DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Nebraska Department of Social Services
Docket No. 88-10
Decision No. 972
DATE: July 29, 1988
DECISION
The Nebraska Department of Social Services (Nebraska/State) appealed
a
determination by the Health Care Financing Administration
(HCFA/Agency)
disallowing $27,488.08 in federal funds claimed by the State
under the
Medicaid program of the Social Security Act (Act) for the quarter
ending
June 30, 1987. The disallowance was taken pursuant to
section
1903(g)(1) of the Act, which provides for reduction of a state's
federal
medical assistance percentage of amounts claimed for a calendar
quarter
for long-stay services unless the state shows that during the quarter
it
had "an effective program of medical review of the care of patients .
.
. whereby the professional management of each case is reviewed
and
evaluated at least annually by independent professional review
teams."
HCFA alleged that Nebraska failed to conduct a satisfactory annual
medical
review at one institution for mental diseases (IMD), Lincoln
Regional
Center. HCFA found that Nebraska's quarterly showing was
defective
because the State failed to review one patient in the
facility.
Nebraska alleged that the Board should excuse its failure to
timely review
this patient under the rationale of Delaware Div. of
Health and Social
Services v. U.S. Dept. of Health and Human Services,
665 F.Supp. 1104 (D.
Del. 1987). Relying solely on Delaware, Nebraska
asserted that the
disallowance was unreasonable, arbitrary, and
capricious.
Based on the following analysis, we sustain the disallowance in
its
entirety.
Applicable Law
The general requirement for an effective program of annual medical
reviews
in section 1903(g)(1) is treated more specifically in sections
1902(a)(26)
and 1902(a)(31).
Sections 1902(a)(26)(B) and (a)(31)(B) establish the requirement for
a
periodic inspection "of the care being provided to each person
receiving
medical assistance." (Emphasis added)
The statutory annual review requirement is implemented by regulation at
42
C.F.R. 456.652 which provides --
(a) In order to avoid a reduction in FFP, the Medicaid
agency
must make a satisfactory showing to the Administrator, in
each
quarter, that it has met the following requirements for
each
recipient.
* * *
(4) A regular program of reviews, including
medical
evaluations, and annual on-site reviews of the care of
each
recipient . . . .
(b) Annual on-site review requirements. (1) An agency
meets
the quarterly on-site review requirements of paragraph(a)(4) .
.
. for a quarter if it completes on-site reviews of
each
recipient in every facility in the State . . . .
(Emphasis
added)
Further, the regulations at 42 C.F.R. 456.606 and 42 C.F.R.
456.608
require that the care of each patient in a facility be reviewed at
least
annually (456.606) and that inspections include personal contact
with,
and observation of, each recipient (456.608).
Section 1903(g)(4)(B) of the Act establishes two limited exceptions to
the
annual review requirement. Specifically --
The Secretary shall find a showing of a State, with
respect to a
calendar quarter under paragraph (1),
to be satisfactory under such
paragraph with respect
to the requirement that the State conduct
annual
onsite inspections in mental hospitals, skilled
nursing
facilities, and intermediate care facilities
under paragraphs (26)
and (31) of section 1902(a),
if the showing demonstrates that the
State has
conducted such an onsite inspection during the
12-month
period ending on the last date of the
calendar quarter--
(i) in each of not less than 98 per centum of the
number
of such hospitals and facilities requiring
such
inspection, and
(ii) in every such hospital or facility which has 200
or
more beds,
and that, with respect to such hospitals and
facilities not
inspected within such period, the
State has exercised good faith
and due diligence in
attempting to conduct such inspection, or if
the
State demonstrates to the satisfaction of the Secretary that
it
would have made such a showing but for failings
of a technical
nature only.
The statutory exceptions are implemented by 42 C.F.R. 456.653
which
provides --
The Administrator will find an agency's showing
satisfactory, even
if it failed to meet the annual
review requirements of section
456.652(a)(4), if
--
(a) The agency demonstrates that-- (1) It completed
reviews
by the end of the quarter in at least 98 percent of
all
facilities requiring review by the end of the quarter.
