Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Florida Department of Health and Rehabilitative Services
DATE: June 30, 1995
Docket No. A-95-70
Control No. A-04-91-00010
Decision No. 1520
DECISION
The Florida Department of Health and Rehabilitative
Services (Florida) appealed a determination of the
Assistant Secretary for Children and Families sustaining
a disallowance by the Office of Refugee Resettlement
(ORR) of $1,112,350 claimed by Florida under the Refugee
Resettlement Program (RRP) for assistance payments. The
payments were made during the period February 1, 1988
through July 31, 1990, or prior or subsequent to this
period.
The disallowance was based on audit findings contained in
the Office of Inspector General (OIG) report entitled,
"Cash and Medical Assistance Under the Refugee
Resettlement Program in the State of Florida." OIG found
that RRP funds were used to pay benefits to ineligible
recipients or to recipients beyond the period of
eligibility.
Florida disputed the disallowance of some of the payments
made to recipients beyond the period of eligibility on
the ground that 1) ORR was arbitrary and capricious in
enforcing the regulation reducing the refugee cash
assistance (RCA) and refugee medical assistance (RMA)
eligibility period from 18 months to 12 months without
giving Florida adequate time to implement the required
regulatory changes; 2) ORR's reduction of the period of
federal reimbursement to states of the Aid to Families
with Dependent Children (AFDC) and Medicaid nonfederal
share from 24 months to four months should be reversed
because the implementation period was unreasonably short
and because ORR violated the Administrative Procedure Act
(APA) by engaging in rulemaking without complying with
notice and comment requirements; and 3) ORR should have
provided a grace period for implementing any changes
during which time states would be held harmless for any
errors in payment and should have provided an error
tolerance rate.
For the reasons discussed more fully below, we conclude:
o ORR validly promulgated the regulation reducing
RCA and RMA to 12 months. There is no legal basis
for Florida's contention that ORR did not provide
sufficient time for Florida to implement any state
changes required by the regulation.
o Florida had adequate notice of the reduction of
the period of reimbursement of the nonfederal share
of AFDC/Medicaid benefits under the RRP.
o No regulations provide a grace period for
implementing changes in the period of RCA/RMA
eligibility or the period of reimbursement of the
nonfederal share of federal benefits or establish an
error tolerance rate for payments made in error
following those changes. ORR was not required to
promulgate such regulations.
Thus, we uphold the disallowance determination.
Relevant Authority
The Refugee Act of 1980, 8 U.S.C. 1521 et seq.,
established the RRP, which authorized cash and medical
assistance to refugees residing in the United States.
Subject to the availability of appropriations, states may
be reimbursed for 100% of the costs of assistance during
a refugee's first 36 months in this country. 8 U.S.C.
1522(a)(1)(A) and 8 U.S.C. 1522(e)(1). Assistance is
available in one of two ways. For refugees who are
eligible for AFDC and Medicaid, states are reimbursed for
the amount that would normally be covered by the
nonfederal share of the costs of these programs. If the
refugees are not eligible for any of these federal
assistance programs, there is a special program of
refugee cash assistance (RCA) and refugee medical
assistance (RMA).
The Act permits the Director of ORR, acting for the
Secretary of Health and Human Services, to authorize cash
and medical assistance for a period up to a refugee's
first 36 months in this country. ORR has, however,
progressively reduced the period of eligibility for
assistance for newly arrived refugees because of reduced
congressional appropriations and increasing medical costs
under the RRP.
Effective April 1982, an interim final rule, published
March 12, 1982 at 47 Fed. Reg. 10,841, reduced the period
of eligibility under the RCA/RMA programs from the first
36 months to the first 18 months that a refugee is in the
United States. However, after the first 18 months
refugees could seek continued assistance under an
existing state or local general assistance program for
which they were eligible. Since Florida did not have a
state assistance program, refugees not eligible for a
federal assistance program like AFDC received assistance
only during their first 18 months in the United States
under the interim final rule.
By notice of proposed rulemaking on October 19, 1987, ORR
proposed reducing the 18-month eligibility period to 12
months. 52 Fed. Reg. 38,795. This reduction was made
final by regulation published August 24, 1988 at 53 Fed.
