New Jersey Department of Human Services, DAB No. 1339 (1992) Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division SUBJECT: New Jersey Department of DATE: June 16, 1992 Human Services Docket Nos. 90-118, 90-238, 91-32, 91-94, 91-100, and 91-140 Audit Control No. A-02-88-01029 Decision No. 1339 DECISION The New Jersey Department of Human Services (New Jersey or State) appealed disallowances by the Health Care Financing Administration (HCFA) of $7,354,765 in federal financial participation (FFP) claimed by the State. The claims were for Medicaid reimbursement for services provided to individuals aged 22 to 64 at Hudson County Meadowview Hospital Intermediate Care Facility (Meadowview ICF) during the period October 1, 1986 through March 31, 1991. Section 1905(a) of the Social Security Act (Act) excludes from the definition of "medical assistance," for which Medicaid funding is available, care or services provided to individuals who are in an institution for mental diseases (IMD). Based on an Inspector General audit report covering the period October 1, 1986 through December 31, 1988, HCFA found that Meadowview ICF was an IMD. HCFA regulations define an IMD generally as having the "overall character" of an institution established and maintained primarily for the care and treatment of persons with mental diseases. HCFA has also issued guidelines for gathering evidence on a facility's overall character. Here, HCFA presented no evidence that Meadowview ICF was licensed as a mental health facility or that it advertised or held itself out as such; the State's evidence showed instead that Meadowview ICF was established to be a typical ICF. HCFA relied primarily on evidence from a review of patient records performed by psychiatrist consultants as part of the audit and on testimony by one of these consultants. After examining patient records, the consultant's testimony, and the expert testimony presented by the State, however, we find that the State's evidence shows it reasonably evaluated the majority of the patients at Meadowview ICF as being institutionalized during the audit period because of their physical disorders or because of organic problems HCFA has exempted from classification as mental disorders. HCFA's consultant's testimony was on the whole less credible than the testimony by the psychiatrist who testified for the State. In particular, the consultant's record review was flawed since he did not follow HCFA's guidelines; his review of the records focused on historical diagnoses of the patients, rather than on whether the patients were receiving or required inpatient treatment for a mental disorder during the audit period. Moreover, HCFA's evidence related to other audit findings either did not support those findings or lacks probative value concerning the character of Meadowview ICF during the audit period. Thus, we find that the record does not support a determination that Meadowview ICF was an IMD during the audit period. Accordingly, we reverse the disallowance for that period. Since HCFA relied for its subsequent disallowances entirely on the findings for the audit period, we also reverse the disallowances for the subsequent periods. I. Statutory and Regulatory Background Title XIX of the Act provides grants to states for medical assistance to eligible low-income persons. Section 1905(a), in defining "medical assistance," specifically excludes payments for services to "any individual who has not attained 65 years of age and who is a patient in an institution for . . . mental diseases." This general prohibition appears in language following the list of covered services. The exclusion also appears as the parenthetical "(other than services in an institution for mental diseases)" with respect to certain institutional services, including (during the audit period) ICF services. There are two exceptions to the IMD exclusion. Section 1905(a)(14) provides for inpatient hospital services and nursing facility services for individuals over age 65 in IMDs, and section 1905(a)(16) provides for inpatient psychiatric hospital services for individuals under age 21, as defined in section 1905(h). Since 1988, the term "institution for mental disease" has been defined at section 1905(i) 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. The longstanding regulatory definition of an IMD, in effect during the entire audit period, is -- an institution that is primarily engaged in providing diagnosis, treatment or care of persons with mental diseases, including medical attention, nursing care, and related services. Whether an institution is an institution for mental diseases is determined by its overall character as that of a facility established and maintained primarily for the care and treatment of individuals with mental diseases, whether or not it is licensed as such. . . . 42 C.F.R. 435.1009 (1986-1990). 1/ In December 1982, HCFA issued section 4390 of the State Medicaid Manual (SMM), which explained to state Medicaid agencies HCFA's guidelines for determining whether a facility is an IMD. This section was revised in 1986. The Manual lists ten factors to be used cumulatively to determine the facility's overall character. The factors listed in section 4390 are: 1. The facility is licensed as a psychiatric facility for the care and treatment of individuals with mental diseases; 2. The facility advertises or holds itself out as a facility for the care and treatment of individuals with mental diseases; 3. The facility is accredited as a psychiatric facility by the JCAH; 4. The facility specializes in providing psychiatric/psychological care and treatment. This may be ascertained through review of patients' records. It may also be indicated by the fact that an unusually large proportion of the staff has specialized psychiatric/psychological training or by the fact that a large proportion of the patients are receiving psychopharmacological drugs; 5. The facility is under the jurisdiction of the State's mental health authority; 6. More than 50 percent of all the patients in the facility have mental diseases which require inpatient treatment according to the patients' medical records; 7. A large proportion of the patients in the facility have been transferred from a State mental institution for continuing treatment of their mental disorders; 8. Independent Professional Review teams report a preponderance of mental illness in the diagnoses of the patients in the facility (42 C.F.R. 456.1); 9. The average patient age is significantly lower than that of a typical nursing home; 10. Part or all of the facility consists of locked wards. Section 4390 sets forth how patients should be classified as mentally diseased or physically diseased for purposes of Guideline 6. The impact of the IMD exclusion is that FFP is denied for services to individuals under age 65 (except for those under age 22 and receiving inpatient psychiatric services) who are in an IMD. 42 C.F.R. 435.1008 and 42 C.F.R. 441.13. II. Factual Background On the Meadowview campus, there are three separate facilities: an ICF unit with 440 beds, a skilled nursing facility with 110 beds and an acute psychiatric care unit with 174 beds. 2/ The State's Division of Mental Health and Hospitals monitors the acute psychiatric care unit only. It does not have jurisdiction over the ICF portion of Meadowview. Meadowview ICF was first certified for Medicaid participation in 1977. From February 1987 to October 1989, the Office of the Inspector General, Office of Audit (OIG) conducted a survey and audit of skilled nursing and intermediate care facilities in New Jersey to determine if any of these facilities were also IMDs. The OIG reviewed cost data, licensing and program information at the State's Department of Human Services, Division of Medical Assistance and Health Services and the New Jersey Department of Health and selected Meadowview ICF for review. The OIG hired Forensic Medical Advisory Services (FMAS) to review patient records. FMAS reviewers visited Meadowview ICF on July 26-27, 1988; August 6-8 and 20-22, 1988; and September 10-11, 1988. The FMAS review team consisted of two psychiatrists and a medical records specialist. As a result of the OIG/FMAS findings, HCFA determined that Meadowview ICF met the following guideline factors from section 4390 of the SMM: Guideline 4 - Meadowview ICF specializes in providing psychiatric/psychological care and treatment; Guideline 6 - More than 50% of all the patients in the facility have mental diseases which require inpatient treatment according to the patients' medical records; Guideline 7 - A large proportion of the patients in the facility have been transferred from a State mental institution for continuing treatment of their mental disorders; Guideline 8 - Independent Review Teams report a preponderance of mental illness in the diagnoses of the patients in the facility; and Guideline 9 - The average patient age is significantly lower than that of a typical nursing home. State Exhibit (Ex.) D, pp. 6-14. HCFA determined that these findings cumulatively establish that Meadowview ICF had the overall character of an IMD during the audit period. The parties agreed that for purposes of determining whether 50% or more of the patients were institutionalized at Meadowview ICF because of mental disorders, the State could present evidence on patients representing 10% of the facility population. The State could choose the sample randomly or by picking its most compelling cases. New Jersey sent a Medical Evaluation Team to Meadowview ICF to conduct a survey of the patient records of approximately 10% of the facility's patient population to determine those patients' diagnoses and care. Thirty-one patients were selected at random for review. First, a review was conducted by a review team headed by a physician, the purpose of which was to determine whether the sample patients fulfilled New Jersey's Medicaid criteria for needing nursing level of care. A second review was then performed by a medical evaluation team headed by a psychiatrist and