Georgia Department of Medical Assistance, DAB No. 601 (1984)

GAB Decision 601

December 12, 1984 Georgia Department of Medical Assistance;  Docket No.
84-106 Settle, Norval;  Teitz, Alexander Garrett, Donald


   The Georgia Department of Medical Assistance (State) appealed the
disallowance by the Health Care Financing Administration (HCFA, Agency)
of $111,176 in federal financial participation (FFP) claimed under Title
XIX (Medicaid) of the Social Security Act (Act).  The disallowance was
based on a finding that a nursing home provider, Presbyterian Home, Inc.
(Presbyterian), was improperly classified as a hospital-based facility
from July 1, 1981 through October 31, 1982.  HCFA determined that, as a
result of this misclassification, presbyterian incorrectly received a
higher rate of reimbursement, resulting in an overpayment of $111,176
FFP.

   The major issues presented are whether the State Medicaid plan
adopted a definition of a "hospital-based facility" and whether
Presbyterian met that definition.  For the reasons discussed below, we
find that the State Medicaid plan had effectively adopted the definition
contained in the Medicare Health Insurance Manual and that Presbyterian
did not meet that definition.  Accordingly, we uphold the disallowance.

Case Background

   In 1983 HCFA performed an Annual State Assessment of Institutional
Reimbursement for Nursing Homes in Georgia.As part of this review HCFA
examined the State's treatment of hospital-based nursing homes.  Under
the Georgia State Medicaid plan, hospital-based nursing homes providing
Medicaid services received a higher rate of reimbursement than
free-standing facilities.  HCFA determined that, of 34 nursing homes
classified by the State as hospital-based, one facility, Presbyterian,
did not meet the definition of a "hospital-based facility" set forth in
the (Medicare) Health Insurance Manual (HIM-15).  HCFA found that there
was no integral relationship, an essential feature of a hospital-based
nursing home under HIM-15, between Presbyterian and the hospital with
which it claimed to be affiliated, Brooks County Hospital.

   (2) HIM-15 provides, in pertinent part:

   For purposes of these cost limits, the following definition applies:

   An SNF (skilled nursing facility) is determined to be hospital based
when it is an integral and subordinate part of a hospital and is
operated with other departments of the hospital under common licensure,
governance, and professional supervision;  all services of both the
hospital and the SNF are fully integrated.  The following specific
conditions must be met:

   The SNF and hospital are financially integrated as evidenced by the
audit report which must refect the certified or noncertified SNF beds of
the hospital, the allocation of hospital overhead to the SNF through the
required stepdown methodology, and common billing for all services of
both facilities.

   In making the determination that an SNF is hospital-based, colocation
is not an essential factor;  however, the distance between the
facilities, must be reasonable.

   The existence of either (1) a transfer agreement between an SNF and a
hospital, which is a condition of participation in the Medicare and
Medicaid programs (45 CFR 405.1133 and 442.202) or (2) a shared service
arrangement (a common arrangement recognized by both Medicare and
Medicaid) does not determine an SNF to be hospital-based and is not
considered in determining the status of the facility.  45 Fed. Reg.
58701, September 4, 1980.

   The State plan contained no definition of "hospital-based facility"
until November 1982 when the State revised its State plan and adopted
the above definition of a "hospital-based facility" and grandfathered
all those facilities then having hospital-based classifications so that
they continued to be classified as hospital-based for at least one year
after the date of the policy change.  HCFA recognized the validity of
the State's grandfathering provision by not disallowing the
reimbursement Presbyterian received as a hospital-based facility from
November 1, 1982 through October 31, 1983.  Rather, HCFA restricted the
disallowance for Presbyterian's higher rate to the period July 1, 1981,
when Presbyterian was granted hospital-based status, to October 31,
1982.

