Georgia Department of Medical Assistance, DAB No. 1413 (1993)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Georgia Department of   Medical Assistance

DATE:  May 19, 1993
Docket No. 92-250
Decision    No. 1413

DECISION


The Georgia Department of Medical Assistance (Georgia) appealed a
decision by the Health Care Financing Administration (HCFA) disallowing
$999,425 in federal financial participation (FFP) claimed by Georgia for
the period July 1, 1988 through June 30, 1990.  Georgia claimed federal
funding under Medicaid, Title XIX of the Social Security Act (Act), for
the salaries of nurse aides hired to replace regular nurse aides who
were participating in federally mandated training and testing programs.
Georgia claimed these funds as general administrative expenses of its
Medicaid program pursuant to section 1903(a)(7) of the Act.  HCFA
disallowed the claim on the ground that the salaries were not
administrative costs but rather nursing facility services costs which
had to be claimed pursuant to section 1903(a)(1) of the Act.

For the reasons set out below, we sustain the disallowance in its
entirety.

BACKGROUND

 1.  Federal law and the history of the claim at issue

The Omnibus Budget Reconciliation Act (OBRA) of 1987 (Public Law No.
100-203) imposed extensive nursing facility reform requirements on
nursing facilities participating in the Medicaid program.  The reform
requirement relevant to this appeal, section 1919(b)(5)(A) of the Act,
prohibited nursing facilities from using any individual as a nurse aide
on or after January 1, 1990 unless the individual had completed a
training and competency evaluation program, or a competency evaluation
program (NATCEP).  Section 1919(b)(5)(B) also required nursing
facilities to provide, for any individual used as a nurse aide as of
July 1, 1989, for a competency evaluation program and such preparation
as was necessary for the individual to complete such a program by
January 1, 1990. 1/

As a result of the OBRA '87 NATCEP mandate, states and nursing
facilities incurred a range of different types of costs.  In the case
before us, the costs at issue are for the salaries of replacement nurse
aides, i.e., nurse aides who were hired to provide services in nursing
facilities so that the facilities' regular nurse aides could participate
in training and testing programs.

Consideration of how these salaries should be reimbursed involves three
sections of the Act authorizing reimbursement of state expenditures:
section 1903(a)(1) which authorizes FFP in amounts expended as "medical
assistance"; section 1903(a)(2)(B), which authorizes FFP in amounts
expended for NATCEPs "as found necessary by the Secretary for the proper
and efficient administration of the State plan" including the "costs for
nurse aides to complete such competency evaluation programs . . . "; and
section 1903(a)(7), which authorizes FFP in "the remainder of the
amounts expended . . . as found necessary by the Secretary for the
proper and efficient administration of the State plan."

Initially, Georgia claimed reimbursement for these costs as "amounts
expended for nurse aide training and competency evaluation programs, and
competency evaluation programs" pursuant to section 1903(a)(2)(B).  HCFA
disallowed Georgia's claim on the grounds that the salaries of
replacement nurse aides were not a training cost but rather a cost of
providing services to nursing home residents.  HCFA took the position
that such services costs could be properly claimed only under section
1903(a)(1), as "medical assistance" pursuant to per diem rates
established in Georgia's state plan. 2/ Georgia then appealed and the
Board upheld HCFA's disallowance of Georgia's claims for reimbursement
under section 1903(a)(2)(B).  Georgia Dept. of Medical Assistance, DAB
No. 1312 (1992).

Subsequently, Georgia reclaimed these costs pursuant to section
1903(a)(7) as a general administrative expense.  That claim is the
subject of this appeal.  Georgia was unable to claim the costs pursuant
to section 1903(a)(1) as medical assistance because its Medicaid state
plan, at the time the costs were incurred, did not provide for such
costs to be included in nursing facilities' per diem rates.

