Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New Jersey Department of Human Services
DATE: November 20, 1995
Docket No. A-95-106
Control No. NJ-94-002-MAP
Decision No. 1549
DECISION
The New Jersey Department of Human Services (New Jersey,
State) appealed the determination of the Health Care
Financing Administration (HCFA) disallowing federal
financial participation (FFP) in the amount of $1,004,872
claimed for the period January 1, 1990 through June 30,
1991 under title XIX of the Social Security Act (Act).
The costs were claimed for medical services provided to
96 individuals aged 22 through 64 residing in
institutions for mental diseases (IMDs) who were
temporarily transferred to acute care facilities to
receive medical services. HCFA disallowed the costs on
the ground that, under section 1905(a) of the Act, FFP is
not available in expenditures for services provided to
individuals in that age range who are patients in IMDs.
New Jersey took the position, however, that the
individuals were not patients in IMDs at the time they
received medical services in the acute care facilities.
As explained in detail below, we find that the
individuals for whom the claims were made remained
patients in IMDs at the time they received medical
services in the acute care facilities. The Act and
regulations, considered as a whole in light of their
purpose, clearly require this finding since these
individuals were admitted to IMDs, had not been
discharged, and were not on conditional release or
convalescent leave. We further find no basis for New
Jersey's claim that HCFA previously had approved New
Jersey's interpretation of the applicable requirements
and is estopped from disallowing the costs. Accordingly,
we sustain the disallowance.
Relevant Legal Requirements
Title XIX of the Act established a cooperative federal-
state program known as Medicaid, which provides medical
assistance to certain economically disadvantaged persons.
Section 1905(a) of the Act enumerates various services
for which payment qualifies as "medical assistance."
Following the last of the enumerated paragraphs
describing covered services is language which provides
that "medical assistance" does not include payments "with
respect to care or services for any individual who has
not attained 65 years of age and who is a patient in an
institution for mental diseases." Section 1905(a). 1/
This provision, known as the general IMD exclusion, 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. Section 1905(a)(16).
The IMD exclusion is also incorporated specifically into
the definition of various levels of institutional service
which qualify as "medical assistance." For example,
"medical assistance" is defined to include "inpatient
hospital services (other than services in an institution
for mental diseases)." Section 1905(a)(1). 2/ Thus,
throughout the disallowance period, the Act proscribed
payments for persons ages 22 through 64 in an IMD. 3/
An IMD is 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). 4/ The general IMD exclusion was based
on a congressional belief that care in mental
institutions was a traditional state responsibility, as
well as on Congress' general distrust of the
effectiveness and efficiency of care in IMDs. S. Rep.
404, 89th Cong., 1st Sess., pt. 1 at 144 (1965),
reprinted in 1965 U.S.C.C.A.N 1942, 2084-87; Schweiker v.
Wilson, 450 U.S. 221, 242 (1980).
Regulations governing recipient eligibility for medical
assistance provide in pertinent part at 42 C.F.R.
435.1008:
(a) FFP is not available in expenditures for
services provided to --
(1) Individuals who are inmates of public
institutions as defined in 435.1009; or
(2) Individuals under age 65 who are patients in
an institution for mental diseases unless they
are under age 22 and are receiving inpatient
psychiatric services under 440.160 of this
subchapter.
(b) The exclusion of FFP described in paragraph (a)
of this section does not apply during that part of
the month in which the individual is not an inmate
of a public institution or a patient in an
institution for tuberculosis or mental diseases.
(c) an individual on conditional release or
convalescent leave from an institution for mental
diseases is not considered to be a patient in that
institution. However, such an individual who is
under age 22 and has been receiving inpatient
psychiatric services . . . is considered to be a
patient in the institution until he is
unconditionally released or, if earlier, the date he
reaches age 22. 5/
The regulations also provide that FFP is not available in
expenditures for services for "[a]ny individual who is
under age 65 and is in an institution for mental
diseases, except any individual who is under age 22 and
receiving inpatient psychiatric services . . . ." 42
C.F.R. 441.13(a)(2).
The State Medicaid Manual (SMM) issued by HCFA in
November 1990 provided in 4390.1:
Periods of Absence from IMDs.--42 CFR 435.1008(c)
states that an individual on conditional release or
convalescent leave from an IMD is not considered to
be a patient in that institution. These periods of
absence relate to the course of treatment of the
individual's mental disorder. If a patient is sent
home for a trial visit, this is convalescent leave.
