Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: August 2, 1995
Docket No. A-95-34
Decision No. 1528
DECISION
The New York State Department of Social Services (New
York) appealed a determination by the Health Care
Financing Administration (HCFA) disallowing $19,112,321
in federal financial participation (FFP) claimed under
title XIX of the Social Security Act. New York claimed
these funds for inpatient services furnished during the
periods January 1, 1984 through September 30, 1986 and
October 1, 1989 through December 31, 1991 by two
psychiatric hospitals located in Westchester County, New
York. 1/ HCFA found that the two hospitals were
institutions for mental diseases and, therefore, that FFP
was not available under the Act for services provided by
the facilities to individuals ages 22 through 64.
Based on the evidence before us, we conclude that the two
psychiatric hospitals were institutions for mental
diseases within the meaning of title XIX. Below, we
first summarize our decision and then analyze the legal
and factual issues presented.
Summary of Decision
The issues in this decision are similar to those decided
in New York State Dept. of Social Services, DAB No. 1313
(1992) ("the former case"), which covered the time period
October 1, 1986 through September 30, 1989. The
disallowance is based on FFP requested by two medical
facilities located in Westchester County, New York which
provide care and treatment to psychiatric patients. Each
of the two Westchester facilities described itself as a
psychiatric hospital on forms it filed with HCFA for
Medicare and Medicaid certification prior to and
throughout the disallowance period. 2/ Each of the
Westchester facilities is also a branch or division of a
(different) general acute care hospital located in New
York City, and is administratively related to such
hospital for some purposes. HCFA's policy manual
provides guidelines for determining whether an
institution has the overall character of an institution
for mental diseases. HCFA's state operations manual
provides guidelines for determining which entity
constitutes the relevant institution for purposes of
Medicare certification where two or more health care
facilities are related in some manner.
In the former case, the Board found that the two
Westchester facilities which are at issue in this matter
were institutions for mental diseases (IMDs) throughout
the period October 1, 1986 through September 30, 1989.
The Board found that both before and during this period,
the administrators of the facilities, as well as the
state, consistently treated the facilities as free-
standing psychiatric hospitals, which New York conceded
were IMDs. The Board rejected New York's argument that
the facilities should instead be treated as psychiatric
units of general acute care hospitals. Since our
decision in the former case, we have further considered
the issue of what constitutes the relevant institution
for purposes of applying the IMD definition. California
Dept. of Health Services, DAB No. 1495 (1994). Based on
California and our former decision in New York, we
conclude that this disallowance should be upheld in full
for the following reasons:
As we held in California, a facility which is
primarily for the care and treatment of persons with
mental diseases can be an IMD even if it is part of
a larger institution which is not primarily for the
care and treatment of persons with mental diseases.
California at 18. In the former case, we noted that
the Westchester facilities, as "establishments that
furnished food, shelter, and some treatment or
services," independently met the definition of an
"institution" on which the IMD definition was based.
New York at 12, n.5.
In order to be certified as a psychiatric hospital
by Medicare (as both Westchester facilities were), a
facility has to be primarily engaged in treating the
mentally ill. Thus, such facilities would have the
overall character of facilities established and
maintained for the care and treatment of persons
with mental diseases, within the regulatory IMD
definition. New York at 11. Based on the record
before us now, we find that the two Westchester
facilities were used primarily for the care and
treatment of persons with mental diseases and,
therefore, their overall character was that of IMDs.
We stated in the former case that the fact that
certain facilities are administratively related does
not establish that they should be treated as a
single provider for Medicare and Medicaid
reimbursement purposes. New York at 16. We also
found that New York viewed the Westchester
facilities, and the facilities viewed themselves, as
separate psychiatric hospitals, rather than as units
of general acute care hospitals. New York at 12-13.
The two hospitals were separately certified as
Medicaid providers (at their own request and at the
state's recommendation), were given separate Medi-
caid provider numbers, filed separate institutional
cost reports for Medicare reimbursement, and had
separate Medicaid Management Information Systems
(MMIS) billing numbers during all of the disal-
lowance period. While none of these factors alone
would indicate that the facilities should be consi-
dered separately for IMD purposes, they collectively
indicate that the psychiatric hospitals operated
independently of the acute care hospitals for many
purposes relating to Medicare and Medicaid
participation.
We stated in the former case that while the
administrative relationships between the psychiatric
facilities and the related acute care hospitals
might have qualified them for consolidated Medicare
and Medicaid certification prior to or during the
disallowance period, HCFA was entitled to rely on
the facilities' and New York's contemporaneous
representations that the Westchester facilities were
psychiatric hospitals and on the fact that New York
never sought consolidated certification until the
end of such period (when the issue of IMD status
arose.) New York at 14. New York's arguments and
evidence before us in this matter do not cause us to
conclude differently.
The fact that HCFA allowed the facilities to merge
with their affiliated acute care hospitals for
purposes of IMD status after the period at issue in
this disallowance does not indicate that the
facilities were always integrated for this purpose.
New York's evidence is insufficient to overcome the
facilities' own contemporaneous representations,
accepted by the state survey agency at the time,
that the Westchester facilities were functioning
during the disallowance period as separate
psychiatric hospitals rather than as units of
general acute care hospitals.
We incorporate by reference our decision in the former
case to the extent it addresses arguments raised here.
