Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Ohio Department of Human Services
Docket No. A-96-40
Control No. OH-95-001-MAP
Decision No. 1595
DATE: August 7, 1996
DECISION
The Ohio Department of Human Services (Ohio) appealed a
determination by the Health Care Financing Administration
(HCFA) disallowing $494,113 in federal financial
participation (FFP) claimed by Ohio under title XIX
(Medicaid) of the Social Security Act (Act). Ohio had
claimed the disallowed FFP in 1993 for payments made
during the period January 1, 1987 through June 30, 1988
for the drug Naldecon and Naldecon-related drugs. HCFA
disallowed Ohio's claim for FFP on the basis that the
claim was barred because of statutory and regulatory
requirements setting forth a two-year deadline for filing
claims.
For the reasons discussed below, we find that Ohio's
claim was not filed within the time limits specified by
the Act and that none of the exceptions to the timely
claims provision of the Act applies to the facts of this
case. We further find that the fact that the Board in
another decision reversed disallowances for Naldecon and
Naldecon-related drugs is irrelevant to Ohio's claim for
FFP here as Ohio failed to satisfy basic statutory
requirements for filing a claim. Accordingly, we uphold
the disallowance.
Statutory and Regulatory Background
Section 1132(a) of the Act and the implementing
regulations at 45 C.F.R. § 95.7 prohibit the payment of
FFP for any expenditure that has not been claimed within
two years of the end of the calendar quarter in which the
expenditure was incurred. In enacting the two-year
filing limitation, Congress' intent was to facilitate
federal budget planning for programs under the Act by
controlling states' ability to make delayed claims. See
Connecticut v. Schweiker, 684 F.2d 979, 982 (D.C. Cir.
1982), cert. denied, 459 U.S. 1207 (1983); see also New
York State Dept. of Social Services, DAB No. 521 (1984).
The regulations provide several exceptions to the two-
year limit for filing claims. The exceptions include
claims which are adjustments to prior year costs, claims
resulting from audit exceptions or from court-ordered
retroactive payments, and any claim for which the
Secretary of the Department of Health and Human Services
(DHHS) decides there was "good cause" for the late
filing. 45 C.F.R. § 95.19.
An "audit exception" is defined at 45 C.F.R. § 95.4 as --
a proposed adjustment by the responsible Federal
agency to any expenditure claimed by a State by
virtue of an audit.
As to the specific issue of whether a state's payments
for prescription drugs are eligible for FFP, a state has
the option of including the costs of prescription drugs
as "medical assistance" under in its Medicaid State plan.
Section 1905(a)(12) of the Act. Section 1903(i)(5) of
the Act, however, denies federal funding under Medicaid
for drug products which are not eligible for Medicare
payments under section 1862(c) of the Act. Section
1862(c) prohibits payment for --
(1) a drug product --
(A) which is described in section 107(c)(3) of
the Drug Amendments of 1962,
(B) which may be dispensed only upon
prescription,
(C) for which the Secretary [of DHHS] has
issued a notice of opportunity for a
hearing . . . on a proposed order of the
Secretary to withdraw approval for such
drug product . . . because the Secretary
has determined that the drug is less than
effective [LTE] for all conditions of use
prescribed, recommended, or suggested in
its labeling, and
(D) for which the Secretary has not determined
there is a compelling justification for
its medical need; and
(2) any other drug product --
(A) which is identical, related, or similar
[IRS] . . . to a drug product described in
paragraph (1) and
(B) for which the Secretary has not determined
there is a compelling
justification for its
medical need . . . .
Factual Background
The Office of Inspector General's Office of Audit (OIGOA)
conducted an audit of Ohio's Medicaid expenditures for
the period January 1, 1987 through June 30, 1988.
"Review of Medicaid Payments for Less-Than-Effective
Drugs," Identification Number A-03-88-00227. The audit
recommended that Ohio make an adjustment of $570,794 in
FFP to HCFA for improper payments for drugs which were
classified as LTE/IRS drugs. 1/ On April 20, 1990,
HCFA, following the audit's recommendation, requested
that Ohio make a decreasing adjustment of $540,794 on
line 10A of Ohio's next Medicaid Quarterly Expenditures
Report (QER). On May 16, 1990, Ohio, while expressing
concern that HCFA failed to provide states with an all
inclusive list of drugs considered LTE/IRS, agreed to
make a financial adjustment of $570,794.