If a patient is released from the institution on the
condition that the patient receive outpatient
treatment or on other comparable conditions, the
patient is on conditional release. If an emergency
or other need to obtain medical treatment arises
during the course of convalescent leave or
conditional release, these services could be covered
under Medicaid because the individual is not
considered an IMD patient during these periods. If
a patient is temporarily released from an IMD for
the purpose of obtaining medical treatment, however,
this is not considered a conditional release and the
patient is still considered an IMD patient.
The regulation contains a separate provision for
individuals under age 22 who have been receiving
inpatient psychiatric services under 42 CFR 440.160.
This category of patient is considered to remain a
patient in the institution until he is
unconditionally released or, if earlier, the date he
reaches age 22.
On January 4, 1991, the Region II office of HCFA issued
Medicaid State Operations Letter (SOL) 91-1 to
"clarif[y]" SMM 4390.1. That issuance essentially
repeated the provisions of section 4390.1. 6/
Factual Background
The disallowance was based on HCFA's review of New
Jersey's quarterly Medicaid statements of expenditure for
the quarters ended September 30, 1990 through December
31, 1991 (which included some increasing adjustments for
prior quarters). HCFA reviewed 96 claims of $8,000 or
more for patients at four psychiatric hospitals in New
Jersey which constituted IMDs. HCFA determined that New
Jersey improperly claimed FFP totalling $950,346 for
medical services provided to 88 individuals aged 22
through 64 whom HCFA found had been temporarily
transferred from the IMDs to acute care facilities to
receive the services. According to HCFA, none of these
individuals was on conditional release or on convalescent
leave; therefore, they remained patients in the IMD.
HCFA disallowed the cost of the medical services on the
ground that, under section 1905(a) of the Act, FFP is not
available for patients in IMDs aged 22 through 64. 7/
HCFA asserted in its briefing before the Board that the
individuals in question had not been discharged from the
IMDs in order to receive the medical treatment, and were
expected to return there upon completion of medical
treatment. New Jersey did not directly dispute this
assertion, nor did it offer any evidence to the contrary.
Instead, New Jersey appeared to acknowledge the truth of
HCFA's assertion when it argued that "HCFA's regulations
do not require that a person be formally discharged" in
order for FFP to be available. State reply brief at 5.
HCFA also determined that New Jersey improperly claimed
FFP totalling $54,526 for medical services provided in
acute care facilities to eight additional patients
transferred from the IMDs for whom no patient records
were available. HCFA stated that it could not determine
whether these individuals were on conditional release or
convalescent leave. Accordingly, HCFA disallowed these
costs on the ground that the claims were not supported by
adequate documentation, as required by 45 C.F.R.
74.61(g). 8/
Analysis
We note at the outset that New Jersey did not dispute
HCFA's finding that there were no patient records for
eight individuals. Thus, even if we were to find that
these individuals were not patients in an IMD when they
were in the acute care facilities (which we do not), the
cost of the medical services provided to them would be
unallowable because it cannot be established that they
were otherwise eligible for Medicaid. In any event, New
Jersey did not argue that these individuals were
differently situated from the other 88 individuals for
whom costs were claimed. Thus, our conclusion, explained
below, that the latter individuals were patients in an
IMD at the time they received services in the acute care
facilities applies to the eight individuals without
patient records as well.
The general IMD exclusion in section 1905(a) of the Act
and 42 C.F.R. 435.1008(a)(2) applies to certain
individuals who are patients "in an institution for
mental diseases." The principal issue in this case is
thus whether the individuals who received the medical
services for which New Jersey claimed reimbursement were
patients "in an institution for mental diseases" within
the meaning of these provisions. It is undisputed that
88 of the individuals for whom New Jersey made claims
were initially patients in IMDs, were moved to acute care
facilities without being discharged from the IMDs, and
were expected to return to the IMDs. HCFA took the
position that, under these circumstances, the individuals
remained patients in an IMD during the time that they
were receiving the medical services.