Legal Background
Title XIX of the Social Security Act (Act) established a
cooperative federal-state program known as Medicaid,
which provides medical assistance to certain economically
disadvantaged persons. The definition of "medical
assistance" for which states may make benefits available
under Medicaid, codified at section 1905(a) of the Act,
specifically excludes payments for services to "any
individual who has not attained 65 years of age and who
is a patient in an institution for mental diseases."
Section 1905(a)(24)(B). This provision was modified as
of January 1, 1973 to allow for coverage of persons in
IMDs who had not yet reached the age of 21, or, in some
cases, the age of 22. 3/ Section 1905(a)(16). Thus,
throughout the disallowance period, the Act proscribed
payments for persons in IMDs who were between the ages of
22 and 64. This exclusion reflected Congress' conclusion
that the federal government would not assume
responsibility through the Medicaid program for the long-
term care of institutionalized psychiatric patients, who
had traditionally been wards of the states. California
Department of Health Services, DAB No. 1495 at 13 (1994),
citing S. Rep. 404, 89th Cong., 1st Sess., pt. 1 at 144
(1965) reprinted in 1965 U.S.C.C.A.N. 1942, 2084-87.
Effective on July 1, 1988, an IMD was defined in the Act
as "a hospital, nursing facility, or other institution of
more than 16 beds, that is primarily engaged in providing
diagnosis, treatment, or care of persons with mental
diseases, including medical attention, nursing care, and
related services." Section 1905(i). Prior to that time,
there was no statutory definition, but an IMD was defined
in the applicable regulations as "an institution that is
primarily engaged in providing diagnosis, treatment, or
care of persons with mental diseases, including medical
attention, nursing care, and related services." 42
C.F.R. 435.1009. The regulations in effect throughout
the disallowance period also stated that --
[w]hether an institution is an [IMD] is determined
by its overall character as that of a facility
established and maintained primarily for the care
and treatment of individuals with mental diseases,
whether or not it is licensed as such.
Id. Throughout the disallowance period, HCFA issued ten
criteria for states to use in determining whether an
institution is an IMD. See State Medicaid Manual,
section 4390 (issued September 1986). 4/ We have
previously held that these ten criteria are only
guidelines for determining whether the overall character
of a facility is an IMD, and that no single guideline is
determinative. California Dept. of Health Services, DAB
No. 1495 at 2, 5 (1994). The Supreme Court has
specifically noted that a hospital can be an IMD.
Connecticut Dept. of Income Maintenance v. Heckler, 471
U.S. 524, at 529 and 536 (1985).
To qualify for reimbursement under Medicaid, a provider
of services must be inspected by the proper state survey
agency, which generally provides the surveys for both
Medicare and Medicaid. Section 1902(a)(9)(A) of the Act;
42 C.F.R. 431.610(e). If the facility is found to meet
the standards, then the state agency responsible for the
Medicaid program may enter into a Medicaid provider
agreement with the certified facility without seeking
approval from HCFA if the facility is not also seeking
certification for Medicare. If the facility is also
seeking Medicare certification, the state survey agency's
recommendation is forwarded to HCFA for review and
approval before the facility may be reimbursed under
either Medicare or Medicaid. 42 C.F.R. 488.12.
To be certified as Medicaid providers, hospitals must
meet the standards for Medicare participation. 42 C.F.R.
482.1. Thus, a hospital's certification status in the
Medicare program determines its certification status in
the Medicaid program. The Medicare regulations contain
separate certification requirements for general acute
care hospitals and psychiatric hospitals. Psychiatric
hospitals must meet two extra conditions of participation
that do not have to be met by general acute care
hospitals. 5/ A facility which is certified as a
psychiatric hospital or a distinct part of a general
acute care hospital which provides psychiatric care is
reimbursed at a per diem rate based on the facility's
reasonable costs, whereas a general acute care hospital
is usually reimbursed by Medicare on a prospective
payment basis. 42 C.F.R. 412.23 and 412.25.
Occasionally, it is not clear whether two entities should
be certified as separate Medicare participants or as a
single participant, such as where two or more health care
entities are administratively-linked in some manner.
Section 2024 of HCFA's State Operations Manual contains
guidelines for determining whether to certify two or more
facilities as single or multiple institutions (and thus
whether to apply the ten criteria of section 4390 to just
one component or to the entire entity.) These guidelines
are applicable where there has been a merger or an
establishment of a separate facility, or "in other
situations where the . . . criteria are found to apply."
These guidelines state that two or more components should
be certified as a single hospital when:
1) the components are subject to the control and
direction of one common owner responsible for the
operational decisions of the entire entity;
2) there is one chief medical officer who reports to
the governing body and who is responsible for all
medical staff activities at all components;
3) there is a totally integrated medical staff, as
evidenced by the fact that all medical staff
members have privileges at all components and all
medical staff committees are responsible for
their areas of responsibility at all components;
and
4) there is a single chief executive officer who
exercises authority over all administrative
activities of all components.
HCFA State Operations Manual, 2024. 6/
Facts
In February 1966, the St. Vincent's Hospital, Westchester
Branch (St. Vincent's-WB), applied for Medicare
certification as a psychiatric hospital. HCFA Exhibit
(Ex.) 3; New York State Dept. of Social Services, DAB No.
