Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
CIVIL RIGHTS REVIEWING AUTHORITY
In the Case of:
Department of Health and Human Services
- v.-
Cerebral Palsy Center of the Bay Area,
Respondent.
DATE: March 22, 1994
Docket No. 93-504-2
Decision No. 1468
DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE
DECISION
The Department of Health and Human Services (Department) filed
exceptions to a decision by Administrative Law Judge Edward D. Steinman
issued December 10, 1993 (ALJ Decision) concerning an allegation by the
Department that the Cerebral Palsy Center of the Bay Area (CPCBA or
Respondent) violated Section 504 of the Rehabilitation Act of 1973
(Act), as amended, 29 U.S.C. 794, and its implementing regulations at
45 C.F.R. Part 84. The Department charged that CPCBA subjected an
allegedly qualified handicapped person (the Complainant) to
discrimination in employment, and denied him an employment opportunity
based on the need to make reasonable accommodation, thereby violating
Section 504 of the Act and 45 C.F.R. 84.11(a), 84.12(a), and
84.12(b). Consequently, the Department sought to terminate all future
Federal financial assistance to CPCBA until CPCBA remedies the
discriminatory conduct. The ALJ concluded that the Department failed to
prove that it had jurisdiction to bring, or that the ALJ had
jurisdiction to hear, this claim of discrimination. (An additional
allegation by the Department, that CPCBA's employment application form
was discriminatory, was fully settled by the parties after the issuance
of the ALJ Decision and thus is not considered in this decision. See
Respondent Brief (Br.) at 6 n.2.)
The sole issue raised by this appeal is whether CPCBA was "receiving
Federal financial assistance" within the meaning of Section 504 of the
Act, as amended (Section 504). The ALJ found that CPCBA was a recipient
of Medicaid waiver funds at the time the alleged discrimination occurred
and that the Medicaid Waiver Program was intended by Congress to be
Federal financial assistance and thus subject to Section 504. However,
the ALJ concluded, based on his interpretation of the Supreme Court's
decision in United States Department of Transportation v. Paralyzed
Veterans of America, 477 U.S. 597 (1986), that a "recipient," within
the meaning of Section 504 and Department regulations, must know it is
receiving federal funds because it must be in a position to accept or
reject the obligations of Section 504 as part of the decision whether or
not to receive federal funds. The ALJ also found that the Department
had not proven that CPCBA knew prior to July 1992 (a date subsequent to
the alleged discrimination) that: (a) it had received federal Medicaid
Waiver Program funds; and (b) it was therefore in a position to accept
or reject the obligations of Section 504 as part of its decision whether
or not to receive federal funds. Therefore, even though the ALJ found
that CPCBA had received Federal financial assistance during the period
in issue, he nevertheless concluded that CPCBA was not a "recipient"
of
assistance within the meaning of the statute and regulation because it
lacked knowledge of the source of the funding.
On appeal, the Department took exception to four findings of fact and
conclusions of law (FFCLs) in the ALJ Decision that bear on the ALJ's
ultimate conclusion that CPCBA was not a "recipient" of assistance
and
that he lacked jurisdiction to hear the claim of discrimination. The
Department asked us to reverse these FFCLs and remand the case to the
ALJ for adjudication of the claim of discrimination.
Although CPCBA obviously did not seek review of the ALJ's ruling of no
jurisdiction, it did take exception to several of the ALJ's findings on
related jurisdictional issues, which were favorable to the Department,
to preserve these issues on appeal in case we agreed with the
Department's position on its exceptions.
We have reviewed the ALJ Decision in our capacity as members of the
Civil Rights Reviewing Authority. 1/ Based on our review of the record
before the ALJ as well as the parties' arguments to us on appeal, we
find that Respondent was clearly "receiving Federal financial
assistance" and was itself a "recipient" of "Federal financial
assistance" within the meaning of Section 504 and Department
regulations.
It is undisputed that CPCBA actually received funds under the Medicaid
Waiver Program for services it provided to Medicaid recipients at the
time that the alleged discrimination occurred. In our view, the actual
receipt of payment for services provided to Medicaid recipients clearly
brings CPCBA within the scope of a "program or activity receiving
Federal financial assistance" within the plain meaning of those terms as
used in Section 504. Moreover, both the text and the explanatory
appendix of the Department's implementing regulations make it clear that
health care providers receiving reimbursement under Medicaid are
"recipients" under Section 504. Neither the statute nor the regulations
require the recipient to have knowledge of the source of federal
assistance. Requiring knowledge of funding sources is inconsistent with
the basic purposes of the civil rights legislation in question and could
obstruct its implementation. Under the Department's regulations, CPCBA
still has the option of remedying the discriminatory conduct, rather
than foregoing funding, once it is formally notified of its funding
sources during the Department's procedures for enforcement of Section
504. Finally, contrary to the ALJ's analysis, the Paralyzed Veterans
decision does not support the conclusion that CPCBA must have knowledge
of the Medicaid Waiver Program as a source of its funding for services
before it can be viewed a "recipient" of federal funding for purposes
of
Section 504.