Reg. 32,222. The final regulation was effective October
1, 1988, which was 38 days after publication.
ORR also reduced the number of months for which states
may be reimbursed for the nonfederal share of payments
for refugees eligible for AFDC/Medicaid. In order to
meet the fiscal year (FY) 1986 Gramm-Rudman-Hollings
budget reduction requirements, ORR reduced the period of
reimbursement of the states' nonfederal share from 36 to
31 months, effective March 1, 1986. This period was
further reduced to 24 months, effective February 1, 1988.
On November 22, 1989, states received written notice from
the Director of ORR that effective January 1, 1990, 35
days later, the period of reimbursement would be reduced
to four months as a result of the limited FY 1990
appropriation.
Factual Background
The OIG audited cash and medical assistance provided
under the RRP in Florida. The primary objective of the
review was to determine the appropriateness of cash and
medical assistance payments made by Florida during the
period February 1, 1988 through July 31, 1990.
The auditors determined that Florida made cash assistance
payments to 759 recipients who were not eligible for RCA
because they were not refugees, they should have been
funded by the AFDC program, or their period of
eligibility had expired. The auditors determined that
Florida paid $484,548 in RCA to these ineligible
recipients during the period under review and paid $3,814
in improper payments received by some recipients
subsequent to the audit period. The auditors also found
that the refugees whose eligibility for cash assistance
expired received $287,309 in RMA after their eligibility
period.
In addition, the auditors found during their review that
Florida claimed reimbursement from ORR for the nonfederal
share of AFDC/Medicaid payments provided to 250 refugees
who were not eligible under the RRP because they were not
refugees, they should have been funded by the RCA
program, or their period of eligibility had expired. For
the period in dispute, the applicable period of
reimbursement for the nonfederal share was 24 months
beginning February 1, 1988 and then four months,
beginning January 1, 1990. The auditors determined that
Florida paid $172,333 to ineligible recipients during the
audit period and made $27,436 in improper payments to
recipients for payments received prior to or subsequent
to the audit period. The auditors also determined that
Florida claimed $136,910 in reimbursement from ORR for
medical assistance provided to refugees whose eligibility
period under the RRP had expired.
The auditors found that the payments to ineligibles
occurred because Florida did not have edits in its
computerized payment system to identify refugees whose
eligibility period had expired. The auditors determined
that Florida relied on its local offices to identify
refugees' eligibility periods and to provide notification
that payments should be discontinued. The auditors found
that this procedure was not reliable because the local
offices were not notified by Florida when the refugees'
eligibility period was changed by federal regulations.
Furthermore, the local offices did not always take timely
action to notify Florida that refugees should be removed
from the RRP.
Analysis
On appeal, Florida contended that the disallowance should
be reversed because ORR acted arbitrarily and
unreasonably when it gave Florida insufficient time to
implement what Florida viewed as substantive programmatic
changes. Florida argued that ORR should have provided
for a grace period for implementation of these changes or
for a payment error tolerance rate. Florida argued in
its reply brief that ORR's failure to publish for notice
and comment its proposed reduction in the period of
reimbursement of the nonfederal share from 24 months to
four months violated the APA, 5 U.S.C. 553(b).
Below, we first discuss whether Florida had insufficient
time to implement the regulation reducing RCA/RMA
eligibility from 18 to 12 months. We then discuss
whether the reduction of the period of nonfederal share
reimbursement from 24 months to four months for refugees
eligible under the AFDC/Medicaid programs was
unreasonable and a violation of the APA. Finally, we
discuss whether ORR should have provided for a grace
period for implementation of changes or for a payment
error tolerance rate.
I. Reduction of RCA/RMA eligibility period from 18 to 12
months
Florida stated that it did not challenge ORR's authority
to reduce the period of eligibility for RCA and RMA from
18 to 12 months. 1/ Florida also specifically stated
that the validity of the regulation reducing the period
of eligibility is not at issue. However, Florida
contended that ORR was arbitrary and capricious in
enforcing the regulation without giving Florida adequate
time to fulfill the numerous requirements for statewide
implementation of the changes or to comply with the
federal requirement for 10 days' notice to recipients of
the termination of benefits. Florida contended that
although the regulation did not become effective until 38
days after the regulation was published, ORR should have
provided more time to fulfill these requirements.