1313 at 6 (1992). New York's Office of Health Systems
Management, the state survey agency for Medicare and
Medicaid approval prior to 1987 (state survey agency),
recommended that such status be granted. 7/ HCFA Ex. 4;
New York at 6. In June 1966, St. Vincent's-WB was
certified in the Medicare program as a 200-bed
psychiatric hospital. HCFA Ex. 5; New York at 6. From
1966 through the disallowance period, St. Vincent's-WB
continued to be certified as a psychiatric hospital,
describing itself as such consistently in its
applications for continued Medicare certification. HCFA
Exs. 6, 9; New York at 7.
At approximately the same time, St. Vincent's Hospital,
New York City (St. Vincent's-NYC), applied for Medicare
certification as a general acute care hospital. HCFA Ex.
12; New York at 7. The state survey agency recommended
that such status be granted. HCFA Ex. 13; New York at 7.
In June 1966, St. Vincent's-NYC was certified as a 780-
bed general acute care hospital. HCFA Ex. 14; New York
at 7. This figure did not include the beds at St.
Vincent's-WB psychiatric hospital. From 1966 through the
disallowance period, St. Vincent's-NYC continued to be
certified as a general acute care hospital, describing
itself as such consistently in its applications for
continued Medicare certification. HCFA Ex. 15; New York
at 7.
In March 1966, the New York Hospital - Cornell Medical
Center, Westchester Branch (New York Hospital-WB),
requested Medicare certification as a psychiatric
hospital. HCFA Ex. 21; New York at 8-9. The state
survey agency recommended that the facility be granted
such status. HCFA Ex. 22; New York at 9. In June, 1966,
the New York Hospital-WB was certified for participation
in Medicare as a 350-bed psychiatric hospital. HCFA Ex.
23; New York at 9. From 1966 through the disallowance
period, this facility was continuously certified as a
psychiatric hospital, describing itself as such in its
applications for recertification. HCFA Exs. 24-26; New
York at 9.
Meanwhile, in February 1966, the New York Hospital -
Cornell Medical Center, New York City (New York Hospital-
NYC), applied for Medicare certification as a general
acute care hospital. HCFA Ex. 36; New York at 9. The
state survey agency recommended that such application as
a general acute care hospital be approved. HCFA Ex. 37;
New York at 9. In May 1966, New York Hospital-NYC was
certified as an 886-bed general acute care hospital.
HCFA Ex. 38; New York at 9. This figure did not include
the beds at the Westchester facility. From 1966
throughout the disallowance period, this hospital was
continuously certified as a general acute care hospital,
describing itself as such in applications for
recertification. HCFA Ex. 39; New York at 9.
Thus, throughout the relevant time period, both St.
Vincent's-WB and New York Hospital-WB (the Westchester
facilities) sought, and were given, certification by HCFA
as psychiatric hospitals. The forms which the
Westchester facilities filled out in 1966 for
certification in Medicare gave each of them the option,
among others, of describing itself as a "psychiatric," a
"general-short term," a "general-long term," or "other
(specify) _________" hospital. 8/ Both Westchester
facilities consistently described themselves as
psychiatric hospitals from 1966 until near the end of the
disallowance period and after the question of IMD status
arose. See HCFA Ex. 33. Throughout the same time
period, St. Vincent's-NYC and New York Hospital-NYC (the
city hospitals) sought, and were given, certification for
Medicare and Medicaid as general acute care hospitals
which did not include the beds at the Westchester
facilities. Officials at both Westchester facilities
stated that their facilities provide services only for
treatment of psychiatric conditions and alcoholism. New
York Ex. 1 at 7. From 1966 and throughout the
disallowance period, the Westchester facilities were
surveyed, for purposes of Medicare certification and
recertification, for the two extra criteria pertaining to
psychiatric hospitals. New York at 13.
HCFA assigned the city hospitals and their Westchester
facilities separate provider numbers for Medicaid. Each
of the four facilities had a separate MMIS number
assigned by the state for Medicaid processing purposes.
New York Ex. 1 at 8; see also New York Ex. 9.
Throughout the disallowance period, the city hospitals
and the Westchester facilities had separate billing rates
established by the state. New York Ex. 1 at 8. While
the Westchester divisions and the city hospitals would be
expected to have separate billing rates based on the fact
that general acute care beds and psychiatric beds are
reimbursed by different payment systems, the psychiatric
beds located in the city hospitals (which are reimbursed
on the same methodology as the psychiatric hospital beds)
were reimbursed at a different rate from the Westchester
psychiatric beds. New York Ex. 7 at 3. The city
hospitals and the Westchester facilities filed separate
Institutional Cost Reports for Medicare prospective
payment system reimbursement purposes. St. Vincent's-NYC
and St. Vincent's-WB filed separate financial statements
prepared by their auditors, while New York Hospital-NYC
and New York Hospital-WB file combined financial
statements. New York Ex. 1 at 8.
Until 1987, the Joint Commission on the Accreditation of
Healthcare Organizations (JCAHO) surveyed and accredited
the city hospitals separately from the Westchester
facilities using different accreditation periods. New
York Ex. 1 at 8. Beginning in 1987, JCAHO agreed to
survey and accredit both sites of each hospital at the
same time and following the same accreditation period.
Id. New York has consistently issued separate licenses
and operating certificates to the city hospitals and
their Westchester facilities, licensing each of the four
facilities by both the State Department of Health (which
licenses hospitals) and the Office of Mental Health
within the Department of Mental Hygiene (which licenses
mental health facilities). See, generally, New York at
14-15.
The Westchester facilities are located 20 to 25 miles
away from their affiliated city hospitals. New York Ex.
