Georgia Department of Medical Assistance, DAB No. 1488 (1994)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Georgia Department of Medical Assistance

DATE: August 5, 1994
Docket No. A-94-72
Decision No. 1488

DECISION

The Georgia Department of Medical Assistance (Georgia) appealed a
determination by the Health Care Financing Administration (HCFA)
disallowing $3,416,193 in federal financial participation (FFP) claimed
for home-delivered services under Title XIX (Medicaid) of the Social
Security Act (Act). HCFA disallowed the federal share of payments made
by Georgia to ABC Home Health, Inc. (ABC) claimed for the period January
1, 1987 through September 30, 1991.

Based on a HCFA financial management review report, HCFA determined that
FFP was not available in payments made to ABC because it had violated
applicable Medicaid program requirements when it subcontracted with an
uncertified provider for home delivered services for Medicaid
recipients. Georgia did not appeal HCFA's disallowance issued on May 7,
1992, and repaid HCFA. Georgia was, however, subsequently precluded
from recouping its payments to ABC based on a decision by a state
adminis- trative law judge (ALJ). Georgia then reclaimed FFP for its
payments to ABC on its expenditure report filed November 2, 1993. HCFA
disallowed Georgia's reclaim, relying on the earlier, unappealed
disallowance as well as its finding that Georgia's reclaim was untimely
because it was not filed within the two-year period required by section
1132(a) of the Act.

Georgia asserted that HCFA's disallowance was arbitrary and capricious
because (1) HCFA had taken no independent action against ABC, and (2)
HCFA did not provide adequate assistance to Georgia during the state
administrative proceeding which Georgia lost. As explained further
below, we reject this assertion. Georgia did not specify any authority
for independent action by HCFA. Moreover, we are not persuaded that
HCFA could have appropriately been more involved in the state
administrative proceedings in light of regulations which restrict HCFA's
participation in hearings in which HCFA or the Department of Health and
Human Services (Department) is not a party. In any event, HCFA's failure
to assist Georgia is irrelevant since Georgia did not establish that
such assistance was necessary or would have made a difference to the
state proceeding. The adverse state ALJ decision was based in part on
the finding that Georgia had acquiesced in the subcontract arrangement
and therefore could not recoup its payments under state law. We also
conclude that the prohibition in section 1903(d)(2)(D) of the Act
against HCFA's recovery of "otherwise uncollectible" overpayments does
not apply since ABC was neither bankrupt nor out of business.

Accordingly, we uphold the disallowance in full.


Statement of Facts

The following facts are not in dispute. Georgia paid ABC $5,436,437 for
certain home care services provided to Medicaid recipients under an
approved program waiver. See Georgia Brief (Br.) at 2; HCFA Br. at 1.
While home and community-based services are not listed in section
1903(a)(1) of the Act as reimbursable Medicaid state plan services, a
state may elect to provide such services if it includes them in a
section 1915(c) program waiver, which must be approved by HCFA. Of the
$5,436,437 which Georgia paid ABC, the federal share was $3,416,193.
Id.

On March 17, 1992, HCFA issued a financial management review report
which found that Georgia improperly claimed FFP in payments to ABC for
home-delivered services during the relevant time period. See Georgia
Ex. 2, "Review of Contracted Home Delivered Services in the Community
Care Services Program [CCSP] By ABC Home Health, Inc. Under Georgia's
Aged and Disabled Waiver No. 0112.91." This finding was based on ABC's
noncompliance with certain requirements of the waiver. Specifically,
the report found that ABC was subcontracting the services it provided
without performing any services itself and was not supervising the
services its subcontractor, a non- certified and non-regulated nursing
company, was providing. Id. at 2 -5. The report found that these
practices violated section 605.31(A) of the CCSP Policies and Procedures
Manual (which was submitted with and incorporated by reference into the
approved waiver). This section provides:

Subcontracts relating to the provision of services to CCSP clients
shall be maintained in the provider's office. The subcontract must
state that the CCSP provider retains the administrative,
professional and supervisory responsibility for all services
provided under subcontract.