(2) It completed reviews by the end of the quarter in
all
facilities with 200 or more certified Medicaid beds
requiring
review by the end of the quarter; and
(3) With respect to all unreviewed facilities, the
agency
exercised good faith and due diligence by attempting to
review
those facilities and would have succeeded but for events
beyond
its control which it could not have reasonably anticipated;
or
(b) The Agency demonstrates that it failed to meet the
standard
in paragraph(a)(1) and (2) of this section by the close of
the
quarter for technical reasons, but met the standard within
30
days after the close of the quarter. Technical reasons
are
circumstances within the agency's control.
* * * *
Failure to meet the annual review requirement leads to a reduction in
a
state's federal medical assistance percentage in accordance with
the
formula at section 1903(g)(5) of the Act and 42 C.F.R. 456.657.
Background
The facts of this case are undisputed. The affidavit of the
State's
psychiatric nurse consultant on the review team states that she
had
received a list of Medicaid patients from the facility on May 18,
1987.
The on-site review of Lincoln Regional Center occurred June 9-11,
1987.
During the review, the facility's staff went over the patient list
with
the State review team. Either the facility's staff misinformed
the
State review team as to the location of one patient, H.E., or the
review
team misunderstood her location. When the patient was not in the
unit
where the review team expected her to be, the review team assumed
she
had been discharged. In fact, patient H.E. was on ward restriction
and
in another unit in the facility. Consequently, patient H.E. was
not
included in the annual review for the June 1987 quarter. The State
does
not deny that the patient should have been reviewed, but blames
the
failure to review her on inadvertent error. Nebraska Brief (Br.),
p. 1;
Nebraska Exhibits (Exs.) 2 and 5.
Nebraska's Argument
Nebraska sought to have the Board reverse the section 1903(g)
reduction
based upon the holding of the district court in Delaware. The
State
argued that the facts here are analogous to the facts in DGAB No.
732,
where the State alleged that it had "inadvertently" failed to
review
certain patients. Nebraska asserted both that to require a
"complete"
facility review including each patient is arbitrary and capricious
and
that HCFA's interpretation of the statutory exceptions in
section
1903(g)(4)(B) is more restrictive than the Act would permit. To
analyze
Nebraska's arguments here, we first review our holding in DGAB No.
732,
then the district court's opinion in Delaware.
DGAB No. 732
In DGAB No. 732, review teams failed to review four patients in
two
long-term care facilities. The state review teams were unaware
that
they had missed these recipients until HCFA issued the
disallowance.
Essentially, Delaware took the position that the patients had
slipped
through the cracks and that the violations were de minimis in
nature.
Delaware argued that it had substantially complied with the statute
and
that HCFA's facility-based approach, whereby the failure to review
even
a single patient was the equivalent of not reviewing the
entire
facility, was unreasonable. Delaware suggested that, under a
theory of
liberal construction, its violations should have been ignored since
any
system which in practice produced results with such a small margin
of
error was inherently valid. DGAB No. 732, p. 6.
Based on the statute and regulations, as well as HCFA's
longstanding
strict application of other, now eliminated, utilization
control
requirements, the Board determined that substantial compliance
and
mitigating circumstances could not be meaningfully applied to relieve
a
state of its statutory obligation to review each patient. Further,
we
were unpersuaded by Delaware's argument that the violations were
de
minimis and could be overlooked. Rather, we noted that
section
1903(g)(1) requires a showing that there is in operation an
effective
program of control over utilization of long-term care services
which
specifically includes conducting annual medical reviews of the care
of
each Medicaid patient. We concluded that although the statute
provided
certain limited exceptions to the annual review requirement, the
statute
contained no indication that the Secretary had the discretion to find
a
showing valid where a State failed to review a patient who
reasonably
should have been identified as a Medicaid recipient and the
exceptions
do not apply. Id. at 7-8.
The district court's treatment of DGAB No. 732
Reversing the Board's decision, the district court acknowledged
the
statutory requirement that each case be reviewed at least
annually.
Delaware, at 1120. However, the Court then focused on the
language of
the Act at section 1903(g)(4)(B) establishing the statutory
exceptions
to the annual review requirement. Section 1903(g)(4)(B)
provides that
if a state satisfies certain criteria a state's showing will be
found
satisfactory with respect to the requirement that it "conduct"
annual
onsite inspections. Based on the use of the word "conduct" in
the
statutory exception, the court concluded that "the review of each case
.