physician, the purpose of which was to determine how many of the sample patients required treatment for a mental disorder. The team reviewed the patients' medical records for the period October 1, 1986 through December 31, 1988, interviewed Meadowview ICF personnel who treated the ICF residents and interviewed the patients who were available (four patients had died and two had been discharged from the facility). New Jersey compared its conclusions on these patients with the FMAS reviewers' conclusions. New Jersey agreed with FMAS on 16 patients, seven of whom had primary diagnoses of mental illness and nine of whom had exempt diagnoses. See State Reply brief, p. 22; HCFA brief, pp. 14 and 16; State Ex. J,  9a and 9b; State Ex. K., 12b. New Jersey and HCFA disagreed on the remaining 15 patients. HCFA agreed that if the State established that at least seven of these 15 patients were not institutionalized for the care and treatment of a mental disorder according to the patient medical records, we should find that Guideline 6 was not met. The Board conducted an eight-day hearing during which the parties presented testimony and evidence relevant to the 15 disputed patients. Dr. Esquibel, who testified at the hearing, had reviewed 10 of these and Dr. Santucci, the other FMAS consultant hired by HCFA, had reviewed the other five patients. Dr. Santucci, however, died prior to the hearing. III. HCFA did not establish that Meadowview ICF has the overall character of an IMD pursuant to the guidelines. HCFA contended that the OIG auditor and the FMAS consultants had applied the guidelines set forth in SMM, section 4390, to determine whether Meadowview ICF had the overall character of an IMD. With regard to the use of the ten guidelines, the SMM provides that -- no single guideline will necessarily be determinative in any given case. A final determination of a facility's status rests on whether an evaluation of the information pertaining to the various guidelines establishes that its overall character is that of a facility established and/or maintained primarily for the care and treatment of individuals with mental diseases . . . . HCFA Ex. 2, SMM, 4390 B. The guidelines permit assessing the evidence in its entirety and giving varying weight to evidence relating to different guidelines. Here, HCFA stipulated that Guidelines 1, 2, 3, 5, and 10 did not apply to Meadowview ICF during the audit period. Yet, evidence relating to the first four of these guidelines has been given the greatest weight in Board decisions determining that nursing facilities were IMDs. For example, in Colorado Dept. of Social Services, DAB No. 985 (1988), we upheld a disallowance for Phoenix Center, giving great weight to the undisputed fact that the facility held itself out as a psychiatric treatment center. In spite of the lack of any such evidence here, HCFA nonetheless contended that evidence that Meadowview ICF met Guidelines 4, 6, 7, 8, and 9 was sufficient to establish Meadowview ICF as an IMD. As we discuss below, we conclude that the evidence here either does not support HCFA's findings on these guidelines or has little probative value concerning the character of Meadowview ICF. We first discuss HCFA's findings on Guidelines 8, 7, and 9, and then turn to the more difficult questions raised by the patient-counting evidence HCFA relied on to support its findings on Guidelines 4 and 6. A. The FMAS reviewers do not constitute an "Independent Professional Review" team for purposes of Guideline 8. Guideline 8 indicates that one of the factors in determining whether a facility has the overall character of an IMD is whether an "Independent Professional Review" team reports a preponderance of mental illness in the diagnoses of the patients in the facility. HCFA contended that the FMAS consultants constituted an "Independent Professional Review" team for purposes of this guideline. HCFA brief, p. 17; State Ex. D, pp. 8-9. HCFA argued that since FMAS concluded that the patients at Meadowview ICF were primarily mentally ill, HCFA had established this guideline as one of the factors to determine that Meadowview ICF had the overall character of an IMD. HCFA brief, p. 17 and Appendix (App.) A at  26. We first note that HCFA also relied on the FMAS findings for its conclusion that Guideline 6 was met. Even if we agreed with HCFA that the FMAS consultants were an "Independent Professional Review" team and that their findings were correct (which we do not), we would not give those findings any additional weight merely because they could also be characterized as meeting Guideline 8. In any event, however, we disagree that Guideline 8 was met. Guideline 8 specifically calls for a report from an "Independent Professional Review" team and cites 42 C.F.R. 456.1. That regulation implements section 1902(a)(31)(A) of the Act, which requires a state to have a program of independent professional review by a team composed of a physician or registered nurse and other appropriate health and social services personnel. This team's job is to review the plan of care developed for each patient and the care actually provided to each person receiving medical assistance, to make a determination regarding the adequacy of services available to meet the current health needs of each patient, to determine the necessity and desirability of continued placement in the facility, and to evaluate the feasibility of meeting the patient's needs through alternative institutional and non-institutional services. Contrary to HCFA's arguments, the term "Independent Professional Review" team has a specific meaning in the Medicaid program. The reference in Guideline 8 to the applicable regulations supports our conclusion that Guideline 8 was intended to apply to the state teams which are required to review facilities in accordance with the utilization control requirements. Section 1903(a)(31)(A) of the Act; 42 C.F.R. 456.1. The FMAS consultants did not meet the requirements of such a team; they did not review each patient in those areas outlined by the statute. The FMAS consultants did not review the written plan of care for each patient to determine its adequacy nor evaluate the adequacy of the services actually received. Moreover, at the time the review was performed, the FMAS reviewers did not determine the necessity and desirability of each patient's continued placement and whether the patient's needs could be met in an alternative placement. Thus, we conclude that there is no support in the record for HCFA's finding that Guideline 8 was met. B. HCFA's evidence on patient transfers is insufficient to show that Guideline 7 was met, and, in any event, has no probative value here since most transfers were made long before the audit period. HCFA contended that a large number of Meadowview ICF patients were transferred from mental hospitals for continuing treatment of their mental disorders. HCFA brief, pp. 17-19; State Ex. D, pp. 13-14. HCFA reasoned that since the medical records indicated that patients were admitted to Meadowview ICF with primary diagnoses of mental disorders, it is logical to conclude that these patients would be treated there for mental illness as well as any other disability. HCFA brief, p. 19. While the records may show that many Meadowview ICF patients were transferred from mental institutions, this factor alone is not conclusive evidence that the patients were admitted to Meadowview ICF for continuing treatment of their mental disorders. As we discuss below, treatment means more than general nursing care. The State presented evidence that, at the time most of these patients were transferred to Meadowview ICF in 1977, the State had evaluated these patients as patients whose needs could be met in a typical ICF. HCFA was relying primarily on historical diagnoses, which stigmatize forever as a psychiatric patient any patient who is transferred into a nursing facility from a psychiatric hospital. HCFA's conclusion does not logically follow from primary diagnosis, given evidence that the primary diagnosis does not always reflect a patient's need for inpatient treatment of that disorder. Furthermore, HCFA's position ignores the fact that a patient may have physical problems that necessitate placement in a nursing facility. Even if we agreed with HCFA that we should equate a primary diagnosis of a mental disorder with a need for a continuing treatment of that disorder, HCFA's evidence would not be probative here since it relates to most patients' admission to Meadowview ICF in 1977. As we discuss below, the issue here is the character of the facility during the audit period, October 1, 1986 through December 31, 1988. C. HCFA's findings on patient age under Guideline 9 were inadequately supported and, in any event, have little probative value here. HCFA argued that Meadowview ICF met Guideline 9 (i.e., the average age of the facility's residents was significantly lower than that of a typical nursing home). We previously found that evidence of young average age was not by itself probative of a facility's overall character as an IMD. Colorado, supra, at 17; Washington Dept. of Social and Health Services, DAB No. 785, at 14, n. 10 (1986). We found that the relatively young age of patients could have a reasonable explanation other than that the facility is an IMD. In this case, the audit findings on this Guideline were also inadequately supported. The audit report indicated that the average age of patients in nursing homes nationally is about 78 and that the average age for Medicaid patients in Meadowview ICF was 66. The report also stated that the age distribution of the patients in this facility was uncharacteristic of New Jersey nursing home patients. State Ex. D, p. 13. However, the OIG auditor testified that he used an age study from another region as a source for the national average cited. He could not verify the validity or accuracy of this data; he did not know where the data came from or how the study was made. Tr. at 1291-1292. The auditor also admitted that there was no basis for