HCFA relied on SMM 4390.1 as the basis for its
disallowance for the entire period. New Jersey did not
dispute that, under this provision, the individuals in
question did not lose their status as patients in IMDs by
virtue of their temporary move to acute care facilities
for the purpose of medical treatment. The Board and the
courts have consistently held that where a statute or
regulation is subject to more than one interpretation,
the federal agency's interpretation is entitled to
deference if that interpretation is reasonable, and
appropriate notice of that interpretation has been given
to the state. See, e.g., New York State Dept. of Social
Services, DAB No. 1485, at 8, n. 6 (1994), and cases
cited therein; California Dept. of Health Services, DAB
No. 1504, at 8 (1995). 9/ Thus, as explained later in
this decision, we conclude that SMM 4390.1 was
controlling from the point at which New Jersey had notice
of it. We further conclude, however, that, even prior to
New Jersey's receipt of notice, it was clear from the Act
and the regulations that the temporary move did not cause
the individuals in question to lose their status as
patients in IMDs. Accordingly, HCFA properly disallowed
the costs claimed for the entire period at issue.
Section 435.1009 of 42 C.F.R. defines the phrase "[i]n an
institution" as referring "to an individual who is
admitted to live there and receive treatment or services
provided there that are appropriate to his requirements."
The individuals in question were clearly admitted to live
in the IMDs and receive appropriate treatment or services
provided there. Further, the individuals were never
discharged from the IMDs, nor did New Jersey allege that
any other steps were taken to alter the legal status of
these individuals as IMD patients. (Given the nature of
IMDs, it is likely that many of the individuals were
committed by court order to live there and were not free
to leave without further court action.) New Jersey
pointed to nothing that showed that their institutional
status actually changed when they were temporarily moved
to acute care facilities to receive medical services.
Since their status remained that of patients in an IMD,
FFP was not available for any services provided to them
(irrespective of whether they met the eligibility
requirements for Medicaid) even though they were not
physically present in an IMD when the services were
provided.
As New Jersey itself recognized, it is the institutional
status of the individual which is determinative of
whether the general IMD exclusion applies. See, e.g.,
California Dept. of Health Services, DAB No. 1338, at 3
(1992) (citing Joint Consideration: Admission/Discharge
Issue, DAB No. 436, at 7 (1983), and Petition for
Clarification of Decision No. 436, DAB No. 535 (1984)).
Thus, the Board has held that the exclusion applies to
medical services provided in an IMD to individuals
residing there (Pennsylvania Dept. of Public Welfare, DAB
No. 1042 (1989)), as well as to medical services provided
in another facility on an outpatient basis to individuals
residing in an IMD (DAB No. 1338). These holdings are
supported by the language of section 1905(a) of the Act
as well as HCFA's longstanding regulations, which treat
the IMD exclusion as both a limit on particular covered
services and a general limit on eligibility. The
relevant language includes:
o the parenthetical language in section 1905(a)(1),
(4)(A), (14) and (15), which excludes services that
are provided in an IMD from services that constitute
"medical assistance" eligible for reimbursement
under Medicaid;
o the language in section 1905(a) of the Act which
bars payments with respect to "care or services with
respect to any individual . . . who is a patient in
an institution for mental diseases;"
o the language of section 441.13(a)(2) of 42
C.F.R., which makes FFP unavailable for services to
"[a]ny individual who . . . is in an institution for
mental diseases. . . ."
Thus, in this case, the general IMD exclusion applies
because the status of the individuals in question as
patients in an IMD never changed.
This view is consistent with the regulatory exception to
the IMD exclusion for "an individual on conditional
release or convalescent leave from an institution for
mental diseases," who "is not considered to be a patient
in that institution." 42 C.F.R. 435.1008(c). This
exception permits reimbursement of the cost of services
provided outside an IMD to certain individuals who have
not been discharged from the IMD. The fact that HCFA
created an exception for these individuals indicates
that, as a general rule, all individuals who receive
services outside of an IMD to which they have been
admitted and from which they have not been discharged
continue to be considered patients in the IMD. (As
discussed later in this decision, we reject New Jersey's
argument that the individuals in question here qualified
for this exception.)
That this was intended to be the general rule is also
reflected in the preamble to the 1985 regulations
amending section 435.1008(b). The preamble states that
the regulations "do not affect Federal matching funds for
services to individuals who are not residing in (i.e.
have been discharged from) [institutions for mental
diseases]." 50 Fed. Reg. 13196 (April 3, 1985) (emphasis
added). If an individual who has been discharged from an
IMD is not residing in an IMD, an individual who has not
been discharged from an IMD is still residing in the IMD.
Furthermore, viewing the individuals in question as
patients in an IMD effectuates the purpose of the IMD
exclusion to ensure that Medicaid funds are not used to
finance care that has traditionally been the
responsibility of state governments. The definition of
an IMD in section 1905(i) of the Act lists "medical
attention, nursing care, and related services" as
services which are provided by an IMD. New Jersey did
not argue that these types of services were not
traditionally provided by state-run mental institutions.