. . is merely a goal and not a requirement." Id. at 1122. The
court
concluded that the statute did not define "onsite inspection" such
that
every patient in every facility must be inspected. The Court
then
accepted Delaware's argument that the implementing regulations at
42
C.F.R. 456.653 improperly substituted the term "completed review"
for
the less restrictive term "conducted review." Ultimately, the
court
found that HCFA had acted in an arbitrary and capricious manner
in
attempting to hold Delaware to a more restrictive standard through
the
implementing regulation than was envisioned by the statute.
Analysis
1. The court's opinion in Delaware is in error.
At the outset, we note that we are not bound here by the opinion of
the
district court in Delaware. Rather, we analyze that opinion because
of
Nebraska's reliance on it. Based on a thorough reading of the
Act,
however, we are convinced that the district court was mistaken in
its
analysis.
As we have noted elsewhere, the district court's analysis of the
statutory
exceptions overlooked the fact that section 1903(g)(1)
incorporated by
specific reference sections 1902(a)(31) and 1902(a)(26)
of the Act.
These sections expressly require that a State Plan provide
for periodic
inspections of the care of "each person receiving medical
assistance."
(Emphasis added) See Washington State Dept. of Social and
Health
Services, DGAB No. 940 (1988); Wyoming Dept. of Health and Social
Services,
DGAB No. 945 (1988).
The court's analysis also failed to examine the statutory purpose
behind
the annual review requirement. The court was adamant in its
assertion
that a state need only "conduct," not necessarily "complete," a
review
in a facility to satisfy the statute. Yet section
1903(g)(4)(B)
provides exceptions enabling a state to meet the requirement of
section
1903(g)(1) that "each case is reviewed annually." Further,
section
1903(g)(4)(B) mandates that reviews be "conducted" in accordance
with
sections 1902(a)(26) and (a)(31), which require that each patient
be
reviewed annually. These sections of the Act clearly demonstrate
that,
contrary to the Delaware court's conclusion, review of each patient in
a
facility is a requirement, not simply a "goal." Had Congress
intended
to lessen this basic requirement when it created the exceptions,
it
could have easily done so in a manner which left no doubt as to
its
intent.
The court inferred support for its position that reviews need only
be
conducted, not completed, from the fact that the term
"onsite
inspection" is not defined in the statute "such that every patient
in
every facility must be reviewed." Delaware, at 1122. However,
given
the statute's unequivocal requirement in section 1902(a)(26) and
(a)(31)
that each patient be reviewed during the inspection, separately
defining
the term would seem unnecessary.
The court's concern that the Agency's interpretation of the statute
not
"disentitle" Medicaid recipients seems misplaced here. Id.
at
1122-1123. Section 1903(g) reductions are taken when HCFA finds that
a
state is not meeting the statutory mandate to assure that
adequate
medical services are being provided to each Medicaid
recipient. Under
the court's theory a state review team could enter a
facility, make a
half-hearted effort to review some patients, and assert,
without fear of
contradiction, that it had conducted an onsite
inspection. This
scenario underscores the correctness of the Board's
conclusion that the
concepts of substantial compliance or de minimis
violations are
analytically unsound in the context of the administration of
section
1903(g). These concepts simply provide no guidance as to where
the line
is drawn to distinguish a review which meets the statutory
requirements
from one which does not. The court's analysis leaves open
the
possibility for the federal government to find itself
subsidizing
inadequate health care for Medicaid recipients, thereby defeating
the
goal of the Medicaid program. Contrary to the court's assertion,
the
actual effect of a section 1903(g) reduction is neither to
recover
payment for a specific recipient nor to reduce a state's payment to
the
facility, but rather serves as a reduction of the federal
medical
assistance percentage paid to a state. Thus, the Act affects
only the
level of state versus federal participation in certain costs
and
provides a fiscal carrot and stick incentive which attempts to
ensure
that all recipients are getting the care to which they are
entitled
under the Act.
