Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT:
Connecticut
DATE: August 18, 1993
Department of Income
Maintenance Docket No. A-93-54 Decision
No. 1435
DECISION
The Connecticut Department of Income Maintenance (Connecticut) appealed
a
determination by the Health Care Financing Administration (HCFA)
disallowing
$87,944,253 in federal financial participation (FFP) claimed
by Connecticut
under Title XIX (Medicaid) of the Social Security Act
(Act).
Connecticut claimed FFP in "disproportionate share" payments
made in June
1992 to state-owned psychiatric hospitals. HCFA
disallowed
Connecticut's claims on the basis that the services for which
the
expenditures were claimed were provided prior to the October 15,
1991
effective date of an amendment to Connecticut's Medicaid State plan
that
authorized including such disproportionate share payments in
calculating
reimbursement to hospitals for Medicaid services.
Connecticut contended
that, since the actual payments were made after the
effective date of
the amendment, they were allowable, since Connecticut
interpreted the
amendment to allow it to use low-income patient days
occurring prior to
the effective date in its calculation of the
disproportionate share
payments.
For the reasons discussed below, we find that Connecticut's
interpretation
of its State plan amendment that it may base
disproportionate share payments
on an unlimited number of low-income
patient days of service, without regard
to the period in which the
services were provided, is unreasonable and not
supported by the wording
of the amendment. In addition, we conclude
that there is no basis in
either the Act or regulations for including
disproportionate share
payments in Medicaid reimbursement to hospitals for
periods prior to the
date of Connecticut's amendment of its State plan.
Accordingly, we
sustain the disallowance.
Factual Background
On September 30, 1991, Connecticut submitted to HCFA an amendment to
its
State plan to provide disproportionate share payments to hospitals
for
services provided to uninsured low-income individuals.
Connecticut
Exhibit (Ex.) A. Connecticut requested that the amendment
have an
effective date of July 1, 1991. On November 5, 1991,
Connecticut
submitted a revised amendment, excluding outpatient
disproportionate
share payments, and again requested an effective date of
July 1, 1991.
Connecticut Ex. B.
In response to a HCFA inquiry whether Connecticut had complied with
public
notice requirements, 1/ Connecticut, on March 31, 1992, modified
the proposed
effective date of the amendment to October 15, 1991.
Connecticut Ex. D.
On June 2, 1992, HCFA notified Connecticut that the
amendment was approved
with an effective date of October 15, 1991.
Connecticut Ex. E.
In the approved amendment, for psychiatric hospitals to qualify
for
disproportionate share payments, the hospitals had to "provide
a
disproportionate share of services to low-income populations
as
demonstrated by revenues generated from billings which are less than
40%
of charges." Connecticut Ex. E at 43. The amendment further
provided
that --
DSH [disproportionate share hospital] payments are made
to
hospitals which qualify under this section in an amount which
is
reasonably related to their services to low income
patients.
For the purpose of this DSH designation, low-income
population
is defined as a patient who is at or below 200% of the
federal
poverty level and not eligible for Medicare or Medicaid
coverage
of inpatient psychiatric hospital services. Payments are
made
at the per diem rate for hospital inpatient
services,
established under state law to be the same as the per diem
rate
paid under Medicaid, multiplied by the number of
low-income
inpatient days.
Id.
On June 24, 1992, Connecticut issued payment checks to six
state-owned
psychiatric hospitals. Connecticut Exs. F-K.
Connecticut then
submitted its claim for FFP for these payments to HCFA on
August 24,
1992 on its quarterly expenditure form for the quarter ended June
30,
1992. Connecticut Ex. L. On this form Connecticut listed,
under the
category of Adjustments Increasing Claims for Prior Quarters, an
amount
of $177,267,891 ($88,633,947 FFP). According to HCFA, of this
amount,
$87,944,253 FFP related to the disproportionate share payments to
the
six psychiatric hospitals for services rendered from April 1, 1990
to
October 14, 1991.
While HCFA approved and paid FFP for disproportionate share payments
for
services rendered at the six psychiatric hospitals after October
15,
1991, it disallowed Connecticut's claim of FFP for
disproportionate
share payments for services rendered at the hospitals in
"periods prior
to the effective date of the approved State plan," October 15,
1991.
Statutory and Regulatory Provisions
In order to qualify for FFP, a state's claim for the costs of
medical
services must be in accordance with an approved Medicaid State
plan.