If states could obtain federal funding for medical
services provided to IMD patients simply by moving the
patients to other facilities to receive the services,
this would circumvent congressional intent to deny
federal funding for individuals institutionalized in
IMDs. 10/ (Irrespective of congressional intent,
moreover, this might not be a desirable outcome since it
might be more expensive to transfer patients from IMDs to
other facilities to receive medical services than to
provide the services in the IMD or through outpatient
visits to other facilities.)
New Jersey argued, however, that sections 435.1008(b) and
435.1009 of the regulations authorize reimbursement for
medical services provided in acute care facilities to
individuals temporarily transferred there from IMDs.
Section 435.1008(b) states that the IMD exclusion does
not apply "during that part of the month" in which the
individual is not a patient in an IMD. New Jersey
claimed that, applying the definition of "patient" in 42
C.F.R. 435.1009, the individuals in question were not
patients in the IMDs during the part of the month that
they were in the acute care facilities. Section 435.1009
defines a "patient" as "an individual who is receiving
needed professional services that are directed by a
licensed practitioner of the healing arts toward
maintenance, improvement, or protection of health, or
lessening of illness, disability, or pain." According to
New Jersey, the individuals in question were patients in
the acute care facilities because they were "receiving
needed professional services" provided by those
facilities. New Jersey asserted that these individuals
cannot be considered IMD patients at the time they were
receiving the medical services in the acute care
facilities because a person cannot logically be
considered a patient in two different facilities at the
same time.
We are not persuaded that the definition of "patient" is
dispositive of the issue presented here. There is
nothing in this definition which indicates that an
individual could not continue to be considered a patient
in a facility if there is a temporary interruption in the
provision of "needed professional services" by that
facility. In addition, it is possible that the
individuals in question continued to receive "needed
professional services" from the IMDs while in the acute
care facilities. Thus, it is not illogical to treat them
as IMD patients for purposes of the IMD exclusion even
though they were also receiving "needed professional
services" from the acute care facilities.
Moreover, section 435.1008(b) was not intended as an
exception to the IMD exclusion. Instead, this provision
amended a prior regulation which allowed FFP for services
provided outside of an IMD during the full month of
admission to the IMD. See 50 Fed. Reg. 13196, 13197
(April 3, 1985); DAB No. 1338, at 4. Under the amended
regulation, FFP is available for services provided only
during that part of a month before an individual is
admitted to an IMD or after an individual is discharged
from an IMD. Id. Thus, New Jersey's reliance on this
provision is misplaced.
New Jersey argued in the alternative that the exception
to the general IMD exclusion in section 435.1008(c) for
individuals who are on conditional release or
convalescent leave from an IMD applied here. According
to New Jersey, since the terms "conditional release" and
"convalescent leave" are undefined by statute or
regulation, they can reasonably be considered to apply to
individuals temporarily transferred from IMDs to acute
care facilities. We disagree.
We note first that the record indicates that New Jersey
itself identified the individuals in question as being on
conditional release, not convalescent leave. A
Department of Human Services memorandum dated
December 24, 1979 concerning procedures for determining
Medicaid eligibility for patients age 22 through 64
residing at the four IMDs in question referred only to
conditional release to an acute care hospital. State
appeal file at 5. New Jersey contended that the
individuals in question were on "conditional release"
because they were "discharged from a facility on the
condition that medical care is received." State brief at
13. However, New Jersey did not provide any
documentation (such as patient records) to support its
claim that these individuals were in fact discharged on
this condition.
Moreover, New Jersey admitted that these individuals were
not on conditional release as that term is used in New
Jersey law. In New Jersey civil practice, a conditional
discharge refers to a court's imposition of restraints on
an IMD patient who has been released into the community.
See HCFA brief at 20, citing New Jersey Civil Practice R.
4:74-7(h)(1) and New Jersey case law. New Jersey argued,
however, that section 435.1008(c) was not limited to
individuals released in that sense, and that it was
sufficient if the dictionary definition of "conditional"
was satisfied. See State brief at 13 (quoting the Oxford
English Dictionary definition of "conditional" as
"[s]ubject to, depending on, or limited by, one or more
conditions; not absolute; made or granted on certain
terms or stipulations"). However, the word "conditional"
must be considered in conjunction with "release," the
word it modifies. The concept of "conditional release"
in our view implies that the individuals will remain
released unless the condition of their release is
violated. An individual who is expected to return cannot
logically be viewed as on conditional release. Thus, we
conclude that New Jersey's interpretation of section
435.1008(c) as excepting the individuals in question from
the general IMD exclusion is not a reasonable
interpretation.