1 at i, 9. The locations have separate administrative,
nursing, accounting, buildings and grounds, and Medicaid
billing staffs. Id. at 9. The city hospitals and the
Westchester facilities share the same chief executive
officers, the same bylaws, and the same operating
committees, and New York presented other evidence that
they are administratively related. See, generally, New
York Ex. 1, Appendix, at 8-11. The overwhelming majority
of the Westchester facilities' physicians spend all of
their time at the Westchester facilities, although the
medical staffs at both locations of New York Hospital and
St. Vincent's have admitting privileges at both sites.
New York Ex. 1 at 9.
As of the dates following the period which this
disallowance covers, HCFA permitted the two Westchester
facilities to merge with their affiliated city hospitals
for Medicaid purposes. The mergers were effective on
January 1, 1991 for New York Hospital and on January 1,
1992 for St. Vincent's Hospital. See, generally, HCFA
Exs. 18-20; 35. Thus the mergers prospectively
eliminated the unallowable claiming issue as of these two
dates because psychiatric services rendered to clients
between the ages of 22 and 64 are allowable in
psychiatric wings of general acute care hospitals. See
New York Ex. 8 at 9 (unnumbered). As a result of the
mergers, HCFA has assigned a single provider number to
both locations of St. Vincent's and a different single
provider number to both locations of New York Hospital.
HCFA Exs. 18, 20, and 35.
ANALYSIS
In its briefs, New York did not apply the ten guidelines
for identifying an IMD, found at section 4390 of the
State Medicaid Manual, to the Westchester facilities and
argue that these facilities (considered by themselves)
were not IMDs. In fact, in the former case, New York
conceded that the Westchester facilities, considered
alone, would be IMDs. New York at 10. The entirety of
New York's argument is focused on why it asserts the
Westchester facilities are integrated with the city
hospitals and why they should be considered single
institutions for purposes of determining IMD status.
Thus, the sole issue raised by this appeal appears to be
whether HCFA erred in determining that the Westchester
facilities were IMDs based on examination of the
facilities separate from their related New York City
hospitals. 9/
I. The Westchester facilities were IMDs within the
meaning of the Act and regulations.
The statutory language of section 1905(i) clearly
contemplates that an IMD can be a "hospital, nursing
facility, or other institution . . . that is primarily
engaged in providing diagnosis, treatment or care of
persons with mental diseases." We cannot imagine any
type of institution which would more clearly fit this
definition than a psychiatric hospital. The legislative
history of section 1905(i) states that the IMD exclusion
is intended to continue the prohibition on payments for
persons aged 22 to 64 in public mental hospitals, who
have traditionally been wards of the state. S. Rep. 404,
89th Cong., 1st Sess., pt. 1 at 144 (1965) reprinted in
1965 U.S.C.C.A.N. 1942, 2084-87. As we stated in the
former case, according to the Medicare conditions of
participation, a Medicare-certified psychiatric hospital
must be "primarily engaged in providing . . . psychiatric
services for the diagnosis and treatment of mentally ill
persons." New York at 11, citing 42 C.F.R. 482.60.
Thus, an entity which satisfies the conditions of
participation for a psychiatric hospital would be an IMD
because, by definition, its "overall character [would be]
that of a facility established and maintained primarily
for the care and treatment of mental diseases." Id.,
citing 42 C.F.R. 435.1009. Thus, we conclude that the
fact that a health care facility is certified as a
psychiatric hospital for participation in Medicare
creates a rebuttable presumption that such facility is an
IMD. New York has not presented sufficient evidence in
this case to overcome that presumption.
Moreover, in the former case, we determined that the fact
that certain facilities are related does not establish
that they should be treated as a single provider entity
for purposes of Medicare and Medicaid reimbursement,
including for purposes of applying the IMD exclusion.
New York at 16.
Since the Board's decision in the former case, the Board
has had an opportunity to address the issue of what
constitutes an "institution" for purposes of applying the
IMD definition where there is a relationship between two
or more geographically separate facilities. See,
generally, California Department of Health Services, DAB
No. 1495 (1994). In California, we examined the
relationship between a nursing facility which, if
considered by itself, clearly met the majority of the
guidelines for an IMD, and a general acute care hospital,
located nine miles away in the same county, to which the
nursing facility was administratively related.
We concluded that the IMD exclusion could apply to a
facility which is primarily for the care and treatment of
persons with mental diseases (i.e., the nursing home)
even if the facility is a part of a larger institution
(the hospital) which is not primarily for the care and
treatment of persons with mental diseases. California at
17-18. We stated that whether a facility is "free-
standing" or "distinct-part" (hospital-based) does not
end the inquiry for IMD-status decisions where HCFA has
never promulgated a policy stating that distinct-part (or
free-standing) facilities will not be examined
separately. California at 12. Rather than focusing on
any particular characterization of the nursing facility
as free-standing or distinct-part by either party, we
examined the structure and operation of the facility, and
how that structure and operation fit within certain
regulatory definitions.
First, we noted that the regulatory definition of an IMD
encompassed an "institution" that has the overall
character of a facility established and maintained for
the care and treatment of persons with mental diseases.
An "institution" is defined as an establishment that
furnishes (in single or multiple facilities) food,
shelter and some treatment or services to four or more
persons unrelated to the proprietor. From this
definition of institution, we determined that the skilled
nursing facility in California was an institution in its
own right since it furnished food, shelter and treatment
to four or more persons, even though it was also part of
a larger institution that was an acute care hospital.
