GAB Decision 191
June 24, 1981 Ohio Department of Public Welfare; Docket No.
79-164-OH-HC Garrett, Donald; Teitz, Alexander Ford, Cecilia
The State of Ohio Department of Public Welfare (State) appealed from
an estimated penalty disallowance of $123,807 made by the Health Care
Financing Administration (Agency) pursuant to Section 1903(g) of the
Social Security Act (the Act) for the quarter ending September 30, 1978.
The Agency determined, after it conducted a validation survey, required
by Section 1903(g)(2) of the Act, that the records for 17 Medicaid
patients in six facilities did not meet the certification requirement of
Section 1903(g)(1)(A) of the Act. The Agency reviewed documentation
submitted by the State in its appeal regarding these violations, and
accepted the submissions as evidence of valid certifications for nine of
the 17 patients. The Agency reduced the disallowance to $46,007. We
conclude that the disallowance, as modified, should be upheld.
This decision is based on the State's application for review; the
Agency's response to the appeal; a supplemental memorandum filed by the
Agency informing the Board of a Comptroller General's decision
concerning 1903(g); a letter submitted by the State supplementing its
application for review; documentation submitted by the State as
evidence of its allegations that no violations existed for these 17
patients; the Agency's responses to these submissions; a telephone
conference call between the parties' representatives, the Board Panel
Chair, and a Board staff attorney; and a response by the State to the
Agency's most recent modification of disallowance. We have determined
that there are no material facts in dispute, and that a conference or
hearing would not assist the development of the issues.
Pertinent Statutes, Regulations, and Other Agency Policy
Section 1903(g) of the Act is concerned with utilization of long-term
care at four levels: skilled nursing, intermediate, inpatient hospital,
and care in a hospital for mental diseases. Section 1903(g) of the Act
requies that the State agency responsible for the administration of the
State's Medicaid plan under Title XIX of the Act show to the
satisfaction of the Secretary that there is an "effective program of
control over utilization of" long-term inpatient services in facilities
providing care at these levels. In the case of SNFs and ICFs, this
showing must be made for each quarter that the federal medical
assistance (2) percentage (FMAP) is requested with respect to amounts
paid for such services for patients who have received care for 60 days,
or the FMAP will be decreased according to the formula set out in
Section 1903(g)(5). The satisfactory showing must include evidence that
"in each case for which payment is made under the State plan, a
physician certifies at the time of admission, or, if later, the time the
individual applies for medical assistance under the State plan . . .
that such services are or were required to be given on an inpatient
basis because the individual needs or needed such services." (Section
1903(g)(1)(A)) This statutory requirement is implemented by regulation.
The applicable regulation for the period in question in this appeal was
42 CFR 450.18(a)(2), which stated that certification must occur "at the
time (sic) admission or, in the case of an individual who makes
application for assistance while in an institution, prior to
authorization of payment. . . ." Action Transmittal SRS-AT-75-122, dated
November 13, 1975, contained statements that "define and clarify what is
required in order for States to be considered in adherence" with the
regulatory requirement. This Action Transmittal was addressed to State
Administrators and "other interested agencies and organizations,"
and
listed several conditions which must be met in order for the
certification to be considered valid, including: the certification must
be in writing, it must be signed by a physician using his/her signature
or initials, and the certification must be dated at the time it is
signed or initialed.
Statement of the Case
The Agency conducted a validation survey in the State during December
1978 for the quarter ending September 30, 1978. The purpose of the
survey was to review utilization of skilled nursing services in 20
facilities (HCFA-AT-78-98, November 3, 1978). The survey reviewed
patients whose names were submited by the State. While conducting the
review, however, the Agency learned, apparently from the records it
reviewed, that 27 of the names submitted by the State were patients
receiving ICF care rather than SNF care. The federal reviewers decided
not to consider those 27 patients when determining whether there were
violations of the utilization control requirements (Agency Response,
November 16, 1979, pages 21-24, 29-30). After completing the review,
the Agency determined that the records for 17 patients, whom the Agency
believed to have received SNF care, did not meet the certification
requiremenrts of Section 1903(g)(1)(A), 42 CFR 450.18(a)(2), and
SRS-AT-75-122. In its appeal to the Board, dated July 27, 1979, the
State submitted documentation concerning some of these 17 patients. The
Agency examined the documentation and accepted documents for six
patients as valid certifications. The Agency modified the amount of the
disallowance (Agency Response, November 16, 1979). On June 27, 1980 the
State submitted further documentation for nine of the remaining 11
patients. After examination of the documentation, the Agency found
three more patients' (3) documentation valid and again modified the
disallowance (Agency Response, March 20, 1981). The Agency has not
accepted the documentation submitted for the remaining patients as valid
because it does not include certifications signed by a physician and
dated in a timely fashion. The State informed the Board, in its
submission of May 21, 1981, that it would not submit any further
documentation and that it accepts the Agency's findings with regard to
the documents submitted by the State for these eight patients.