the statement in the audit report that the age distribution of the patients in Meadowview ICF was uncharacteristic for New Jersey nursing home patients. Tr. at 1253-154. Consequently, we conclude that HCFA did not have an adequate basis for its findings on Guideline 9 and that, even accepting HCFA's national average as accurate, the age disparity has little, if any, probative value. D. The record does not show that Guidelines 4 and 6 were met. Guideline 4 requires evidence that the facility specializes in providing psychiatric or psychological care and treatment. The Guideline states that this may be determined through a review of patients' records, by an unusually large proportion of the staff having specialized psychiatric or psychological training, or by the fact that a large proportion of the patients are receiving psychopharmacological drugs. Guideline 6 calls for evidence that more than 50% of all the patients in the facility have mental diseases which require inpatient treatment according to the patients' medical records. Since HCFA primarily relied on the FMAS review for its findings on both these guidelines, and since treatment is an important aspect of patient evaluation, we consider these guidelines together. In this section, we first discuss general considerations regarding the role of diagnosis in patient classification, the relevant time period here, the nature of schizophrenia, and the nature of the treatment received or required by the patients. These considerations apply to most or all of the patients at issue here and lead us to conclude generally that the approach used by the FMAS reviewers was flawed from the beginning (since it was inconsistent with HCFA's guidelines and past Board decisions) and that HCFA's evidence presented here was similarly flawed. We then discuss in detail the seven patients where the State's evidence most persuasively shows that the State reasonably evaluated the patients as institutionalized primarily for their physical disorders (or for mental disorders HCFA considers exempt) and as receiving and requiring only general nursing care. 1. HCFA's consultants' approach improperly focused on historical diagnoses of patients. As this Board explained in Washington, at 9-10, several early court decisions overturning Board findings that facilities were IMDs reflected the courts' underlying concerns with patient counting. The courts were concerned that discrimination against patients on the basis of diagnosis (which is prohibited) might be present to the extent that patients were classified according to historical diagnoses which did not reflect the patients' current conditions. The courts therefore emphasized the importance of evidence about what treatment the patients were receiving because such evidence can ensure that patients are not simply being labeled based on historical diagnoses. (See our discussion of treatment below.) If patients are classified based on historical diagnoses, the resulting evidence is not truly probative of the character of the facility. Another reason for caution in applying patient-counting factors is that an ICF may properly treat patients with mental conditions. Section 1905(c) of the Act (prior to amendment by Pub. L. 100-203); section 1919(a) of the Act (as added by Pub. L. 100-203). Thus, the mere presence of such persons in an ICF is not sufficient to render the facility an IMD. We have recognized in our past decisions that when a facility was not established as a facility specializing in care and treatment of persons with mental diseases, but begins taking on more and more patients with mental diseases, it is difficult to draw the line in determining at what point the facility would attain the overall character of an IMD so clearly that the state should have known that FFP would not be available for the services provided at the facility. HCFA's current guidelines for examining IMD status reflect these concerns. The guidelines state that "the reviewers must determine whether each patient's current need for institutionalization results from a mental disease." They also state: "Classification is to be based on current diagnosis . . . ." The guidelines then go on to set out classification categories according to whether it is the patient's physical or mental disorder which requires "inpatient treatment." Although the OIG auditor and other OIG officials met with representatives of FMAS prior to the on-site review and referred to HCFA's guidelines, apparently this information was not passed on to the actual reviewers before they arrived at Meadowview. They were given the HCFA guidelines at an initial meeting with the auditor at the facility, but Dr. Esquibel, one of the two consultants who actually performed the review, testified that his understanding of the review was that he was to "examine the records and establish my own diagnosis on each patient based on the information in the record . . . . " Tr. at 1710 (emphasis added); see also Tr. at 1711-1712, 1470. 3/ HCFA has argued in past IMD cases, however, that it is the record diagnosis (even if wrong) which establishes how the facility views and treats the residents and which therefore reflects on the character of the facility. More important, Dr. Esquibel's statements illustrate an approach to the review which is inconsistent with past Board decisions and HCFA's guidelines. From this statement, from the patient information sheets Dr. Esquibel completed on the patients, and from his testimony as a whole, it is evident that Dr. Esquibel was primarily concerned during his review in determining which type of schizophrenia each patient had been diagnosed as having and whether he agreed with that diagnosis. Dr. Esquibel also stated that he was to "establish what was, in my opinion, the primary reason why that patient was in that facility." Tr. at 1710. This is closer to HCFA's guidelines, but is undercut by his statement that the "primary diagnosis reflects the reason for hospitalization." Tr. at 1712. He made this statement in reference to the reason the patient was admitted. We find several problems with this. First, HCFA's guideline refers to the "current need for institutionalization." 4/ Second, while in some instances we have found that reasons for admission may reflect on the character of a facility, in this case we have determined that the critical time period is the audit period, rather than 1977, when most of these patients were admitted to Meadowview ICF. (Our reasons for this conclusion are set out below.) Third, it is apparent from some of the patient worksheets that the reviewers were confusing admission to Meadowview Hospital with admission to Meadowview ICF, but HCFA did not allege here that Meadowview ICF was part of a larger institution rather than a separate one. Finally, the patient records here illustrate that one cannot reasonably equate primary diagnosis with the reason why these patients were institutionalized at Meadowview ICF. In many instances, the primary diagnosis simply reflected the patient's history. Moreover, while any psychiatrist consulting on the patient would automatically list schizophrenia as the primary diagnosis, sometimes a contemporaneous evaluation by a non-psychiatrist would list a physical disorder as primary. The reviewers' focus on historical psychiatric diagnoses and symptoms rather than on the current need for institutionalization is also apparent because many of the patient information worksheets completed by the reviewers describe patients as having no significant physical disorder, even though their records clearly show that they were evaluated by their attending physicians during the audit period as having serious physical disorders (which were their primary diagnoses). This may be explained in part by the lack of guidance the reviewers received on the purpose of the review. There also may have been some bias introduced by the terms of the contract under which FMAS agreed to do the review. 5/ Flaws in the initial review approach would not be significant if HCFA's evidence presented to us supported the reviewers' conclusions. Prior to the hearing, Dr. Esquibel again reviewed the patient records of those patients at issue here, and at the hearing, he elaborated on his findings and the reasons for them and in some respects attempted to compensate for flaws in the original review. It was apparent at the hearing, however, that Dr. Esquibel's further review was primarily an attempt to justify the original review findings, rather than to accurately apply HCFA's guidelines. This is one of many reasons, discussed more fully below, why we reject HCFA's position that we should give more weight to Dr. Esquibel's opinions than to those of the State's experts. 