Id. at 18. Thus, the smaller facility independently met
the definition of an IMD because it was an institution
with the overall character of being for the care and
treatment of persons with mental diseases, and therefore
FFP was not available for persons ages 22 through 64 who
were admitted to live there. We determined that HCFA did
not have to specifically state in advance a policy that
certain types of facilities, such as distinct-part or
free-standing, would be examined separately for IMD-
status purposes where the regulatory language was
sufficiently broad to cover such facilities. 10/ Id. at
12.
In California, we also concluded that allowing an
establishment to evade the consequences of the IMD
exclusion by structuring a particular administrative
relationship between two relatively independently-
operated facilities would render the IMD exclusion
meaningless. California at 21.
We see no reason why the analysis in California does not
apply here. As inpatient psychiatric facilities, the
Westchester facilities each offered food, shelter, and
some treatment or services to four or more persons
unrelated to the proprietors. Thus, even if during the
disallowance period they were each part of larger acute
care hospitals which are institutions, they are each
themselves institutions within the meaning of the
regulatory definition. Accordingly, applying the
analysis in the former case, we conclude that, as
institutions with the overall character of facilities for
the care and treatment of persons with mental diseases,
they were IMDs. It was therefore proper for HCFA to
disallow FFP for persons treated in the institutions who
were between the ages of 22 and 64.
II. The Westchester facilities were functioning during
the disallowance period as separate psychiatric
hospitals, rather than as psychiatric units of the
New York City hospitals.
Given that the statute, legislative history, and
applicable regulations collectively treat a psychiatric
hospital as an IMD, the question then arises whether the
factors that New York alleged show integration of the
facilities are sufficient so that New York could have
reasonably determined that the Westchester facilities
were not psychiatric hospitals, but were instead
psychiatric units of general acute care hospitals for
which Medicaid funding is available. We first note that
New York provided no evidence of any contemporaneous
determination that these facilities were merely
psychiatric units of general acute care hospitals. To
the contrary, the evidence shows that the Westchester
facilities contemporaneously held themselves out for
certification purposes as psychiatric hospitals, and the
state survey agency accepted this representation. In the
former case, we gave great weight to this contemporaneous
representation.
New York argued here that 1) the criteria were met for
certifying the Westchester facilities as part of the city
hospitals and in fact they were later certified together;
2) there is other evidence of integration of the
Westchester facilities with the city hospitals; and 3)
the factors showing separation of the Westchester
facilities and city hospitals are not determinative. We
are not persuaded by these arguments.
1. New York's arguments about the certification
criteria do not persuade us that we should
disregard the Westchester facilities' own
contemporaneous representations.
New York argued that its evidence on the administrative
and operating relationships between the Westchester
facilities and their affiliated city hospitals
demonstrates that the entities were completely
integrated; thus, the Westchester facilities were not
IMDs but rather were parts of the general acute care
hospitals. New York Br. at 23-24. In support of this
argument, New York stated that the hospital charters,
bylaws and organizational charts showed that the city
hospitals and their Westchester facilities were legally
and functionally integrated as single entities. New York
argued that each city hospital had one chief medical
officer and one chief of psychiatry responsible for both
the city hospital and its related Westchester facility.
Id. at 24. The city hospitals were responsible for
approving all medical staff privileges at both sites, and
the medical staffs rotated through both sites. The city
hospitals were located only 20-25 miles from their
Westchester facilities in a contiguous county, and, New
York argued, HCFA made no finding that the facilities
were "so organizationally or geographically separate as
to make it impossible to operate as components of a
single hospital." Id. New York argued that there was
only one corporate owner and one chief executive officer
for each city hospital and its Westchester facility. New
York Br. at 24; Ex. 11.
By asserting these factors, New York is essentially
arguing that the relationships between the city hospitals
and their related Westchester facilities established that
they should have been certified as single institutions
for purposes of Medicare and Medicaid, within the
guidelines of section 2024 of the HCFA State Operations
Manual. In the former case, we found that New York had
failed to show that it met each of the four guidelines
which was applicable throughout the disallowance period.
New York at 11-12. In this matter, New York introduced
additional documentation which arguably indicates that
New York might have met each of the four criteria listed
in section 2024. New York Ex. 11. In the former case,
we found that even if New York could have established
that each of the four criteria was met by both St.
Vincent's and New York Hospital, section 2024 still
recognized that two entities could be "so
organizationally and geographically separate that it is
not feasible to operate [them] as a single entity." New
York at 12.
Given the Westchester facilities' own representations at
the time, accepted by the state survey agency, that they
should be separately certified as psychiatric hospitals,
it is reasonable to assume that each Westchester facility
considered it not feasible at the time to operate as a
single entity with its affiliated city hospital. This is
particularly so since obtaining certification as
psychiatric hospitals required the Westchester facilities
to meet additional Medicare requirements. The mere fact
that the hospitals might have met the four criteria in
section 2024 of the State Operations Manual is thus not
sufficient to show that the Westchester facilities were
not properly certified as psychiatric hospitals during
the disallowance period.
Although New York intimated to the contrary, HCFA was not
required to make an affirmative assessment that the
Westchester facilities were "so organizationally or
geographically separate as to make it impossible to
operate as components of a single hospital" before taking
this disallowance. New York pointed to no such
requirement, and we consider it reasonable for HCFA to
have relied on the facilities' own contemporaneous
representations in determining that they were properly
certified as psychiatric hospitals. 11/
Following the disallowance period (i.e., effective in
1991 and 1992), HCFA issued single "merged" Medicare and
Medicaid provider certification numbers for both New York
hospitals which included their Westchester facilities.