Section 1903(a) of the Act. The regulations describe the State
plan as
--
a comprehensive written statement submitted by the
agency
describing the nature and scope of its Medicaid program
and
giving assurance that it will be administered in conformity
with
the specific requirements of title XIX, the regulations in
this
Chapter IV, and other applicable official issuances of
the
Department. The State plan contains all information
necessary
for HCFA to determine whether the plan can be approved as
a
basis for FFP in the State program.
42 C.F.R. . 430.10 (1992).
Section 1902(a)(13) of the Act requires that a State plan provide for
the
payment of hospital services provided under the plan through the use
of rates
which take into account the situation of hospitals serving a
disproportionate
number of low-income patients, and which are reasonable
and adequate to meet
the costs incurred by an efficient and economically
operated facility in
providing care and services.
Implementing regulations at 42 C.F.R. Part 447, Subpart C, set out
the
criteria for payments for inpatient hospital services.
Specifically, 42
C.F.R. . 447.253(b)(1)(ii)(A) requires that a state agency
make findings
that --
The methods and standards used to determine payment rates
take
into account the situation of hospitals which serve
a
disproportionate number of low income patients with
special
needs.
Section 447.253(i) further provides:
Rates paid. The Medicaid agency must pay for inpatient
hospital
and long term care services using rates determined in
accordance
with methods and standards specified in an approved State
plan.
The regulations then set forth when an amendment to a State plan will
take
effect:
A State plan amendment that is approved will become
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).
Discussion
Connecticut initially framed this appeal as turning on the
relatively
straightforward issue of when Connecticut made the expenditures
that it
claimed as disproportionate share payments. But as the
briefing
developed in this appeal it became apparent that the real
issue
presented is the proper interpretation of Connecticut's plan
amendment.
HCFA pointed that the amendment substantially altered the State
plan, in
that the amendment involved significant changes in the method
and
standards for setting payment rates by including a methodology
for
determining disproportionate share hospital payments, payments
not
previously provided for under the State plan. As such, HCFA
contended,
it is irrelevant if the disproportionate share payments are
considered
expenditures not made until June 1992, since the State plan in
effect
prior to October 15, 1991 did not provide for such payments
to
state-owned psychiatric hospitals, and since the low-income patient
days
were prior to that date.
The dispute between the parties centers on how the Payment
Adjustment
paragraph of the amendment should be interpreted. HCFA
argued that the
last sentence of this paragraph --
Payments are made at the per diem rate for hospital
inpatient
services, established under state law to be the same as the
per
diem rate paid under Medicaid multiplied by the number
of
low-income inpatient days.
-- sets forth a methodology that correlates disproportionate
share
payments to the Medicaid per diem rate and does not allow
for
disproportionate share payments to be a different size from
Medicaid
payments for inpatient services. According to HCFA, this per
diem rate
calls for a calculation tied to a specific time period, a known
number
of low-income payment days, rather than an indefinite time period.
Connecticut, on the other hand, based its interpretation on the
first
sentence of the paragraph:
DSH payments are made to hospitals which qualify under
this
section in an amount which is reasonably related to
their
services to low income patients. (Emphasis added.)
According to Connecticut, this language enables Connecticut to select
any
number of days for disproportionate share reimbursement, even days
two years
prior to the date of claiming, since there is nothing in the
plan prohibiting
this. Disputing HCFA's suggestion that this could
entail an "unlimited"
number of patient days, Connecticut nevertheless
argued that as long as there
is a reasonable relationship to the
services provided by the psychiatric
hospitals, it could, under the
amendment, select the number of days to be
used in calculating
disproportionate share payments. Connecticut also
noted that it is not
uncommon for a state to use historical data in its
rate-setting
methodology.
Connecticut argued that its interpretation of its own State plan
was
reasonable and therefore entitled to deference. Connecticut cited
South
Dakota Dept. of Social Services, DAB No. 934 (1988).
In South Dakota the Board held that if a state's interpretation of its
own
plan methodology for reimbursing institutional providers gives
reasonable
effect to the language of the plan as a whole, is reasonable
in light of the
purpose of the provision and program requirements, and
is supported by
consistent state administrative practice, the state's
interpretation of its
plan is entitled to deference. South Dakota at 4.
The Board also held,
however, that rate-setting for a state-owned
facility is subject to closer
scrutiny. Id. at 5. The purpose of this
closer scrutiny is to
determine whether a state has a consistently
applied interpretation of its
plan or is somehow manipulating its plan
to give preferential treatment to
state-owned facilities. See, e.g.,
Massachusetts Dept. of Public
Welfare, DAB No. 867 (1987).