Florida stated that these requirements included:
analyzing the federal regulations; researching changes to
the Florida Statutes; and developing the new or revised
policy.
We conclude that there is no legitimate basis for
Florida's challenge to the disallowance.
Section 553(b) of the APA requires only that a rule be
published not less than 30 days before its effective
date. In this case, the rule was published 38 days
before the effective date. Thus, Florida's arguments are
essentially equitable in nature.
However, we find no merit in Florida's argument that 38
days' notice of the regulatory change was insufficient
and placed Florida in the position of non-compliance with
its state law. Florida contended that under its state
law, it takes a minimum of 49 days after publication of a
proposed Florida rule for it to be adopted and become
effective. 2/ Even assuming that this is correct,
Florida could have published a notice of proposed rule as
soon as the federal notice of proposed rulemaking was
published on October 19, 1987. Since the change was
proposed in October of 1987 and was published as a final
rule on August 24, 1988, with an effective date of
October 1, 1988, Florida would have had ample time to
complete its own rulemaking before the change became
effective. A comparison of the proposed rule with the
final rule indicates that there were no changes to the
rule as proposed, so that no further changes in Florida's
rule would have been required.
We are also unpersuaded by Florida's argument that 38
days' notice for implementing the regulatory changes
could have led Florida to violate the due process rights
of RCA/RMA recipients. We agree with ORR that even
though it may have taken effort on Florida's part, 38
days was more than adequate time to send the federal
regulatory 10-day notice required for due process in the
termination of benefits. As suggested by ORR, Florida
could have used the intervening period between
publication of the federal notice of proposed rulemaking
and publication of the final rule in the Federal Register
to draft and prepare adequate notices and do whatever
else was required to timely issue notice to recipients
when the federal regulation became final. Moreover,
Florida provided no evidence that publication of the
final rule, with an effective date of more than 30 days
from the date of the publication, actually led to any
failure by Florida to comply with requirements for notice
to Florida's clients.
Florida further contended that Ngou v. Schweiker, 535 F.
Supp. 1214 (D.C. Cir. 1982) and Cha Lor v. Bowen, No.
C88-1232R (W.D. Wa. Sept. 29, 1988) support a finding
that ORR acted arbitrarily when it failed to provide
adequate time to implement regulatory changes. We do not
agree that these cases are controlling here. First, both
cases involve applications for interim relief (Ngou was
an application for preliminary injunction and Cha Lor is
an unpublished temporary restraining order) and do not
represent final decisions on the merits. In Cha Lor, the
inadequacies cited in support of issuing a temporary
restraining order were the failure of the State of
Washington to provide adequate notice of the reduction of
the eligibility period from 18 to 12 months. However,
although the court issued a temporary restraining order,
this did not constitute a finding that there was
inadequate notice, but merely that the plaintiff had
demonstrated a likelihood of prevailing on the merits.
Furthermore, in Ngou, while the court found that ORR
failed to give the required 30 days' notice before
implementing the changes in 1982 reducing the period of
eligibility for RCA/RMA benefits from 36 months to 18
months, the court did not find that the APA requires more
than 30 days' notice. Instead, the court merely enjoined
ORR from implementing the challenged regulation without
the full 30 days' notice, and delayed the effective date
as to the State of Washington.
Moreover, in Thongsamouth v. Schweiker, 711 F.2d 465 (1st
Cir. 1983), the First Circuit Court of Appeals reviewed
the regulatory changes in dispute in Ngou. The court
found that the Secretary did not exceed or abuse his
authority in issuing the challenged regulations and that
the regulations were a valid exercise of the Secretary's
authority. The court stated that the legal validity of
the challenged regulations had been upheld by five
federal district courts and specifically cited Ngou as
authority for that proposition. While the court did not
address the lack of 30-days' notice under the APA, the
court nevertheless found the regulation valid. Implicit
in the Court of Appeals' finding is the conclusion that a
regulation is still valid even where the 30-days' notice
required by the APA is not given, although lack of such
notice may delay the effective date to allow for a full
30 days from the date of publication of a final rule to
its effective date. In the case at hand, there is no
dispute that the Secretary complied with the requirements
for proper promulgation and proper notice of the
regulation.