In LTE and IRS Drug Disallowances, DAB No. 1366 (1992),
the Board examined coordinated appeals by 15 states of
LTE/IRS drug disallowances. The Board reversed
disallowances for the costs of Naldecon taken against 12
states. The Board found that the states did not have
sufficient information prior to September 1989 to
identify Naldecon or its related products as LTE/IRS
drugs. Ohio was not a party in DAB No. 1366.
On March 25, 1993, Ohio requested that HCFA refund
$328,196 FFP for payments for Naldecon. Ohio later
requested that the refund be increased to $494,113 FFP to
include an additional $165,917 for the Naldecon-related
drugs of Entex and Rutuss. Ohio then made an increasing
adjustment of $494,113 on its QER for the quarter ended
March 31, 1993. HCFA denied Ohio's request for a refund
and asked Ohio to refund the $494,113 on its next QER.
When Ohio did not refund the FFP, HCFA, on October 16,
1995, issued a disallowance for the funds in dispute.
Discussion
As discussed above, under section 1132(a) of the Act and
45 C.F.R. § 95.7, claims for FFP for expenditures must be
filed within two years of the end of the calendar quarter
in which the expenditures were incurred. The
expenditures for which Ohio is claiming FFP here were
incurred during the period January 1, 1987 through June
30, 1988. Therefore, the latest date for claiming FFP
for those expenditures would have been June 30, 1990.
Ohio argued that it did initially submit the claims for
Naldecon and the Naldecon-related drugs in a timely
manner. Ohio explained that, after it submitted its
claim and received reimbursement from HCFA, it learned
that HCFA had classified Naldecon-related drugs as LTE
and IRS. Ohio stated that at that time it made a
negative adjustment to its claim for FFP. But, according
to Ohio, its initial claim for the funds at issue was
made in a timely manner, so that 45 C.F.R. § 95.7 cannot
be a lawful basis for disallowing the claim.
Ohio also argued that, if the Board were to find that
Ohio did not submit its claim within the two-year period
set forth in 45 C.F.R. § 95.7, the disallowance still
should be reversed under the "audit exception" provision
of 45 C.F.R. § 95.19(b).
Ohio further contended that HCFA is bound by the Board's
ruling in DAB No. 1366 that claims for Naldecon could not
be disallowed prior to the September 1989 revision of the
state Medicaid Manual wherein states were put on notice
that Naldecon and Naldecon-related drugs were considered
IRS drugs by HCFA. Since the claims here were for the
period January 1, 1987 through June 30, 1988, Ohio argued
that its disallowed claims for Naldecon should be
similarly reversed. Ohio conceded that it was not a
party in DAB No. 1366, but maintained that in order to
ensure uniform application of DHHS policies and
regulations, the Board's decision must be applied in a
uniform manner throughout the country.
Ohio's arguments are not persuasive. Under section 1132
of the Act, claims must be made in "such form and manner
as the Secretary shall by regulation prescribe." By
regulation, the Secretary has prescribed that claims be
made using a particular format, specifically, through a
QER. 45 C.F.R. § 95.4. Under Medicaid regulations, a
state has the option of concurring in an audit exception
to a claim, as Ohio did here through agreeing to a
downward adjustment on its QER, or of appealing to this
Board. 42 C.F.R. §§ 430.30; 430.33. Thus, while Ohio's
original claim for Naldecon and Naldecon-related drugs
during the period in question was timely submitted, Ohio
effectively withdrew that claim by making a decreasing
adjustment on a QER. Ohio then three years later
submitted a claim for the same expenditures that were
represented by the earlier claim. The claim that is at
issue before us is the new claim, which was simply not
filed in a timely manner. Since Ohio did not appeal
HCFA's proposed disallowance of Ohio "original" claim,
but instead concurred in the audit exception, Ohio cannot
reasonably argue that it did not withdraw that claim.
Absent some notice that Ohio's "original" claim was not
being withdrawn and should be considered as still
pending, HCFA could not reasonably know that it needed to
budget accordingly. Thus, we cannot accept Ohio's
position that its claim now before us was timely filed
simply because its original claim was.
The Board previously examined the rationale for the
timely claims provision of section 1132(a):
The purpose was to prevent the states from coming
many years after expenditures were made and claiming
FFP, or transferring claims for FFP from one program
to another, without any time limit. Such delayed
claiming made it difficult for the Department of
Health and Human Services to plan its budget;
claims for millions of dollars from expenditures in
years long gone could turn up at any time.