For the foregoing reasons, we find no basis in the district
court's
opinion in Delaware to alter our well-established analysis of
the
medical review requirement. The statutory and regulatory
requirements
which Nebraska must satisfy in order to have made a valid
quarterly
showing at Lincoln Regional Center have not changed since the
court
issued its Delaware opinion. We proceed now to consider whether
there
is a basis to find Nebraska's showing satisfactory notwithstanding
the
failure to review this patient.
2. Nebraska's showing at Lincoln Regional Center was invalid under
the
statute and regulation.
Nebraska did not deny that the patient at Lincoln Regional Center
should
have been reviewed. Having established in the preceding section
of this
analysis that Nebraska was required to review all reasonably
identified
Medicaid recipients in every facility for which a review was due,
we
must now determine if the failure to conduct a satisfactory review
at
Lincoln Regional Center can be excused under the section
1903(g)(4)(B)
exceptions to the annual review requirement.
In arguing that HCFA's interpretation of the statutory exceptions is
too
restrictive, Nebraska relied on the district court's opinion
in
Delaware. Nebraska argued that there was no systematic flaw which
would
result in a chronic failure to review patients. Nebraska then
asserted
that in light of Delaware, the Board should excuse its failure to
review
the patient at issue. To the extent the State intimated that
either
exception applied, it focused its argument on the Delaware
court's
conclusions about the "good faith and due diligence" exception.
The Delaware court indicated that the "good faith and due
diligence"
exception should be interpreted as creating a subjective standard
where
the significant factors were the state's intent and the absence
of
evidence that it deliberately failed to review a facility. Delaware,
at
pp. 1127-1128. Our analysis, however, is premised on the
requirement
that a state include in the inspection of care each Medicaid
recipient
the review team could reasonably be expected to identify.
See, e.g.,
Idaho Dept. of Health and Welfare, DGAB No. 747 (1986); Texas
Dept. of
Human Services, DGAB No. 830 (1987). Thus, in order to
determine
whether the exception applies, we do not apply the court's
subjective
standard. Rather, we examine the circumstances surrounding
the failure
to review a patient. Here the facility's staff and the
medical review
team knew that H.E. was a recipient due for review, although
there was
obvious confusion as to her precise location. There is no
basis in the
record for the review team's assumption that, simply because the
patient
was not where they expected her to be, she was no longer in
the
facility. There is also no evidence that the review team made an
effort
to confirm their assumption. Given that they had been told that
the
patient was in the facility, it was incumbent upon the review team
to
confirm their assumption that she was discharged. However, for
no
obvious reason, the review team chose not to ascertain this
patient's
actual status.
We point out that in Delaware the medical review teams' lists did not
even
alert them to the patients' Medicaid status. Here, the review
team
failed to review a recipient they were required to include in the
review
based on an unfounded assumption that the patient had been
discharged.
Although Nebraska indicated that it has taken steps to prevent
similar
situations from occurring in the future, such corrective steps have
no
bearing on whether the State exercised "good faith and due diligence"
in
its review of Lincoln Regional Center.
The "good faith and due diligence" exception requires that a state
be
prevented from completing a review by circumstances beyond its
control.
Wyoming, at 11-12. Here the State's failure to review this
recipient
was based solely on the unfounded conclusion of the review team
that she
had been discharged from the facility. Clearly, these were
not
circumstances beyond the State's control.
The State argued that its failure to review this patient was not
the
result of a systematic flaw. Nevertheless, we point out, to
the
contrary, that the State had clearly chosen to permit the review team
to
rely only on an updated facility list, so that the review team had
no
other verification of the patients it was obliged to review. Thus,
the
State was inherently at risk of just this sort of haphazard
occurrence.
Finally, the State offered no substantive argument with regard to
the
technical failings exception or its application to the facts of
this
case. Thus, we do not separately consider this exception.
Conclusion
We conclude that Nebraska's failure to review patient H.E. is not
excused
on the basis of the district court's opinion in Delaware.
Further, this
record does not support a conclusion that the statutory
exceptions apply to
excuse Nebraska's failure to review this patient.
.Accordingly, we sustain
this entire disallowance of $27,488.08.
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz
________________________________ Cecilia Sparks Ford
Presiding
Board