Id. at 2; see also 42 C.F.R.  484.14(a) (an HHA providing services
under Medicare and Medicaid may not delegate supervisory functions and
must monitor services not directly provided by the agency.) The report
found that ABC's practices also violated 42 C.F.R.  484.14(a),
applicable to Medicaid waiver-provided home and community-based
services. This section provides in part that:

An HHA [home health agency] must provide at least one of the
qualifying services directly through agency employees, but may
provide the second qualifying service and additional services under
arrangements with another agency or organization.

Id. at 5. On May 7, 1992, HCFA disallowed the federal share of
Georgia's payments to ABC based on the review report findings. Georgia
Ex. 5. Georgia did not appeal this determination to the Departmental
Appeals Board (Board), although it was notified that it was entitled to
make such an appeal.

In the meantime, on April 20, 1992, Georgia notified ABC of HCFA's
findings and demanded repayment of $5,436,437. Georgia informed ABC that
it could appeal Georgia's demand to an ALJ. Georgia Ex. 3. ABC
appealed and, after a hearing, the ALJ ruled that Georgia could not
recover the payments at issue. See Georgia Ex. 6; Ex. 15 (Ruling of
October 26, 1993). The ALJ determined that while ABC had not complied
with each and every one of the regulations which were applicable to the
program waiver, it had substantially complied with them since it main-
tained ultimate responsibility for the subcontractor's performance.
Georgia Ex. 15, at 7-8. Moreover, the ALJ found that Georgia was
estopped from collecting the payments it made to ABC because Georgia
knew or should have known that ABC was not performing services itself;
thus, Georgia had engaged in an "acquiescence of silence" with regard to
the violations. Id. at 5, 11-12. The ALJ found that Georgia knew or
should have known as early as 1987 that ABC was subcontracting the
services it was providing and as early as November, 1990 that such
subcontracting arrangement raised questions of noncompliance with
applicable regulations. The ALJ found no evidence of any attempt by ABC
to hide the subcontracting arrangement from Georgia or to otherwise
engage in fraud or deception. Georgia Ex. 15, at 5, 11. Accordingly,
the ALJ concluded that recovery by Georgia would be inequitable under
the circumstances.

Georgia again claimed the federal share of these funds on its quarterly
expenditure report filed with HCFA on November 2, 1993. Georgia Br. at
4; HCFA Br. at 2. HCFA notified Georgia that it was disallowing the
claim in full by letter dated January 10, 1994. Georgia Ex. 16. This
appeal followed.


Discussion

1. HCFA was not required to take independent action against ABC
or to assist Georgia with its administrative recoupment
action.

Georgia did not dispute that ABC violated the subcontracting
requirements of the applicable regulations as incorporated into the
approved waiver. Instead, Georgia argued that HCFA's disallowance of
its reclaim was arbitrary and capricious because HCFA did not take any
independent action against ABC and because HCFA did not provide adequate
support for Georgia's position in the administrative appeal. Georgia
Br. at 5-8.

Georgia asserted that for HCFA to disallow Georgia's reclaim for
payments which Georgia had attempted in good faith to recover from ABC
was arbitrary and capricious when HCFA had taken no action against ABC
based on the "licensing and certification" issues raised by Georgia.
Georgia Br. at 5-6. Georgia stated that when it initiated its
recoupment action, it informed HCFA that, based on HCFA's review, the
services by ABC's subcon- tractor violated 42 C.F.R.  440.70(d) (which
provides that for Medicaid purposes a home health agency is defined as
one which meets the requirements of Title XVIII (Medicare)). Georgia
relied on its having informed HCFA about the violation of 42 C.F.R. 
440.70(d) and on the requirement in 42 C.F.R.  431.610(b) that states
use the same survey agency for Medicaid that is used for Medicare, for
its assertion that HCFA should have taken independent action against
ABC. As support, Georgia cited to several cases discussing the
federal-state partnership aspects of the Medicaid program. Georgia Br.
at 6.

Essentially, HCFA's findings in its review report were based on
Georgia's failure to ensure that services provided by ABC met the
requirements for home and community based services provided under a
waiver. Georgia did not specify what would authorize HCFA to take action
directly against ABC as a Medicaid provider based on the failure of the
services to qualify under the waiver. 1/ Medicaid is a state-, not a
federally-, administered program. States receive FFP in expenditures
for medical assistance meeting federal requirements, but the states are
responsible for Medicaid administrative and operating procedures. 42
C.F.R.  430.0. Georgia had the responsibility for contracting for
waivered services only if those services met the applicable program
requirements. Thus, we reject Georgia's argument since we see no
support in any of the Medicaid provisions cited for independent action
by HCFA against ABC.