We find that Connecticut's interpretation of its State plan is
not
entitled to such deference. We note that the record before us does
not
contain any contemporaneous, written official interpretation of
the
amended State plan, nor any evidence of a long-standing practice
by
Connecticut, to show that the amendment was intended to
provide
additional reimbursement to hospitals for Medicaid services provided
in
periods prior to the effective date of the amendment. More
importantly,
we find that Connecticut's interpretation of the amendment
is
unreasonable on its face. First, the words used in the
Payment
Adjustment provision clearly imply that the amendment is limited to
a
particular, rather than indefinite, time period. The amendment
provides
that payments are made at the Medicaid per diem rate multiplied by
the
number of low-income inpatient days. The disproportionate
share
payments are thus tied to a number of days that must be
readily
quantified. If Connecticut truly intended to use a period other
than
the current one in its rate calculation, it should have
specifically
spelled out in the amendment what historic data was
included. There is
nothing in the language of the provision, however,
that supports
Connecticut's selection of an arbitrary number of low-income
patient
days without reference to the particular period in which they
were
provided and without regard to the underlying purpose of such
payments.
2/
It is important to emphasize that disproportionate share payments
were
intended by Congress to be an adjustment to payments which
otherwise
would have been made to the psychiatric hospitals using the
standards
and methods in the State plan. Section 1902(a)(13) of the Act
requires
taking into account disproportionate share payments in the setting
of
rates for Medicaid services. The legislative history
of
disproportionate payments supports this reading of the Act:
. . . States, in developing their payment rates, take
into
account . . . the atypical costs incurred by hospitals
which
serve a disproportionate number of low income patients.
The
conferees recognize that public hospitals and teaching
hospitals
which serve a large Medicaid and low income population
are
particularly dependent on Medicaid reimbursement, and
are
concerned that a State take into account the special
situation
that exists in these institutions in developing their
rates.
H.R. Rep. No. 97-208, 97th Cong., 1st Sess. 962 (1981).
It is therefore clear that disproportionate share payments were
intended
as adjustments to rates for Medicaid services provided in a period
in
which a hospital was serving low-income patients and therefore
had
higher costs. The term "adjustment" implies something additional
to
what has already been received. Under the Medicaid program,
adjustments
to rates are usually made after patient days are reported for
a
particular period, most often in a year-end adjustment. The fact
that
the disproportionate share payments at issue were provided for under
a
paragraph in the amendment labeled "Payment Adjustment"
accordingly
lends support to HCFA's position that the amendment was to be
applied to
a particular period of time. Given this context, a more
reasonable
reading of the sentence relied upon by Connecticut is that the
amount
"reasonably related to their services to low income patients" would
be
tied directly to the period of service to such patients, so as
to
reflect the higher costs of providing services to them.
Connecticut's position is further undermined by an examination of
the
amendment's provisions in their entirety. The amendment also called
for
disproportionate share payments for hospitals other than
psychiatric
hospitals. These provisions of the amendment also provided
for
disproportionate share payments to be based on a methodology
whereby
inpatient days would be multiplied by the Medicaid per diem
rate.
Connecticut Ex. E at 41-42. Yet there is no indication that
Connecticut
ever sought to claim FFP by "retroactively" applying the
amendment to
these hospitals as it did for the state-owned psychiatric
hospitals.
This calls into question whether it was really the intent of the
state
Medicaid agency in the first place that the amendment be applied
as
Connecticut is now suggesting. Rather, it appears that, in applying
the
amendment in an inconsistent fashion, that Connecticut is
improperly
attempting to maximize its FFP without any additional cost to
itself.
We further note that in Connecticut's own explanation to HCFA on how
the
amendment would operate, provided at HCFA's request prior to
the
approval of the amendment, Connecticut offered an example in which
a
fictitious hospital's per diem rate was multiplied by an actual
number
of low-income patient days for a fiscal year to produce the amount
of
that year's disproportionate share. Id. 3/ The fact that
Connecticut
initially included the disallowed amount as "adjustments
increasing
claims for prior quarters" on the June 30, 1992 quarterly
expenditure
report further discredits Connecticut's position that its
current
interpretation of the amendment is the only plausible one. 4/
Furthermore, 42 C.F.R. . 430.10 requires that the State plan convey
"all"
information necessary for HCFA to determine whether the plan can
be approved
to serve as a basis for FFP. There was nothing in the
wording of the
amendment itself or in Connecticut's initial explanation
of the amendment to
HCFA, however, that could reasonably be considered
to convey the information
concerning the impact on FFP that would result
in the interpretation of the
amendment Connecticut advanced before us.