HCFA Exs. 18; 35. Thus, after these dates, the
Westchester facilities were considered part of the city
hospitals for purposes of IMD status. New York argued
that HCFA's "merger on paper," which New York asserted
did not change any of the structure or operation of the
city hospitals and their Westchester facilities,
reflected the true relationship of the city hospitals and
their Westchester facilities as single institutions both
prior to and throughout, as well as after, the
disallowance period. New York Br. at 29-30.
HCFA argued in response that the change in certification
status following the disallowance period was based on New
York's request for a change in the certification of the
facilities:
[T]he certification status of a facility is largely
the facility's choice, and has been all along. The
certifications stem from the Westchester Hospitals'
self-description of their facilities as psychiatric
hospitals when completing the forms requesting
continued certification in the Medicare and Medicaid
program, and the State survey agency's subsequent
recommendations to HCFA to approve their
recertification as psychiatric hospitals. [citation
omitted] Thus, the merger was not approved in
recognition of the true nature of the Westchester
Hospitals as fully integrated components of the New
York City Hospitals. The hospitals simply did not
request to be certified to participate in the
Medicare program as a single provider before 1990.
HCFA Br. at 42.
The mere fact that HCFA accepted the facilities' later
request for a different certification is insufficient to
overcome the facilities' own contemporaneous
representations, accepted by the state survey agency at
the time, that the Westchester facilities were
functioning during the disallowance period as separate
psychiatric hospitals rather than as units of general
acute care hospitals.
It is clear that HCFA considered the hospitals and their
Westchester facilities as single institutions for IMD
status purposes only prospectively:
HCFA permitted the two hospitals in question to
merge with larger general acute care facilities.
The mergers were effective January 1, 1991 for [New
York Hospital] . . . , and January 1, 1992 for [St.
Vincent's] . . . . Thus, the mergers prospectively
eliminated the unallowable claiming issue from these
two dates forward because services rendered to
clients between the ages of 21 to 64 in psychiatric
wings of general acute care hospitals are allowable
for FFP.
New York Ex. 8 (Follow-Up Audit of HCFA) at 9
(unnumbered). HCFA reiterated this position in its
brief. See HCFA Br. at 42. HCFA stated that mergers may
be only prospective because a hospital may be surveyed
and certified only prospectively. HCFA Br. at 5, citing
42 C.F.R. 489.13.
Contrary to what New York argued, certification is more
than simply a paper exercise. It has programmatic
consequences, such as for survey purposes. Thus, we do
not find it credible that the Westchester facilities were
in fact operating differently from how they represented
themselves as operating on their requests for
certification.
2. New York's other evidence that the facilities and
hospitals were integrated is not persuasive.
In support of its argument that the city hospitals and
their Westchester facilities were fully integrated, New
York offered certain documentary evidence. The documents
indicated that in 1989, New York Hospital-WB was denied
several certificates of need to expand because of
problems at New York Hospital-NYC which were unrelated to
psychiatric care or to New York Hospital-WB. See New
York Exs. 12-14. The documents showed that New York
Hospital-NYC and New York Hospital-WB filed certain
consolidated financial statements for the years 1985-1987
(which does not fully cover the period at issue in this
disallowance) which gave no separate accounting of the
Westchester facility. See New York Ex. 16. In a similar
light, in 1987 (a period of time not at issue in this
disallowance), St. Vincent's submitted a disclosure of
ownership and control statement which made no distinction
between St. Vincent's-NYC and St. Vincent's-WB. See New
York Ex. 15.
The mere fact that the state denied several certificates
of need to the New York Hospital-WB based on problems at
New York Hospital-NYC which were unrelated to psychiatric
care or to the Westchester facility does not show that
the Westchester facility did not function as a
psychiatric hospital during the disallowance period. The
fact that New York saw the facilities as related for some
purposes (which, in fact, they were) does not mean that
HCFA is bound by that determination in assessing whether
the Westchester facility was an IMD. Moreover, New York
Hospital-WB sought to distance itself from the actions at
New York Hospital-NYC in defending its position on the
certificate of need applications, a position arguably
inconsistent with New York's position that the facilities
were fully integrated. See HCFA Exs. 13 and 14.
We have also previously stated that the fact that two
facilities file consolidated financial statements does
not prove that they are fully integrated facilities where
it is clear that they are sharing some ancillary services
and where a stepping-down of costs would thus be
required. California at 21. New York provided evidence
that the facilities share certain purchasing and laundry
services.
Finally, the issue here is not whether the Westchester
facilities and the city hospitals had common ownership
and control--they clearly did. The issue is whether the
Westchester facilities were psychiatric hospitals and
therefore IMDs or were instead psychiatric units of
general acute care hospitals. While common ownership and
control may be necessary to consider a facility as part
of an acute care hospital, we know of no reason why a
psychiatric hospital and a general acute care hospital
could not share common ownership and control.
3. Factors which show separation support HCFA's
determination.
New York further argued that the fact that the city
hospitals and the Westchester facilities were separately
administered in certain aspects did not indicate that
they were not, in fact, integrated institutions. The
administration that was admittedly separate included the
fact that the city hospitals and the Westchester
facilities had separate licenses and operating
certificates, filed separate Medicare cost reports, were
separately certified for Medicare and Medicaid
participation and had separate Medicaid billing numbers,
and were separately surveyed and accredited by JCAHO.