Georgia further argued that it sought assistance from HCFA employees to
testify in the action before the ALJ as to the significance of the
requirement that a contractor maintain supervision over the services
performed by its subcontractors, but HCFA declined to provide its
employees as witnesses. Instead, HCFA provided only one witness from
the Medicare intermediary, who (Georgia stated) could not testify as to
the intent of the regulations. Georgia Br. at 6-7.

Georgia did not cite to any authority which would indicate that
testimony of Department employees was either required or usually
provided in hearings before state administrative bodies where the
federal government is not a party. Georgia did not seek to have HCFA
intervene or otherwise become a party to the state proceeding. See
generally Georgia Ex. 11. In fact, as HCFA argued, a final rule of the
Department severely limits HHS personnel from testifying in hearings.
See 52 Fed. Reg. 37145; codified at 45 C.F.R. Part 2. HCFA also
advanced persuasive policy reasons for HCFA not involving itself in
hearings to which it was not a party. First, such participation would
be disruptive to the work of the Department. Secondly, if Department
employees testified in a hearing and the party for which it testified
did not prevail, it could be "blamed." HCFA Br. at 6, n.3.

Moreover, as HCFA also pointed out, Georgia did not explain what
testimony HCFA employees could provide that could not have been provided
instead by state employees. Such state agency personnel, out of
necessity, must be familiar with program requirements since they are
charged with administering a state Medicaid program. The subcontracting
requirements violated by ABC provide an obvious link to assuring quality
care for Medicaid recipients. The requirement that services be provided
or supervised by a certified provider is not just a technical
requirement but one which assures quality care to the vulnerable
population served under home and community based waivers. Thus, we are
not persuaded by Georgia's assertion that testimony of federal employees
was "imperative" to demonstrate to the ALJ that the subcontracting
regulations violated by ABC were "not mere technicalities . . . but
requirements of substance designed to protect the recipients." Georgia
Br. at 7. Georgia's own brief demonstrates an adequate understanding of
the importance of these provisions. Furthermore, it is not as though
this is some obscure concept with which Georgia officials would be
unfamiliar.

Even if HCFA had provided witnesses in support of Georgia's position in
the administrative appeal, it would not likely have affected the outcome
of the appeal. Since the ALJ found that Georgia acquiesced in ABC's
noncompliance with the regulations, this likely would have barred
recovery even if the ALJ had found substantial noncompliance.

In any event, the Board has previously concluded that a disallowance is
properly taken against a state for the federal share of payments for
services rendered by a health care provider where the provider is out of
compliance with applicable program regulations. See, e.g., New York
State Dept. of Social Services, DAB No. 1235 (1991). The reason is
that under section 1903(a) of the Act, FFP is available only in "medical
assistance" furnished in accordance with an approved state plan. Here,
HCFA made independent findings, which Georgia did not contest, that FFP
was not available since ABC had improperly subcontracted its services in
violation of applicable regulations and the approved waiver. Thus, the
ALJ's finding that ABC had substantially complied with the
subcontracting requirements and that Georgia's recoupment would be
inequitable is not a basis for claiming FFP. Accordingly, Georgia's
assertion that HCFA did not adequately support Georgia's position in the
administrative appeal is essentially irrelevant. 2/

For the above reasons, we find that HCFA's decision to disallow the
payments Georgia made to ABC was not arbitrary and capricious.


2. The disallowed payments made to ABC are not "otherwise
uncollectible" within the meaning of section 1903(d)(2)(D) of
the Act.

Generally, a state must refund an overpayment to HCFA even if it is
unable to recover the funds from a provider. See, e.g., Alaska Dept. of
Health and Social Services, DAB No. 1452, at 4, 7-9 (1993); California
Dept. of Health Services, DAB No. 1430, at 3 (1993). This requirement is
based on the rationale that over- payments are not "medical assistance"
for which federal funding is available under the Medicaid statute. Id.