 2.  Federal funding for the NATCEP requirement

Section 1919, enacted by OBRA '87, established a wide range of nursing
facility reform requirements including the NATCEP standard found at
section 1919(b)(5).  In recognition that such requirements would
increase nursing facility costs, Congress amended two sections of the
Act: section 1902(a)(13)(A) and section 1903(a)(2)(B).

Section 1902(a)(13)(A) concerns state plan standards for payment of
services in facilities such as hospitals, nursing facilities and
intermediate care facilities for the mentally retarded.  It requires
that such services be reimbursed by the state through the use of rates
"which the State finds . . . are reasonable and adequate to meet the
costs which must be incurred by efficiently and economically operated
facilities . . . ."  OBRA '87 amended section 1902(a)(13)(A) to require
that, in the case of nursing facilities, these rates "take into account
the costs . . . of complying with subsections 1919(b) (other than
paragraph (3)(F) thereof), (c), and (d)."  (Emphasis added).

In addition to requiring that nursing facility per diem rates take into
account the costs of complying with the NATCEP requirement, Congress
enacted section 1903(a)(2)(B) to provide funding for "amounts expended
for" NATCEPs by states.  For a limited period of time, section
1903(a)(2)(B) expenditures were to be reimbursed at an enhanced rate,
i.e., the state's federal medical assistance percentage plus 25
percentage points, not to exceed 90 percent. 3/  However, determining
what constituted a "cost of complying" with the NATCEP requirement under
section 1902(a)(13)(A) as opposed to an "amount expended" for NATCEPs
under section 1903(a)(2)(B)  was the subject of the following sequence
of events.

 o  In March 1989 in HCFA Transmittal 61, HCFA interpreted
 section 1903(a)(2)(B) to be limited to  state administrative
 expenditures incurred for nurse aide training programs.  Georgia
 Exhibit (Ex.) 11, Docket No. A-91-112.  HCFA advised states that
 section 1903(a)(2)(B) did not include the actual costs of the
 training and competency evaluation programs (except for
 competency evaluations in facility-based programs) and that
 states must amend their nursing facility per diem rates to
 reflect such costs.  Georgia did not file a plan amendment in
 response to this transmittal and therefore its nursing facility
 per diem rate did not reflect any of the costs of a facility in
 complying with the NATCEP requirement.

 o  Subsequently, in OBRA '89 (Public Law No. 101-239) Congress
 added language to section 1903(a)(2)(B) to clarify that, in
 addition to state administrative costs, states were entitled to
 claim section 1903(a)(2)(B) reimbursement for "the costs for
 nurse aides to complete such competency evaluation programs."
 (Emphasis added.)

 o  Following OBRA '89 in May 1990, HCFA issued HCFA Transmittal
 66.  Georgia Ex. 8, Docket No. A-91-112.  This revision was
 intended "to implement the requirements for NATCEPs as enacted
 by . . . [OBRA '87] and amended by OBRA 1989 . . . ."   HCFA
 Transmittal 66 recognized that under section 1903(a)(2)(B) state
 payments for costs incurred by a nursing facility "in relation
 to training and competency evaluation of nurse aides, current
 and future, will be considered as State administrative expenses"
 and therefore would be eligible for an enhanced rate.  HCFA
 Transmittal 66 did not address  exactly what types of costs
 would be considered costs incurred by a nursing facility "in
 relation to" NATCEPs.

 o  In June 1990, the HCFA Regional Office for the region
 encompassing Georgia issued a Transmittal Notice to State
 Medicaid Agencies (Regional Transmittal Notice) clarifying the
 types of nursing facility costs eligible for enhanced funding
 under section 1903(a)(2)(B).  Georgia Ex. 7, Docket No.
 A-91-112.  Salaries of nurse aides in training and salaries of
 replacement aides were specifically identified as not eligible
 for enhanced funding.  States were instructed to include those
 expenses in their approved Medicaid rate-setting procedures
 since they would be reimbursed as part of each nursing
 facility's rate.