Finally, we note that the audit report indicated that the
problem with Florida's administration of the RCA/RMA
program was not due to an inability to implement the
regulatory changes in a timely manner. The report stated
that Florida had provided cash and medical assistance to
refugees after their period of eligibility expired
because Florida did not have "adequate edits to identify
the expiration of the eligibility periods," and because
the local offices, on whom Florida relied for
information, failed to timely inform Florida of the
refugees' eligibility period and when payments should be
discontinued. The auditors also found that Florida made
payments to recipients who were not refugees or who
should have been funded by the AFDC program.
Consequently, we find that because of problems in the
administration of the program, a significant portion of
the payments to ineligibles were likely to have been made
even if Florida had been given what it considered
adequate time to implement the regulatory changes. 3/
Thus, we conclude that ORR validly promulgated the
regulation in question, and there is no legal basis for
Florida's contention that ORR did not provide sufficient
time for it to implement the change in the period of
eligibility required by the regulation.
II. Reduction of period of federal reimbursement to
states of AFDC/Medicaid nonfederal share from 24 months
to four months
Florida argued that the disallowance of the nonfederal
share of AFDC and Medicaid payments provided to
ineligible refugees should be reversed because the
implementation period of 35 days was unreasonably short.
4/ Florida contended that it might have been forced into
the position of cutting refugee benefits without
providing recipients notice or opportunity for a hearing.
Florida also argued that ORR violated the APA by engaging
in rulemaking without complying with the APA's notice and
comment requirements and that the notice provided by the
Director of the ORR did not meet any of the exceptions to
the notice and comment requirements. Florida argued that
the change in the period for which reimbursement of the
nonfederal share was available was therefore not binding
on the states.
We disagree with Florida that it received inadequate
notice of the reduction of the period of reimbursement of
the nonfederal share of AFDC/Medicaid benefits under the
RRP. Reducing the period of reimbursement meant only
that instead of the federal government paying the states'
nonfederal share for a full 24 months, the states would
pay the nonfederal share for eligible refugees after the
first four months. This did not involve a change in
recipient status or eligibility for AFDC/Medicaid
benefits; the recipients still remained eligible.
Rather, the only change was in the financial
responsibility for the nonfederal share portion of the
cost. Thus, while this change shifted responsibility to
Florida for its portion of the nonfederal share sooner
than before, the change had no effect on the refugees'
benefits and required no notice to recipients. 5/
We also conclude that notice and comment rulemaking was
not required in order for the change in reimbursement
period to be binding on the states. Section 553 of the
APA requires an agency to publish a notice of proposed
rulemaking in the Federal Register and to solicit
comments only if the agency is promulgating a
substantive, i.e., legislative, rule. Legislative rules
create law or obligations. Even if a rule has a
significant impact on a party, this alone does not
require that it be treated as a legislative rule. See
Louisiana Dept. of Health and Hospitals, DAB No. 1176 at
7-8 (1990) (citing inter alia Cabais v. Egger, 690 F. 2d
234, at 237-238 (D.D.C. 1982), and United States v.
Picciotto, 875 F. 2d 345 (D.C. Cir. 1989)).
Section 412(a) of the Refugee Act specifically states
that the provision of assistance under the Act is subject
to the extent of available appropriations and leaves it
to the discretion of the Director of ORR to determine the
distribution of refugee assistance resources. Refugee
Act of 1980; Thongsamouth v. Schweiker, 711 F.2d at 468
and 469. Moreover, 45 C.F.R. 400.202 (which was
promulgated using notice and comment rulemaking) clearly
states that federal funding under the RRP is subject to
the availability of funds and the terms and conditions
approved by the Director. Since the authorizing statute
and regulations both expressly provide that the extent of
federal funding is contingent upon available
appropriations, they clearly contemplate some kind of
directive from the Director regarding the amount of
funding available. Consequently, the Director's letter
did not change any preexisting right Florida had to a
particular amount of funding. Instead, consistent with
the statute and regulation, the Director's letter merely
informed the states how much funding was available for
the program under the applicable appropriation law.