Georgia argued, however, that it should not have to repay the federal
share of the payments it made to ABC because these amounts were
"otherwise uncollectible" within the meaning of section 1903(d)(2)(D) of
the Act. See Georgia Br. at 8-9. That section provides:

In any case where the State is unable to recover a debt which
represents an overpayment (or any portion thereof) made to a person
or other entity on account of such debt having been discharged in
bankruptcy or otherwise being uncollectible, no adjustment shall be
made in the Federal payment to such State on account of such
overpayment (or portion thereof).

Id. at 9. Georgia argued that the payments at issue here were
"otherwise uncollectible" within the meaning of the broad language of
this provision because the ALJ had ruled that Georgia was estopped from
recovering the payments made to ABC. Id. at 8-9. We disagree. As HCFA
pointed out, the legislative history and preamble to the regulations
consistently state that the term "otherwise uncollectible" in this
provision is limited to situations where the provider is bankrupt or
out-of-business. See generally HCFA Br. at 3-5. The Senate committee
report states that --

[t]he provision would provide that a State is not liable for the
Federal share of overpayments which cannot be collected from
bankrupt or out-of-business providers.

S. Rep. No. 146, 99th Cong., 1st Sess., at 314-15 (1985), reprinted in
1986 U.S.C.C.A.N. 42, 281-82. The preamble to the final regulations
implementing section 1903(d)(2)(D) states that --

[o]n the basis of the explicit wording in the Conference Committee
Report on [the provision's enacting legislation], we have defined
debts as "otherwise being uncollectible" for purposes of these
regulations strictly as debts of providers who are "out of
business."

54 Fed. Reg. 5452, 5456 (February 3, 1989). The Board has recognized
the limited interpretation of this otherwise broad language in several
previous decisions. See, e.g., DAB No. 1452, at 18-19 (1993); New York
State Dept. of Social Services, DAB No. 1235, at 15-16 (1991); New York
State Dept. of Social Services, DAB No. 1040, at 5-7 (1989). The
rationale for this limited interpre- tation is that too broad an
interpretation would likely take away state incentive to recover
overpayments from providers. After analyzing the language and
legislative history of this provision, the Board stated that there is no
support for the position that "Congress was attempting to protect states
in a broad spectrum of situations in which a state might insist that it
could not recover an overpayment." DAB No. 1235, at 15.

Georgia did not argue that ABC filed for bankruptcy or was otherwise
out-of-business. Georgia simply argued that the funds were
uncollectible because the ALJ decision precluded Georgia from
collecting. Thus, we conclude that the expenditures at issue are not
uncol- lectible overpayments under section 1903(d)(2)(D) of the Act.


3. We do not reach the issue of whether Georgia's claims were
timely.

HCFA based the disallowance in part on its finding that Georgia's
reclaim was untimely under section 1132(a) of the Act. Georgia's
reclaim was filed on a quarterly report filed November 2, 1993, more
than two years after the expenditures were incurred. See HCFA Br. at 8.
Georgia did not present any argument on this issue. We do not discuss
this issue since Georgia did not contest HCFA's finding that its reclaim
was untimely and since we have determined that there are other grounds
for upholding the disallowance.


Conclusion

For the above reasons, we uphold the disallowance of $3,416,193 in full.


__________________________ Judith A.
Ballard

__________________________ Norval D.
(John) Settle

__________________________ Cecilia Sparks
Ford Presiding Board Member

1. That Georgia may have informed HCFA that the subcontractor did not
meet Medicare requirements is irrelevant. Georgia's action here was
against ABC, the contractor, not against ABC's subcontractor. Moreover,
there is no evidence that the subcontractor was improperly providing
Medicare (as opposed to Medicaid) services, or was improperly certified
by the state survey agency. To the contrary, HCFA's finding was that
the subcontractor was not certified.

2. This situation is distinguishable from one in which HCFA has relied
on a state overpayment finding which is substantively modified by later
state audit findings or administrative proceedings. See Alaska Dept. of
Health and Social Services, DAB No. 1452 (1993); California Dept. of
Health Services, DAB No. 1240 (1991). Here, HCFA's independent findings
that ABC violated applicable regulations are not affected by the ALJ's