Prior to the Regional Transmittal Notice in June 1990, Georgia assumed
that all costs associated with NATCEPs, including replacement aide
salaries, were reimbursable under section 1903(a)(2)(B) and that it did
not need to amend its per diem rates to include such costs.  Georgia Ex.
10, Unnumbered Page 7 (Assurances to State Plan Amendment 90-9), Docket
No. A-91-112.  At the first opportunity after receipt of the Regional
Transmittal Notice, Georgia amended its state plan to include the costs
of replacement aides in its nursing facility per diem rate.  Georgia Ex.
6, Docket No. A-91-112.  This state plan amendment was effective July 1,
1990.

ANALYSIS

 A.  HCFA's refusal to allow Georgia to claim replacement nurse
 aide salaries, which were medical assistance costs, as general
 administrative costs was consistent with the reimbursement
 provisions of the Medicaid program.

In our prior decision concerning these costs, we upheld HCFA's position
that replacement nurse aide salaries are medical assistance costs rather
than section 1903(a)(2)(B) costs of competency evaluation programs.  We
determined that the phrase "costs for nurse aides to complete such
competency evaluation programs" did not include replacement salaries for
the following reasons:

 o  The replacement aides were not in training; rather they were
 providing services to nursing facility residents.  The Act
 provides for reimbursement of nursing facility services as
 "medical assistance" at the federal medical assistance
 percentage.  Section 1903(a)(1).  In the case of nursing
 facilities, reimbursement is determined according to the per
 diem rate established in the state plan.  Section
 1902(a)(13)(A).

 o  Under the Act, training expenses or training related expenses
 for employees of facilities are traditionally reimbursed through
 the facilities' reimbursement rates.  See New York State Dept.
 of Social Services, DAB No. 1287 (1991).  While Congress
 established an exception to that practice in section
 1903(a)(2)(B) by permitting some training costs incurred by
 facilities to be treated as state administrative expenses, such
 an exception should be read narrowly.

 o  The OBRA '87 amendments to section 1902(a)(13)(A) plainly
 provided that some costs associated with the NATCEP requirement
 are properly reimbursed through the nursing facility per diem
 rate and that state plans should be amended to reflect such
 costs.  Therefore, Georgia's reading of the phrase "the costs
 for nurse aides to complete such competency evaluation programs"
 in section 1903(a)(2)(B) was clearly over-broad because it could
 encompass any costs which bear any relationship to such
 programs, no matter how remote, and render section
 1902(a)(13)(A) meaningless.

 o  Section 1903(a)(2)(B) limits NATCEP costs for which enhanced
 FFP is available to those "found necessary by the Secretary for
 the proper and efficient administration of the State plan."
 Therefore, Georgia could not reasonably rely on its own
 interpretation of section 1903(a)(2)(B) absent some indication
 from HCFA that replacement aide salaries were indeed a section
 1903(a)(2)(B) cost.

Further, we note that when Congress amended section 1903(a)(2)(B) to
include "the costs for nurse aides to complete such competency
evaluation programs," it also amended section 1919(f)(2)(A) by adding a
new subsection (iv)(II).  That subsection provides that the Secretary
should establish requirements which would "prohibit the imposition on a
nurse aide . . . of any charges (including any charges for textbooks and
other required course materials and any charges for the competency
evaluation) for either such program."  Thus, Congress simultaneously
prohibited imposition of any costs on nurse aides for training or
evaluation and clarified that states were entitled to enhanced
reimbursement for "the costs for nurse aides to complete such . . .
programs."  The simultaneous enactment of these two provisions supports
HCFA's construction of the phrase "the costs for nurse aides to complete
such . .  programs" as being limited to the costs of actually providing
training or evaluation, i.e., the types of costs that, but for section
1919(f)(2)(A)(iv)(II), might be imposed on nurse aides.  The ancillary
costs of running a facility whose staff is being trained or evaluated
are not such costs. 4/