Both times that the Agency modified the disallowance, it recalculated
the penalty. The Agency often recalculates these penalties after it
accepts additional documentation submitted by a State upon appeal as
proof that violations which had formed the basis of a disallowance were,
in fact, not violations. The recalculation of a penalty may also occur
because the State submits exact recipient data. In this appeal, the
recalculation was due partly to the fact that the Agency accepted
documentation as evidence of valid certifications for first six and then
three more of the 17 patients on whom the penalty was based. When
reviewing the first submission of documentation, however, the Agency
discovered that some of the patients upon whom the penalty calculation
was based actually received intermediate care (Agency Response, November
16, 1979, page 30).The Agency, therefore, recalculated the penalty by
reducing the FMAP for both SNF and ICF levels of care. * Eventually the
Agency learned from the State's documents that 15 of the 17 patients
were receiving intermediate care. Of the eight patients still in
violation, seven of them received ICF level of care.
(4) DISCUSSION
Remaining 8 Patients for Whom Violations Were Found
The Agency has not accepted as satisfactory any of the documentation
submitted for eight patients; the reasons stated in its responses for
not accepting the documentation as satisfactory and valid are consistent
with the Agency's requirements for valid certifications, i. e., that
they be signed by a physician and timely dated. The State has raised no
other issues regarding these patients, and has accepted the Agency's
findings regarding the documentation submitted (State Response, May 21,
1980, page 1). Therefore, we conclude that the Agency's determination
that there are violations for these eight patients should be upheld.
Calculation of the Penalty
The State has raised three issues with regard to the calculation of
the penalty.
1) The State objected to the Agency's recalculation of the penalty
based on two levels of care, calling it an "attempt . . . to somehow
extend the specific scope of . . . (the) survey and . . . (the)
disallowance letter . . . ." (State letter to Executive Secretary,
Departmental Grant Appeals Board, June 27, 1980, pages 2-3). The State
argued that because the disallowance letter stated that it was based
upon the State's failure to make a satisfactory and valid showing that
there was an effective program for controlling services in SNF's, it was
procedurally improper for the Agency to extend the penalty to ICFs.
Furthermore, the State argued that the Agency failed to give the State
timely notice under Section 1903(g)(3)(A) of the determination that the
State had failed to make a satisfactory and valid showing with regard to
ICFs.
Section 1903(g)(1) requires a reduction in the FMAP for each level of
care in which utilization control requirements are not met. The States
are required to make a quarterly showing for each level of care, and the
Secretary must take reductions for showings that are unsatisfactory.
Section 1903(g)(2) states in part:
The Secretary shall, as part of his validation procedures under this
subsection, conduct timely sample onsite surveys of private and public
institutions in which recipients of medical assistance may receive care
and services under a State plan approved under this title, . . . .
The purpose of this requirement is to "assure actual -- rather than
paper -- compliance with the . . . statutory requirements." (S. Rep.
92-1230, September 26, 1972, page 45.) The Secretary has considerable
(5) discretion based on this provision, about how to conduct these
surveys. The usaul procedure involves selecting one State in each
region of the country for a particular validation survey. The State
chosen is that with the greatest percentage of stays over 60 days, based
on reported data, provided that the State was not surveyed during the
recent past. The Agency then surveys the 20 facilities providing a
particular level of care that have the greatest number of Medicaid
admissions and authorizations for that quarter. Usually only one level
of care is chosen per survey (HCFA-AT-78-98, November 3, 1978).