Thus, we conclude that the ALJ erred in finding that the Department
lacked jurisdiction to bring its claim of discrimination against CPCBA
because CPCBA did not qualify as a "recipient" at the requisite time
under Section 504. In so doing we reverse FFCLs 10, 11, 62 and 63 to
which the Department excepted. We also conclude that CPCBA's exceptions
to FFCLs 7, 12 and 58 on related jurisdictional issues, which were
favorable to the Department, are without merit. CPCBA also excepted to
the factual accuracy and completeness of FFCLs 24, 28 and 57. Since
these exceptions on factual issues would not affect our result here and
since the ALJ must clarify jurisdictional findings generally in the
remand proceedings that follow, the ALJ should reexamine the accuracy
and completeness of these FFCLs at that time.
Accordingly, we remand this appeal to the ALJ to consider the
Department's claim of discrimination against CPCBA on its merits. The
ALJ should also clarify any findings on the jurisdictional issues
consistent with our analysis and reexamine the accuracy of FFCLs 24, 28
and 57 in light of CPCBA's exceptions. We affirm all remaining FFCLs.
Factual Background
Below we summarize the factual background to this appeal based on the
undisputed findings of the ALJ.
Section 1915(c) of the Social Security Act established the Medicaid
Waiver Program, an optional program authorizing the Secretary to waive
certain Medicaid statutory limitations in order to enable states to
provide a broad array of approved home and community- based services
(except for room and board) to individuals who, without those services,
would require the level of care provided in a hospital or a nursing or
intermediate care facility.
CPCBA is a California non-profit corporation providing programs and
services to individuals with developmental disabilities, primarily
cerebral palsy, in order to assist these individuals in activities of
daily living, such as obtaining and maintaining employment. CPCBA
receives almost 70 percent of its funding as fee-for- services from the
California Department of Developmental Services (DDS) (and the
California Department of Rehabilitation) primarily via the Regional
Center of the East Bay (RCEB), a non-profit corporation set up under the
Lanterman Act. The Lanterman Act embodies California's statutory scheme
for providing services to developmentally disabled persons. Its purpose
is to provide a single point of coordination for services to California
residents with developmental disabilities.
Under the Lanterman Act, DDS contracts annually with 21 regional centers
throughout California (private, non- profit corporations, not State
agencies) including RCEB. CPCBA performs client services for individuals
referred to it from RCEB. These individuals include Medicaid
recipients. The regional centers submit monthly invoices to DDS. DDS
extracts the cost of the Medicaid waiver services and creates an invoice
to California's Department of Health Services (DHS), the State agency
responsible for administering the Medicaid program in California.
DHS then submits a claims schedule to the California State Controller
for payment. The Controller issues a check to DDS which is a draw-down
from the DHS health care deposit fund and constitutes federal
reimbursement under the Medicaid Waiver Program for 50 percent of a
regional center's invoice for eligible individuals. DDS pays the
regional centers. During State fiscal years 1987 through 1989,
Respondent received $117,573.57 from RCEB under the Medicaid Waiver
Program. Half of this amount, $58,786.79, was federally funded by the
Department.
The Complainant, a disabled individual, was employed by CPCBA from April
1988 through March 1989, when he was fired. Following his termination
he filed discrimination charges against CPCBA. During Complainant's
term of employment with CPCBA, the contracts between RCEB and its
vendors, such as CPCBA, did not refer to Medicaid eligibility or
possible federal reimbursement. Thus, the ALJ found that, during this
period Respondent was not necessarily aware that its clients were in the
Medicaid Waiver Program or that federal funds provided one-half the
reimbursement for the cost of services to them.
The Department's Exceptions
The Department excepted to the following FFCLs --
10. To be a recipient of Federal financial assistance, an entity must
be in a position to accept or reject the obligations of section 504 as
part of the decision whether or not to receive federal funds.
Department of Transportation v. Paralyzed Veterans of America, 477 U.S.
597 (1986).
11. Unless an entity knows it is receiving federal funds, an entity
cannot be a "recipient" of "federal financial assistance,"
because it is
not in a position to accept or reject those federal funds. 2/
62. Respondent is not a "recipient" of federal financial assistance.
63. As Respondent is not a "recipient" of federal financial assistance
with regard to the Department's allegation of discrimination against the
complainant, I am without jurisdiction to adjudicate this allegation.
