5) the public has been given notice of the proposed
changes.

4.  HCFA noted that the State published notice of the proposed change on
December 4, 1987 in accordance with 42 C.F.R. . 447.205.  HCFA Br. at 5,
n.1.  The notice must be published before the proposed effective date of
a change in the state plan.  42 C.F.R. . 447.253(d).

5.  ACH repaid the State $137,184 in response to the July 20, 1990 final
cost settlement.  Of the $5,552,971 remaining, $4,116,973 was the FFP
amount paid by HCFA.  HCFA Br. at 3.

6.  45 C.F.R. . 201.3(g) limits effective dates in initial state plans
and plan amendments which increase benefits or services or which provide
for new categories of recipients.  Therefore it is not directly
applicable on its face to this plan amendment, which increases neither
categories of services nor recipients.  However, the preamble to 42
C.F.R. Part 447, 46 Fed. Reg. 47964 (September 30, 1981), states that
the effective date of state plan amendments which would otherwise fall
outside of section 201.3(g) are now intended to conform to the effective
date requirements of those which fall within section 201.3(g).  See
discussion below.

7.  See previous discussion, footnote 3.

8.  The actual language of the effective date provision in the 1981
draft regulations was changed before the final regulations were
published two years later.  The change appears to be technical, and the
limitation on an effective date prior to the calendar quarter in which
an approvable amendment is submitted remains substantially the same in
both drafts.  There is no indication that the intent of the provision
changed between the two publications.  See 48 Fed. Reg. 56047 (December
19, 1983).

9.  Section 201.3(g) no longer applies to Medicaid state plan
amendments, although it applied at all times relevant to this
disallowance.  However, the effective date provision of section
447.256(c), which was intended to conform to section 201.3(g), still
applies.  Section 201.3(g) was replaced by 42 C.F.R. . 430.20(b) in
regard to Medicaid state plans, and this provision went into effect in
October 1988.  Both parties advance arguments under 430.20(b), but we
find that this section is wholly inapplicable to the disallowance period
in question.

10.  Invoking an effective date of January 1, 1988 also complies with
the requirement of 42 C.F.R. . 447.253(f) that public notice be given
prior to the effective date.  The record indicates that public notice
was first given on December 4,