In any event, even if New Jersey's interpretation of
section 435.1008(c) were reasonable, New Jersey could not
reasonably rely on this interpretation with respect to
costs incurred during the last two quarters covered by
the disallowance (January through June 1991) since it had
timely notice of a contrary Agency interpretation which
was reasonable. SMM 4390.1, issued in November 1990,
stated that "conditional release" and "convalescent
leave" are periods of absence which "relate to the course
of treatment of the individual's mental disorder." It
further stated that if a patient in an IMD "is sent home
for a trial visit, this is convalescent leave," while if
a patient "is released from the [IMD] on the condition
that the patient receive outpatient treatment or on other
comparable conditions, the patient is on conditional
release." In addition, SMM 4390.1 provided that, when
individuals are already absent from the IMD under these
circumstances, medical services may be covered by
Medicaid because the individuals are not considered IMD
patients. Here, however, the individuals were
transferred directly from IMDs to acute care facilities.
They were not transferred to further the treatment of
their mental disease, moreover, but to receive other
medical services. Furthermore, as New Jersey admitted,
the last sentence of the first paragraph of SMM 4390.1
specifically precludes FFP in the cost of medical
services provided to individuals aged 22 through 64
temporarily transferred from IMDs to acute care
facilities. Thus, as interpreted in SMM 4390.1, there
is no question that section 435.1008(c) did not apply to
the individuals in question here.
New Jersey argued, however, SMM 4390.1 and SOL 91-1
were not binding until New Jersey had time to come into
compliance with them, and that the entire disallowance
should therefore be reversed. (New Jersey argued in the
alternative that if time to come into compliance was not
warranted, the disallowance of costs incurred through the
last quarter of 1990 (when SMM 4390.1 was issued)
should be reversed.) We disagree. As discussed above,
it is clear from the face of the Act and regulations that
the general IMD exclusion precludes reimbursement for
medical services for individuals who are temporarily
transferred from IMDs to acute care facilities to receive
medical treatment. 11/ Since SMM 4390.1 and SOL 91-1
merely confirmed what was already apparent from the Act
and regulations, HCFA appropriately disallowed costs for
the entire period covered by its review. 12/
Moreover, another Agency issuance, which pre-dated the
disallowance period, also is relevant. HCFA's
transmittal for SMM 4390.1 stated that this section
"incorporates material published in Part 5 of the Medical
Assistance Manual (MAM) Section III, question 2 (5-
120.9-00 on page 5). . . ." 13/ State appeal file at 25
(Transmittal No. 51). This MAM provision is dated
9/22/76 and stated in relevant part that an individual
under age 21 receiving inpatient psychiatric services
"may be considered to be a patient until he is
unconditionally released . . . ." It could reasonably be
inferred from this provision that other individuals
should also be considered IMD patients until
unconditionally released, i.e., discharged. 14/
New Jersey alleged, however, that it relied on a
different provision of the MAM, also issued in 1976, in
determining that it could properly claim FFP for medical
services to individuals temporarily transferred from IMDs
to acute care facilities. The provision in question, MAM
4-50-00, D, stated that the "inmate status" of an
inmate of a public institution is interrupted or
terminated when the patient is transferred to an
institution providing medical care under title XIX and
admitted to it as an inpatient or resident. State appeal
file at 4. This provision is inapposite here. The
regulations contain separate provisions pertaining to
"inmates of public institutions" and "patients in an
[IMD]." See 42 C.F.R. 435.1008(a)(1) and (a)(2). 15/
The individuals in question here clearly fell into the
latter category and thus were not "inmates" within the
meaning of the MAM. See DAB No. 436, at 17. Moreover,
there is no reason to accord these individuals the same
treatment as "inmates" since the exception to the general
IMD exclusion in section 435.1008(c) applies solely to
individuals on conditional release or convalescent leave
from an IMD.
New Jersey argued further that HCFA's interpretation of
section 435.1008(c) (in SMM 4390.1 and SOL 91-1) as
excluding the individuals in question here was in effect
inconsistent with the definition of the term "inpatient"
in 42 C.F.R. 435.1009. Under that section, an
inpatient is "a patient who has been admitted to an
institution . . . and who . . . receives room, board and
professional services in the institution . . . ."