Discussion

   The parties have agreed that the fundamental issue in this appeal is
whether the State adopted HIM-15 as part of its State Medicaid plan
during the period in question.  The State (3) contended that it had not
adopted HIM-15 in its entirety and was accordingly not bound by the
provisions of HIM-15 dealing with the definition of a "hospital-based
facility." The State claimed that it was within its own prerogative to
establish procedures for the classification of nursing homes for
reimbursement rates.  HCFA argued that the State Medicaid plan
incoporated by reference the definition of "hospital-based facility"
found in HIM-15.

I.  What was the operative definition of a "hospital-based facility" in
the State Medicaid plan during the period in question?

   The State contended that, since it did not formally adopt the HIM-15
definition of a "hospital-based facility" as part of the State plan
until November 1982, HCFA incorrectly applied the HIM-15 criteria to
Presbyterian during the period in question.  The State argued that a
central feature of the Medicaid program is cooperative federalism, with
the states given considerable latitude in fashioning their state
Medicaid plans.  Under Title XIX of the Act, a state must administer its
Medicaid program in accordance with a state plan approved by the Agency.
Sections 1901 and 1903(a) of the Act.  A state is entitled to FFP
reimbursement for only those services performed in accordance with its
state plan.

   Thus, according to the State, while its State plan did not define or
list the criteria for a hospital-based facility until November 1, 1982,
the State was entitled to determine that Presbyterian was a
hospital-based facility.  As a basis for this determination, the State
supplied instructions for hospital-based facilities (State Exs. C-1 and
C-2) it sent to providers for submitting their cost reports.  These
instructions read in part:

   This cost report form should be utilized by any SNF/ICF to which
costs are allocated from a hospital or other facility through a Medicare
cost report cost finding on Medicare Worksheet B.  If no costs are
allocated to the SNF/ICF, then the Medicaid cost report form for
free-standing nursing home facilities should be used.

   The State then showed that beginning with the fiscal year ending on
June 30, 1982, certain costs were allocated to Presbyterian from the
Brooks County Hospital through a Medicare cost report.  In June 1981
Presbyterian notified the State that it had become a hospital-based
facility by virtue of costs being allocated to it in Brooks County
Hospital's Medicare cost report worksheet B.  The State then granted
Presbyterian hospital-based status effective July 1, 1981.  The State
contended that throughout the period in question Brooks County Hospital
continued to allocate costs to Presbyterian on its Medicare cost report.
While conceding (4) that a portion of its State plan did contain several
references to HIM-15, the State maintained that the references concerned
allowable costs in the reimbursement scheme established under the State
plan, and not the determination of a nursing home's classification.  The
State argued that the references to HIM-15 did not amount to an adoption
of HIM in its entirety, and that it was in the State's prerogative to
establish its own procedures for the classification of nursing homes.

   HCFA responded that its review of the annual ownership and control
interest disclosure statements filed by both Presbyterian and Brooks
County Hospital found no evidence of any common ownership or control.
Furthermore, a review of the Medicare cost report filed by Brooks County
Hospital revealed that, of Presbyterian's total expenses, only $190 from
Central Services and Supplies and $169 from the sale of IV fluids were
allocated to the hospital and that these two items represented all known
transactions between Presbyterian and Brooks County Hospital.  The only
other connection between Presbyterian and Brooks County Hospital
discovered by HCFA was that both facilities used the same accounting
firm to prepare their cost reports for Medicaid and Medicare.  On the
basis solely of $359 of transactions, according to HCFA, Presbyterian
claimed and received a total of $167,501.59 of Medicaid reimbursement
($111,176.17 FFP) it would not have received had it been properly
classified as a free-standing facility.  HCFA's central point was that
Presbyterian thus did not meet the HIM-15 standards of common ownership
and control and complete integration of operations for a hospital-based
facility, while the State plan, nevertheless implicitly adopted HIM-15.

   We conclude on the basis of the reasons below that the HIM definition
was the operative definition under the State plan and was binding on the
State.