In support of its exceptions, the Department argued that the ALJ had
misinterpreted and misapplied the Supreme Court's holding in Paralyzed
Veterans when he erroneously concluded that an entity must know it is
receiving federal funds in order to be a recipient of Federal financial
assistance. Consequently, the Department argued that the ALJ erred both
in finding that CPCBA was not a recipient of Federal financial
assistance and that he did not have jurisdiction to adjudicate the
Department's allegation of discrimination by CPCBA. Department Br. at
5-6.
Analysis
1. The ALJ erred in his application of the statute and the regulations.
Guidelines for the Civil Rights Reviewing Authority provide that the
standard of review on a disputed factual issue is whether the ALJ's
decision is supported by substantial evidence in the record. The
standard of review on a disputed legal issue is whether the ALJ's
decision is erroneous.
The central issue in this appeal is whether the ALJ erred when he
determined that Respondent was not a "recipient" of Federal financial
assistance within the meaning of Section 504 and implementing
regulations. The proper starting point in considering this issue is the
language of the statute itself. Section 504 provides:
No otherwise qualified individual with handicaps . . . shall,
solely by reason of her or his handicap, . . . be subjected to
discrimination under any program or activity receiving Federal
financial assistance . . . .
29 U.S.C. 794(a) (1988). Thus, the issue posed by the statutory
language is whether CPCBA was receiving Federal financial assistance.
Although Section 504 does not define what constitutes receipt of Federal
financial assistance, the Department's implementing regulation provides
the following definition of a "recipient":
Recipient means any state or its political subdivision, any
instrumentality of a state or its political subdivision, any public
or private agency, institution, organization, or other entity, or
any person to which Federal financial assistance is extended
directly or through another recipient, including any successor,
assignee, or transferee of a recipient, but excluding the ultimate
beneficiary of the assistance.
45 C.F.R. 84.3(f) (emphasis in original). In an analysis of the final
regulation in a codified appendix, the Department specifically addressed
the scope of the definition of "recipient" in the context of the
Medicaid program. See 45 C.F.R. Part 84, Appendix A, Analysis of Final
Regulation, Subpart A--General Provisions. The Department noted that
most of the comments concerning the definition of "recipient" in the
notice of proposed rulemaking commended the inclusion of recipients
whose sole source of assistance is Medicaid payments. The Appendix
affirmed that no change in the definition would be made because the
Secretary believed that --
such Medicaid providers should be regarded as recipients under the
statute and the regulation and should be held individually
responsible for administering services in a nondiscriminatory
fashion.
Id. at Definitions, 1. (Also, as we discuss later in response to
CPCBA's exceptions, it is well-established in the case law and
legislative history that health care providers receiving Medicaid
funding are "recipients" for purposes of Section 504.)
The ALJ found that during the period July 1, 1987 through July 30, 1989,
CPCBA received $117,573.57 under the Medicaid Waiver Program for
services provided to Medicaid recipients and that half of that amount
was federal funding. FFCL 49. The actual receipt of this funding is
sufficient in our view to bring CPCBA within the scope of the plain
meaning of the statutory language "receiving Federal financial
assistance" and the regulatory definition of "recipient." Clearly,
there is no requirement in the statute or the regulations that an entity
providing health care services and receiving reimbursement particularly
know of the federal source of its funding. 3/
We also conclude that requiring knowledge of funding sources would be
inconsistent with the statutory purposes of Section 504 and would
ultimately obstruct its enforcement. Our reasons are as follows:
o The ALJ Decision would apply Section 504 to those recipients who were
conscientious enough to learn of their sources of funding and reward
those recipients who chose to remain ignorant of their funding sources
(or whose knowledge could not be substantiated with evidence). The
ignorant recipient would be able to get the full benefit of the funding
and avoid the attendant responsibilities, e.g., avoid having to act in a
non- discriminatory way. (As we stated in footnote 3 above, however, if
CPCBA had wanted to be certain of its funding status, it need only have
made an inquiry with RCEP, the regional center that provided its
governmental funding. Clearly, from that perspective and indeed from
other perspectives identified in the footnote, CPCBA was not an ignorant
recipient and did have a choice to decline the funding at issue.)
o Actual knowledge is not necessary to protect a truly ignorant
recipient from the imposition of penalties for discriminatory practices.
Under Section 504 enforcement procedures, a recipient has the option to
remedy the discrimination that was subsidized with federal funds or to
forego future federal funding after being notified of its funding
sources during Department procedures for the enforcement of Section 504.