However, the term "inpatient" is most often used when
describing hospital services to distinguish services
provided to someone living in the hospital from services
provided on an outpatient basis. See DAB No. 535, at 8,
n. 3 (1984). Congress used an entirely different term in
the general IMD exclusion, which applies to individuals
who are "patients in an [IMD]." Thus, HCFA's application
of the general IMD exclusion to the individuals in
question here is not inconsistent with the definition of
"inpatient" since the individuals in question need not
have been inpatients in the IMDs in order for the
exclusion to apply.
New Jersey argued in addition that HCFA's interpretation
was contrary to section 1905(a)(25) of the Act, which
provides that the "medical assistance" for which Medicaid
reimbursement is available includes, in addition to the
types of care and services specified elsewhere in section
1905(a), "any other medical care, and any other type of
remedial care recognized under State law, specified by
the Secretary." However, this requires that the
Secretary specify the other medical care for which
reimbursement is available. The regulations which
specify this care do not include the types of services in
question here. See 42 C.F.R. 440.170.
New Jersey also relied on the statement in Connecticut
Dep't of Income Maintenance v. Heckler, 471 U.S. 524
(1985), that the Act authorizes coverage of services for
the mentally ill "provided the services are performed in
a hospital, a skilled nursing facility, or an SNF that is
not an IMD." However, this case is inapposite here
because the court was referring to services for the
mentally ill that are services for their mental illness,
while the services in question here are medical services.
In any event, New Jersey's position that this statement
is inconsistent with HCFA's interpretation of section
435.1008(c) assumes that the services in question here
were not provided to patients in an IMD, the very matter
at issue here.
New Jersey also argued that HCFA should be estopped from
disallowing the costs in question because HCFA approved
New Jersey's practice of billing Medicaid for medical
services provided to individuals who were temporarily
transferred from IMDs to acute care facilities.
According to New Jersey, HCFA paid claims for such
services for a period of ten years without raising any
question. New Jersey provided the affidavit of a state
official alleging that before New Jersey began to submit
these claims in early 1980, he spoke with persons at the
Region II office of SRS and was informed that New
Jersey's reading of the statute, regulations, and the MAM
was correct. See State appeal file at 2. New Jersey
also contended that HCFA confirmed in a 1981 letter that
it was proper to bill Medicaid for the services in
question.
We are not persuaded that there is any basis for estoppel
here. As the Board has stated in earlier decisions --
There can be no estoppel absent the traditional
requirement of a misrepresentation of fact,
reasonable reliance, and detriment to the opposing
party. Heckler v. Community Health Services of
Crawford County, Inc., 467 U.S. 51, 59 (1984); see
also Tennessee Dept. of Human Services, DAB No. 1054
(1989). Moreover, estoppel against the federal
government, if available at all, is presumably not
available absent affirmative misconduct by the
federal government. Schweiker v. Hansen, 450 U.S.
785 (1981).
Texas Dept. of Human Services, DAB No. 1344 at 9 (1992),
and cases cited therein. Moreover, in OPM v. Richmond,
496 U.S. 414, 423 (1990), reh'g denied, 111 S.Ct. 5
(1990), the Supreme Court stated that it "would leave for
another day whether an estoppel claim could ever succeed
against the Government."
Here, New Jersey did not allege that HCFA engaged in any
conduct that would rise to the level of affirmative
misconduct. Moreover, the traditional elements of
estoppel (misrepresentation of fact, reasonable reliance,
and detriment to the opposing party) were not present.
First, the mere payment of New Jersey's claims for the
costs in question did not constitute approval of the
costs as allowable (which would have been tantamount to a
misrepresentation of fact). There was simply an earlier
failure on HCFA's part to enforce the applicable
requirements, which should not foreclose it from
enforcing these requirements now. See Michigan Dept. of
Social Services, DAB No. 1211, at 6 (1990).
Moreover, New Jersey did not establish that it received
oral advice that its billing system complied with the Act
and regulations. New Jersey did not produce any
contemporaneous notes which showed that the alleged
telephone conversation took place. Instead, it offered
only the affidavit of a State official, which described
the telephone conversation in very general terms. The
affiant did not identify the date the alleged advice was
received, and expressed some uncertainty about the
identity of the person with whom he spoke.