The Agency became aware of the violations at the ICF level of care in
this instance because of information submitted by the State during the
appeal process. The Agency, in its Motion for Modification of the
Disallowance, March 20, 1981, pp. 5-6, argued that it cannot ignore
obvious violations of the law, since it is required to take a reduction
for each level of care in which the requirements have not been met. A
Comptroller General Opinion, dated March 4, 1980 (Attachment, Agency
Supplemental Memorandum, April 23, 1980) concludes that if the
requirements of Section 1903(g) are not met in every case, the Secretary
has no alternative but to consider the State's showing unsatisfactory or
invalid and impose a penalty according to the statutory formula.
Therefore, while the adjustment of the penalty to reflect reductions in
two levels of care may be unusual compared to the Agency's ordinary
procedure, and even though the Agency did not intend for that particular
survey to review ICF care, we conclude that the adjustment is mandated
once a determination is made that violations exist at both levels.
Furthermore, there is no difference in the federal requirements that
must be met for SNF and ICF patients and the same patients were involved
throughout the process of modification of the disallowance. The State
had adequate opportunity to document that the requirements were met for
these patients. Thus, the only change in the disallowance was that the
FMAP for two levels of care was reduced because most of the patients for
whom violations had been found were not receiving skilled nursing care.
The State further argued that Section 1903(g)(3)(A) applies to this
appeal. Section 1903(g)(3)(A) says, in part,
No reduction in the Federal medical assistance percentage of a State
otherwise required to be imposed under this subsection shall take effect
--
(iii) unless a notice of such reduction has been provided to the
State at least 30 days before the date such reduction takes effect; or
(6) (iv) due to the State's unsatisfactory or invalid showing made
with respect to a calendar quarter beginning after September 30, 1977,
unless notice of such reduction has been provided to the State no later
than the first day of the fourth calendar quarter following the calendar
quarter with respect to which such showing was made.
The Agency gave notice of an estimated penalty calculation within the
required time, and included the names of the patients and the violations
found for each patient. The Agency was not able to provide the State
with notice that the reduction would be based on two levels of care by
the fourth quarter after the quarter for which the invalid showing was
made, because it was not aware of that fact at the time. It did,
however, give the State notice of that fact as soon as the Agency
discovered, through examination of the State's application for review,
that most of the patients on whom the penalty was based had actually
been receiving ICF care. Furthermore, Section 1903(g)(3)(A)(iv) does
not specifically require such details in a notice of reduction. The
legislative history of that provision shows that Congress was concerned
about the fact that the Agency had, in the past, performed validation
surveys and imposed reductions "months and even years" after the quarter
involved (H. R. Rep. 393, 95th Cong., 1st Sess. 85 (1977); S. Rep.
453, 95th Cong., 1st Sess. 41 (1977). The legislative history shows the
purpose of Section 1903(g)(3)(A) to be that States "not be subjected to
the uncertainty of a possible reduction years later." Such notice was
provided to the State by the Agency's original letter.
Neither the statute nor the legislative history requires that the
notice specifically state what level of care is involved. The
modification of the penalty based on two levels of care was a result of
the State's own errors and the State has not shown that it has been
prejudiced by the failure of the original notice to specifically refer
to ICF services. The State admits that the violations existed; it
submitted the patients' names to be surveyed and it had notice that a
reduction would be taken based on violation for named patients. There
were no new patients or violations included in the recalculation of the
penalty. Accordingly, we conclude that the Agency may reasonably
calculate the penalty based on two levels of care.
2) The State, in its application for review, also alleged that the
amount of the disallowance was erroneous because the method of penalty
calculation did not comply with the statutory formula. Section 1903(
g)(5) states that one-third of the FMAP claimed for the quarter at a
particular level of care is to be multiplied by a fraction composed of a
numerator equal to the number of patients receiving services in that
quarter "in those facilities or institutions for which a satisfactory
and valid showing was not made for that calendar quarter," and a
denominator equal to the "total number of patients receiving that type
of services in that quarter under the State plan in facilities or
institutions for which a showing was required to be made."