45 C.F.R. 80.7(d)(1) and 80.8. Thus, a recipient who had been
completely ignorant of the source of its funding would, after being
explicitly notified of the federal source of its funding during
enforcement proceedings, face only prospective remedies for past
discrimination and then only if the recipient refused to remedy the
discriminatory conduct.
o Under the ALJ Decision, if the Federal government wished to ensure
that all recipients who would otherwise be bound by Section 504 knew of
their federal funding sources, it would have to provide specific notice
of funding source in every case (retaining evidence of the notice as
appropriate), or ensure that the various agencies administering programs
receiving federal funding provided the notice. Such a requirement could
be extremely burdensome and costly for the Federal government and would
greatly undermine its ability to enforce Section 504.
o The impact of the ALJ Decision would be especially burdensome to the
Federal government in the context of block grant programs. As the
Department stated in its brief:
Block grant funds to states are distributed by the states to a
variety of subgrantees, including local authorities. Moreover,
these block grant funds often are funnelled through two or more
successive subgrantees before reaching entities such as vendors,
private researchers, community groups, and other public and private
institutions.
Under the ALJ's reasoning, any entity receiving Federal block grant
funds distributed by the state or a local authority would be able
to claim that it did not know that the funds it received were
federal. . . .
To avoid such consequences, the Federal government would be
required to prove that each recipient or grantee of [assistance]
notified each subsequent subrecipient or subgrantee that the funds
were federal in nature. The Federal government would further be
required to document such notification.
Department Br. at 22-23.
Having concluded that the excepted FFCLs were erroneous in light of the
plain meaning of the statutory language and the implementing regulations
and the purposes behind those provisions, we now consider the Supreme
Court decision relied upon by the ALJ.
2. The ALJ erred in concluding that he lacked jurisdiction based on the
Paralyzed Veterans decision.
On appeal, the Department argued that the ALJ misinterpreted and
misapplied Paralyzed Veterans to find that an entity's status as a
recipient was predicated on its knowing receipt of Federal financial
assistance which, in the ALJ's view, would enable it to accept or reject
the Section 504 responsibilities accompanying those funds. We agree.
The Paralyzed Veterans of America, an organization representing the
disabled, sued the United States Department of Transportation for
failing to impose the obligations of Section 504 on commercial airlines.
The organization argued that the airlines were indirect recipients of
Federal financial assistance by virtue of grants to airport operators
from a trust fund established under the Airport and Airway Development
Act of 1970. The Supreme Court noted that the starting point of any
inquiry into the application of a statute is the language of the statute
itself. The Court determined that, under the relevant statute, the
recipient for the purposes of Section 504 was the operator of the
airport, not its users, the commercial airlines. Further, the Court
held that the scope of Section 504 was limited to those who receive the
federal funding, because Congress' intent was to impose Section 504
coverage as the contractual cost of a recipient's agreement to accept
federal funds. Paralyzed Veterans, 477 U.S. at 604-607.
Before the ALJ, CPCBA argued that under the rationale of Paralyzed
Veterans, it could not have received Federal financial assistance within
the meaning of Section 504 because it did not agree to be subject to
Section 504 as a condition of receiving federal funds. The ALJ agreed
with CPCBA's position. The ALJ correctly noted that the Court concluded
that Congress limited the obligations of Section 504 to recipients
because it intended to impose coverage of this section only "as a form
of contractual cost of the recipient's agreement to accept the federal
funds." ALJ Decision at 28. The ALJ stated that, by limiting coverage
to recipients, Congress imposed Section 504 obligations only as part of
an entity's decision whether or not to "receive" federal funds. He
noted that the Departmental definition of recipient makes no reference
to knowledge of the receipt of Federal financial assistance as a
condition of coverage under Section 504. However, he concluded that
while an entity such as CPCBA may meet the regulatory definition of a
recipient, this is not sufficient to impose Section 504 obligations.
The ALJ reasoned that the Court had imposed an additional requirement,
that an entity be in a position to accept or reject the federal funds,
since such funds come with an obligation to be bound by Section 504.
Id.
The error in the ALJ's analysis is predicated on his reasoning that "the
Court imposed an additional requirement, that an entity be in a position
to accept or reject the federal funds. . . ." ALJ Decision at 29
(emphasis added). The ALJ interpreted Paralyzed Veterans as
establishing a precondition to being a recipient of federal funds. In
Paralyzed Veterans, the Court stated that "[b]y limiting coverage to
recipients, Congress imposes the obligations of 504 upon those who are
in a position to accept or reject those obligations as a part of the
decision whether or not to þreceiveþ federal funds." Id. at
606.
However, the issue before the Court was not whether the organization
knew it had a federal funding source but rather whether the organization
in fact had a federal funding source. The Court determined that
Congress had intended that the funding in issue go to the airport
operators, not the airlines. This was, the Court found, the manner in
which the funds were disbursed, since "not a single penny" was given
to
the airlines. Id. at 605. Thus, airport operators were the
"recipients" of the funds, while the airlines were simply beneficiaries.