2. The patient-counting here should relate to the audit period, not the time of admission. In this case, unlike other cases where there was evidence that the facilities specialized in treating mental diseases when they were established, HCFA presented no evidence of any intent to establish Meadowview ICF as such a specialized facility. While most of the patients were transferred from the old Hudson County Meadowview institution (which as a whole probably would have been considered an IMD at one time), the State presented unrebutted testimony that the intent when the ICF was established was to create a facility for residents who did not need specialized services above and beyond those offered by a typical ICF. Moreover, the State insisted when the facility was established that patient assessments be performed to ensure that patients were not being inappropriately placed in the Meadowview ICF. HCFA argued that, because patients with mental diseases may appropriately be placed at the ICF level, this fact has no significance. We disagree. First, the State's evidence suggests that the State's assessments included whether the patient's functional needs could be met by this particular facility. Thus, approval of placement of these patients in Meadowview ICF even though it did not have specialized staff (other than those available on a consulting basis) reflects a judgment of the patients' needs. Also, at the time Meadowview ICF was established in 1977, there was little published guidance on IMD status, and internal field memoranda issued by HCFA primarily indicated a concern that states were inappropriately dumping patients from state mental institutions into nursing facilities to avoid the IMD exclusion (and thus the nursing facilities should be consider de facto IMDs). The State's evidence indicates that such dumping was not occurring here. If HCFA had shown that Meadowview ICF was established as a facility with the overall character of an IMD, the burden might then have shifted to the State to show that Meadowview no longer had that character during the audit period. Since HCFA failed to make such a showing, however, the issue here is whether the State should have known, by examining the character of the facility during the audit period, that it was an IMD. Examining the facility during this time period also makes sense since up until 1986 policies on how to determine whether an ICF was an IMD and what should be considered a mental disease were still evolving. While we have found that some facilities could be classified as IMDs prior to this time because they were IMDs under any reasonable reading of the regulatory definition, those facilities were determined to be IMDs primarily on the basis of persuasive evidence other than patient-counting information. See Massachusetts Dept. of Public Welfare, DAB No. 413 (1983); Washington, supra; and Colorado, supra. Thus, in examining the evidence here, we consider the appropriate time period to be the audit period, not 1977 when most of these patients were admitted to the ICF (and certainly not the time the patients were admitted to the original institution known as Meadowview Hospital). 3. HCFA's position on the role of schizophrenia and its process in classifying these patients is not fully supported by the record. HCFA relied heavily on Dr. Esquibel's explanation at the hearing of schizophrenia and its symptoms. We find, however, that his testimony is not fully supported by the written record, raises significant questions about what symptoms should be attributed to the disease process of schizophrenia, and further supports our conclusion that Dr. Esquibel focused too heavily on the patients' history. HCFA has long used a disorder classification system called the ICD (and its further refinement in the system called the DSM-III) for determining what is a mental disease. In the context of determining IMD status, however, HCFA has exempted certain diagnoses listed as mental disorders in these systems. In excluding persons with senile dementia or organic brain syndrome (OBS), HCFA stated: These diagnoses appear frequently among the elderly. These conditions are essentially untreatable from a mental health point of view, but these patients frequently require general nursing care. (Many times they are used by physicians as a shorthand characterization for patients whose behavior may be a manifestation of underlying neurological damage.) These diagnoses should not be considered mental diseases if the facility is appropriately treating the patients by providing only general nursing care. HCFA Ex. 2, fourth page. 6/ While schizophrenia is a psychosis which the layman considers indisputably a mental disease (and its various forms are listed as mental disorders in the ICD and DSM-III), Dr. Esquibel's testimony at the hearing raised several issues concerning how to evaluate patients who have been diagnosed as having schizophrenia and their treatment needs. He testified that schizophrenia results from a defect in the dopaminergic reactions in the brain. Dopamine is a "neurotransmitter," and the psychotropic drugs prescribed for schizophrenia operate either by reducing the amount of dopamine produced by the brain or by blocking the related "receptors." Tr. at 1372-1383. Dr. Esquibel further testified that the "positive" symptoms associated with schizophrenia (delusions, hallucinations, loosening of associations, incoherence, and catatonic behavior) can be controlled by such medication. Tr. at 1383-1384. 7/ This testimony, thus, raises the question of whether schizophrenia can be rationally distinguished from senile dementia and OBS, which HCFA exempted since they are neurologically based and not amenable to treatment with traditional psychiatric or psychological methods. While we do not for purposes of this decision categorize schizophrenia as an exempt diagnosis, Dr. Esquibel's testimony is a factor in why we conclude below that the mere prescription of a maintenance level of a psychotropic drug should not be considered treatment for a mental disorder which gives a facility the character of an IMD. Dr. Esquibel's testimony also raises the question of whether patients whose active symptoms are controlled by the drugs should be considered as "having" the disease. Dr. Esquibel took the position, however, that no person is ever "cured" of the disease of schizophrenia because the person would still have an abnormality in his/her dopamine production. 8/ His opinion that schizophrenic patients could not be cured appears to have contributed to Dr. Esquibel identifying schizophrenia as a current primary diagnosis even for patients whose record diagnosis was "schizophrenia in remission" and who had shown no active symptoms for years. We do not here specifically reject Dr. Esquibel's position that Meadowview ICF patients had not been cured. The DSM-III distinguishes schizophrenia in remission from "No Mental Disorder" (a diagnosis which "requires consideration of overall level of functioning, length of time since the last episode of disturbance, total duration of the disturbance, and whether prophylactic treatment is being given"). HCFA Ex. 83, p. 195. This statement supports a view that the patients continue to have the disorder (assuming they were correctly diagnosed initially), even if it is in remission. However, it also points up the importance of not relying solely on diagnosis or the prophylactic (preventative) use of psychotropic drugs as a basis for classifying these patients. See also Tr. at 121-122. Dr. Esquibel's testimony describing "negative" symptoms of schizophrenia also points up complications in evaluating the cause of these patients' needs and the type of treatment which might be effective. Dr. Esquibel took the position that patients who had a primary record diagnosis of OBS or senile dementia should nonetheless be considered in light of their histories of schizophrenic disorders simply to have "negative" symptoms of schizophrenia (which are not decreased by psychotropic drugs). 9/ He presented a list of symptoms of schizophrenia, stating that this list was derived from the DSM-III. HCFA Ex. 89; Tr. at 1363. He identified as "negative" symptoms: memory deficit, lack of insight, poor judgment, and disorientation. Tr. at 1370; compare Tr. at 1427. While he acknowledged that these symptoms were not exclusive to schizophrenia, Dr. Esquibel emphasized that the history of the patient was important in evaluating the cause of the symptoms. While history is important in evaluating patients, Dr. Esquibel in our view overemphasized the patients' history here to support his original evaluations, ignoring evidence pointed out to him on how treating physicians or psychiatrists who had examined the patients had evaluated their symptoms during the audit period. Moreover, the DSM-III does not in fact track Dr. Esquibel's list of positive and negative symptoms; instead, it describes active and residual phases of the disease. The DSM-III also states: "Even though an active phase of Schizophrenia may begin with confusion, the presence of persistent disorientation or memory impairment strongly suggests an Organic Mental Disorder." HCFA Ex. 83, p. 192. Dr. Esquibel's own testimony describes the type of memory deficit common in schizophrenia as an inability to recall events because of a failure to register events in the active stages of the disease. Tr. at 1406-1407. Excerpts from a textbook on psychiatry submitted by HCFA discuss differences between this type of memory deficit and deficits caused by organic brain disease, indicating that distinctions can be drawn (although this may not be easy). HCFA Ex. 96. We see no reason to accept Dr. Esquibel's judgment on which type of deficit was present in the patients here with record diagnoses of OBS or senile dementia, rather than the judgment of treating physicians or psychiatrists who observed the patients. Those actually observing the patients over a period of time were in a better position to make the distinctions required. 10/ Even where there is no record diagnosis of OBS or senile dementia, however, evaluating patients with symptoms such as inability to make judgments, self care deficits, disorientation, lack of interest, and lack of volition is further complicated since these are also symptoms of chronic institutional syndrome. Tr. at 1421-1422. This syndrome is not classified as a mental disorder in the DSM-III. Dr. Esquibel testified that physical disabilities can contribute to institutional syndrome and that this type of syndrome may develop in a patient in any type of institution (for example, even a tuberculosis sanitorium). Tr. at 1707-1708. All of the patients at issue here had been institutionalized for lengthy periods of time. Some patients had other problems which may have in a broad sense been a "result of a mental disorder," such as physical side effects from taking psychotropic drugs, but we do not think these patient characteristics should be a basis for classifying a facility as an IMD if they are appropriately being addressed through general nursing care. All of these considerations further support our conclusions that HCFA's evidence is not persuasive because it focused too heavily on historical diagnoses, rather than on the nature of the treatment the residents of Meadowview ICF were receiving or in fact required. 