New York State Dept. of Social Services, DAB No. 521, at
8 (1984).
This same reasoning would clearly apply to the facts of
this case. If Ohio or any state were permitted to
withdraw a claim and then submit a new claim more than
two years after expenditures were incurred because of a
Board decision or a court decision involving other
similar expenditures, it would affect the Department's
ability to ascertain what its potential fiscal
obligations were on a current basis. To permit a state
to submit such an untimely claim would render section
1132(a) meaningless unless one of the exceptions to the
timely claims requirement applied. 2/
Congress recognized that circumstances could arise where
claims could not be finalized within the two-year period
and authorized three exceptions to the two-year rule.
Ohio argued in the alternative that one of those
exceptions, the audit exception, should be applied here
because HCFA's original proposed disallowance action
arose from an OIGOA audit.
As noted above, an "audit exception" is a proposed
adjustment by the "responsible Federal agency" (here
HCFA) to an expenditure claimed by a state "by virtue of
an audit." HCFA asserted that Ohio's claim did not arise
from an audit exception, but resulted from Ohio's
unilateral decision to reclaim on its March 31, 1993 QER
the FFP which it had repaid on its June 30, 1990 QER. We
agree. Ohio's claim in March 1993 can reasonably be
traced to the issuance of DAB No. 1366 and not to an
audit performed three years earlier. It would be
stretching the exception to the timely claims requirement
beyond recognition to suggest that a claim found to be
improper by an audit could be filed three years later on
the proposition that the claim was valid "by virtue of an
audit."
As to Ohio's argument that its claim for FFP should be
upheld in order to ensure uniform application of DHHS
policies and Board decisions, we agree with HCFA that the
mere fact that the Board in DAB No. 1366 reversed the
disallowances for Naldecon for 12 states does not
automatically entitle Ohio to FFP for its claims for
Naldecon.
When HCFA first requested that Ohio make a decreasing
adjustment on its next QER to reflect the audit report's
conclusion that Ohio had improperly claimed FFP for
certain drugs, HCFA informed Ohio that, if Ohio did not
concur with the audit's recommendation, HCFA would
consider the issuance of a formal disallowance action
with a notification of Ohio's appeal rights to the Board.
Ohio Appeal File at 10. Ohio thus had the opportunity
to dispute HCFA's action then and formally appeal to this
Board. Ohio did not elect this course of action.
Instead, Ohio made the decreasing adjustment on the next
QER.
Many states received notifications of disallowance for
the payment of claims for LTE and IRS drugs at
approximately the same time as Ohio did. Fifteen of
those states elected to pursue their administrative
remedies by appealing the disallowances to this Board.
Ohio did not.
To argue that Ohio should now be given the benefit of the
Board's Decision No. 1366 in the name of promoting
uniformity of treatment among the states overlooks the
basic fact that all requirements for the submission of a
claim, including timeliness, must be met before a claim
can be considered proper. All the states in DAB No. 1366
that submitted claims for Naldecon, received
disallowances, and appealed those disallowances had
submitted their claims in a timely fashion. They had
satisfied the requirements for submitting a claim. Since
we have found above that Ohio failed to file its claim in
a timely manner, it cannot be said that there is a lack
of uniformity here because Ohio's claims for Naldecon
were denied.
As HCFA noted, Ohio is belatedly trying here to resurrect
its appeal rights, and permitting Ohio to do so would
frustrate the principle of finality. Thus, even if
HCFA's decision here could be considered inconsistent
with a goal of uniform treatment of states, HCFA could
reasonably exercise its programmatic judgment to
determine that that goal was outweighed by the need to
ensure finality of decisions and to avoid the
administrative uncertainty that could be caused by
permitting Ohio to concur in an audit exception and then
try to resurrect its claim years later.
Conclusion
For the reasons discussed above, we sustain HCFA's
disallowance of $494,113.
_________________________
Judith A. Ballard
_________________________
M. Terry Johnson
_________________________
Norval D. (John) Settle
Presiding Board Member
* * * Footnotes * * *
1. The record does not show when Ohio originally
made its claim for these LTE/IRS drugs.
2. A state may request a waiver from the timely
claims requirement from the Secretary of DHHS. See
section 1132(b) of the Act and 45 C.F.R. § 95.19(d).
There is no indication in the record, however, that Ohio
ever sought a waiver for good cause from meeting the
timely claims requirement from the Secretary as permitted
by 45 C.F.R. § 95.25.