Id. at 607.
When the decision is viewed in context, it is clear that the Court did
not intend to impose the stringent requirement enunciated by the ALJ.
The Court's analysis of the term "recipient" in Paralyzed Veterans
took
place in the context of distinguishing between the actual receipt of
federal funds (by a recipient) and the incidental benefit derived from
an attenuated connection to such funds (by a beneficiary). The Court
found that the airport operators were in a position to accept or reject
the federal funding because they were the recipients of the federal
funding. However, there was no indication that the operators had to be
(or, in fact, were) aware of that option from the outset of their
receipt of the federal funding. 4/ The operators, as opposed to the
airlines, had the ability to exercise the option to receive the funding
in question when it was made available. Similarly, the Court's
discussion of the contractual nature of Section 504 took place in the
context of which entity (airport operators or airlines) actually
received the federal funds. Id. at 604-606.
As the Department noted, the Supreme Court is reluctant to read into
federal anti-discrimination legislation limitations not apparent on the
face of the particular statute. See Grove City College v. Bell, 465
U.S. 555, 564 (1984) (which the Supreme Court explicitly relied upon in
its conclusion in Paralyzed Veterans). 5/ Grove City was a college
which steadfastly refused all federal funding. However, certain
students there received Basic Educational Opportunity Grants (BEOGs).
The BEOG is a federally-funded program under which financial assistance
is provided directly to the student for application to college expenses.
In a Title IX action, Grove City took the position that it did not
receive Federal assistance because the money was paid directly to BEOG
participants. The Court disagreed, suggesting that Grove City was
attempting to elevate form over substance since nothing in Title IX made
application of the nondiscrimination principle dependent on the manner
in which the federal money was received. Grove City, 465 U.S. at
559-564. The Court stated:
There is no basis in the statute for the view that only
institutions that themselves apply for federal aid or receive
checks directly from the Federal Government are subject to
regulation.
Id. at 564.
Drawing an analogy to the facts of this case, the Department noted that,
given Grove City's attempted refusal to accept any federal funding, it
was obvious that Grove City had no prior notice of its receipt of
federal funds. Yet that lack of notice did not deter the Court from
finding that the college was a recipient of federal funding. Section
504 applies to any entity receiving Federal financial assistance. Thus,
the Department argued, to be consistent with the Court's rationale in
Grove City, Section 504 cannot be interpreted as containing a notice
requirement, where none is apparent on its face. Department Br. at 13.
We agree.
Moreover, Congressional reaction in the wake of the Grove City decision
further supports the Department's position here. The Court in Grove
City held that the receipt of BEOGs by some of the College's students
did not trigger institution-wide coverage under Title IX. Rather, the
Court determined that Title IX was program-specific, thereby limiting
application of a remedy to the College's financial aid program. Id. at
570-574. Congress was extremely concerned that the overly narrow remedy
in Grove City had undercut Titles VI, Title IX, Section 504 and the Age
Discrimination Act. Thus, in the Civil Rights Restoration Act of 1987,
Pub. L. No. 100-259, 1988 U.S.C.C.A.N. (102 Stat.) 28, Congress sought
to reaffirm the underlying purposes of these anti-discrimination laws.
The Senate Committee Report noted that where "an entity of state or
local government receives federal aid and distributes it to another
department or agency, both entities are covered. For private
corporations, . . . if the corporation provides a public service, such
as social services, . . . the entire corporation is covered." See S.
Rep. 100-64, 100th Cong., 2d Sess. 3, reprinted in 1988 U.S.C.C.A.N. 6.
Congress reasserted that "eliminating discrimination from institutions
which receive federal financial assistance could only be accomplished if
the civil rights statutes were given the broadest interpretation." Id.
at 7. Congress noted that, a year after the passage of Section 504, it
had expressed its view that the prohibition against discrimination in
Section 504 was to be read as broadly as that included in Title VI.
Specifically,
Section 504 was patterned after . . . the antidiscrimination
language of . . . [Titles VI and IX] . . . the Section therefore
constitutes the establishment of a broad government policy that
programs receiving Federal financial assistance shall be operated
without discrimination on the basis of handicap. Senate Report
(Labor and Public Welfare Committee) (No. 93-1297, November 16,
1974, 120 Cong. Record p. 30354 (1974).
Id. at 9.
Thus, it is evident from the legislative history that Congress intended
entities such as CPCBA to be covered by Section 504.