Georgia, DAB No. 1312, determined that replacement nurse aide salaries
were nursing facility services costs.  As nursing facility services
costs, these salaries should ordinarily have been reimbursed pursuant to
the per diem rate as medical assistance costs under section 1903(a)(1).
This conclusion is the result of the following reimbursement structure
set forth in the Act:

 o  Section 1903(a)(1) authorizes Medicaid reimbursement for
 amounts expended as "medical assistance."

 o  Section 1905(a)(4)(A) defines "medical assistance" to include
 payment for nursing facility services.

 o  Section 1902(a)(13)(A) requires state plans to provide for
 payment of nursing facility services through the use of rates
 determined in accordance with methods and standards developed by
 the state.

Therefore, the per diem rate established by the state plan determines
the costs for which the state will reimburse nursing facilities and the
costs for which HCFA will reimburse the state as "medical assistance"
pursuant to section 1903(a)(1).

While Georgia, DAB No. 1312, determined that the replacement salaries
were properly reimbursable pursuant to the per diem rate, it did not
determine whether Georgia could also properly claim these costs pursuant
to section 1903(a)(7) as general administrative expenses.  As explained
below, we conclude that Georgia cannot claim these costs pursuant to
section 1903(a)(7).

In New York Dept. of Social Services, DAB No. 1146 (1990), we dealt with
the question of whether facility services costs could be claimed as
general administrative expenses pursuant to section 1903(a)(7).  In that
case, New York first claimed certain training costs at the enhanced rate
authorized by section 1903(a)(2)(A) for training skilled professional
medical personnel.  The Board determined that the costs were not section
1903(a)(2)(A) costs and sustained the disallowance.  New York then
reclaimed the costs as section 1903(a)(7) administrative costs.  The
Board found that, because the costs were incurred for training related
to service delivery, the costs were medical assistance costs.  As
medical assistance costs, the Board concluded that, absent some specific
exception to the general rule that medical assistance costs must be
reflected in the per diem rate, the costs must be claimed pursuant to
the per diem rate mechanism and could not be claimed as section
1903(a)(7) administrative costs.

The Board based its decision in New York, DAB No. 1146, on the
fundamental role per diem rates play in determining what facility
services costs are allowable under Medicaid.  We concluded that HCFA was
reasonable in insisting that New York adhere to its per diem rate
because consistent use of rate methodologies to reimburse facilities for
Medicaid services is essential to ensure the integrity of the entire
reimbursement system and is not a mere technical requirement. 5/

Rates are not set by simply accumulating a facility's actual costs.
Rather there are certain limits on rates that a state may pay as well as
ways of grouping facilities for purposes of setting rates that further
distance the rate from the facilities' underlying costs.  42 C.F.R. .
447.271 and . 447.272.  Thus, the effect on the amount of the per diem
rate for any particular facility had a given cost been reflected in the
rate calculation is unclear.  Further, if a state pays for the costs
associated with facility services, outside the rate system, then there
is no way to assure that any upper limit requirements which apply are
met or to assure that the amount actually paid for services at a
particular facility is at the appropriate level.  Finally, unless all
medical care costs are reimbursed through the rate system, a state
cannot compare its costs at different facilities to determine the most
economical means of providing Medicaid services.  New York, DAB No.
1146, at 9.

Therefore, unless the rate system is utilized, a state cannot meet its
responsibility to determine whether the rates are "reasonable and
adequate to meet the costs which must be incurred by efficiently and
economically operated facilities" under section 1903(a)(13)(A).  Id.