4. HCFA's evidence is not persuasive either on the treatment the patients were receiving or on what they required. In Minnesota v. Heckler, 718 F. 2d 852 (8th Cir. 1983), the court stated that -- the characteristics of an IMD must fundamentally center on the type of care or nature of services required, not on the mere presence in a facility of patients who have, or at one time did have, diagnoses of a mental disease. 718 F. 2d at 863. In the past we have found that the lack of specialized treatment actually received by patients is not conclusive on the issue of whether a facility is an IMD. We recognized HCFA's genuine concern that states could avoid classification of a facility as an IMD by simply not providing appropriate treatment to patients. The Court in Minnesota reasoned that emphasis on the degree of care and treatment required by a patient (as opposed to solely examining the degree of care and treatment furnished to a patient) should eliminate this concern. We previously found that an ICF can be an IMD and this holding was ultimately upheld by the Supreme Court. Connecticut v. Heckler, 471 U.S. 524 (1985). This means that treatment received in an ICF must be evaluated in light of the level of services appropriately provided in an ICF. Consequently, an ICF not providing the same level of services or intensity of services as a psychiatric hospital would provide may still be considered an IMD. See Massachusetts. Thus, as we found in Massachusetts, an ICF may have the overall character of an IMD even though the services provided do not amount to active psychiatric treatment or intervention. Id., at 13. Services such as psychoanalysis or individual and group therapy with a qualified therapist may constitute treatment. Dr. Esquibel also testified that manipulation of the environment and psychodrama are types of social therapy used in treating mental disorders. Tr. at 1424-25. Moreover, in Massachusetts, we found that therapy in activities of daily living skills may be considered treatment of a mental disorder where there is evidence that these services were needed to improve the patient's mental functioning. Similarly, in Iowa Dept. of Human Services, DAB No. 1179 (1990), we determined that a comprehensive program operated by a full-time staff psychologist using behavior modification techniques to help patients develop independence in self-care and assistance with activities of daily living skills to implement the program was consistent with the needs of severely and chronically mentally handicapped persons and constituted treatment for mental diseases. We have, however, distinguished between assistance with activities of daily living that constitutes "treatment" in that these therapies are designed to enable the resident to move out of the institution, or at least reduce the degree of care and treatment required in the institution, and assistance with activities of daily living which does not constitute treatment. We found that in order to constitute "treatment" any program or therapy must be more than the type of psycho-social program to help a patient adjust to life in an ICF which would be typical of any nursing facility. Washington at 11. The Board has also considered that psychotropic drugs may constitute treatment where the medication is prescribed by a psychiatrist providing ongoing monitoring of a resident's progress and where a psychiatrist has evaluated the dosage and concluded that the medication was treatment for mental illness. See Iowa at 11 and Massachusetts at 14. The instant case, however, is distinguishable from Massachusetts and Iowa. The auditors found that patients of Meadowview ICF had "periodic encounters with a psychiatrist or other mental health professional during the period under review" and that "this type of continued care under the direction of a psychiatrist, more closely resembles care in an IMD rather than an ICF." State Ex. D, p. 12. Unlike the facilities in Massachusetts and in Iowa, however, Meadowview ICF had no staff psychologists or psychiatrists or other staff with specialized training such as psychiatric social workers or psychiatric nurses. Tr. at 468-470. Apparently, an audit finding regarding the staff at Meadowview ICF was based in part on a document attached to a provider application which listed staff for all the facilities on the Meadowview campus including the ICF and the hospital. HCFA Ex. 85. The auditor assumed that the psychiatrists listed were on the staff of Meadowview ICF. HCFA brief, App. A,  24 at 13-14; Tr. at 1165, 1175 and 1187-1190. Dr. Esquibel testified that he also assumed that the ICF staff had specialized psychiatric training. Tr. at 1743-1744. The testimony of the assistant medical director for the Meadowview complex of facilities, however, indicated that there were no psychiatrists or psychiatric social workers or nurses on staff of the ICF. Tr. at 458-461; 463-468. Consequently, there was no evidence of specialized staff of the ICF or of special training of the nursing staff. Specialized staff of Meadowview Hospital, however, were available only on a consulting basis (as required for any ICF during the audit period), if a patient required such a consultation. 42 C.F.R. 442.317 (1986). HCFA also failed to present any evidence of any individual or group therapy prescribed or provided at Meadowview ICF by specialized staff or any evidence the ongoing caregivers determined that the patients required such services during the audit period. Nor did HCFA present any evidence that the other types of psychological or social therapies described by Dr. Esquibel were provided by specially trained staff. 11/ Furthermore, while some of the patients here required and received supervision of some activities of daily living (ADL) by the nursing staff, this was not clearly a result of a mental disorder, as opposed to physical disorders or chronic institutional syndrome. In any event, mere supervision is different from the kind of ADL services necessary to develop a resident's potential for independence, which we previously considered to be psychological services. It was only after questioning at the hearing by the Board that Dr. Esquibel belatedly testified with regard to some of the patients at issue that they could have benefitted from psychological services to overcome dysfunctions in ADL. This testimony, which was more of an afterthought, was not persuasive because it was not part of Dr. Esquibel's original evaluation of the patients. It appeared to be an attempt to tailor testimony to respond to the Board's concerns expressed at the hearing, rather than a considered opinion. In any event, the patients' records indicate that for most of these patients, the caregivers made ongoing determinations and assessments of each patient and concluded that such services were not needed. Given the organic and physical problems of these patients, the caregivers could have reasonably concluded that these patients would not benefit from such services. While psychotropic drugs may be considered treatment in some instances, at least two patients of the 15 patients in dispute did not receive any such medication and the rest received very low dosages. Even though Dr. Esquibel contended that the use of psychotropic medication constituted treatment, Dr. Erlich, the State's psychiatric expert, indicated that the low dosage of psychotropic medication here amounted to maintenance of the patient's well being and did not constitute treatment. The State's view is not unreasonable. The record showed that for the most part, these patients had no symptoms of active schizophrenia for years. The use of psychotropic medications here could reasonably be viewed as being for prophylactic purposes to prevent recurrence of symptoms of active schizophrenia. The DSM-III recognizes that schizophrenics may be in remission whether or not on medication, if the medication leaves them free of all signs of the disturbance. HCFA Ex. 83, p. 195. Moreover, HCFA's reliance on the Physician's Desk Reference as supporting its view that maintenance dosages of psychotropic drugs constituted treatment is misplaced. That publication's description of a maintenance dosage for Haldol, for example, states: "Upon achieving a satisfactory therapeutic response, dosage should be gradually decreased to the lowest effective maintenance level." HCFA Ex. 63, p. 1335. The purpose of examining treatment here is to determine the overall character of the facility. If the patient has achieved a therapeutic response and does not need ongoing monitoring and adjustment of medication by a psychiatrist, the receipt of the drugs has no significant affect on the character of the facility that would distinguish it from a typical nursing home. Also, even Dr. Esquibel acknowledged that a maintenance dosage could be administered outside an institution, so the need for a maintenance dosage does not constitute a need for inpatient treatment. Tr. at 1404-1405. The patient records showed that the patients here receiving such medication did not need ongoing monitoring and adjustment of the medication. In fact, the records did not show any patient receiving ongoing care from a psychiatrist. The records showed that some patients received a psychiatric consultation with a psychiatrist, but these were routine and were prophylactic in nature such as where, for example, a resident required an operation for a physical problem and the attending physician wanted to make sure that the procedure would not trigger any psychological effects. In some instances, the consultations resulted in a primary diagnosis of senile dementia or OBS. Finally, HCFA did not present any evidence that Meadowview ICF held itself out as providing specialized services. Instead, unlike facilities which the Board determined were IMDs because they were established primarily to provide specialized services, the testimony showed that Meadowview was established to be a typical ICF, providing general nursing care. 12/ 5. HCFA misclassified at least seven patients. In our review next of individual