This failure to state clearly the
plan provisions would have a
significant impact on HCFA's ability to predict
costs of administering
the Medicaid program.
Therefore, even if the language in the amended State plan was ambiguous
so
that Connecticut's interpretation might be plausible, we could not
overlook
the effect of Connecticut's interpretation on the operation
and
administration of the Medicaid program. Connecticut's
interpretation
would also open the possibility that any type of service
rendered by a
state-owned facility, not previously provided for in a State
plan, could
be converted into FFP reimbursable services by a subsequent
plan
amendment affecting rates of reimbursement if the state delayed
"paying"
for the services until after the amendment was approved. Such
an
outcome would render meaningless the concept of an approved State
plan
required by the Act. Thus, Connecticut's interpretation is not
a
reasonable one. The Board has held that it will not uphold a
state's
unreasonable interpretation of its plan against the
federal
administering agency's reasonable interpretation of the plan.
Oklahoma
Dept. of Human Services, DAB No. 1271 at 7-8 (1991).
Additionally, we find unpersuasive Connecticut's argument that the
number
of days it selected was reasonable for calculating the
initial
disproportionate share payment after adoption of the amendment,
because
section 4703 of the Omnibus Budget Reconciliation Act of 1990
(OBRA
'90), Public Law 101-508, which extended the availability
of
disproportionate share payments to hospitals serving low-income as
well
as Medicaid patients, indicated that it was to be considered as if
it
dated back to the Omnibus Budget Reconciliation Act of 1987. The
fact
that Congress in OBRA '90 decided to give an earlier effective date
to
the availability of FFP for disproportionate share payments does
not
obviate the fundamental requirement set forth in sections 1903(a)
and
1902(a)(13) of the Act that payments for services must be in
accordance
with an approved State plan. Connecticut did not have such a
State plan
encompassing the disproportionate share payments at issue until
October
15, 1991.
The importance of the State plan amendment process was addressed by
the
Board in Missouri Dept. of Social Services, DAB No. 1229 (1991):
[S]tate plan amendments are more than mere procedural
exercises.
This Board has long held that the regulation limiting
the
effective date of a state plan--
is not a mere procedural matter promulgated
for
administrative convenience. It is an important
portion
of the Agency's process in fulfilling the
statutory
obligation to determine whether the State plan
was
administered in compliance with the provisions
of
Section 1902(a).
At 5 (citing New Jersey Dept. of Human Services, DAB No. 115
(1980)).
Connecticut's ability to receive FFP for disproportionate share
payments
is therefore limited to the period beginning when the State
plan
amendment became effective, October 15, 1991.
As mentioned above, Connecticut argued that, contrary to
HCFA's
assertions, the disproportionate share payments in question were made
in
accordance with its approved State plan. Connecticut asserted that
the
correct date to focus on was June 24, 1992, when Connecticut
executed
the checks for the disproportionate share payments to the
hospitals.
Connecticut argued that this was clearly months after the
amendment to
its Medicaid State plan went into effect.
Connecticut disputed HCFA's assertion that the relevant time period
was
when the services were actually rendered at the hospitals. In
support
of this position, Connecticut relied on the Board's holding in
New
Jersey Dept. of Human Services, DAB No. 1016 (1989). We conclude
that
Connecticut's reliance on New Jersey is misplaced.
In New Jersey the issue was whether the state could properly submit
a
claim for FFP in services provided by state-owned residential
treatment
centers more than two years after the services had been
provided. HCFA
had disallowed the claims based on the timely claims
requirement set
forth at section 1132(a) of the Act. That section
requires that a claim
by a state for FFP "with respect to an expenditure made
during any
calendar quarter" must be filed within the two-year period which
begins
on the first day of the calendar quarter immediately following
such
quarter. Regulations implementing section 1132(a) of the Act at
45
C.F.R. . 95.13(b) additionally provide that a state's expenditure
for
Medicaid services is considered to have been made "in the quarter
in
which any State agency made a payment to the service provider."
In reversing the disallowance in New Jersey, the Board noted that
the
State Medicaid Manual interpreted the regulation as
distinguishing
payments made to privately-owned and state-owned
providers. Under this
interpretation, expenditures for services by
state-owned facilities are
made in the quarter in which a state agency either
paid state-owned
facilities or made an accounting entry to that effect.