The rationale of New York, DAB No. 1146, applies to this case:  the
replacement salaries were nursing facility services costs; services
costs, absent a specific exception, are reimbursed through a per diem
rate pursuant to section 1903(a)(1); use of section 1903(a)(7) to
reimburse nursing facility services costs would set up a reimbursement
mechanism outside the per diem rate and undermine the function of the
per diem rate. 6/

Further, reimbursement through use of a facility's rate allocates to
Medicaid only the services costs attributable to Medicaid recipients,
and not those attributable to Medicare or private pay residents of the
facility.  Questions of allocation are particularly relevant here
because Congress treated allocation of section 1902(a)(13)(A) costs and
section 1903(a)(2)(B) costs differently.  After OBRA '87, HCFA
instructed states in HCFA Transmittal 61 that Medicaid could not be
charged for nursing facility expenses associated with NATCEPs which were
properly charged to Medicare or private pay activity.  In OBRA '89,
Congress altered HCFA's approach and specifically provided that, until
October 1990, states should not allocate section 1903(a)(2)(B) NATCEP
costs between Medicare and Medicaid patients but should allocate them
all to Medicaid.  Pub. L. No. 101-239, . 6901(b)(5)(B).  However,
Congress did not address the allocation of the section 1902(a)(13)(A)
NATCEP costs.  Consequently, it appears that any NATCEP costs not
subject to section 1903(a)(2)(B) are still to be allocated among
Medicaid, Medicare and private pay patients pursuant to the per diem
rate mechanism.

For the preceding reasons, we conclude that HCFA's refusal to allow
Georgia to claim replacement nurse aide salaries as general
administrative costs was reasonable and consistent with the
reimbursement provisions of the Medicaid program.

 B.  Georgia's arguments are not persuasive.

Georgia argued that Congress clearly intended HCFA to contribute to the
costs of nurse aide training and that HCFA's disallowance was
inconsistent with this congressional mandate.

We conclude that the fact that Congress authorized reimbursement for
nurse aide training does not compel HCFA to reimburse expenses not
claimed and accounted for through the rate mechanism described above.
While Congress clearly intends for HCFA to participate in many types of
Medicaid reimbursement, a state still must claim reimbursement in
accordance with the Act and its state plan.  Section 1903.  Here,
section 1902(a)(13)(A) instructed states to amend their state plans so
that per diem rates would reflect the costs of complying with section
1919(b)(5).  Georgia did not do so; thus, there is no mechanism
available for Georgia to receive federal funding in these costs since,
for the reasons set out above, Georgia cannot claim Medicaid services
costs as administrative expenses under section 1903(a)(7).

Georgia also cited language in a House Report referring to a prohibition
on the Secretary from taking any compliance action against states
concerning the OBRA '87 NATCEP requirements.  H.R. Rep. No. 247, 101st
Cong., 1st Sess. 458, reprinted in 1989 U.S. Code Cong. & Admin. News
2184.  The statutory provision containing such a prohibition is found at
section 4801(a)(1) of Public Law No. 100-508 and provides:

 The Secretary of Health and Human Services shall not take (and
 shall not continue) any action against a State under section
 1904 of the [Act] on the basis of the State's failure to meet
 the requirement of section 1919(e)(1)(A) of such Act before the
 effective date of guidelines, issued by the Secretary,
 establishing requirements under section 1919(f)(2)(A) of such
 Act, if the State demonstrates to the satisfaction of the
 Secretary that it has made a good faith effort to meet such
 requirement before such effective date.

Georgia argued that this prohibition meant that HCFA could not sanction
or penalize any state that was making such a good faith effort to comply
with section 1919 and therefore HCFA could not impose this disallowance.

Georgia's argument is not persuasive.  This prohibition concerns actions
pursuant to section 1904.  Section 1904 deals with compliance actions,
i.e., actions the Secretary takes when she determines that a state's
Medicaid plan does not comply with section 1902 or that the state's
administration of a plan fails to comply substantially with section
1902.  In compliance actions, the Secretary gives the state prospective
notice that part or all of the future payments that otherwise would be
made, will not be made to the state until the Secretary is satisfied
that the state is in compliance.