patients who were at issue here, we have based our conclusions primarily on the patient records and undisputed interpretations of those records by the experts who testified at the hearing. Where necessary, we have resolved disputes between the parties' experts. HCFA argued generally that we should give more weight to Dr. Esquibel's opinions than to Dr. Erlich's. We find, to the contrary, that on the whole Dr. Esquibel's evaluations of the patients were less credible and persuasive than those of Dr. Erlich, for the following reasons: o As discussed above, Dr. Esquibel's initial approach was flawed. At the hearing, Dr. Esquibel sought to justify his initial conclusions, even in the face of relevant evidence from the patient records which he had clearly disregarded in reaching his initial opinions. Dr. Erlich, on the other hand, was more straightforward and was willing to reevaluate his original opinion for one patient where it appeared for a time that the records would not support it. Ultimately, however, the records provided more support for his opinions than for those of Dr. Esquibel. o While Dr. Esquibel had excellent credentials as a psychiatrist, Dr. Erlich's credentials were also impressive, and he was no less knowledgeable in general about the disease of schizophrenia. Dr. Esquibel clearly was focused more on theory, but Dr. Erlich had more experience with aging patients in nursing homes like those at issue here and a better understanding of their needs. o Dr. Esquibel's evaluation of the patients' physical disorders was not only contradicted by their records, but he appeared to evaluate the disorders serially, rather than considering the whole complex of physical problems exhibited by each patient. His comments on particular physical disorders were anecdotal and general, rather than directly related to the particular patients at issue. Dr. Erlich was more convincing in his evaluations of the patients' physical disorders, and his opinions on the physical disorders were supported by Dr. Flaig, who was a medical doctor. o Dr. Esquibel did not appear impartial; rather, he seemed to take the approach of ignoring any evidence which did not support the conclusion OIG had already reached. While Dr. Erlich was an employee of the State, HCFA did not establish any reason for bias on his part other than the inference that he might be affected by the State's potential loss of Medicaid funding. The sincere and straightforward manner in which Dr. Erlich testified indicated that his opinions were unbiased and genuine, and not merely contrived to support the State's appeal. In sum, we give more weight to Dr. Erlich's opinions than to Dr. Esquibel's. Even if we found only that Dr. Erlich's opinions were reasonable, however, this conclusion would support a result for the State since we must be able to say that the State should have known that Meadowview ICF was an IMD during the audit period in order for HCFA to prevail. We next discuss seven of the individual patients, explaining why we conclude that the State could have reasonably determined that they were institutionalized during the audit period because of their physical disorders, rather than for inpatient treatment of a mental disorder, and that they were appropriately receiving only general nursing care. We do not need to evaluate the remaining patients to support our conclusion that Meadowview ICF did not have the overall character of an IMD during the audit period, given the parties' agreements discussed in Section II above. We note, however, that few of the remaining patients had active symptoms of schizophrenia, all had at least some physical problems contributing to their need for institutionalization, and few clearly received or required services that would constitute inpatient treatment of a mental disease. Wahlis This patient was in his mid to late seventies during the audit period. When this patient was first institutionalized in 1939, he was diagnosed as a schizophrenic, hebephrenic type. However, during the audit period when the patient was at Meadowview ICF, the medical records overwhelmingly support a different reason for institutionalization. The patient's annual medical care plans for 1981 through 1988 indicate primary diagnoses of OBS, Inactive Tuberculosis, Emphysema, and Chronic Schizophrenia with, in most instances, OBS listed first. These plans are completed by staff physicians annually at the ICF in order to determine the proper care, treatment and placement of the patient for the next year. State Ex. 34. The records indicate the patient received only a maintenance dose of Activan (State Ex. J, 13), a psychotropic medication, which Dr. Esquibel admitted is properly prescribed for patients with OBS. Tr. at 1761. As the State pointed out, there is no evidence of positive symptoms of schizophrenia during the audit period, and HCFA could point to only one psychiatric consult during that period. One consultation can hardly be considered treatment for mental illness. State Ex. 34, pp. 12-13; Tr. at 1477 and 1765; HCFA Ex. 75, pp. 20-21. The patient information worksheet and the narrative comments filled out by the FMAS reviewer at the time of their review completely disregarded this relevant information. Instead, FMAS listed the primary diagnosis as only schizophrenia, ignoring other information in the record to the contrary. Dr. Esquibel testified that OBS was a physical illness (Tr. at 1753), but even though Mr. Wahlis's medical records indicated OBS, emphysema and inactive pulmonary tuberculosis as diagnoses for this patient, Dr. Esquibel did not note these on his worksheet. Dr. Esquibel admitted that his diagnosis disagreed with the everyday caregivers who diagnosed the patient with OBS. Tr. at 1756. Dr. Erlich testified that the mental dysfunctions listed in the patient records (forgetfulness, poor memory, emotional lability, and poor judgment) were characteristic of OBS and not usually characteristic of schizophrenia. Tr. at 156-158. Thus, we conclude that the patient records amply support Dr. Erlich's determination that during the audit period, this patient was institutionalized primarily for physical or organic disorders for which he was properly receiving general nursing care, and the patient did not need nor receive specialized services. State Ex. J, 13(m); Tr. at 155 and 156. Wyrowski This patient was in her early seventies during the review period. This patient was first institutionalized in 1937 with an admitting diagnosis of schizophrenia, simple or hebephrenic type. In 1964 she developed kyphoscoliosis which progressively got worse. The kyphosis of the spine required her to use a walker. Her medical records indicated the kyphoscoliosis was at 90 degrees which required the social worker to either kneel on the floor if the patient was standing or to sit her down to talk with the patient. State Ex. 33, Tab 32, p. 6 The social worker's notes indicate the patient could not lift her head higher than the table and this limited her participation in any activities. State Ex. 33, Tab 32, p. 10 The record also indicated that this was a severe and handicapping problem which affected all aspects of the patient's demeanor. State Ex. 33, Tab 32, p. 8. Dr. Esquibel testified that he reviewed the records for this patient. HCFA App. B,  24; Tr. at 1897; HCFA Posthearing brief, p. 31. In his affidavit and in the narrative comments for this patient, Dr. Esquibel indicated that the admission diagnosis into Meadowview ICF in 1978 was schizophrenia - chronic residual type and the current diagnosis at the time of the review was still schizophrenia chronic residual type. HCFA App. B,  24; HCFA Ex. 37. He claimed she was receiving treatment from a psychiatrist with a psychotropic medication. HCFA App. B, 24. In his declaration, Dr. Esquibel stated that he disagreed with not only with Dr. Erlich's primary diagnosis of senile dementia, but also with Doctors Kuo and Pino's primary diagnosis of senile dementia in 1986 and 1988, stating that the record revealed no entry to substantiate such a shift in diagnosis. HCFA App. B, 24; HCFA Posthearing brief, p. 31. The patient records, however, fail to support Dr. Esquibel's findings. The records indicate that during the audit period, this patient had a psychiatric consultation in June 1988, the result of which was that the psychiatrist listed her primary diagnosis as senile dementia, her secondary diagnosis as a history of chronic schizophrenia, disorganized type and her third diagnosis as kyphoscoliosis. HCFA Ex. 76, p. 10. In 1985, the patient had had a consultation with a psychiatrist, Dr. Pino, who also diagnosed senile dementia and ordered the psychotropic medication for this patient. Dr. Esquibel admitted during the hearing that psychotropic medication is also indicated for senile dementia patients. Tr. at 985. Therefore, the fact that this patient was receiving such medication is not conclusive evidence that she was receiving treatment for schizophrenia. Moreover, her maintenance dose of Haldol was discontinued on June 1, 1988. Dr. Esquibel here deliberately chose to overlook the diagnoses in the patient records, substituting his judgment based on a brief review of the medical records with the judgment of the patient's everyday caregivers. He admitted that his attitude during this review was "to make what diagnosis I think is appropriate" and that he substantiated his diagnosis with material he found. Tr. p. 1902. As we stated above, the medical records, however, indicate a different diagnosis. Moreover, Dr. Esquibel glossed over this patient's physical condition; the record indicates an extreme physical handicap affected this patient's ability to interact and get about. Dr. Esquibel's review failed to take into account not only the diagnoses but the total clinical picture for the patient and how her conditions cumulatively required her to receive ICF care for her senile dementia and her kyphoscoliosis. As a result, the credibility and reliability of the FMAS findings here are questionable and appear biased in favor