Even assuming that the alleged advice was received, New
Jersey could not reasonably rely on it. The person with
whom the affiant thought he spoke, "the New Jersey State
technical advisor on Medicaid eligibility policy in
Region II," does not appear to have been in a policy-
making position. Furthermore, it is well-established
that there can be no reasonable reliance on the advice of
an Agency employee which is contrary to the Act and
regulations. See Heckler v. Community Health Services of
Crawford County, Inc. (error in oral advice by a
government agent held insufficient to estop the
government). If New Jersey wished to obtain
clarification of the applicable requirements, it should
have obtained it in writing.
Furthermore, the 1981 letter on which New Jersey
allegedly relied merely stated that "once an individual
is on conditional release or convalescent leave from an
IMD and is otherwise Medicaid eligible, that . . .
individual is then entitled to any of the services
covered in [the] State plan and for which [the State] can
claim FFP." State appeal file at 16 (letter dated
9/28/81 from Associate Regional Administrator to
Director, Division of Medical Assistance and Health
Services, Department of Human Services). There is
nothing on the face of this letter which suggests that an
individual who is temporarily moved from an IMD to an
acute care facility for medical treatment is considered
on conditional release or convalescent leave. Indeed,
the letter states that "HCFA now has serious question as
to whether individuals between 21 and 64 who are not
otherwise covered for inpatient psychiatric hospital
services suddenly become eligible for such services, by
virtue of going into a facility furnishing those
services." Id.
Even if New Jersey read the 1981 letter as indicating
that it could properly claim Medicaid reimbursement for
services to the individuals in question, we are not
persuaded that New Jersey in fact relied on this advice.
The New Jersey letter to which the 1981 letter responds
lists "medical leave" separately from "conditional
release" and "convalescent leave." State appeal file at
14 (letter dated 9/9/81 from Director, Division of
Medical Assistance and Health Services, Department of
Human Services, to Associate Regional Administrator).
Thus, New Jersey arguably recognized at that point that
section 435.1008(c) did not cover the situation presented
here. 16/
There are also several other factors which indicate that
New Jersey could not have reasonably relied on any of the
advice it allegedly received. The fact that New Jersey
did not claim FFP for services to the individuals in
question when the Medicaid regulations were first
promulgated in 1968, or when the regulations were
recodified in 1978, indicates that New Jersey understood
from the Act and regulations themselves that the general
IMD exclusion made FFP unavailable. Moreover, in
responding to the draft review report, New Jersey took
the position that it was entitled to FFP because it had
classified the individuals' transfers "as a discharge in
the calculation of reimbursement limitations . . . ."
State appeal file at 46. This indicates that, even after
allegedly receiving advice to the contrary, New Jersey
was aware that discharge was required in order for the
individuals to be eligible for FFP. Furthermore, as
discussed earlier, the preamble to the regulations as
revised in 1985 is clear that whether an individual has
been discharged determines whether the individual is
residing in a facility. Thus, even if New Jersey was
given contrary advice at an earlier date, it should have
re-evaluated its interpretation in light of the preamble.
Finally, even if New Jersey had reasonably relied on
incorrect advice from a federal official, it made no
showing that such reliance was detrimental. Since the
care of individuals in mental institutions has
traditionally been a state responsibility, New Jersey
would have incurred the costs regardless of whether it
received the advice.
Conclusion
For the foregoing reasons, we conclude that HCFA properly
applied the general IMD exclusion in the Act and
implementing regulations to preclude Medicaid
reimbursement for services to the individuals in question
here, and that HCFA was not estopped from taking a
disallowance on this basis. Accordingly, we sustain the
disallowance in full.
______________________
M. Terry Johnson
________________________
Norval D. (John) Settle
______________________
Judith A. Ballard
Presiding Board Member
1. This provision appears in the current version of
the Act after section 1905(a)(25).
2. The other definitions which include the
parenthetical exclusion of services "in an institution
for mental diseases" are in sections 1905(a)(4)(A),
1905(a)(14), and 1905(a)(15).
3. For ease of reference, we refer below to this
exclusion as covering individuals aged 22 through 64 even
though, in some circumstances, the exclusion also covers
individuals between ages 21 and 22.
4. This provision was effective July 1, 1988. Prior
to that time, essentially the same definition appeared in
the regulations.
5. Except for subparagraph (b), which was amended in
1985, these regulations have been essentially unchanged
since originally issued in 1968. See 33 Fed. Reg. 16165
(November 5, 1968). However, their organization was
altered in 1978 when the Agency rewrote all existing
Medicaid regulations "in clearer simpler language." 43
Fed. Reg. 45176 (September 29, 1978).