See, generally, New York Brief (Br.) at 26-29.
New York argued that the Board has held that how a state
licenses its facilities is not determinative of IMD
status. Id. at 29. In fact, New York argued, since each
of the four facilities received licensure from both the
state's Department of Health and the Office of Mental
Health, each of the Westchester facilities had to be a
division of its affiliated city hospital or it would have
been licensed only by the Office of Mental Health under
New York law. New York asserted that the entities filed
separate Medicare cost reports because psychiatric
facilities are reimbursed under a different payment
system than are acute care hospitals and that different
locations incur different capital-related costs. Id. at
26. New York argued that it was state practice to assign
separate Medicaid billing numbers for different locations
of an institution in order to track where the costs
originated. Id. at 27. Moreover, New York pointed out
that the Board has previously stated that separate
programs operated by a single provider can be separately
accredited by JCAHO. Id. at 28.
As we previously stated, the regulations defining an IMD
state that whether an institution is an IMD is determined
by its overall character as a facility established and
maintained for the care of persons with mental diseases,
whether or not it is licensed as such. 42 C.F.R.
435.1009 (emphasis added). Thus, we agree with New York
that whether the Westchester facilities were licensed as
psychiatric hospitals is not alone determinative of
whether they were IMDs, even though we have previously
found that a psychiatric hospital is by definition an
IMD. New York at 11.
Nonetheless, the way a facility is licensed is one of
several factors which the State Medicaid Manual
guidelines at section 4390 list as being probative of
whether a facility is an IMD. Thus, while a facility
could be an IMD even if it was licensed as another type
of facility, the fact that the Westchester facilities
were issued licenses and operating certificates by the
state as psychiatric hospitals is a strong indication
that the facilities should be considered IMDs separate
from their affiliated city hospitals.
Moreover, we found in the former case that New York
Hospital-NYC filed separate Medicare cost reports from
New York Hospital-WB because psychiatric facilities are
reimbursed outside of the prospective payment system
applicable to general acute care hospitals. See New York
at 8. In fact, while the psychiatric beds at both the
city hospitals and the Westchester facilities were exempt
from the prospective payment system, we note that the two
sites were reimbursed at different per diem rates. New
York Ex. 7 at 3. Thus, while we agree that filing
separate Medicare cost reports does not indicate that the
Westchester facilities and their affiliated city
hospitals were not related, it is some evidence that the
locations operated independently.
Likewise, we agree with New York that a facility's
certification for participation in Medicare and Medicaid
is not alone determinative of IMD status. As we
indicated in the former case, however, this factor should
be given great weight. Much of HCFA's argument as to why
these facilities are independent institutions for IMD
purposes rests on this issue of Medicare and Medicaid
certification. HCFA pointed out that each of the
Westchester facilities sought certification as a
psychiatric hospital when it requested certification in
1966 and recertification throughout the disallowance
period, yet each of the city hospitals sought separate
certification as a general acute care hospital. 12/ The
state survey agency concurred in each of the four
requests for certification as a particular type of
provider, and each facility was certified in accordance
with its request. 13/
Moreover, while it may be true that a state assigns
separate MMIS numbers to different locations of related
facilities for the convenience of tracking where costs
were incurred, New York retired the separate MMIS numbers
following the disallowance period once the facilities
were merged for IMD-status purposes. New York Ex. 17
at 3. In California, we found that the Medicaid
statute supported HCFA's asserted view that the IMD
exclusion applies to the entity participating in Medicaid
even if the entity is participating as a distinct part of
another medical institution. California at 12. In fact,
in California, the acute care hospital at issue managed
more than a dozen Medicaid provider numbers for various
of its programs and administratively-related facilities,
including the skilled nursing facility which we found was
an IMD.
Finally, the section 4390 guidelines list a facility's
accreditation by JCAHO, which is required of all entities
participating in Medicare and Medicaid, to be one factor
in determining whether the facility is an IMD. Thus,
while we agree with New York that the Westchester
facilities' separate accreditation by JCAHO as
psychiatric hospitals is not alone determinative of this
matter, it is some evidence that the Westchester
facilities were IMDs.
In sum, while none of these factors alone establishes
that the Westchester facilities were separate for IMD-
status purposes, these factors collectively establish
that the Westchester facilities were psychiatric
facilities which operated independently of the acute care
hospitals for many purposes, including most authorization
and reimbursement purposes. Thus, New York could not
reasonably conclude that the Westchester facilities were
not IMDs during the disallowance period.
CONCLUSION
For the above reasons, we find that the Westchester
facilities were IMDs and uphold the disallowance of
$19,112,321.
_________________________
Judith A. Ballard
_________________________
M. Terry Johnson
_________________________
Donald F. Garrett
Presiding Board Member
1. The total amount disallowed was $20,687,621. At New
York's request, the Board split the disallowance into two
separate appeals, assigning separate docket numbers to
each appeal. New York requested this action in order to
have an opportunity to separately negotiate with HCFA to
resolve the $1,575,300 amount disallowed for partial
months of admission and partial months of discharge.
That portion of the appeal was assigned Docket No. A-95-
36. The remaining $19,112,321 was assigned Docket No. A-
95-34 and is the subject matter of this decision.