In this case, however, HCFA is not proceeding pursuant to section 1904.
Rather, under 45 C.F.R. . 201.15 and section 1903(d)(2)(A), HCFA has
deferred and disallowed  specific expenditures claimed by Georgia for a
discrete period prior to the time Georgia amended its plan to recognize
these kinds of costs.  A disallowance action is a remedy separate from a
compliance action.  New York State Dept. of Social Services, DAB No.
1246 (1991); New Jersey Dept. of Human Services, DAB No. 259 (1982).
Therefore, the fact that Congress prohibited the Secretary from
instituting a compliance action is irrelevant to this disallowance
proceeding.

CONCLUSION

Based on the preceding analysis, we sustain the entire disallowance of
$999,425.

 


      _________________________
      Judith A. Ballard

 

 

      _________________________
      M. Terry Johnson

 


      _________________________
      Norval D. (John) Settle
      Presiding Board Member

1.     The January 1, 1990 deadline by which nursing facilities could
use only nurse aides who had completed a NATCEP was extended to October
1, 1990 by Public Law No. 101-239, . 6901(b)(1).  The July 1, 1989 and
January 1, 1990 deadlines by which nursing facilities had to provide
competency evaluation programs were extended to January 1, 1990 and
October 1, 1990 respectively.  Id.

2.     "Medical assistance" is defined in section 1905(a) of the Act as
including nursing facility services.  Payments for such services must be
determined according to methods set out in the Medicaid state plan.  42
C.F.R. . 447.253(i).

3.     The enhanced rate was initially enacted by section 4211(d)(2) of
OBRA '87 for fiscal years 1988 and 1989.  Subsequently, section
6901(b)(5)(A)(ii) of OBRA '89 (Public Law No. 101-239) amended section
1903(a)(2)(B) by including the enhanced rate in the text of that section
and extending its applicability to the calendar quarters preceding July
1, 1990; section 4801(a)(8) of Public Law No. 101-508 further extended
the applicability of the enhanced rate to the calendar quarters
preceding October 1, 1990.

4.     We note that in the prior Board decision, DAB No. 1312, we found
that Georgia had claimed the enhanced rate of FFP under section
1903(a)(2)(B) for payments to the facilities for both the salaries of
the nurse aides employed by the facilities while they were being trained
or evaluated and replacement nurse aides hired to take the employees'
place while they were being trained or evaluated, as well as claiming
FFP in payments made at the per diem rates.  This clearly would be an
unreasonable interpretation of section 1903(a)(2)(B) because the
facilities would have received duplicate reimbursement.

In the course of this proceeding, Georgia represented that it had not
claimed or received enhanced funding for the salaries of the nurse aides
employed by the facilities.  If, indeed, DAB No. 1312 incorrectly found
that Georgia was claiming enhanced funding for both sets of nurse aides
(and that HCFA had disallowed costs associated with only one set),
Georgia should have promptly requested reconsideration of DAB No. 1312
as permitted under the Board's rules.  45 C.F.R. . 16.13.  Had Georgia
done so, we would have been faced with a different issue from the one
presented in this case.  Instead, Georgia simply reclaimed the costs as
section 1903(a)(7) costs.  Therefore, this decision addresses whether
these costs are reimbursable under section 1903(a)(7).

5.     A state determines the amount of Medicaid reimbursement for each
facility by multiplying a per diem rate by the number of Medicaid
patient-days of service provided at the facility during the relevant
time period.

6.     We note that HCFA relied on New York in its brief in this case.
In its reply brief, Georgia did not offer any specific arguments as to
how New York was distinguishable.

Georgia did argue, however, that the Act "linked nurse aide training
costs to administrative costs."  Georgia brief dated December 14, 1992,
at 10.  We agree that section 1903(a)(2)(B), which was enacted after the
period to which New York applied, provided a limited exception to the
principle applied in New York that training costs of facility staff are
not state administrative costs.  We do not agree, however, that this
limited exception created a "link" between nurse aide costs and
administrative costs authorizing reimbursement under section 1903(a)(7)
of the facility-incurred costs of providing Medicaid services, merely
because those costs have some connection to nurse aide training.