(7) The Agency policy is to use facility data in the fraction for its
initial calculation since the Agency usually does not have the exact
patient data at that time (Penalty Estimation Procedure, standard
attachment to notices of disallowance). The Agency may accept exact
patient data where the State submits it and will recalculate the penalty
on the basis of data which the Agency accepts. The States routinely
receive notice of this position with notices of disallowance. The Board
has previously held that the Agency's use of facility data for the
initial calculation is reasonable, and that such data need only be
changed where the State submits exact patient data which is acceptable
to the Agency (Ohio Department of Public Welfare, Decision No. 66,
October 10, 1979, page 14). In its letter of June 27, 1980, the State
submitted figures to the Agency concerning patient data for the two
levels of care. The Agency accepted the statistical information
regarding the total number of recipients receiving services at the two
levels in the State for the quarter, but did not accept the State's
statement regarding the average number of recipients in the cited
facilities for that quarter (pages 5-6). The Agency stated:
Considering the apparent confusion in Petitioner's records regarding
the classification of recipients in these facilities, as evidenced by
the erroneous lists submitted, Respondent is unwilling to accept
Petitioner's statement as to the number of recipients at each level of
care in the facilities in question without some supporting
documentation. (Motion for Modification of the Disallowance, March 20,
1981)
The State, in the telephone conference call of April 30, 1981 (Board
Confirmation of Telephone Conference, May 13, 1981, page 2), indicated
that it would accept the Agency's use of facility data and that the
State would make no further comments or submissions regarding the issue.
Therefore, the Agency's use of facility data to calculate the penalty is
upheld.
3) The State argued that the Agency's strict application of the
penalty for these violations results in a harsh penalty (State's
Response, May 21, 1981, pages 1 and 2). This Board has previously held
that the statute does not provide the Secretary with discretion to waive
or reduce a penalty once there is a finding that a violation has
occurred, unless one of the specific waiver or exception provisions
apply (Colorado Department of Social Services, Decision No. 169, April
30, 1981; Tennessee Department of Public Health, Decision No. 167,
April 30, 1981).
The Secretary is required to impose a penalty calculated according to
the statutory formula set forth at Section 1903(g)(5) unless the State
agency makes a satisfactory showing that there are valid certifications
"in each case." None of the waivers or exceptions specifically (8)
provided in the Act apply to this appeal. The 1977 amendment of Section
1903(g) (P. L. 94-142, Sec. 20, 91 Stat. 1205 (1977)) altered the
penalty formula, from a rigid requirement that 33 1/3 percent of the
FMAP be deducted, to a more flexible formula that reflects the
difference between significant and nominal violations by adjusting the
reduction in proportion to the number of patients in only the facilities
that were found to have violations. Thus, the penalty formula builds in
a sliding scale that reflects the extent of the State's deviation from
the requirements (123 Cong. Rec. S16008, daily ed., September 30, 1977).
Furthermore, since a penalty was taken for violations discovered in a
sample, presumably the penalty reflects the fact that further violations
could exist in the population not sampled.
The Comptroller General reached the same conclusion with regard to
the Secretary's discretion (Comptroller General's Opinion, File No.
B-164031(3).154, March 4, 1980).
Conclusion
We conclude that this disallowance must be upheld. We conclude that
it was not only procedurally justifiable but mandated by the statute for
the Agency to recalculate the penalty based on two levels of care once
the Agency determined that violations existed, based on the State's
erroneous submissions. Furthermore, we conclude that the Agency did not
violate the notice provisions of Section 1903(g)(3)(A) and that the
State has not been prejudiced by the fact that the Agency did not notify
the State in the original notice of disallowance that a reduction for
the ICF level would be taken. We conclude that the Agency may
reasonably calculate the penalty based on facility data where documented
exact patient data has not been submitted, and that the Agency does not
have the discretion to waive the disallowance. Therefore, we sustain
the disallowance as modified by the Agency on March 20, 1981. * The
Agency divides quarterly showings made by States into the four levels
referred to by the statute and takes reductions, by level of care, for
any levels in which unsatisfactory showings are made (SRS-AT-76-88, June
3, 1976, page 1). The Agency is required to take a reduction for each
level of care in which a satisfactory showing is not made (Section
1903(g)(1)). Section 1903(g)(5) requires that a percent of the FMAP for
a particular type of service be reduced, where there is an
unsatisfactory or invalid showing with respect to a type of facility or
institutional service. Since a validation survey frequently checks only
one level of care in a particular quarter, a reduction taken after a
validation survey would reflect only the level of care checked by the
survey. Here, the Agency took a fraction of the FMAP for both SNF and
ICF levels of care because the State supplied a list of names which
resulted in a completed review of some patients at each of the two
levels of care. If all the violations in a particular facility were for
one level of care, that facility was included only in the penalty
calculation for that level of care. If the violations in a facility
were at both levels of care, then the facility was included in the
calculation for both levels.
OCTOBER 22, 1983