Finally, additional support for the Department's position may be found
in Moore v. Sun Bank of North Florida, 923 F.2d 1423 (11th Cir. 1991),
hearing en banc vacated and opinion reinstated, 963 F.2d 1448 (11th Cir.
1992). There, Sun Bank, a lender in a Small Business Administration
(SBA) guaranteed loan program, asserted that it was not a recipient of
Federal financial assistance for purposes of Section 504, but merely a
beneficiary. The bank argued that the recipient under the statute was
the small business that obtained the loan. However, funds for the loan
ostensibly came from the bank, and the statute provided that in case of
default by the borrower, federal funds up to ninety percent of the loan
would be disbursed to the lending institution. In fact, on at least one
occasion during the complainant's employment, Sun Bank had received a
direct reimbursement from the SBA following the default of a guaranteed
loan. The court concluded that the bank's voluntary participation in
the guaranteed loan program made the bank a "recipient" and thus
triggered Section 504 coverage. The court reached this conclusion,
however, in spite of the fact that the bank had no knowledge that its
participation would have this effect since relevant federal regulations
excluded a "contract of guaranty." 6/ The court ultimately concluded
that this specific provision of the regulations was "invalid." Sun
Bank,
923 F.2d at 1431.
Thus, we agree with the Department that Sun Bank is further support for
the result we reach here because while the bank may well have known that
it was a voluntary participant in a guaranteed loan program (as CPCBA
argued), the relevant regulatory guidance specifically excluded the
bank's participation in such programs of guaranty from the definition of
"Federal financial assistance." The court persisted in applying Section
504 coverage to the bank even though the bank presumably was misled
about its coverage under Section 504 during the complainant's employment
based on the regulation the court ultimately found to be invalid. Thus,
realistically speaking, the bank lacked the choice to decline coverage
of Section 504 at the requisite time, just as CPCBA here argued it did.
Moreover, the court noted that under the rationale in Grove City, should
the bank choose not to bear the costs of providing employment for
handicapped individuals in return for receiving federal funds, it was
free to terminate its participation in the guaranteed loan program. Sun
Bank, 923 F.2d at 1432. Thus, the court recognized that it was
sufficient for purposes of Section 504 that the bank be aware of federal
funding when it had to make the choice of continuing the discriminatory
conduct or desisting. The court implied that this was the type of
contractual arrangement the Supreme Court had in mind in the Paralyzed
Veterans decision.
Thus, after a careful analysis of the parties' arguments related to the
Paralyzed Veterans decision and other relevant case law, we conclude
that the ALJ erred in concluding that he lacked jurisdiction.
Based on the foregoing analysis in both sections 1 and 2 of this
decision, we reverse FFCLs 10, 11, 62 and 63 to which the Department
excepted since they lack support in the statute, the regulations and the
case law.
CPCBA's Exceptions
Respondent excepted to six FFCLs. Three of those (FFCLs 7, 12 and 58),
which we discuss as a group, relate to other aspects of the core issue
of who should be considered a "recipient" of Federal financial
assistance. The FFCLs provide --
7. The regulations state that service providers whose only source of
federal financial assistance is Medicaid should be regarded as
recipients under the statute and regulation and should be held
individually responsible for administering services in a
non-discriminatory fashion.
12. An entity's knowing receipt of Medicare or Medicaid payments
constitutes federal financial assistance for the purposes of section
504, as the purpose behind these programs is to subsidize payments to
providers of medical services for the care of the beneficiaries of those
programs. Furthermore, Congress intended these programs to constitute
federal financial assistance for the purposes of coverage under section
504. United States v. Baylor University Medical Center, 736 F.2d 1039
(5th Cir. 1984), cert. denied, 469 U.S. 1189 (1985); Frazier v. Board
of Trustees of Northwest Mississippi Medical Center, 765 F.2d 1278 (5th
Cir. 1985), cert. denied, 476 U.S. 1142 (1986); Jacobson v. Delta
Airlines, Inc., 742 F.2d 1202 (9th Cir. 1984), cert. dismissed, 471 U.S.
1062 (1985).
58. The Medicaid waiver program was intended by Congress to be federal
financial assistance and thus subject to section 504 of the Act.
Generally, CPCBA disputed the ALJ's finding that Medicaid service
providers are recipients of Federal financial assistance within the
meaning of Section 504. Respondent argued that receipt of funds
originating from Medicaid does not constitute Federal financial
assistance where the payments were fees for services provided by a
vendor. CPCBA reasoned that the Medicaid Waiver Program pays fees for
services rendered to program beneficiaries and that Congress did not
intend vendors to be "recipients" of Federal financial assistance
under
Section 504. Consequently, Respondent also excepted to the ALJ's
conclusion that Congress intended the Medicaid Waiver Program to be
Federal financial assistance and thus subject to Section 504 of the Act.