   * Although the State plan did not contain a general rule
incorporating HIM provisions, the State plan depended heavily on HIM
rules and definitions.  Under these circumstances, it would be
reasonable to assume that if the State plan used the term
"hospital-related" which was recognized and defined by the HIM and if
the State failed to provide an alternative definition of that term in
its State plan, the HIM definition would govern.

   * The State here had failed to adopt an alternative definition not
only in its State plan, but also in policy issuances or in any other
appropriate forum.

   * The State argues that an alternative definition was apparent from
the instructions accompanying cost reports (5) submitted annually by
nursing home providers.  According to the State, the instructions
permitted any nursing home to qualify as "hospital-related" where costs
were allocated to the home from a hospital through a Medicare cost
report.  The State would make no distinction as to the extent or
circumstances of the allocation or whether the facility qualified as
hospital-related under the Medicare rules.  In our view, however, the
far better interpretation of the instructions is that they refer only to
allocations under Medicare cost reports where the facility has qualified
as "hospital-related" under Medicare rules.  The State here never
clarified the circumstances under which allocations might take place
under Medicare cost reports for facilities not related under Medicare
rules nor, indeed, did the State clarify whether such allocations would
in all instances be permissible if the facility were not
hospital-related under Medicare.  In the instant case, the attempted
allocation of costs from the hospital to Presbyterian was ultimately
rejected by the Medicare intermediary.

   * The State's definition of "hospital-related" is contrary to any
apparent program purpose in permitting a higher rate of reimbursement
under the State Plan for a "hospital-related" facility.  Presumably a
nursing home that is "related" to a hospital would merit a higher level
of reimbursement than a free-standing facility because its services more
closely approximated those of a hospital.  Under the State position,
however, a nursing home could receive a higher level of reimbursement on
the basis of even the most tenuous connections with a hospital.

   * The State by its practice recognized that the HIM definition was
the operative definition under its state plan.  The Agency alleged
following its review (and the State did not deny) that the State had
applied HIM criteria to all but one (Presbyterian) of the 34 facilities
that had received the hospital-related rate.

   * While the Medicaid program has been recognized as one of
"cooperative federalism" and while the Board has given deference to
states in their interpretations of their State plans (see, e.g.,
Arkansas Department of Human Services, Decision No. 540, May 22, 1984),
the State's interpretation here is not based on any language of its plan
or policy issuances and lacks altogether a reasonable program purpose.

   Accordingly, we conclude that the operative definition under the
State plan was the definition of "hospital-related" in the Medicare HIM
and that such definition was binding on the State.  Since that
definition would not permit Presbyterian to be viewed as
hospital-related during the period in question, the State is only
entitled to FFP based on a free-standing facility for Presbyterian.

(6) II.  Did the relationship between Presbyterian and Brooks County
Hospital justify a higher rate of reimbursement?

   Even if we had not concluded that the HIM definition applied, we
think there is a serious question whether the State's claim for this
provider based on a hospital-related classification is necessary and
reasonable.  Costs claimed under the Medicaid program, as with all
federal grant programs, are allowable only to the extent that they are
necessary and reasonable.  See Office of Management and Budget (OMB)
Circular A-87, Part I, C.1.a.  (OMB Circular A-87, formerly designated
FMC 74-4, is made directly applicable to states at 45 CFR 74.171.)

   As detailed above, no evidence was presented of common ownership or
control or joint operation between Brooks County Hospital and
Presbyterian.  Their only apparent connection was some $359 in services
and goods reported on a Medicare cost report.  On the basis of this
$359, Presbyterian claimed a total of $167,591.59 of Medicaid
reimbursement it would not have received as a free-standing facility.
We find it clearly unreasonable for such a minimal connection, absent
anything else, to justify to what amounted to a windfall to
Presbyterian.

Conclusion

   For the reasons stated above, we sustain the disallowance in the
amount of $111,176.

MARCH 19, 1985