5/ The Board
held that in the case of the state-owned residential
treatment centers
expenditures could not be said to have been made until per
diem
reimbursement rates had been established for the facilities. The
Board
concluded that since inpatient medical services are furnished and
FFP
claimed for them on the basis of a per diem rate, no expenditure
within
the meaning of the timely claiming statute is made before there is
a
rate set because there is not a completed recording of the amount of
the
expenditure. Id. at 14. In the case of New Jersey's treatment
centers,
two years had not elapsed between the time rates were set and the
time
New Jersey made claims for services rendered by the treatment
centers.
Connecticut argued that its situation was similar to that of New
Jersey's,
in that the expenditures for which it was claiming FFP, the
disproportionate
share payments, were made in June 1992 when it sent the
checks to the
psychiatric hospitals. Therefore, according to
Connecticut, the
expenditures to the state-owned facilities were made
after the October 15,
1991 amendment to its State plan, and should
qualify for FFP. 6/
The facts of that case are readily distinguishable from the
situation
presented here, however. The dispute in New Jersey arose over
an
interpretation of the timely claims provision. There was never
any
question that the types of services for which New Jersey was
claiming
FFP were provided for, when rendered, in New Jersey's State plan
and
that the payments for those services were determined according to
the
methods in the plan effective for the period in which the services
were
provided. In the present case, the disallowed disproportionate
share
payments were clearly related to a period prior to approval of the
State
plan authorizing them. Although Connecticut apparently limited
the
calculation of its claim to include only patient days occurring
within
two years of its claim, the fact remains that there was no
plan
provision providing for payment for those services until the
effective
date of the amendment.
Conclusion
For the reasons discussed above, we affirm the disallowance
of
$87,944,253.
_________________________ Judith
A.
Ballard
_________________________ Norval
D.
(John) Settle
_________________________ M.
Terry
Johnson
Presiding Board Member
1. Section 447.205 of 42 C.F.R. requires a state
Medicaid agency to
"provide public notice of any significant proposed change
in its methods
and standards for setting payment rates for services."
While
Connecticut considered that it had grounds to challenge HCFA's view
that
the plan amendment was such a "significant proposed change,"
Connecticut
elected not to pursue this issue before HCFA. Connecticut
Brief (Br.)
at 2.
2. Connecticut stated that its choice of the number
of low-income
patient days was reasonable in light of the two-year claiming
period set
forth in 45 C.F.R. . 95.7 and in light of section 4703 of the
Omnibus
Budget Reconciliation Act of 1990, Public Law 101-508, indicating
that
the disproportionate share payment amendment should be considered as
if
it dated back to the Omnibus Budget Reconciliation Act of 1987.
Under
this interpretation, application of the two-year claiming
period
resulted in selection of a completely arbitrary number of
low-income
patient days based on the filing of the claim ten months after
the
effective date of the amendment. (We discuss the latter argument
later
in the text.)
3. Certainly Connecticut would have some flexibility
under its State
plan in determining what period to use to adjust Medicaid
rates paid for
corresponding periods (e.g., months, fiscal years, hospitals'
cost
reporting period). However, Connecticut cannot reasonably adjust
rates
paid to state psychiatric hospitals for Medicaid services
provided
during the period October 15, 1991 to June 30, 1992 based on
low-income
patient days during the entire period from April 1, 1990 through
June
30, 1992. If a comparable period were used for later claims,
the
hospitals would in effect have the extra costs of a
disproportionate
share hospital taken into account more than once.
4. Connecticut stated that it may have inadvertently
contributed to
HCFA's "misunderstanding" of this case by completing the
quarterly
expenditure form erroneously. Connecticut Br. at 9.
Connecticut stated
that it should have reported all the expenditures as being
for the
quarter ending June 30, 1992, rather than separating them by
the
quarters in which the services were rendered.
5. In language cited by Connecticut in support of its
position, the
Board stated that --
the expenditures for which FFP is claimed are made in
the
quarter in which the state Medicaid agency pays the
treatment
centers.
New Jersey at 12. In context, this language was making the point
that
state payments to vendors providing supplies to the treatment
centers
and similar payments, were not the type of expenditures referred to
in
the timely claims provisions.
6. Along the same vein, Connecticut argued that its
position was
supported by the following language in the HHS Appropriations
Act,
Public Law No. 101-517:
Payments under title XIX may be made for any quarter
with
respect to a State plan or plan amendment in effect during
such
quarter, if submitted in or prior to such quarter and
approved
in that or any subsequent quarter.
Connecticut argued that its payments to the psychiatric hospitals
were
such "payments" made after the approval of its State plan amendment.
As HCFA pointed out, however, this language, which appears in
HHS
appropriations acts from year to year, concerns payments made by
the
federal government to states, not payments by states to
Medicaid
providers. As such, this language does not support
Connecticut's
position