Moreover, the change in reimbursement period did not
change Florida's obligations under the AFDC and Medicaid
programs; now at four months, Florida has the same
responsibility for the nonfederal share portion of
AFDC/Medicaid for eligible refugees as Florida already
has for all other AFDC and Medicaid recipients in the
state.
Thus, we conclude that the notice of the reduction in the
period of reimbursement of the nonfederal share for
AFDC/Medicaid assistance was not a legislative rule for
which notice and comment rulemaking was required.
Even where notice and comment rulemaking is not required,
section 552(a)(1) of the APA requires publication in the
Federal Register unless timely and actual notice has been
given. See New York State Dept. of Social Services, DAB
No. 1473 (1994); and Indiana Dept. of Public Welfare, DAB
No. 970 (1988); see also Nhan Van Nguyen v. Sullivan,
C91-1587WD (W.D. Wa. November 27, 1991), cited by Florida
which cites to Gardebring v. Bowen, Civil File No. 3-88-
0156 and 3-88-0195 (D. Minn. March 8, 1989) and County of
Santa Clara v. Bowen, No. C-88-20146 (N.D. Ca. March 23,
1989). In Gardebring and Santa Clara, the district
courts upheld the Director's notice of reduction of
reimbursement to the states for assistance under the RRP,
finding the reduction permissible pursuant to 45 C.F.R.
400.202, which provides that federal funding will be
available "subject to the availability of funds and under
the terms and conditions approved by the Director."
Florida clearly had actual notice of the change in
question here, however. Congress passed the relevant
appropriation law on November 20, 1989, and ORR informed
the states of the extent to which that appropriation
would allow reimbursement of costs under the RRP for FY
1990 (effective January 1, 1990) by letter dated November
22, 1989. Florida did not contend that it did not
receive the notice in a timely manner. Thus, we conclude
that ORR provided timely and actual notice to Florida
prior to the effective date of the change. 6/
III. Grace period and error tolerance rate
Florida argued that ORR acted unreasonably in not
providing for a grace period to implement the changes or
for a payment error tolerance rate. Florida reasoned
that the AFDC program and the RRP are so similar that ORR
should allow the same grace period and error tolerance in
implementing changes as statutorily exist in the AFDC
program. Florida indicated that states are usually given
at least 90 days to implement new or revised AFDC policy
and that under the AFDC quality control system, a
disallowance is taken for payment errors only if they
exceed an established tolerance rate. 7/ Florida cited
Chu Drua Cha v. Noot, 696 F.2d 594 (8th Cir. 1982) in
support of its position.
There is no support for Florida's contention that ORR
acted unreasonably in not providing for a grace period or
error tolerance rate. First, we agree with ORR that Chu
Drua Cha is not controlling here. Florida stated that
the court there found that the RCA and AFDC programs were
parts of a larger whole and that, therefore, regulations
applicable to AFDC should also apply to RCA. The court
held that recipients of RCA were entitled, as provided
for in the AFDC program, to notice before their benefits
were reduced or terminated and to notice of any appeal
rights as well as a continuation of their benefits until
they were determined ineligible under one of the federal
programs. We find that Chu Drua Cha was concerned with
the relationship of RRP and AFDC only for purposes of
determining a refugee recipient's rights to notice before
RCA/RMA benefits to the recipient were discontinued. The
court did not address the administrative relationship
between the state and the Secretary, nor is there
anything in the court's holding which requires that the
Secretary treat the two programs identically in every
manner, especially in administration of the programs.
Moreover, several courts have addressed the issue raised
by Florida here and have determined that while the
Secretary may have the discretion to establish payment
tolerance error rates, the Secretary is not required to
do so. See California v. Settle, 708 F.2d 1380 (9th Cir.