Respondent Br. at 8-9.
For reasons largely identified by the ALJ in his decision, we conclude
that none of these exceptions has merit. CPCBA received payments of
Federal financial assistance for providing health care services to
Medicaid recipients, and thus was covered by the plain meaning of the
definition of "recipient" in the regulation quoted and discussed
previously in the decision. Further, the codified appendix to the
regulation leaves no doubt that Medicaid providers are intended to be
included. The Department's longstanding interpretation of the statute
in the regulation and the codified appendix promulgated through notice
of proposed rulemaking is entitled to great deference. See, e.g.,
United States v. Baylor University Medical Center, 736 F.2d 1039 (5th
Cir. 1984), cert. denied, 469 U.S. 1189 (1985).
Moreover, it has become well-established in the case law that Medicaid
funding to health care providers constitutes Federal financial
assistance for purposes of coverage under Section 504. Baylor, 736 F.2d
at 1049; Frazier v. Board of Trustees of Northwest Mississippi Medical
Center, 765 F.2d 1278, 1289 (5th Cir. 1985), cert. denied, 476 U.S. 1142
(1986). In Baylor, the court explicitly held that the hospital's
receipt of Medicare and Medicaid funds in compensation for health
services to patients triggered Section 504 obligations. Baylor, 736
F.2d at 1049. The court based this finding on the legislative history
of Section 504 and related statutes, the implementing regulations, and
judicial interpretation of the statutes. Among other references to the
legislative history, the court quoted the following statement from a
House Committee report:
[I]t has always been clear the Medicare and Medicaid funds
constitute Federal financial assistance. The Committee wishes to
reaffirm that health care facilities and other providers that
receive Medicare and Medicaid funds are required, under existing
statutes and long-standing Department of Health and Human Services
regulations and interpretations, to provide services without
discrimination not just to Medicare and Medicaid beneficiaries, but
to all patients.
Baylor, 736 F.2d at 1045-46, citing H.R. Rep. No. 442, 98th Cong., 1st
Sess. 77 (1983). The court noted that of the six courts that had
considered the issue previously, five held that Medicare and Medicaid
invoked the protection of the federal anti-discrimination statutes.
Contrary to CPCBA's arguments, the arrangements through which CPCBA
received its funding under California's Lanterman Act in no way changes
the nature of the funding as Federal financial assistance designed to
reimburse CPCBA for providing health care services to Medicaid
recipients. Thus, regardless of whether CPCBA is viewed as a "vendor"
under the Lanterman Act and regardless of whether CPCBA received its
funding through the special intermediaries authorized under that Act,
CPCBA still clearly functioned as the provider of services to the
Medicaid recipients and clearly received reimbursement in the form of
Federal financial assistance for the services it provided. Moreover,
CPCBA pointed to no basis under the statute or its legislative history,
and we know of none, for here distinguishing section 1915(c) waiver
services from any other services covered by Medicaid (or for viewing the
reimbursement for such services as anything other than Federal financial
assistance). Finally, the cases cited by CPCBA in its arguments in
support of these exceptions are either irrelevant or unavailing as
support on behalf of CPCBA's position.
Accordingly, we uphold FFCLs 7, 12 and 58.
CPCBA excepted to three other FFCLs because they were misleading,
inaccurate or incomplete.
24. During the hearing, Respondent asked that its admission regarding
its receipt of federal financial assistance be withdrawn, because its
own investigation had revealed that it did not receive federal financial
assistance from the Department or from any other federal agency.
28. During the June 2, 1993 hearing, the Department amended the
jurisdictional allegation in the Notice by offering evidence to support
its contention that other federal financial assistance was provided to
Respondent. Specifically, the Department alleged that, during the time
the complainant was employed, Respondent was a recipient of federal
financial assistance under the Medicaid waiver program.
57. Respondent offered no evidence to show that it had a procurement
contract with RCEB or that it was reimbursed in an amount equal to the
fair market value of its services.
Regarding FFCL 24, Respondent excepted "to add that it had contested
jurisdiction from the first day of the hearing." Respondent Br. at 8.
Regarding FFCL 28, Respondent excepted "only to add that the Department
had stipulated at the hearing that the only funds in issue for
jurisdictional purposes . . . [were] those listed in . . . [Department]
Exhibit 24-10" and that federal reimbursement of those funds was limited
to 50% of the amounts claimed the Exhibit. Id. at 8-9. Finally,
regarding FFCL 57, Respondent excepted to note that the question of
whether the Medicaid Waiver Program constituted a procurement contract
or reimbursed CPCBA for the fair market value of its services was a
legal one controlled by the applicable statute and regulations. Further,
CPCBA reiterated that the Medicaid Waiver Program provided federal
reimbursement for only one-half the fair market value of services
rendered. Id. at 9.