of finding a psychiatric disorder for this patient. Dr. Erlich's testimony supported the caregivers' view that the type of memory defects and other symptoms the patient had were not just "negative" symptoms of schizophrenia but indicated senile dementia. Tr. at 167. Thus, we conclude that Dr. Esquibel's findings are not supportable for this patient. The records support the State's conclusion that during the audit period this patient was institutionalized because of senile dementia, an exempt diagnosis, and physical disorders for which she was properly receiving general nursing care, and the patient did not need nor was she receiving specialized services. Milici This patient was 66 years old at the time of the review and had been institutionalized since 1956. The patient died from a myocardial infarction on May 5, 1987. When the patient was admitted to Meadowview ICF she had been diagnosed with chronic schizophrenia and hypertension. State Ex. 37, Tab 36, p. 3. Just prior to the beginning of the audit period, this patient had two major surgical procedures: a left nephrectomy (removal of left kidney) and subtotal parathyroidectomy and excision of thyroid nodules surgery. She also suffered from hypertension, chronic obstructive pulmonary disease, hypercalcemia, congenital heart failure and thyroid cancer. State Ex. 37, Tab 36, pp. 2 and 26. During the period of audit prior to her death (a seven-month period), the patient had been admitted to the hospital for physical disorders at least twice. Dr. Santucci, the original FMAS reviewer for this patient, made some arguably contradictory statements in his narrative. HCFA Ex. 41. He stated that the patient received treatment for her mental illness yet did not receive treatment from a psychiatrist or other mental health professional. The treatment he indicated she received was "milieu therapy." He also indicated that she "required an inpatient facility that had medical supervision and could observe her health with its variations and direct its care on a weekly basis," and used this evaluation of a need for a higher level of care for her physical disorders to support a conclusion that she was institutionalized for a mental disorder. Both Dr. Santucci's original findings and Dr. Esquibel's testimony disregard medical records showing a patient with severe, continuous physical problems. We find that this is another instance where the FMAS reviewers glossed over the medical condition of the patient where there was a history of the patient being at one time diagnosed as schizophrenic. Dr. Esquibel's opinion that but for her mental disability this patient could have been taken care of outside an institution is not only contradicted by Dr. Erlich's opinion that her physical disorders required nursing facility care, but is simply inconsistent with the patient records for the audit period. Moreover, Dr. Esquibel originally described the patient's schizophrenia as requiring only the "protective, custodial care" of an institution. Tr. at 1523. He only belatedly testified that she could benefit from mental health services. Tr. at 1527. This testimony is simply not credible, for the reasons stated above. Finally, we note that the "milieu therapy" referred to by Dr. Santucci was not mentioned in the patient records provided. In any event, the patient worksheet indicated that this patient did not receive any treatment from a psychiatrist or other mental health specialist. A psychiatric consultation during the audit period occurred just prior to her surgery. HCFA Ex. 80. The purpose of this was to obtain consent for the surgery given her past history of schizophrenia and to authorize transfer to a psychiatric unit if the surgery put her into an acute psychiatric episode. This consultation cannot be considered in the nature of treatment. There was only one other psychiatric note in the record for the audit period due to some aggressive behavior. However, this one consultation does not indicate a continued acute episode for which treatment was required. Thus, we conclude that the State could have reasonably determined that this patient was receiving and required only general nursing home care. Norian At the time of the review, this patient was 79 years old and had been institutionalized for 49 years. Again, the FMAS reviewer ignored information in the medical records relevant to the audit period. The records indicate the patient's diagnosis when she was admitted into the Meadowview ICF in 1977 was schizophrenia, residual type and cerebral arteriosclerosis. HCFA Ex. 72, pp. 1, 3, and 11. Dr. Esquibel, however, classified this patient as a patient with a mental disability necessitating nursing home care who has no significant physical problems. While the record indicates some history of diagnoses of schizophrenia, the record also establishes the diagnoses of cerebral arteriosclerosis and OBS, as well as other physical conditions such as arteriosclerotic heart disease (ASHD), anemia, hyperlipidemia, and status post cholecystectomy during the audit period. HCFA Ex. 72, pp. 16 - 19. While Dr. Esquibel noted that because of the patient's age she might have organic brain syndrome, he substituted his own judgment that "her behavior has not substantially changed to indicate that the primary diagnosis should be chronic brain syndrome" with that of the patient's caregivers who had determined that this patient suffered from OBS. HCFA Ex. 33. The record does not support Dr. Esquibel's finding that this patient had no significant physical problem. During the audit period, this patient was not seen or treated by a psychiatrist. The only arguable treatment was the use of psychotropic medication which was at maintenance dosages. State Ex. J,  13j. While Dr. Erlich acknowledged that this patient had not given up all of her psychiatric symptoms, he testified that she was not a suitable candidate for any kind of psychiatric intervention in view of her age and past history, including her organic conditions. Tr. at 127-128. The record supports the finding that this patient was institutionalized in Meadowview ICF during the audit period because she required and received general nursing care. Thus, we cannot sustain HCFA's finding with regard to this patient. Cardwell This patient was 83 years old at the time of the review. She had been in an institution on and off since 1932 and steadily from 1964. HCFA's reviewers characterized this patient's primary diagnosis as schizophrenic, chronic, residual type. While this patient had a history of schizophrenia, the records during the audit period fail to support the current diagnosis ascribed to this patient by Dr. Esquibel. Rather, the medical records do not show any mention of any positive symptoms during the audit period. HCFA Ex. 67, p. 4. In fact, during that period, a psychiatrist consultation on the patient, the only one during the period, indicated that her chronic schizophrenia was in remission and her dosage of medication should be decreased as a result. The doctor also took note of her other physical symptoms of ASHD and hypertension and the fact that the patient was having problems with her aging process. HCFA Ex. 67, p. 4. During the review and during Dr. Esquibel's testimony, HCFA mischaracterized the medical records. While the records certainly indicate a history of schizophrenia, the records from the audit period do not state that schizophrenia was the primary diagnosis for this patient. We agree with the State that the records generally show primary diagnoses other than schizophrenia. Tr. at 1841-1842, 1847, 1849, 1851-1852, 1853; HCFA Ex. 67, pp. 4, 6, 8, 14, 16, and 17; State Ex. 41, pp. 15, 18, 19, 20, and 29. The records also show that the patient suffered from impaired mobility and as a result had a partial self-care deficit. HCFA Ex. 67, p. 12. She was diagnosed having diabetes mellitus, osteoporosis (or osteoarthritis), and hiatal hernia, in addition to ASHD and hypertension. HCFA Ex. 67. While HCFA used records before the audit period to illustrate a history of schizophrenia in this patient, HCFA chose to ignore other records from before the audit period which indicated that this patient was aging and that she was becoming progressively senile. The social worker remarked in 1983 that "[g]oal-setting for this 78 yr. old patient includes supportive therapy in the method in which we handle her advancing senility" and, later in 1987, a social worker stated "ICF remains an appropriate level of placement . . . still can only foresee an eventual recommendation for a SNF transfer as her level of deterioration advances." State Ex. 41, pp. 30 and 31. Dr. Erlich testified that this patient's mental condition was not contributory to her basic level of functioning and that she did not require institutionalization for her psychiatric conditions. Tr. at 46-47. While Dr. Esquibel testified that it was important to look at the functionality of the patient, we are not convinced that he in fact looked at all of this patient's physical ailments and advanced age together in determining the reason she was institutionalized during the audit period. Tr. at 1606. Because he did not consider all of the patient's physical ailments together, we cannot reasonably conclude, given the other evidence, that this patient's deficit in functionality was because of a mental disorder. Therefore, we do not sustain HCFA's findings for this patient. Kellerman This patient was about 73 years old during the audit period. During this period, the patient was not treated by a psychiatrist, received no psychotropic medication and was free of any symptoms of active schizophrenia. The records show that his schizophrenia had been in remission since at least 1977. State Ex. 42, p. 2; see also pp. 11 - 17 (the patient's medical care plans which indicate no diagnosis of mental illness during this period for which he would require any treatment). The record indicates that during this period the primary diagnoses for this patient were for physical disorders. In fact, the record supports a finding that