1983), involving the Medicaid program; and Maryland Dept.
of Human Resources v. Dept. of Health and Human Services,
762 F.2d 406 (4th Cir. 1985), involving the AFDC program.
In California, the court rejected California's argument
that since the Secretary had adopted an error tolerance
rate in another federal program under the Social Security
Act, it could be inferred that a tolerance rate should
apply for other federal programs under the Social
Security Act as well. The court found that 1) there was
no law or agency interpretation of law requiring the
Secretary to allow federal funding in erroneous payments
up to a certain level for the program and time period in
issue; and 2) in the absence of such a law, the failure
to provide a tolerance rate was not reviewable.
The Board has in a prior case specifically considered
whether tolerance levels are required in the RRP program.
California Dept. of Social Services, DAB No. 816 (1986).
The Board determined that tolerance levels are not
required since there is no statutory requirement for
them. The Board stated that even though the programs
might be similar, the RRP is not the AFDC program, and
since ORR did not set a tolerance level, the Board was
not empowered to impose one of its own. The Board has
also determined in cases under section 427 of the Social
Security Act that the granting of a "grace period" is a
matter commended solely to agency discretion. Florida
Dept. of Health and Rehabilitative Services, DAB No. 643
(1985). Florida did not provide any reasons why the
rationale in these decisions should not apply here as
well.
Thus, we conclude that ORR was not required to provide
for a grace period or error tolerance rate.
In sum, ORR did not act unreasonably, arbitrarily, or
capriciously in disallowing all improper payments as of
the effective date of the changes in the eligibility
periods.
Conclusion
Based on our analysis above, we uphold the disallowance
of $1,112,350 for expenditures made by Florida to
ineligible recipients or to recipients beyond the period
of eligibility.
_____________________________
Donald F. Garrett
_____________________________
Norval D. (John) Settle
____________________________
Judith A. Ballard
Presiding Board Member
1. While the 18-month period of eligibility was
applicable for part of the period in dispute, Florida did
not argue that it had insufficient time to implement that
provision. Consequently, that issue is not before us in
this appeal.
2. Florida relied on sections 120.54(1)(b),
120.54(11)(b), and 120.54(13)(a) of the Florida Statutes
of 1993. We have reviewed Florida's Administrative
Procedure Act as contained in 1993 Florida Statutes, an
excerpt of which was provided by Florida in its appeal
file. State's Appeal File, Ex. L. We do not read
section 120.54 of the Florida Statutes as clearly
requiring, at a minimum, 49 days after publication of a
proposed rule for it to be adopted and become effective.
Moreover, in Graham v. Schweiker, 545 F. Supp. 625 (S.D.
Fla. 1982), the court specifically interpreted an earlier
version of Florida's Administrative Procedure Act as not
requiring more than 21 days' notice for adoption of rules
and noted that even that requirement can be waived under
certain circumstances.
3. Florida's response to the draft audit report
argued for a three-month grace period following receipt
of policy changes to allow for implementation of the
changes. State Appeal File, Ex. F, Appendix A. Florida
stated that if such a grace period were allowed, $248,085
of the disallowance could have been avoided for the RCA
and AFDC cash assistance payments under the RRP. This
statement confirms that the majority of the disallowed
payments were not, in fact, the result of lack of
adequate time to implement the policy changes.
4. Florida did not dispute the applicability and
validity of the notice to the states, effective February
1, 1988, reducing the period of federal reimbursement to
states of the nonfederal share under AFDC/Medicaid under
the RRP from a refugee's first 31 months in the United
States to the first 24 months in the United States.
5. Florida cited Ngou v. Schweiker, 535 F. Supp.
1214, 1217 (1982) and Hoang Ha v. Schweiker, No. C-82-
1258 (N.D. Ca. 1982) in support of its argument that the
abruptness of the implementation period was unreasonable.
We do not find these cases controlling because they refer
to reductions in recipient benefits, and no such
reductions occurred as a result of the change in question
here.
6. We also note that the auditors found here too that
the payments to ineligibles were largely due to
administrative errors unrelated to the reduction in the
reimbursement period of the nonfederal share and would
have occurred regardless of the change.
7. Florida did not cite any regulation or statutory
authority establishing a grace period, however.