These exceptions all generally concern the accuracy and completeness of
the ALJ's factual findings on issues that are relevant as background,
but not critical to the outcome of the appeal. Since we are remanding
this appeal to the ALJ so that he can consider the substance of the
Department's claim of discrimination and since the ALJ must clarify
jurisdictional findings generally in the decision on remand, the ALJ
should appropriately consider the accuracy and completeness of these
FFCLs as well at that time.
Conclusion
For the foregoing reasons, we reverse FFCLs 10, 11, 62 and 63, to which
the Department excepted and uphold FFCLs 7, 12, and 58 to which CPCBA
excepted. We remand this appeal to the ALJ to consider the Department's
claim of discrimination against CPCBA on its merits, clarify any
findings on the jurisdictional issues consistent with our analysis, and
reexamine the accuracy of FFCLs 24, 28 and 57 in light of CPCBA's
exceptions. We affirm all remaining FFCLs.
_________________________ Cecilia Sparks Ford
_________________________ M. Terry Johnson
_________________________ Donald F. Garrett
Presiding Panel Member
1. Pursuant to 45 C.F.R. 80.10(a) and 84.61, upon the filing of
exceptions, the initial decision of the ALJ is subject to review by a
reviewing authority. The Secretary appointed members of the
Departmental Appeals Board to the Civil Rights Reviewing Authority on
January 23, 1992. We issued guidelines which provide that a
three-member panel serves as the Civil Rights Reviewing Authority in
each appeal.
2. The ALJ's citations to the record before him are omitted from all
FFCLs repeated in this decision.
3. Nevertheless, even if we were to conclude that knowledge of the
source of funding was required by the statute and regulations, we think
that a compelling case could be made that CPCBA should be presumed to
have such knowledge for a variety of reasons:
o CPCBA had constructive knowledge of its funding source through
Federal or State statutes or regulations that authorized and implemented
the Medicaid Waiver Program in California. These provisions authorized
and implemented waiver funding for the services CPCBA provided.
o CPCBA knew at a minimum that the funding it received came from
governmental sources (see, e.g., ALJ Decision at 30, FFCL 32) and that
the funding was reimbursement for providing services for disabled
individuals. Medicaid is an extremely high-profile program for
furnishing medical assistance for disabled individuals, among others.
Thus, CPCBA should have known that the funding it received might be
federal Medicaid funding channeled through state agencies (as federal
Medicaid funding always is).
o CPCBA was at best uncertain of its sources of funding. If CPCBA had
wanted to be certain and rule out the possibility of federal funding, it
had only to contact the regional center (RCEB) that gave it the funding.
ALJ Decision at 30-32, FFCLs 37, 40. Thus, if CPCBA did not wish to
accept the obligations of Section 504, it should have contacted RCEB to
verify its funding sources and to decline Federal financial assistance.
From this perspective, CPCBA clearly did have a choice to decline the
federal funding it received during the period of the allegedly
discriminatory conduct.
o Providers of health care services under the Medicaid program
ordinarily are aware of their relationship to the program (and the
source of their funding) since all claims for services that they provide
to Medicaid recipients (whether submitted by them or not) must be
consistent with all applicable program requirements. Moreover, the
providers themselves ordinarily must be certified to meet specific
requirements.
4. CPCBA asserted that the Department had mistakenly characterized the
ALJ Decision as requiring "notice" of receipt of federal funds. CPCBA
argued that neither Paralyzed Veterans nor the ALJ Decision required
notice. Rather, in CPCBA's opinion, knowledge that the funding
originated in a federal program was the key. Respondent Response Br. at
10. As a practical matter, CPCBA's argument is a distinction without a
difference since its position effectively requires the Federal
government to give notice to all recipients whom it wishes to enforce
the provisions of Section 504.
5. Although it involved Title IX of the Education Amendments of 1972,
the Grove City analysis is equally applicable here. The federal
nondiscrimination statutes embodied in Title IX, Section 504 and the Age
Discrimination Act have a common genesis, Title VI of the Civil Rights
Act of 1964. Each uses the same language to describe its coverage.
Moreover, Congress clearly intended that the same standards apply to
interpret and enforce these statutes. See S. Rep. 100-64, 100th Cong.,
2d Sess. 3, reprinted in 1988 U.S.C.C.A.N. 3, 4.
6. The regulations in question were this Department's regulations, 45
C.F.R. 84.3(h), since this Department (then, the Department of Health,
Education and Welfare) in 1977 had been given the lead responsibility in
coordinating and implementing Section 504. This same regulation was
subsequently adopted by the Department of