6. SOL 91-1 stated in pertinent part:
Conditional release and convalescent leave are types
of leave that are part of the patient's psychiatric
treatment and are designed to encourage increasing
independence in preparation for eventual
unconditional release from the institution.
Convalescent leave means an extended trial visit at
home. A conditional release is a release from the
institution on the condition that the patient
receive outpatient treatment or on other comparable
conditions.
If an emergency or other need to obtain medical
treatment arises during the course of convalescent
leave or conditional release, any covered services
received could be paid for by Medicaid because the
individual would not be considered an IMD inpatient
during those periods. If, however, a patient is
temporarily released from an IMD for other purposes,
such as to obtain medical treatment either at a
hospital on the institutional grounds or in the
community, this would not be considered a
conditional release or convalescent leave and the
patient would still be considered to be an IMD
patient, subject to IMD payment restrictions.
7. New Jersey asserted, and HCFA did not dispute,
that the services were otherwise eligible for Medicaid
reimbursement.
8. Section 74.61(g) as in effect during the relevant
time period provided: "Accounting records shall be
supported by source documentation such as cancelled
checks, paid bills, payrolls, contract and subgrant award
documents, etc." Part 74 is made applicable to "State
Medicaid programs" by 42 C.F.R. 430.2(b). Moreover, a
state has the "fundamental burden to document the
allowability of costs it claims under programs such as
Medicaid." See, e.g., California Dept. of Health
Services, DAB No. 1539, at 11 (1995).
9. Contrary to what New Jersey argued, an
interpretation is not deemed reasonable unless it is
consistent with the language of the applicable statute
and regulations and with their underlying purpose.
10. New Jersey pointed out that another reason for
the IMD exclusion was that Congress distrusted the
effectiveness and efficiency of care in the IMDs. New
Jersey asserted that since the services in question were
provided by the acute care facilities, the exclusion
should not apply. However, this ignores the principal
reason for the exclusion, discussed above.
11. The fact that HCFA characterized SMM 4390.1 and
SOL 91-1 as "clarifications" of the meaning of the terms
"conditional release" and "convalescent leave" in section
435.1008(c) does not show that their meaning was unclear;
the "clarifications" may have been issued in response to
questions raised by only a few states or by a state which
sought a change in the regulation but did not
misunderstand it.
12. In light of this conclusion, we need not address
New Jersey's contention that SMM 4390.1 and SOL 91-1
should not be retroactively applied. We also need not
address New Jersey's argument that SMM 4390.1 and SOL
91-1 were not binding on it because they were not
published in accordance with the notice and comment
rulemaking procedures in the Administrative Procedure
Act, 5 U.S.C. 553. We note in any event with respect
to the latter argument that these issuances were clearly
interpretative rules, which were not subject to the
notice and comment rulemaking requirement, because they
said what the federal agency thought the terms
"convalescent leave" and "conditional release" meant.
See New York State Dept. of Social Services, DAB
No. 1485, at 19 (1984), citing Cabais v. Egger, 690 F.2d
234 (D.C. Cir. 1982). Moreover, these issuances did not
constitute a change in Agency policy which New Jersey
argued required notice and comment rulemaking, since the
same policy was evident from the preamble language
discussed above and the Agency issuance discussed in the
text below.
13. The MAM was issued by the Social and
Rehabilitation Service (SRS), which administered the
Medicaid program before HCFA.
14. The language quoted was incorporated into SMM
4390.1. In that context, the effect of this language
is to render the exception to the general IMD exclusion
for patients on conditional release and convalescent
leave inapplicable to IMD patients under age 21.
15. A "public institution" is specifically defined to
not include a "medical institution," whereas IMDs would
generally themselves be medical institutions. See 42
C.F.R. 435.1009.
16. New Jersey also submitted a 1971 letter from the
Regional Commissioner, SRS, which stated that "[a]n
individual who habitually resides in a public non-medical
institution might nevertheless qualify as a patient in a
medical institution for any period of time in which he
was physically housed in a distinct institution meeting
such definition . . . ." State appeal file at 3D. New
Jersey did not discuss this letter in its briefs and
apparently did not rely on it as authorizing FFP for the
individuals in question since New Jersey did not begin
claiming FFP until ten years later. In any event, the
quoted language appears refers to the exclusion for
inmates in public institutions in section 435.1008(a)(1)
(which, as noted above, does not include medical
institutions).