this patient's medical needs were acute during this period. Just prior to the review period, the patient was hospitalized because of chest pains and shortness of breath. In the hospital, he was placed in the ICU (intensive care unit), his lung collapsed twice and he was determined to have significant chronic obstructive lung disease (COPD). State Ex. 27, Tab 28. p. 15. This patient was readmitted to the ICF with the primary diagnosis of Post-Op Thoracotomy, COPD, Peptic Ulcer, and ASHD. He also had a left hip prosthesis a few months later. State Ex. 42, p. 62. During 1987, this patient suffered a fractured left ankle which confined him to a wheel chair off and on for most of the year and made him walk with a slight limp. State Ex. 27, Tab 28, p. 3 and 9; State Ex. 42, p. 68. He also suffered edema and bursitis of the left elbow, as well as a fractured finger of the left hand. State Ex. 42, pp. 64-67. For this and his ankle, he was receiving physical therapy at least three times a week. In 1988, this patient had surgery again on his left hip, was hospitalized again due to his COPD and cardiac arrhythmia, had surgery on his right elbow, which later had some swelling over the next months. State Ex. 28, pp. 19-23. Clearly, this patient suffered from acute physical problems which required medical treatment and nursing care. HCFA failed to give appropriate attention to the records from the audit period here and virtually ignored the medical problems of this patient. The State's challenge to the reliability of Dr. Esquibel's review seems justified here given these circumstances and the fact that his review of this patient overlooked significant factors relating to this patient's condition. 13/ Dr. Erlich testified that "this patient were it not for his medical condition would be able to adjust fairly well on the outside without having to be in a nursing facility." Tr. at 101-103. Thus, we do not sustain HCFA's findings for this patient. Denoia This patient was 74 years old during the review period. HCFA argued that during the audit period the patient's "primary diagnosis was schizophrenia as documented by the medical records and history." HCFA Posthearing brief, p. 45. HCFA further claimed there are records of psychiatric consultations, physical assessments, and nurses' notes which document that the primary diagnosis was schizophrenia. Id. While the record indicates that this patient had a secondary diagnosis of schizophrenia, undifferentiated type, HCFA did not establish that this was her primary diagnosis or the reason for institutionalization during the audit period. Furthermore, we fail to find any psychiatric consultations during the review period, or any medical records during the review period which indicate that schizophrenia is this patient's primary diagnosis. However, the records do show that this patient was diagnosed just prior to the beginning of the review period with a primary diagnosis of diabetes mellitus, with ASHD and OBS as a secondary diagnosis. State Ex. 31, p. 16 and 28; see also Nurses' notes, dated 10/86 (indicating diagnoses of diabetes mellitus, chronic cholecystitis, ASHD, OBS, and schizophrenia, hebephrenic type), p. 9. These diagnoses are consistent with diagnoses made in 1985. State Ex. 31, p. 13, 18, 36, 38, and 39. In fact, the record indicates that a secondary diagnoses of OBS along with diabetes mellitus, chronic cholecystitis, and ASHD was made by attending physicians at two general hospitals this patient was transferred to from the ICF for hospitalization. State Ex. 31, pp. 36 and 38. The record also shows these same diagnoses throughout the remainder of the audit period. State Ex. 31, pp. 16, 29, 30, 31, and 34. While the fact that the reviewers ignored the OBS diagnosis leads us to question the reliability of their conclusions, the fact that Dr. Esquibel indicated that this patient's primary diagnosis during this period was schizophrenia, residual type, chronic, is further reason to doubt HCFA's findings. Tr. at 1878-1880, and 1882. The records do not show this as a diagnosis for this patient; there is only a mention of a secondary diagnosis, among others, of schizophrenia, undifferentiated type, in the records. This is another example of Dr. Esquibel substituting his own judgment, based on a limited review of the records, with the judgment of the patient's caregivers. Dr. Erlich testified that the dosage of Loxitane this patient was receiving was a maintenance dose. Tr. at 61. He also expressed a view of this patient's capabilities and their causes consistent with the caregivers' evaluation indicating she would not have benefitted from mental health services. Tr. at 54, 59. Dr. Esquibel's opinion to the contrary is simply not persuasive, for reasons explained above. Therefore, we conclude that HCFA's findings for this patient cannot be sustained on the basis of the records here. Conclusion For the reasons explained above, we find that the record does not support a determination that Meadowview ICF was an IMD during the audit period. Accordingly, we reverse the disallowances totaling $7,354,765 in FFP for the period October 1, 1986 through March 31, 1991. _____________________________ Cecilia Sparks Ford _____________________________ Donald F. Garrett _____________________________ Judith A. Ballard Presiding Board Member 1. This regulation was revised in 1991 to follow the statutory provision and now reads that an IMD means "a hospital, nursing facility, or other institution of more than 16 beds that is primarily engaged in . . . ." The rest of the regulatory language remains the same. 2. HCFA did not allege that the three facilities were one institution. Rather, the issue here was whether the ICF facility was an IMD. 3. The auditor's notes of the meeting with FMAS representatives indicates that the FMAS reviewers may have thought they were to validate patients' diagnoses, but that the auditor simply intended them to validate that the diagnosis codes were correct. HCFA Ex. 19, second page. 4. The auditor's notes of the meeting with FMAS representatives discuss use of the primary diagnosis and describe the primary diagnosis as the reason for admission. HCFA Ex. 19, second page. The auditor testified that it was later determined that current diagnosis should be used, but he did not know whether this change was ever communicated to FMAS. Tr. at 1269. 5. The task order for that contract stated: The purpose of this review is to provide information to confirm/support a determination that an audited Title XIX facility (ICF/SNF) is a de facto IMD, and thus ineligible for Federal matching funds. HCFA Ex. 17, p. 1. 6. HCFA has also exempted diagnoses of mental retardation and, based on the Board's decision in Granville House, Inc., DAB No. 529 (1984), recognized that a diagnosis of alcoholism is not sufficient without an examination of the type of treatment being given, since such treatment does not always follow a psychiatric model. HCFA Ex. 2, fifth page. 7. In light of this testimony, and the evidence in the records of the patients discussed below showing that most of the patients had no "positive" symptoms of the disease, we reject HCFA's assertion in its reply brief that the Meadowview patients were unable to take care of their physical illnesses outside of an ICF setting because of an impairment in their mental processes resulting in a "barrier with reality." Reply br., p. 13. HCFA's assertion was based on a description of the active stages of the disease, which HCFA unpersuasively tried to extrapolate to "the schizophrenic" in general, even those with no signs of the disturbance. 8. Dr. Esquibel's own testimony seemed in part to contradict this; he also testified that 30% of patients "recover" from the disease and one "could even say they are cured, . . ." Tr. at 1396, 1401. 9. In fact, Dr. Esquibel's testimony suggested a theory that an increase in negative symptoms during the chronic stage may be the result of psychotropic drugs, rather than the disease of schizophrenia. Tr. at 1398. 10. With respect to a few of the patients at issue here, Dr. Erlich (the psychiatrist who testified for the State) evaluated the patients as having senile dementia or OBS, even though neither diagnosis was reflected in their records. We consider the record diagnoses to have more weight in determining the character of the facility, but we do not here reach the issue of whether these particular patients had organic damage since it is not necessary to our decision. We note, however, that Dr. Erlich's view of these patients depended in part on his observation of the patients and on their history of having had numerous electric shock treatments prior to the 1950's. Dr. Esquibel strongly disagreed with Dr. Erlich on whether such treatments could cause organic brain damage. However, we agree with the State that the testimony and evidence which Dr. Esquibel presented is not sufficient to rebut Dr. Erlich's opinion on this point. Dr. Esquibel's evidence did not distinguish such treatments as they were likely administered to these patients from the current state of the art of electric shock therapy. 11. This lack of evidence of any mental health services being prescribed has added significance because New Jersey law in effect at the time required that, if mental health services were recommended and authorized following a consultation, a specific form had to be made a part of the patient's record. State Ex. M, p. 63-15. 12. In posthearing briefing, HCFA took the position that "custodial care" was treatment. This position is, in our view, inconsistent with HCFA's own guidelines. 13. The State pointed out that this patient had one leg shorter than the other. See Tr. at 1625. Dr. Esquibel disagreed with this conclusion. Tr. at 1625. However, there are several mentions on two separate occasions by the physical therapist that this patient's left leg was shorter than the other. HCFA Ex. 78, p. 14 and 15; State Ex. 42, p. 68. Moreover, the social worker notes indicated he "walked with a left leg limp." State Ex. 42, p.