2. HCFA's predecessor agency was the Bureau of Health
Insurance. We use the term "HCFA" in this decision to
refer to the actions of either agency.
3. Section 1905(h)(1)(C) of the Act allows for coverage
of services provided to persons age 21 in an IMD if they
were receiving services in an IMD in the period
immediately preceding the date on which they attained the
age of 21. For the sake of simplicity, throughout the
decision we refer to the IMD exclusion as pertaining to
persons aged 22 to 64 even though we recognize that it
also pertains to many 21-year-olds.
4. Changes made to section 4390, effective April 6,
1994, condensed the ten criteria into five. See
Transmittal No. 65 (March 1994).
5. The two extra conditions of Medicare participation
for psychiatric hospitals are: 1) maintaining certain
clinical records, and 2) meeting specific requirements
for enhanced staffing. Section 1861(f)(3) of the Act; 42
C.F.R. 482.61 and 482.62. Meeting these criteria is
not required of psychiatric units of general acute care
hospitals.
6. Most of the section 2024 guidelines of the HCFA
State Operations Manual were incorporated into section
4390 of the State Medicaid Manual, effective April 6,
1994. See HCFA Transmittal No. 65 (March 1994). The new
guidelines contained the same requirements for one common
owner, one chief medical officer and one chief executive
officer that were contained in section 2024. (They
dropped the criterion of an integrated medical staff.)
In addition, the revision to section 4390 also added the
following additional considerations:
4. Are any of the components separately licensed?
5. Are the components so organizationally and
geographically separate that it is not feasible
to operate as a single entity?
6. If two or more of the components are
participating under the same provider category
(such as nursing facilities), can each component
meet the conditions of participation
independently?
State Medicaid Manual 4390(B) (effective April 6,
1994).
7. Since April, 1987, New York has contracted with HCR
of Rochester to perform state surveys for Medicare and
Medicaid participation. New York Ex. 1 at 3.
8. Later versions of the form added a breakdown for
"psychiatric - short term" and "psychiatric - long term,"
and eliminated the option of "other (specify) ________."
9. While New York conceded, in the former case, that
the Westchester facilities, considered alone, would be
IMDs, New York asserted in this case that HCFA improperly
determined that the Westchester facilities were free-
standing psychiatric hospitals by relying on a paper
review of the Westchester divisions' survey and
certification forms, which were developed in 1966. See
New York Br. at 18-20. Moreover, according to New York,
the Inspector General failed to review the actual paid
Medicaid claims for patients at these facilities, but
rather looked at them in the aggregate without conducting
an in-depth analysis of each claim, and thus failed to
carefully scrutinize the nature of the care and treatment
actually provided at the Westchester facilities prior to
disallowing FFP. New York also asserted that the
aggregate review of the paid Medicaid claims did not
consider the true nature of the care and treatment
provided to all of the facilities' patients, including
non-Medicaid patients. Id.
New York, however, offered no evidence that the paid
claims which the Inspector General allegedly failed to
individually consider would have indicated that the
primary nature of the care and treatment offered by the
Westchester facilities was something other than
psychiatric care. Thus, we affirm our conclusion in the
former case that the Westchester facilities are clearly
IMDs if considered separately from the city hospitals.
10. In this case, New York argued that there was no
provision in Medicaid law or regulation which defined
what constituted a "free-standing facility," yet the
determination that the Westchester divisions were free-
standing was crucial to HCFA's findings that the
divisions were IMDs. According to New York, since there
had been no publication of a standard with a comment
period as required by the Administrative Procedure Act (5
U.S.C. 553), HCFA's findings were based on "their own
vague characterizations, from their highly subjective
viewpoint." New York Br. at 21.
As we previously stated, we do not find the
characterization of a facility as "free-standing,"
"distinct-part," or otherwise to be determinative of its
independence (or lack thereof) for IMD status purposes.
These terms are often used interchangeably or without
regard to their precise meaning. California at 10. What
is determinative is whether the overall character of the
facility was that of an IMD.
11. We note that we have previously found
institutions located as close as nine miles from one
another to be separate facilities for IMD status purposes
(such as in California) and facilities as far apart as 50
miles to be sufficiently integrated for such purposes
(see Oklahoma Dept. of Human Services, DAB No. 799 (1986)
at 8.
12. While New York argued that the Westchester
facilities sought certification as psychiatric hospitals
only because they were limited by the choices on HCFA's
pre-printed forms, we do not find this to be credible.
New York Reply Br. at 2-3. HCFA's pre-printed forms gave
each applicant the choice, among others, of indicating
the type of hospital it was as either "General - Short
Term," "General - Long Term," "Psychiatric," or "Other
(Specify) _______." E.g. HCFA Exs. 3; 12. New York did
not explain why it could not have specified in detail the
type of certification it was seeking by marking the
choice, "other," and filling in the blank. Moreover, New
York's statement that it found the forms "confusing" is
not credible given that it did not request clarification
from HCFA during the 20 years it marked "psychiatric
hospital" on the forms.
13. HCFA pointed out that the third digit in the
Medicaid provider numbers for each of the Westchester
facilities was a "4," indicating that they were each
providing Medicaid services under the psychiatric
hospital designation. On the other hand, the third digit
in the Medicaid provider numbers for each of the city
hospitals was a "0," indicating that they were each
providing services as a general acute care hospital.
HCFA Br. at 24-25; see also New York Ex. 9, 1060.